-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, SmoRhewv4qcJqRcjGiEqu99CKbPW/7HOLWYRf2scbldrwMgJ6HgesldICJ10xAKv n9B8gOM2+uPbEfywm3g9bA== 0000072423-94-000003.txt : 19940328 0000072423-94-000003.hdr.sgml : 19940328 ACCESSION NUMBER: 0000072423-94-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940325 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTEK INC CENTRAL INDEX KEY: 0000072423 STANDARD INDUSTRIAL CLASSIFICATION: 3444 IRS NUMBER: 050314991 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-06112 FILM NUMBER: 94517873 BUSINESS ADDRESS: STREET 1: 50 KENNEDY PLZ CITY: PROVIDENCE STATE: RI ZIP: 02903 BUSINESS PHONE: 4017511600 MAIL ADDRESS: STREET 1: 50 KENNEDY PLAZA CITY: PROVIDENCE STATE: RI ZIP: 02903 10-K 1 NORTEK 1993 - ANNUAL REPORT ------------------------------------------------------------- ------------------------------------------------------------ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------- Form 10-K (Mark One) ------------------ [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 31, 1993 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from to Commission file number: 1-6112 ------------------------ Nortek, Inc. (exact name of Registrant as specified in its charter) Delaware 05-0314991 (State or other jurisdiction (IRS Employer of incorporation or organization) Identification Number) 50 Kennedy Plaza 02903-2360 Providence, Rhode Island (zip code) (Address of principal executive offices) Registrant's telephone number, including area code: (401) 751-1600 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered Common Stock, $1.00 par value New York Stock Exchange Preference Stock Purchase Rights New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: Title of Class Special Common Stock, $1.00 par value Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No. __. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [X]. The aggregate market value of the voting stock held by nonaffiliates of the registrant as of March 15, 1994 was $88,952,237. See Item 12. The number of shares of Common Stock outstanding as of March 15, 1994 was 11,981,179. The number of shares of Special Common Stock outstanding as of March 15, 1994 was 560,768. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's proxy statement for use at its 1994 Annual Meeting of Shareholders are incorporated by reference into Part III. ---------------------------------------------------------------- ---------------------------------------------------------------- PART I Item 1. Business. The Company is a diversified manufacturer of residential and commercial building products, operating within three principal product groups: the Residential Building Products Group; the Air Conditioning and Heating Products Group; and the Plumbing Products Group. Through these product groups, the Company manufactures and sells, primarily in the United States and Canada, a wide variety of products for the residential and commercial construction, manufactured housing, and the do-it-yourself and professional remodeling and renovation markets. (As used in this report, the term "Company" refers to Nortek, Inc., together with its subsidiaries, unless the context indicates otherwise.) The Company's performance is dependent to a significant extent upon the levels of new residential construction, residential replacement and remodeling and non-residential construction, all of which are affected by such factors as interest rates, inflation and unemployment. In recent periods, the Company's product groups have operated in an environment of flat to declining levels of construction and remodeling activity, particularly new housing starts which decreased 43.8% between 1986 and 1991. New residential construction has made a modest recovery since 1991, although housing starts remain significantly below levels experienced in the mid-1980's. The Company's operations have been significantly affected by the difficult economic conditions, particularly in the Northeastern United States and California. However, the actions taken to reduce production costs and overhead levels and improve the efficiency and profitability of the Company's operations have enabled the Company to significantly increase operating earnings in a slow economy, as well as to position the Company for growth should there be a recovery in the Company's markets. In the near term, the Company expects to operate in an environment of relatively stable levels of construction and remodeling activity, without significant further declines or improvements in such levels. Additional information concerning the Company's business is set forth in Management's Discussion and Analysis of Financial Condition and Results of Operations, Item 7, Part II of this Report (pages 15 through 27) and incorporated herein by reference. Residential Building Products Group The Residential Building Products Group manufactures and distributes built- in products primarily for the residential new construction, do-it-yourself and professional remodeling and renovation markets. The principal products sold by the Group are kitchen range hoods, bath fans, combination units (fan, heater and light combinations) and bath cabinets. The Group is one of the largest suppliers in the United States and Canada of range hoods, bath fans and combination units. Products are sold under the Broan(R), Nautilus(R) and Air Care (TM) brand names, among others, to distributors and dealers of electrical and lighting products, kitchen and bath dealers, retail home centers and OEMs (original equipment manufacturers). Other products sold by this Group include, among others, wireless security products, garage door openers, built- in home intercoms and entertainment systems and door chimes. Customers for the Group's products include residential and electrical contractors, professional remodelers and do-it-yourself homeowners. The Group's products are sold on a wholesale basis through distributors and dealers of electrical and lighting products, on a retail basis through building supply centers and to OEMs for inclusion in their product lines. A key component of the Group's operating strategy is the introduction of new products which capitalize on the strong Broan (R), Nautilus(R) and Air Care (TM) brand names and the extensive distribution system of the Group's businesses. Recent product introductions under these brand names include: indoor air quality systems for continuous and intermittent home ventilation; down-draft ventilating systems for cooking ranges; SensAire (R) (humidity and motion sensing) bath fans; and the Rangemaster(R) line of commercial-style range hoods for use in the home. Consumer preferences are important in developing new products and establishing marketing strategies, and the Company believes that the Group's ability to develop new and improved product styles and features provides a significant competitive advantage. With respect to certain product lines, several private label customers account for a substantial portion of revenues. In 1993, approximately 12.8% of the total sales of such product lines were made to private label customers. Production generally consists of fabrication from coil and sheet steel and formed metal utilizing stamping, pressing and welding methods, assembly with components and subassemblies purchased from outside sources (motors, fan blades, heating elements, wiring harnesses, controlling devices, glass mirrors, lighting fixtures, lumber, wood and polyethylene components, speakers, grilles, radio receivers and similar electronic components, and record and tape player mechanisms) and painting and finishing. The Group offers a broad array of products with various features and styles across a range of price points. The Company believes that the Group's variety of product offerings helps the Group maintain and improve its market position for its principal products. In addition, the popularity of higher priced, higher margin products tends to decline in difficult economic times, and thus, the Company believes that the Group's ability to offer low- and mid- priced products gives it desirable sales diversification. At the same time, the Company believes that the Group's status as a low-cost producer, in large part as a result of cost reduction initiatives, provides the Group with a competitive advantage. With respect to range hoods, bath fans, combination units and radio intercoms, the Company believes that the Group's primary competitor is NuTone, a division of Williams Holdings Companies. The market for bath cabinets is highly fragmented with no single dominant supplier. The Group's other products compete with many domestic and international suppliers in their various markets. The Group competes with suppliers of competitive products primarily on the basis of quality, distribution, delivery and price. Although the Group believes it competes favorably with respect to each of these factors, competition among suppliers of the Group's products is intense and certain of these suppliers have greater financial and marketing resources than the Group. The Group has nine manufacturing plants and employed 1,751 full-time people as of December 31, 1993, 178 of which are covered by collective bargaining agreements which expire in 1994 and 1996. The Company believes that the Group's relationships with its employees are satisfactory. Air Conditioning and Heating Products Group The Air Conditioning and Heating Products Group manufactures and sells HVAC systems for custom-designed commercial applications and for manufactured and site-built residential housing. The Group's commercial products consists of HVAC and air handler systems which are custom-designed to meet customer specifications for commercial offices, manufacturing and educational facilities, hospitals, retail stores and governmental buildings. Such systems are primarily designed to operate on building rooftops (including large self- contained walk-in-units) or on individual floors within a building, and range from 40 to 600 tons of cooling capacity. The Group markets its commercial products under the Governair(R), Mammoth(R) and Temtrol(TM) brand names. For manufactured and site-built residential housing, the Group's products include central air conditioners, heat pumps, furnaces and a wide range of accessories marketed under the Intertherm(R) and Miller(R) brand names. Residential central air conditioning products range from 1.5 to 5 tons of cooling capacity and furnaces range from 45,000 BTU's to 144,000 BTU's of heating capacity. The Group's residential products also include portable and permanent electric baseboard heating products. Commercial Products. The Group's commercial products include packaged rooftop units and airhandlers, custom walk-in units, individual floor units and heat pumps. The market for commercial HVAC equipment is segmented between standard and custom-designed equipment. Standard equipment can be manufactured at a lower cost and therefore offered at substantially lower initial prices than custom-designed equipment. As a result, suppliers of standard equipment generally have a larger share of the overall commercial HVAC market than suppliers of custom-designed equipment, including the Group. However, because of certain building designs, shapes or other characteristics, the Company believes there are many applications for which custom-designed equipment is required or is more cost effective over the life of the building. Unlike standard equipment, the Group's commercial HVAC equipment can be designed to match the exact space, capacity and performance requirements of the customer. The Group sells its commercial products primarily to contractors, owners and developers of commercial office buildings, manufacturing and educational facilities, hospitals, retail stores and government buildings. The Group seeks to maintain strong relationships nationwide with design engineers, owners and developers, the persons who are most likely to value the benefits and long-term cost efficiencies of the Group's custom-designed equipment. The Company estimates that more than half of the Group's commercial sales in 1993 were attributable to replacement and retrofit activity, which typically is less cyclical than new construction activity and generally commands higher margins. The Group continues to develop product and marketing programs to increase penetration in the growing replacement and retrofit market. For many commercial applications, the ability to provide a custom-designed system is the principal concern of the customer. The Group's packaged rooftop and self-contained walk-in units maximize a building's rentable floor space because they are located outside the building. In addition, factors relating to the manner of construction and timing of installation of commercial HVAC equipment can often favor custom-designed rather than standard systems. As compared with site-built HVAC systems, the Group's systems are factory assembled and then installed, rather than assembled on site, permitting extensive testing prior to shipment. As a result, the Group's commercial systems can be installed later in the construction process than site-built systems, thereby saving the owner or developer construction and labor costs. The Group's individual floor units offer flexibility in metering and billing, a substantial advantage if a building is to be occupied in stages or where HVAC usage varies significantly from floor to floor. The Group's commercial products are marketed through independently owned manufacturers' representatives and an in-house sales, marketing and engineering group of 100 persons as of December 31, 1993. The independent representatives are typically HVAC engineers, a factor which is significant in marketing the Group's commercial products because of the design intensive nature of the market segment in which the Group competes. The Company believes that the Group is among the largest suppliers of custom-designed commercial HVAC products in the United States. The Group's five largest competitors in the commercial HVAC market are Brod & McClung, Inc. (which sells under the "Pace" tradename), Carrier Corporation, McQuay (a division of Snyder-General Corporation), Miller-Picking (a division of York International Corporation) and The Trane Company (a subsidiary of American Standard Inc.). The Group competes primarily on the basis of engineering support, quality, flexibility in design and construction and total installed system cost. Although the Company believes that the Group competes favorably with respect to certain of these factors, most of the Group's competitors have greater financial and marketing resources than the Group and enjoy greater brand awareness. However, the Company believes that the Group's ability to produce equipment that meets the performance characteristics required by the particular product application provides it with advantages not enjoyed by certain of these competitors. Residential Products. The Group is one of the largest suppliers of air conditioners, heat pumps and furnaces to the manufactured housing market in the United States. In addition, the Group manufactures and markets HVAC products for site-built homes, a business it entered in 1987. The principal factors affecting the market for the Group's residential HVAC products are the levels of manufactured housing shipments and housing starts and the demand for replacement and modernization of existing equipment. The Company anticipates that the replacement market will continue to expand as a large number of previously installed heating and cooling products become outdated or reach the end of their useful lives during the 1990s. This growth may be accelerated by a tendency among consumers to replace older heating and cooling products with higher efficiency models prior to the end of such equipment's useful life. The Company estimates that less than half of the Group's net sales of residential HVAC products in 1993 were attributable to the replacement market, which tends to be less cyclical than the new construction market. The market for residential cooling products, including those sold by the Group, is affected by spring and summer temperatures. The Group does not sell window air conditioners, a segment of the market which is highly seasonal and especially affected by spring and summer temperatures. The Company believes that the Group's ability to offer both heating and cooling products helps offset the effects of seasonality of the Group's sales. The Group sells its manufactured housing products to builders of manufactured housing and, through distributors, to manufactured housing dealers and owners of such housing. The majority of sales to builders of manufactured housing consist of furnaces designed and engineered to meet or exceed certain standards mandated by federal agencies. These standards differ in several important respects from the standards for furnaces used in site-built residential homes. The after market channel of distribution includes sales of both new and replacement air conditioning units and heat pumps. A substantial portion of site-built residential products have been introduced in the last three years, including a reengineered line of high efficiency air conditioners, heat pumps and furnaces. Residential HVAC products for use in site-built homes are sold through independently-owned distributors who sell to HVAC dealers and contractors. The Group is one of the largest suppliers of HVAC equipment for the manufactured housing market in the United States. The Company believes that the Group has one major competitor in this market, Evcon Industries, which markets its products under the "Evcon/Coleman" name. Competition in the site- built residential HVAC market is intense, and many suppliers of such equipment have substantially greater financial and marketing resources than the Group and enjoy greater brand awareness. In these markets, the Group competes with, among others, Carrier Corporation, Lennox Industries, Trane Company and York International Corporation. The Group competes in both the manufactured housing and site-built markets on the basis of breadth and quality of its product line, distribution, product availability and price. The Company believes that the Group competes favorably with respect to these factors. The Group has eight manufacturing plants and employed 1,660 full-time people as of December 31, 1993, 201 of which are covered under a collective bargaining agreement which expires in 1995. The Company believes that the Group's relationships with its employees are satisfactory. Plumbing Products Group The Plumbing Products Group manufactures and sells vitreous china bathroom fixtures (including sinks, toilet bowls and tanks), fiberglass and acrylic fixtures, brass, including die cast, and plastic faucets, bath cabinets and vanities and shower doors, and also markets stainless steel and enameled steel tubs and sinks. In addition to its standard product offerings, the Group also sells designer bathroom fixtures, 1.5 gallon water-efficient toilets and a variety of products that are accessible to physically challenged individuals. Products are sold under the URC(TM), Universal-Rundle(R), CareFree(R), Milwaukee Faucets(TM) and Raphael(R) brand names principally to wholesale plumbing distributors and retail home centers. End customers of the Group's products are generally home builders, do-it-yourself homeowners, remodeling contractors and commercial builders. The Group sells its products to distributors and home centers through independently owned manufacturer's representatives supported by 67 sales and marketing personnel employed by the Group as of December 31, 1993. The Group competes with many suppliers of plumbing and related products, several of which have greater financial and marketing resources than the Group and greater brand awareness. The Group's competitors include American Standard Inc., Eljer Industries and Kohler Company. The Group competes primarily on the basis of price, quality, service and breadth of product line offerings. The Group believes it competes favorably by offering quality products at a reasonable price and by developing products using new technologies. The Plumbing Products Group has eight manufacturing facilities and employed 1,321 full-time people as of December 31, 1993, approximately 980 of whom are covered by collective bargaining agreements which expire between 1994 and 1997. The Company believes that the Group's relationships with its employees are satisfactory. Business Held for Sale In October 1993, the Company decided to sell its Dixieline Lumber Company subsidiary ("Dixieline") through which the Company conducts its Retail Home Center Operations. This business consists of a chain of ten retail home center stores, a contractor and wholesale lumberyard and a truss manufacturing yard in the greater San Diego, California area. Dixieline provides a wide assortment of lumber, plywood, building materials and home improvement products serving the new residential construction and residential replacement and remodeling markets, and also provides delivery and lumber cutting and milling services. The contractor and wholesale lumberyard sells lumber, plywood and building materials to professional contractors and wholesalers, and supplies such products for sale in its own retail home center stores. The Company reduced its investment in this business to estimated net realizable value and recorded a pre-tax valuation reserve of $20.3 million in the third quarter of 1993. The Company currently intends to operate this business until a sale is consummated. See Management's Discussion and Analysis of Financial Condition and Results of Operations, Item 7 of Part II of this report and Note 9, Notes to Consolidated Financial Statements, Item 8 of Part II of this report, incorporated herein by reference. Dixieline competes primarily with Home Base and Home Depot. Certain of its competitors have greater financial and marketing resources than Dixieline. Dixieline competes primarily on the basis of price, product availability and the knowledge of its sales staff. The Company believes Dixieline competes favorably with respect to these factors. Dixieline employed 687 full-time people as of December 31, 1993, 153 of whom are covered by collective bargaining agreements which expire in 1995. The Company believes that Dixieline's relationships with its employees are satisfactory. GENERAL CONSIDERATIONS Employees The Company employed approximately 5,640 persons at December 31, 1993. Backlog Backlog expected to be filled during 1994 was approximately $95,839,000, at December 31, 1993 ($80,181,000 at December 31, 1992). Backlog is not regarded as a significant factor for operations where orders are generally for prompt delivery. While backlog stated for December 31, 1993 is believed to be firm, the possibility of cancellations makes it difficult to assess the firmness of backlog with certainty. Research and Development The Company's research and development activities are principally new product development and do not involve significant expenditures. Patents and Trademarks The Company holds numerous design and process patents that it considers important, but no single patent is material to the overall conduct of its business. It is the Company's policy to obtain and protect patents whenever such action would be beneficial to the Company. The Company owns several trademarks that it considers material to the marketing of its products, including Broan(R), Nautilus(R), Air Care(TM), Governair(R), Mammoth(R), Temtrol(TM), Miller(R), Intertherm(R), URC(TM) and Universal-Rundle(R). The Company believes that its rights in these trademarks are adequately protected. Raw Materials The company purchases raw materials and most components used in its various manufacturing processes. The principal raw materials purchased by the Company are rolled sheet, formed and galvanized steel, copper, aluminum, plate mirror glass, silica, lumber, plywood, paints, chemicals, resins and plastics. The materials, molds and dies, subassemblies and components purchased from other manufacturers, and other materials and supplies used in manufacturing processes have generally been available from a variety of sources. Whenever practical, the Company establishes multiple sources for the purchase of raw materials and components to achieve competitive pricing, ensure flexibility and protect against supply disruption. Working Capital The carrying of inventories to support distributors and to permit prompt delivery of finished goods requires substantial working capital. Substantial working capital is also required to carry receivables. See "Liquidity and Capital Resources" in Management's Discussion and Analysis of Financial Condition and Results of Operations, beginning on Page 23 of this report, incorporated herein by reference. Executive Officers of the Registrant Name Age Position Richard L. Bready 49 Chairman, President and Chief Executive Officer Almon C. Hall 47 Vice President, Controller and Chief Accounting Officer Richard J. Harris 57 Vice President and Treasurer Siegfried Molnar 53 Senior Vice President - Group Operations Kenneth J. Ortman 58 Senior Vice President - Group Operations Kevin W. Donnelly 39 Vice President, General Counsel and Secretary The executive officers have served in the same or substantially similar executive positions with the Company for at least the past five years, except Mr. Bready, who became Chairman and Chief Executive Officer in 1990 after serving as President, Chief Operating and Chief Financial Officer of the Company for more than the past five years; Mr. Molnar, who was President and Chief Operating Officer (1987-1990) of RB&W Corporation prior to joining the Company in March, 1990; and Mr. Ortman, who was Vice President, Operations and later Senior Vice President and General Manager of the Supply Division of the Wheelabrator Corporation division of Wheelabrator Technologies (1984-1988) prior to joining the Company in September, 1989. 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 1998. The Company's executive officers include only those officers of the Company who perform policy-making functions for the Company as a whole and have managerial responsibility for major aspects of the Company's overall operations. A number of other individuals who serve as officers of the Company or its subsidiaries perform policy-making functions and have managerial responsibilities for the subsidiary or division by which they are employed, although not for the Company overall. Certain of these individuals could, depending on earnings of such unit, be more highly compensated than some executive officers of the Company. Item 2. Properties Set forth below is a brief description of the location and general character of the principal administrative, sales and manufacturing facilities and other material real properties of the Company. All properties are owned, except for those indicated by an asterisk, which are leased. Approximate Location Description Square Feet Union, IL Manufacturing/Warehouse/Administrative 174,000* Hartford, WI Manufacturing/Warehouse/Administrative 402,000 Old Forge, PA Warehouse/Administrative 40,000 Bensenville, IL Warehouse/Administrative 69,000* Mississauga, ONT Manufacturing/Administrative 108,000 Elk Grove Village, IL Manufacturing/Warehouse/Administrative 106,000* Dallas, TX Manufacturing/Administrative 71,000 Carlsbad, CA Warehouse/Administrative 46,000* Hong Kong Manufacturing 30,000* Waupaca, WI Manufacturing 35,000 St. Peters, MO Warehouse/Administrative 250,000* St. Louis, MO Manufacturing 214,000 Boonville, MO Manufacturing 250,000* Minneapolis, MN Manufacturing 200,000* Oklahoma City, OK Manufacturing/Administrative 117,000 Okarche, OK Manufacturing/Administrative 107,000 Los Angeles, CA Manufacturing/Administrative 177,000 San Diego, CA(1) Retail/Warehouse/Administrative 180,000* New Castle, PA Manufacturing/Administrative 420,000 Hondo, TX Manufacturing/Administrative 404,000 Monroe, GA Manufacturing/Administrative 414,000 Union Point, GA Manufacturing/Administrative 191,000 Ottumwa, IA Manufacturing/Administrative 85,000 Milwaukee, WI Manufacturing/Administrative 76,000 Rensselaer, IN Manufacturing/Administrative 271,000 Chicago, IL Manufacturing/Sales/Administrative 100,000 Providence, RI Administrative 31,000* _______________ (1) In addition, Dixieline owns or leases nine other retail locations containing between 13,000 and 56,000 square feet, plus warehouse and outdoor storage space for a total of approximately 3,770,000 square feet. The Company considers its material properties to be in satisfactory repair. The St. Louis plant, which is part of the Company's Air Conditioning and Heating Products Group and manufactures products for the residential site- built and manufactured housing markets, experienced damage as a result of the flooding of the Mississippi River in July 1993. The plant was closed for several weeks, but returned to full operation in late August 1993. The Company believes that it has adequate insurance coverage and does not expect this event to have a material adverse effect on the Company's financial condition or results of operations. See Note 7, Notes to Consolidated Financial Statements, Item 8 of Part II of this report, incorporated herein by reference. Item 3. Legal Proceedings. The Company and its operating units are subject to numerous federal, state and local laws and regulations, including environmental laws and regulations that impose limitations on the discharge of pollutants into the air and water and establish standards for the treatment, storage and disposal of solid and hazardous wastes. The Company believes that it is in substantial compliance with the material laws and regulations applicable to it. The Company and its subsidiaries or former subsidiaries are involved in current, and may become involved in future, remedial actions under federal and state environmental laws and regulations which impose liability on companies to clean up, or contribute to the cost of cleaning up, sites at which their hazardous wastes or materials were disposed of or released. Such claims may relate to properties or business lines acquired by the Company after a release has occurred. In other instances, the Company may be partially liable under law or contract to other parties that have acquired businesses or assets from the Company for past practices relating to hazardous substances management. The Company believes that all such claims asserted against it, or such obligations incurred by it, will not have a material adverse effect upon the Company's financial condition or results of operations. Expenditures in 1992 and 1993 to evaluate and remediate such sites were not material. However, the Company is presently unable to estimate accurately its ultimate financial exposure in connection with identified or yet to be identified remedial actions due among other reasons to: (i) uncertainties surrounding the nature and application of environmental regulations, (ii) the Company's lack of information about additional sites at which it may be listed as a potentially responsible party ("PRP"), (iii) the level of clean-up that may be required at specific sites and choices concerning the technologies to be applied in corrective actions and (iv) the time periods over which remediation may occur. Furthermore, since liability for site remediation is joint and several, each PRP is potentially wholly liable for other PRPs that become insolvent or bankrupt. Thus, the solvency of other PRPs could directly affect the Company's ultimate aggregate clean-up costs. In certain circumstances, the Company's liability for clean-up costs may be covered in whole or in part by insurance or indemnification obligations of third parties. In addition to the legal matters described above, the Company and its subsidiaries are parties to various legal proceedings incident to the conduct of their businesses. None of these proceedings is expected to have a material adverse effect, either individually or in the aggregate, on the Company's financial position or results of operations. See Note 7, Notes to Consolidated Financial Statements, Item 8 of Part II of this report, incorporated herein by reference. Item 4. Submission of Matters of a Vote of Security Holders. Not applicable. PART II Item 5. Market for Registrant's Common Stock and Related Stockholders Matters. Stockholders of record of Nortek Common and Special Common Stock at March 15, 1994, numbered approximately 4,542 and 3,392, respectively. There were no dividends declared on the Common and Special Common in 1992 or 1993. The high and low sales prices of Nortek's Common Stock traded on the New York Stock Exchange in each quarter of 1993 and 1992 were: 1993 Quarter High Low First 6 1/8 4 7/8 Second 5 1/2 4 3/4 Third 6 4 3/8 Fourth 9 6 1992 Quarter High Low First 5 3/4 1 5/8 Second 7 3/8 4 1/2 Third 6 1/8 4 3/8 Fourth 5 1/2 3 3/4 See Note 5, Notes to Consolidated Financial Statements, Page F-18 of this report. Item 6. Consolidated Selected Financial Data Nortek, Inc. and Subsidiaries For the Five Years Ended December 31, 1993 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- (In Thousands Except Per Share Amounts) Consolidated Summary of Operations: Net sales $744,113 $799,979 $917,049 $1,037,239 $1,080,225 Operating earnings (loss) 30,346 20,436 11,015 (16,512) 981 Pre-tax loss on businesses sold or held for sale (20,300) (14,500) (15,200) --- --- Loss from continuing operations (12,600) (21,000) (34,700) (41,400) (42,500) Earnings (loss) from dis- continued operations --- (3,300) --- (6,600) 14,000 Extraordinary gain (loss) from debt retirements (6,100) 100 7,600 9,900 16,000 Cumulative effect of an accounting change (2,100) --- --- --- --- Net loss (20,800) (24,200) (27,100) (38,100) (12,500) Financial Position: Unrestricted cash, invest- ments and marketable securities $ 82,498 $ 73,748 $ 42,919 $ 61,098 $160,202 Working capital 117,926 132,587 139,657 176,742 322,419 Total assets 509,209 515,373 582,372 715,427 856,765 Total Debt-- Current 37,539 6,810 4,875 68,483 33,052 Long-term 178,210 201,863 232,581 284,323 400,825 Current ratio 1.6:1 1.9:1 1.9:1 1.9:1 2.8:1 Debt to equity ratio 2.1:1 1.6:1 1.6:1 2.0:1 2.0:1 Depreciation and amortiza- tion 20,726 23,644 28,373 31,050 33,273 Capital expenditures 10,809 8,804 16,015 24,523 35,303 Stockholders' investment 104,007 126,906 152,929 180,743 218,031 Common and Special Common shares outstanding 12,542 12,526 13,079 13,512 13,928 Per Share: Loss from continuing operations-- Primary $ (1.00) $ (1.67) $ (2.57) $ (3.07) $ (3.10) Fully diluted (1.00) (1.67) (2.57) (3.07) (3.10) Net loss-- Primary (1.66) (1.92) (2.01) (2.83) (.91) Fully diluted (1.66) (1.92) (2.01) (2.83) (.91) Cash dividends-- Common --- --- --- .10 .10 Special Common --- --- --- .04 .04 Stockholders' investment 8.29 10.13 11.69 13.38 15.65 See Notes 7 to 12 and Note 14 of the Notes to Consolidated Financial Statements, Pages F-21 to F-25 and F-26, respectively, of this report and Item 7 of Management's Discussion and Analysis of Financial Condition and Results of Operations, Page 15, regarding the effect on operating results of businesses sold and other matters. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The Company is a diversified manufacturer of residential and commercial building products, operating within three principal product groups: the Residential Building Products Group; the Air Conditioning and Heating Products Group; and the Plumbing Products Group. Through these product groups, the Company manufactures and sells, primarily in the United States and Canada, a wide variety of products for the residential and commercial construction, manufactured housing, and the do-it-yourself and professional remodeling and renovation markets. In October 1993, the Company made the strategic decision to sell its Retail Home Center Operations ("Dixieline") to increase the Company's focus on its other building products businesses. Although the Company currently intends to operate this business until a sale is consummated, for the purposes of this Management's Discussion and Analysis of Financial Condition and Results of Operations, the results of operations attributable to Dixieline have been excluded from all data that is reported as being from ongoing operations, including net sales, cost of products sold, selling, general and administrative expense and segment earnings. Total consolidated operating results of the Company, however, include the operating results of Dixieline through October 2, 1993, the date that such business was accounted for as a business held for sale. (See Notes 1 and 9 of the Notes to Consolidated Financial Statements.) Results of Operations The following tables set forth, for the three years ended December 31, 1993, (a) certain consolidated operating results, (b) the percentage change of certain such results as compared to the prior year, (c) the percentage which certain of such results bears to net sales and (d) the change of certain of such percentages (to net sales) as compared to the prior year: Percentage Change ------ Year Ended December 31, 1992 1991 ----------------------- to to 1993 1992 1991 1993 1992 -------- ---- ---- ---- (Amounts in Millions) Net sales $744.1 $800.0 $917.0 (7.0) (12.8)% Cost of products sold 532.5 595.2 693.1 10.5 14.1 Selling, general and admini- strative expense 181.3 184.4 212.9 1.7 13.4 Operating earnings 30.3 20.4 11.0 48.5 85.5 Interest expense (26.5) (29.2) (39.2) 9.3 25.5 Interest and dividend income 3.2 4.4 8.8 (27.3) (50.0) Net gain on investment and marketable securities 1.7 0.9 0.4 88.9 125.0 Settlement of litigation --- --- (11.5) --- 100.0 Loss on businesses sold or held for sale (20.3) (14.5) (15.2) (40.0) 4.6 Loss from continuing operations before provision (credit) for income taxes (11.6) (18.0) (45.7) 35.6 60.6 Provision (credit) for income taxes 1.0 3.0 (11.0) 66.7 (127.3) Loss from continuing operations (12.6) (21.0) (34.7) 40.0 39.5 Loss from discontinued operations --- (3.3) --- 100.0 --- Extraordinary gain (loss) from debt retirements (6.1) 0.1 7.6 --- (98.7) Cumulative effect of an account- ing change (2.1) --- --- --- --- Net loss (20.8) (24.2) (27.1) 14.1 10.7 Change in Percentage ---------- Percentage of Net Sales 1992 1991 Year Ended December 31, to to ----------------------- 1993 1992 1991 1993 1992 ---- ---- ---- ---- ---- Net sales 100.0% 100.0% 100.0% --- --- Cost of products sold 71.5 74.4 75.6 2.9 1.2 Selling, general and admini- strative expense 24.4 23.0 23.2 (1.4) 0.2 Operating earnings 4.1 2.6 1.2 1.5 1.4 Interest expense (3.6) (3.7) (4.3) .1 0.6 Interest and dividend income .4 .6 1.0 (.2) (0.4) Net gain on investment and marketable securities .2 --- --- .2 --- Settlement of litigation --- --- (1.3) --- 1.3 Loss on businesses sold (2.7) (1.8) (1.6) (.9) (0.2) Loss from continuing opera- tions before provision (credit) for income taxes (1.6) (2.3) (5.0) .7 2.7 Provision (credit) for income taxes .1 0.3 (1.2) .2 (1.5) Loss from continuing opera- tions (1.7) (2.6) (3.8) .9 1.2 Loss from discontinued operations --- (0.4) --- .4 (0.4) Extraordinary gain (loss) from debt retirements (.8) --- 0.8 (.8) (0.8) Cumulative effect of an accounting change (.3) --- --- (.3) --- Net loss (2.8) (3.0) (3.0) .2 --- The following table presents the net sales for the Company's principal product groups for the three years ended December 31, 1993, and the percentage change of such results as compared to the prior year. Percentage Change -------- 1992 1991 Year Ended December 31, to to ----------------------- 1993 1992 1991 1993 1992 ---- ---- ---- ---- ---- Net Sales: Residential Building Products $257.2 $249.2 $241.5 3.2% 3.2% Air Conditioning and Heating Products 275.6 237.0 221.1 16.3 7.2 Plumbing Products 128.1 126.1 112.7 1.6 11.9 ----- ----- ----- ----- ----- Net Sales from Ongoing Operations 660.9 612.3 575.3 7.9 6.4 Businesses Sold or Held for Sale and Other 83.2 187.7 341.7 (55.7) (45.1) ----- ----- ----- ----- ----- Total $744.1 $800.0 $917.0 (7.0)% (12.8)% ===== ===== ===== ===== ===== Year Ended December 31, 1993 as Compared to the Year Ended December 31, 1992 Net sales from ongoing operations increased approximately $48,598,000, or approximately 7.9%, in 1993 as compared to 1992. Total net sales decreased approximately $55,866,000, or approximately 7.0%, in 1993 as compared to 1992 as a result of businesses sold in 1992 and the effect of Dixieline, partially offset by the following factors. Net sales from ongoing operations increased principally as a result of increased sales volume of residential air conditioning and heating products (in part, as a result of the addition of certain distributors) and increased shipments of new and replacement air conditioning and heating products to manufactured housing customers by the Air Conditioning and Heating Products Group. To a lesser extent, increased sales levels in the Residential Building Products Group and increased sales levels of bathroom fixtures (principally vitreous china products) by the Plumbing Products Group were also a factor. Cost of products sold from ongoing operations as a percentage of net sales from ongoing operations decreased from approximately 72.5% in 1992 to approximately 71.1% in 1993. Total cost of products sold as a percentage of total net sales decreased from approximately 74.4% in 1992 to approximately 71.5% in 1993 as a result of the effect of businesses sold in 1992, which was partially offset by the effect of increases in cost of products sold as a percentage of net sales at Dixieline and the following factors. The decrease in cost of products sold from ongoing operations as a percentage of net sales from ongoing operations primarily was attributable to increased sales levels and a reduction in cost in the Plumbing Products Group, and to a lesser extent, increased sales in the Residential Building Products Group and the Air Conditioning and Heating Products Group, in both cases, without a proportionate increase in costs. The improvement in cost levels was due, in part, to the Company's ongoing cost control efforts. Selling, general and administrative expense from ongoing operations, as a percentage of net sales from ongoing operations increased from approximately 23.3% in 1992 to approximately 24.3% in 1993. Total selling, general and administrative expense, as a percentage of total net sales increased from approximately 23.0% in 1992 to approximately 24.4% in 1993 as a result of the factors described below and the effect of businesses sold in 1992, which sold businesses operated at lower expense levels than the Company's other product groups, partially offset by lower expense levels at Dixieline. The increase in the percentage of net sales from ongoing operations in 1993 was principally due to the effect of a pre-tax loss in the fourth quarter of 1993 of approximately $2,800,000 in connection with the curtailment of certain product lines by the Company's Plumbing Products Group and the effect of pre-tax losses in the third quarter of 1993 of approximately $1,600,000 as a result of the sale in October 1993 of certain real property and approximately $700,000 in connection with the consolidation of certain manufacturing facilities by the Company's Residential Building Products Group. The increase in the percentage of net sales from ongoing operations was partially offset by the effect of increased sales volume of residential and manufactured housing air conditioning and heating products by the Air Conditioning and Heating Products Group, without proportionate increases in expense. Segment earnings from ongoing operations were approximately $47,200,000 for 1993 as compared to approximately $38,100,000 for 1992. Total segment earnings were approximately $46,900,000 for 1993, as compared to approximately $32,700,000 for 1992 as a result of the effect of changes in the operating Year Ended December 31, 1993 as Compared to the Year Ended December 31, 1992 (Continued) results of Dixieline and a business sold in 1992 and the following factors. Total segment earnings are operating earnings (loss) plus corporate and other expenses not directly attributable to the Company's operating activities. The increase in segment earnings from ongoing operations principally was due to the increased sales level and reduced costs in the Plumbing Products Group, in part, due to the Company's ongoing cost control efforts, and increased sales volume of residential and manufactured housing air conditioning and heating products by the Air Conditioning and Heating Products Group and increased sales level in the Residential Building Products Group, without a proportionate increase in cost and expense. The increase in segment earnings from ongoing operations was partially offset by the effect of a pre-tax loss in the fourth quarter of 1993 of approximately $2,800,000 and the effect of pre-tax losses in the third quarter 1993 of approximately $1,600,000 and $700,000 described above. Foreign segment earnings, consisting primarily of the results of operations of the Company's Canadian subsidiary which manufactures built-in ventilating products, declined to approximately 11% of segment earnings from ongoing operations in 1993 from approximately 16% of such earnings in 1992. This decline was primarily due to an approximately 30% increase in domestic segment earnings from ongoing operations in 1993, as well as an approximate 11% decrease in foreign segment earnings in 1993. The decrease in foreign segment earnings was primarily the result of the continued weakness in the residential construction market in Canada. Dixieline's operating loss decreased by approximately $700,000 to a loss of approximately $300,000 in 1993. Net sales of Dixieline were approximately $83,200,000 in 1993 and approximately $94,800,000 in 1992. Total consolidated operating results of the Company include the operating results of Dixieline through October 2, 1993. Weakness in the San Diego area residential construction market and increased competition continued to affect Dixieline's results adversely. Operating earnings in 1993 increased approximately $9,900,000, or approximately 48.5%, as compared to 1992, primarily as a result of the factors discussed above and include the effect of the results of Dixieline and a business sold in 1992. Interest expense in 1993 decreased approximately $2,700,000, or approximately 9.3%, as compared to 1992, primarily as a result of purchases, at a discount, in open market and negotiated transactions of the Company's debentures and notes in 1992 and the payment of current maturities of long-term debt. Interest income in 1993 decreased approximately $1,200,000, or approximately 27.3%, as compared to 1992, principally due to lower average invested balances of short-term investments, marketable securities and other investments (in part, due to a reduction in indebtedness), and lower yields earned on investment and marketable securities. The net gain on investment and marketable securities was approximately $1,650,000 for 1993, as compared to approximately $850,000 for 1992. Year Ended December 31, 1993 as Compared to the Year Ended December 31, 1992 (Continued) The pre-tax loss on businesses sold or held for sale of approximately $20,300,000 in 1993 and approximately $14,500,000 in 1992 resulted in the approximately $11,600,000 loss before provision for income taxes in 1993 and was the primary reason for the approximately $18,000,000 loss before provision for income taxes in 1992. The pre-tax loss on businesses sold or held for sale in 1993 resulted from the Company's decision to sell Dixieline and therefore to reduce the Company's net investment in such business to estimated net realizable value. (See Notes 1 and 9 of Notes to Consolidated Financial Statements.) The provision for income taxes was approximately $1,000,000 for 1993, as compared to approximately $3,000,000 for 1992. The provision for income taxes as a percentage of the pre-tax loss from continuing operations was approximately 8.6% in 1993 as compared to approximately 16.7% in 1992. The income tax rates differed from the United States federal statutory rate of 35% in 1993 and 34% in 1992 as a result of the effect of an increase in income tax valuation reserves in 1993 and higher foreign income tax on foreign source income, a limited amount of state income tax benefits recorded, and nondeductible amortization expense (for tax purposes) in both years, and, in 1992, as a result of certain nondeductible costs associated with a business sold and unrecorded income tax credits relating to capital loss carryforwards since the income tax benefits attributable thereto may not be realized. (See Note 3 of the Notes to Consolidated Financial Statements.) An extraordinary loss of approximately $6,100,000 in 1993 compared to an approximate $100,000 gain in 1992. The loss in 1993 resulted primarily from the call for redemption on February 22, 1994 of certain of the Company's various Notes and Debentures in connection with the financing described in Note 4 of Notes to Consolidated Financial Statements. The charge to operations in 1993 from the cumulative effect of an accounting change of approximately $2,100,000 resulted from the adoption of Statement of Financial Accounting Standards ("SFAS") No. 106. (See Note 6 of Notes to Consolidated Financial Statements.) Year Ended December 31, 1992 as Compared to the Year Ended December 31, 1991 Net sales from ongoing operations increased approximately $36,982,000, or approximately 6.4%, in 1992 as compared to 1991. Total net sales decreased approximately $117,070,000, or approximately 12.8%, in 1992 as compared to 1991 due to the effect of businesses sold in 1991 and 1992 partially offset by the following factors. Net sales from ongoing operations increased principally as a result of increased sales volume of residential air conditioning and heating products by the Air Conditioning and Heating Products Group and increased sales prices and sales volume of bathroom fixtures by the Plumbing Products Group. To a lesser extent, increased sales levels in the Residential Building Products Group were also a factor. Cost of products sold from ongoing operations as a percentage of net sales from ongoing operations decreased slightly from approximately 72.7% in 1991 to approximately 72.5% in 1992. Total cost of products sold as a percentage of total net sales decreased from approximately 75.6% in 1991 to approximately 74.4% in 1992. This differential is attributable to the fact that the Year Ended December 31, 1992 as Compared to the Year Ended December 31, 1991 (Continued) businesses sold by the Company during this period operated at higher cost levels than the Company's other product groups. The decrease in cost of products sold from ongoing operations as a percentage of net sales from ongoing operations in 1992 was primarily attributable to increased sales levels of residential air conditioning and heating products by the Air Conditioning and Heating Products Group, and increased sales levels by the Plumbing Products and Residential Building Products Groups, in each case without a proportionate increase in cost. This decrease in the percentage was partially offset by increased costs on slightly lower sales in commercial and industrial air conditioning and heating products by the Air Conditioning and Heating Products Group. Selling, general and administrative expense from ongoing operations as a percentage of net sales from ongoing operations decreased from approximately 24.7% in 1991 to approximately 23.3% in 1992. Total selling, general and administrative expense as a percentage of total net sales decreased from approximately 23.2% in 1991 to approximately 23.0% in 1992. This differential is attributable to the fact that the businesses sold by the Company during this period operated at lower expense levels than the Company's other product groups. The decrease in selling, general and administrative expense from ongoing operations as a percentage of net sales from ongoing operations in 1992 was principally due to increased sales of bathroom fixtures by the Plumbing Products Group, without a proportionate increase in expense. A reduction in the level of expense in the Residential Building Products Group also contributed to the decrease in the percentage. Net settlements of litigation and related expenses of approximately $700,000 in 1992 as compared to approximately $2,300,000 in 1991 were also factors. Segment earnings from ongoing operations were approximately $38,100,000 for 1992 and approximately $27,800,000 for 1991. Total segment earnings were approximately $32,700,000 for 1992 as compared to approximately $23,800,000 in 1991. The increase in total segment earnings is primarily a result of the factors that follow partially offset by the effect of businesses sold. The increase in segment earnings from ongoing operations was due principally to reduced expense levels in the Residential Building Products Group and increased sales levels of residential air conditioning and heating products by the Air Conditioning and Heating Products Group. To a lesser extent, increased sales levels of plumbing products by the Plumbing Products Group contributed to the increase in segment earnings from ongoing operations. A decline in 1992 in the amount of net settlements of litigation and related expenses was also a factor in the increase in segment earnings from ongoing operations in 1992. These increases in segment earnings from ongoing operations were partially offset by slightly lower earnings attributable to commercial and industrial air conditioning and heating products by the Air Conditioning and Heating Products Group resulting from a slight decrease in net sales of such products, without a proportionate decrease in costs. Foreign segment earnings declined to approximately 16% of total segment earnings from ongoing operations in 1992 from approximately 30% of such earnings in 1991. This decline was primarily due to an approximate 64% increase in domestic segment earnings from ongoing operations in 1992, as well as an approximate 27% decrease in foreign segment earnings in 1992. The decrease in foreign segment earnings was due primarily to a sales decrease in Year Ended December 31, 1992 as Compared to the Year Ended December 31, 1991 (Continued) the Company's Canadian operations resulting from weakness in the residential construction market in Canada. The operating loss from Dixieline increased by approximately $500,000 to a loss of $1,100,000 in 1992. The increased loss resulted primarily from a decline in net sales of approximately $9,700,000, or approximately 9.3%, to approximately $94,800,000 in 1992 from approximately $104,500,000 in 1991. Weakness in the San Diego area residential construction market and increased competition were primarily responsible for the lower sales and increased loss. Operating earnings in 1992 increased approximately $9,400,000, or approximately 85.5%, as compared to 1991, primarily as a result of the factors discussed above for segment earnings from ongoing operations, partially offset by an increase in the operating loss of businesses sold to the date of sale. Lower unallocated corporate expenses were also a factor. Interest expense in 1992 decreased approximately $10,000,000, or approximately 25.5% as compared to 1991, principally as a result of purchases, at a discount, in open market and negotiated transactions of the Company's debentures and notes in 1992 and 1991, payment of current maturities of long-term debt and a reduction in net short-term borrowings. Interest income in 1992 decreased approximately $4,400,000, or approximately 50.0% as compared to 1991, principally due to lower average invested balances of short-term investments, marketable securities and other investments (in part, due to a reduction in indebtedness), and significantly lower yields earned on investments and marketable securities. The net gain on investment and marketable securities was approximately $850,000 for 1992, as compared to approximately $400,000 in 1991. The gain on investment and marketable securities for 1991 was net of a loss of approximately $1,600,000 on the sale of the Company's investment in Stanley Interiors Corporation preferred stock. The pre-tax loss on businesses sold of approximately $14,500,000 in 1992 was the primary factor in the approximately $18,000,000 loss from continuing operations before provision for income taxes in 1992. The approximately $15,200,000 pre-tax loss on businesses sold and the approximately $11,500,000 loss on settlement of litigation in 1991 were significant factors in the approximately $45,700,000 loss from continuing operations before income tax credit in 1991. The provision for income taxes from continuing operations was approximately $3,000,000 for 1992 as compared to an approximately $11,000,000 income tax credit in 1991. The provision for income taxes as a percentage of the pre-tax loss from continuing operations was approximately 16.7% for 1992 compared to an income tax credit of approximately 24.1% for 1991. The income tax rate differed from the U. S. Federal statutory rate of 34% for both years as a result of the effect of certain nondeductible costs associated with businesses sold (approximately $2,827,000 in 1992 and approximately $968,000 in 1991), higher foreign income tax on foreign source income (approximately $1,127,000 in 1992 and approximately $2,728,000 in 1991), a limited amount of state income tax benefits recorded (since the income tax benefits attributable to operating Year Ended December 31, 1992 as Compared to the Year Ended December 31, 1991 (Continued) losses for state income tax purposes may not be realized), nondeductible amortization expense (for tax purposes), and in 1992 approximately $3,990,000 of unrecorded income tax credits relating to capital loss carryforwards. Results of discontinued operations in 1992 included a pre-tax gain of $1,474,000 (approximately $900,000 after-tax) which was attributable to the exchange of securities resulting from the settlement of derivative litigation. (See Note 7 of Notes to Consolidated Financial Statements.) During 1992, results of discontinued operations also included pre-tax valuation reserves of approximately $1,400,000 recorded in the third quarter and approximately $5,000,000 recorded in the fourth quarter. The Company remains contingently liable under approximately $7,100,000 of obligations under Industrial Revenue Bond ("IRB's") agreements, plus unpaid interest, relating to facilities of a previously discontinued business. This discontinued business defaulted on certain principal and interest payments related to these IRB's during 1992 and, in February 1993, filed for protection under federal bankruptcy laws. The Company continues to vigorously pursue all available remedies to minimize any liability that may ultimately result from the outcome of this matter. The Company believes that the resolution of this matter, after giving consideration to amounts previously provided, will not have a material adverse effect on the financial position or results of operations of the Company. (See Notes 7 and 10 of Notes to Consolidated Financial Statements.) Results of discontinued operations in 1991 included other income and expense items relating to businesses discontinued in prior years, including a pre-tax gain of approximately $700,000 as a result of proceeds from the settlement of certain litigation. Extraordinary gain from debt retirements decreased approximately $7,500,000 in 1992 as compared to 1991. Liquidity and Capital Resources The Company's primary sources of liquidity in 1993 and 1992 have been funds provided by subsidiary operations, unrestricted investments and marketable securities and net proceeds from businesses sold or discontinued. The Company's Canadian subsidiary, Broan Limited, has a $20,100,000 Canadian (approximately $15,200,000 U. S. at exchange rates prevailing at December 31, 1993) secured line of credit, of which approximately $14,800,000 Canadian (approximately $11,200,000 U. S. at exchange rates prevailing at December 31, 1993), in the aggregate, is available to the Company (the "Line of Credit"). The Line of Credit prohibits dividends or other distributions to the Company from Broan Limited in excess of $14,800,000 Canadian (approximately $11,200,000 U. S. at exchange rates prevailing at December 31, 1993). Borrowings under the Line of Credit are available for working capital and other general corporate purposes. The Line of Credit contains covenants requiring Broan Limited to maintain (i) a ratio of earnings before interest and taxes to interest of at least 2 to 1, (ii) a working capital ratio of at least 1.5 to 1 and (iii) a debt to equity ratio of no higher than 3 to 1; the Line of Credit also limits the annual amount of capital expenditures which Broan Limited may make to $500,000 Canadian (approximately $378,000 U. S. at exchange rates prevailing at December 31, 1993). Broan Limited pays a commitment fee of .25% per annum on the unutilized portion of the Line of Credit payable monthly on a pro rata basis, and the Line of Credit is subject to review by the lender in April 1994. Liquidity and Capital Resources (Continued) As of March 15, 1994, there were $2,346,000 U. S. in outstanding borrowings under the Line of Credit, all of the proceeds of such borrowings were advanced to the Company, and $3,850,000 U. S. of additional available borrowings could be advanced to the Company. Unrestricted cash and investments were $56,606,000 at December 31, 1993. On January 14, 1994, the Company redeemed $22,600,000 principal amount of its 11- 1/2% Senior Subordinated Debentures due May 1994, which were called for redemption in December 1993. In February 1994, the Company sold in a public offering $218,500,000 of its 9-7/8% Senior Subordinated Notes due 2004 ("9-7/8% Notes") at a slight discount. A portion of the net proceeds from the sale of the 9-7/8% Notes were used to redeem, on March 24, 1994, approximately $153,000,000 of certain of the Company's outstanding principal amount of indebtedness and pay accrued interest. The call for redemption on February 22, 1994 of this indebtedness resulted in an after-tax extraordinary loss of approximately $6,100,000, which was recorded in the fourth quarter of 1993. (See Note 4 of Notes to the Consolidated Financial Statements.) The Company believes that cash flow from subsidiary operations, unrestricted cash and marketable securities and borrowings under the Line of Credit or under new credit facilities or arrangements which may be entered into will provide sufficient liquidity to meet the Company's working capital, capital expenditure, debt service and other ongoing business needs through, at least, 1994. Capital expenditures were approximately $10,400,000 in 1993, and are expected to be approximately $14,000,000 in 1994. The Indenture governing the 9-7/8% Notes restricts, among other things, the payment of cash dividends, the repurchase of the Company's capital stock, the making of certain other restricted payments and the incurrence of additional indebtedness. (See Note 4 of Notes to Consolidated Financial Statements.) The Company's investment in marketable securities at December 31, 1993 consisted primarily of investments in United States Treasury securities. At December 31, 1993, approximately $6,687,000 of the Company's cash and investments were pledged as collateral with an insurance company and were classified as restricted in current assets in the Company's accompanying consolidated balance sheet. In 1993, approximately $5,507,000 of cash was utilized by the Company and its subsidiaries to pay indebtedness, including purchases, at a slight discount, in open market transactions of approximately $1,202,000 principal amount of the Company's debentures. At December 31, 1993, the Company remains contingently liable under approximately $7,100,000 of obligations under Industrial Revenue Bond ("IRB's") agreements, plus unpaid interest, relating to facilities of a previously owned subsidiary. This former subsidiary defaulted on certain principal and interest payments related to these IRB's during 1992 and, in February 1993, filed for protection under federal bankruptcy laws. In March 1994, the Company paid approximately $1,594,000 to the Trustee of these IRB's for interest payments through that date. The Company continues to vigorously pursue all available remedies to minimize any liability that may ultimately result from the outcome of this matter. The Company believes that the resolution of this matter, after giving consideration to amounts previously provided, will not have a material Liquidity and Capital Resources (Continued) adverse effect on the financial position or results of operations of the Company. (See Note 7 of Notes to Consolidated Financial Statements.) In 1993, the Company adopted the accounting requirements of SFAS No. 106 for post-retirement health care and related benefits and recorded the accumulated post-retirement benefit obligation of approximately $2,100,000, after an income tax credit of approximately $1,000,000 ($.17 per share, net of tax) as the cumulative effect of an accounting change. Previously, such health care and related benefits for qualified and retired beneficiaries were charged to operating results in the period that such benefits were paid. Approximately $950,000 of the accumulated post-retirement benefit obligation was paid during 1993 as a result of certain plan modifications. (See Note 6 to the Notes to Consolidated Financial Statements.) In 1993, the Company decided to sell Dixieline and recorded a pre-tax valuation reserve of approximately $20,300,000 (approximately $14,900,000 after-tax) in the third quarter of 1993 to reduce the Company's net investment in such business to estimated net realizable value. The Company is in preliminary discussions with a potential purchaser of these operations; however, no agreement has yet been reached, and there can be no assurance that any transaction will be consummated. The Company has reflected Dixieline's current assets, non-current assets, current liabilities and long-term mortgage notes payable separately in its consolidated balance sheet. (See Notes 1 and 9 of Notes to Consolidated Financial Statements.) The Company's working capital and current ratio decreased from approximately $132,587,000 and approximately 1.9:1, respectively, at December 31, 1992 to approximately $117,926,000 and approximately 1.6:1, respectively, at December 31, 1993. These decreases include the effect of the change in the method of accounting for income taxes, pursuant to SFAS 109, adopted in the first quarter of 1993. (See Note 3 of Notes to Consolidated Financial Statements.) Disregarding the effect of SFAS 109 working capital decreased approximately $18,263,000, or approximately 13.8%, from December 31, 1992 to December 31, 1993. Accounts receivable, excluding those of Dixieline, increased approximately $6,480,000, or approximately 8.3%, between December 31, 1992 and December 31, 1993, while net sales from ongoing operations increased approximately 5.6% in the fourth quarter of 1993 as compared to the fourth quarter of 1992. This increase is principally as a result of increased net sales of new and replacement products from residential and manufactured housing customers by the Air Conditioning and Heating Products Group. The rate of change in accounts receivable in certain periods may be different than the rate of change in sales in such periods principally due to the timing of net sales. Significant net sales near the end of any period generally result in significant amounts of accounts receivable on the date of the balance sheet at the end of such period. In recent periods, the Company has not experienced any significant changes in credit terms, collection efforts, credit utilization or delinquency. Inventories, excluding those of Dixieline, increased approximately $5,870,000 or approximately 7.7%, between December 31, 1992 and December 31, 1993. Liquidity and Capital Resources (Continued) Disregarding the effect of SFAS 109, inventories increased approximately $523,000, or approximately .7%. Unrestricted cash and investments increased approximately $33,139,000 (of which $22,600,000 was used to retire certain indebtedness on January 14, 1994 - see Note 4 of Notes to Consolidated Financial Statements) from December 31, 1992 to December 31, 1993, principally as a result of cash provided (used) by the following: Condensed Consolidated Cash Flows ------------ Operating Activities-- Cash flow from operations, net $21,476,000 Increase in accounts receivable, net (11,033,000) Increase in inventories (2,854,000) Increase in accounts payable 4,360,000 Change in accrued expenses, taxes, prepaids, other assets, liabilities, and other, net 476,000 Investing Activities-- Net cash payments relating to businesses sold or discontinued (2,420,000) Proceeds from the sale of investment and marketable securities, net of purchases 26,039,000 Proceeds from the sale of property and equipment 5,242,000 Capital expenditures (10,436,000) Financing Activities-- Increases in borrowings, net of payments, including purchase of debentures 1,841,000 All other, net 448,000 ---------- $33,139,000 ========== The Company's debt-to-equity ratio increased from approximately 1.6:1 at December 31, 1992 to approximately 2.1:1 at December 31, 1993, primarily as a result of the net loss of $20,800,000 in 1993 and a net increase in borrowings of approximately $7,100,000. At December 31, 1993 and subsequently thereafter, the payment of cash dividends or stock payments was prohibited under the most restrictive of the Company's indentures and loan agreements. (See Note 4 of Notes to Consolidated Financial Statements.) The Company's St. Louis, Missouri plant, which is part of the Company's Air Conditioning and Heating Products Group and manufactures products for the residential site-built and manufactured housing markets, experienced damage as a result of the flooding of the Mississippi River in July 1993. The plant was closed for several weeks, but returned to full operation in late August 1993. At December 31, 1993, the Company accrued for estimated losses of approximately $14,500,000 related to the flooding, recorded a receivable of approximately $14,500,000 for casualty, property damage and business interruption insurance claims due from its insurance carrier and recorded as a liability approximately $13,200,000 of cash advances received relating to such claims. The Company believes that it has adequate insurance coverage and does not expect this event Liquidity and Capital Resources (Continued) to have a material adverse effect on the Company's financial condition or results of operations. (See Note 7 of Notes to Consolidated Financial Statements.) At December 31, 1993, the Company has approximately $8,000,000 of net U. S. Federal prepaid income tax assets which are expected to be realized through future operating earnings. (See Note 3 of Notes to Consolidated Financial Statements.) The Company believes that its growth will be generated largely by internal growth in each of its product groups, augmented by strategic acquisitions. The Company regularly reviews potential acquisitions which would increase or expand the market penetration of, or otherwise complement, its current product lines, although there are no pending agreements or negotiations for any material acquisitions and the Company has made no material acquisitions since early 1988. Inflation, Trends and General Considerations The Company's performance is dependent to a significant extent upon the levels of new residential construction, residential replacement and remodeling and non- residential construction, all of which are affected by such factors as interest rates, inflation and unemployment. In recent periods, the Company's product groups have operated in an environment of flat to declining levels of construction and remodeling activity, particularly new housing starts which decreased 43.8% between 1986 and 1991. New residential construction has made a modest recovery since 1991, although housing starts remain significantly below levels experienced in the mid-1980s. The Company's operations have been significantly affected by the difficult economic conditions, particularly in the Northeastern United States and California. However, the actions taken to reduce production costs and overhead levels and improve the efficiency and profitability of the Company's operations have enabled the Company to significantly increase operating earnings in a slow economy, as well as to position the Company for growth should there be a recovery in the Company's markets. In the near term, the Company expects to operate in an environment of relatively stable levels of construction and remodeling activity, without significant further declines or improvements in such levels. In recent periods, inflation has not had, and is not expected to have for the foreseeable future, a material effect on the Company's results of operations and financial condition. Item 8. Financial Statements and Supplementary Data. Financial statements and supplementary data required by this Item 8 are set forth at the pages indicated in Item 14(a) included elsewhere herein. Item 9. Disagreements on Accounting and Financial Disclosure. Not applicable. PART III. Item 10. Directors and Executive Officers of the Registrant See Election of Directors in the definitive Proxy Statement for the Company's 1994 Annual Meeting of Stockholders, incorporated herein by reference. See also Part I, Item 1, Business-General Considerations-Executive Officers of the Registrant. Item 11. Executive Compensation See Executive Compensation in the definitive Proxy Statement for the Company's 1994 Annual Meeting of Stockholders, incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management See Security Ownership of Certain Beneficial Owners and Management in the definitive Proxy Statement for the Company's 1994 Annual Meeting of Stockholders, incorporated herein by reference. Item 13. Certain Relationships and Related Transactions See Election of Directors in the definitive Proxy Statement for the Company's 1994 Annual Meeting of Stockholders, incorporated herein by reference. PART IV. Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a) Financial Statements and Schedules The following documents are filed as part of this report: 1. Financial Statements: Page No. Report of Independent Public Accountants F-1 Consolidated Statement of Operations for the three years ended December 31, 1993 F-2 Consolidated Balance Sheet as of December 31, 1993 and 1992 F-3 Consolidated Statement of Cash Flows for the three years ended December 31, 1993 F-5 Consolidated Statement of Stockholders' Investment for the three years ended December 31, 1993 F-6 Notes to Consolidated Financial Statements F-7 2. Financial Statement Schedules: Schedule I - Marketable Securities F-28 Schedule II - Notes and Accrued Interest Receivable from Employees F-29 Schedule V - Property and Equipment F-30 Schedule VI - Accumulated Depreciation and Amorti- zation of Property and Equipment F-31 Schedule VIII - Valuation and Qualifying Accounts F-32 Schedule IX - Short-Term Borrowings F-33 Schedule X - Supplementary Profit and Loss Infor- mation F-34 Schedules III, IV, VII, XI, XII, XIII and XIV are omitted as not applicable or not required under the rules of Regulation S-X. 3.The exhibits are listed in the Exhibit Index, which is incorporated herein by reference. (b) Reports on Form 8-K The following reports on Form 8-K were filed by the Registrant during the last quarter of the period covered by this report: October 12, 1993. Item 5. Other Events, Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. December 15, 1993. Item 5. Other Events. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 25, 1994. NORTEK, INC. By: /s/Richard L. Bready ------------------- Richard L. Bready Chairman of the Board Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated, as of March 25, 1994. /s/Richard L. Bready /s/D. Stevens McVoy - ------------------------------- ---------------------------------- Richard L. Bready, Chairman D. Stevens McVoy, Director of the Board and President (principal executive officer) /s/Richard J. Harris /s/J. Peter Lyons - ------------------------------- ---------------------------------- Richard J. Harris, Vice President J. Peter Lyons, Director and Treasurer (principal financial officer) and Director /s/Almon C. Hall /s/Dennis J. McGillicuddy - ------------------------------- ---------------------------------- Almon C. Hall, Vice President Dennis J. McGillicuddy, Director and Controller (principal accounting officer) /s/Philip B. Brooks /s/Barry Silverstein - ------------------------------- ---------------------------------- Philip B. Brooks, Director Barry Silverstein, Director Report of Independent Public Accountants To Nortek, Inc.: We have audited the accompanying consolidated financial statements of Nortek, Inc. (a Delaware corporation) and subsidiaries listed in Item 14(a)(1) of this Form 10-K. These financial statements and the schedules referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Nortek, Inc. and subsidiaries as of December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles. As explained in Note 6 to the consolidated financial statements, effective January 1, 1993, the Company changed its method of accounting for post- retirement benefits other than pensions. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed in Item 14(a)(2) are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN & CO. Boston, Massachusetts, March 24, 1994 Nortek, Inc. and Subsidiaries Consolidated Statement of Operations For the Three Years ended December 31, 1993 1993 1992 1991 ------ ------ ----- (In Thousands Except Per Share Amounts) Net Sales $744,113 $799,979 $917,049 ------- ------- ------- Costs and Expenses: Cost of products sold 532,488 595,177 693,091 Selling, general and administrative expense 181,279 184,366 212,943 ------- ------- ------- 713,767 779,543 906,034 ------- ------- ------- Operating earnings 30,346 20,436 11,015 Interest expense (26,519) (29,232) (39,184) Interest and dividend income 3,223 4,446 8,769 Net gain on investment and marketable securities 1,650 850 400 Settlement of litigation --- --- (11,500) Loss on businesses sold or held for sale (20,300) (14,500) (15,200) ------- ------- ------- Loss from continuing operations before provision (credit) for income taxes (11,600) (18,000) (45,700) Provision (credit) for income taxes 1,000 3,000 (11,000) ------- ------- ------- Loss from continuing operations (12,600) (21,000) (34,700) Loss from discontinued operations --- (3,300) --- ------- ------- ------- Loss before extraordinary gain (loss) (12,600) (24,300) (34,700) Extraordinary gain (loss) from debt retirements (6,100) 100 7,600 ------- ------- ------- Loss before the cumulative effect of an accounting change (18,700) (24,200) (27,100) Cumulative effect of an accounting change (2,100) --- --- ------- ------- ------- Net Loss $(20,800)$(24,200) $(27,100) ======= ======= ======= Net Earnings (Loss) Per Share: Continuing operations-- Primary $ (1.00) $ (1.67) $ (2.57) ------- ------- ------- Fully diluted $ (1.00) $ (1.67) $ (2.57) ------- ------- ------- Discontinued operations-- Primary --- (.26) --- -------------- ------- Fully diluted --- (.26) --- ------- ------- ------- Loss before extraordinary gain (loss)-- Primary (1.00) (1.93) (2.57) ------- ------- ------- Fully diluted (1.00) (1.93) (2.57) ------- ------- ------- Extraordinary gain (loss)-- Primary (.49) .01 .56 ------- ------- ------- Fully diluted (.49) .01 .56 ------- ------- ------- Cumulative Effect of an Accounting Change-- Primary (.17) --- --- ------- ------- ------- Fully diluted (.17) --- --- ------- ------- ------- Net Loss-- Primary $ (1.66) $ (1.92) $ (2.01) ======= ======= ======= Fully diluted $ (1.66) $ (1.92) $ (2.01) ======= ======= ======= Weighted Average Number of Shares: Primary 12,622 12,645 13,460 ======= ======= ======= Fully diluted 13,362 13,411 14,312 ======= ======= ======= The accompanying notes are an integral part of these financial statements. Nortek, Inc. and Subsidiaries Consolidated Balance Sheet December 31, 1993 and 1992 Assets 1993 1992 ------ ------ (Amounts in Thousands) Current Assets: Unrestricted-- Cash and investments at cost which approximates market $ 34,006 $ 23,467 Short-term investments held for redemption of debentures 22,600 --- Marketable securities 25,892 50,281 Restricted-- Cash and investments at cost which approximates market 6,687 8,187 Accounts receivable, less allowances of $4,198,000 and $3,961,000 84,843 78,363 Inventories-- Raw materials 27,603 27,269 Work in process 9,227 9,792 Finished goods 45,183 39,082 ------- ------- 82,013 76,143 ------- ------- Current assets of business held for sale 23,736 18,990 Insurance claims receivable 14,500 --- Prepaid expenses and other current assets 7,541 8,069 U. S. Federal prepaid income taxes 17,000 22,000 ------- ------- Total Current Assets 318,818 285,500 ------- ------- Property and Equipment, at cost: Land 5,833 7,376 Buildings and improvements 52,309 54,416 Machinery and equipment 108,983 103,246 ------- ------- 167,125 165,038 Less--Accumulated depreciation 76,546 66,469 ------- ------- Total Property and Equipment, net 90,579 98,569 ------- ------- Other Assets: Goodwill, less accumulated amortization of $19,180,000 and $16,857,000 75,599 78,406 Non-current assets of business held for sale 11,987 30,785 Other 12,226 22,113 ------- ------- 99,812 131,304 ------- ------- $509,209 $515,373 ======= ======= The accompanying notes are an integral part of these financial statements. Nortek, Inc. and Subsidiaries Consolidated Balance Sheet December 31, 1993 and 1992 1993 1992 ------ ------ (Amounts in Thousands) Liabilities and Stockholders' Investment Current Liabilities: Notes payable, current maturities of long-term debt and other short-term obligations $ 14,957 $ 6,810 11 1/2% Senior Subordinated Debentures, net 22,582 --- Accounts payable 46,923 45,052 Accrued expenses and taxes, net 91,422 92,276 Current liabilities of business held for sale 11,769 8,775 Insurance claims advances 13,239 --- ------- ------- Total Current Liabilities 200,892 152,913 ------- ------- Other Liabilities: Deferred income taxes 18,000 29,696 Other 8,100 3,995 ------- ------- 26,100 33,691 ------- ------- Notes, Mortgage Notes and Debentures Payable, Less Current Maturities 169,664 192,938 ------- ------- Mortgage Notes Payable of business held for sale 8,546 8,925 ------- ------- Commitments and Contingencies (Note 7) Stockholders' Investment: Preference stock, $1 par value; authorized 7,000,000 shares, none issued --- --- Common stock, $1 par value; authorized 40,000,000 shares, 15,758,974 and 15,602,142 shares issued 15,759 15,602 Special common stock, $1 par value; authorized 5,000,000 shares, 849,575 and 990,007 shares issued 849 990 Additional paid-in capital 134,627 134,599 Retained earnings (accumulated deficit) (17,034) 3,766 Cumulative translation, pension and other adjustments (2,143) --- Less --treasury common stock at cost, 3,795,028 shares (26,371) (26,371) --treasury special common stock at cost, 271,574 shares (1,680) (1,680) ------- ------- Total Stockholders' Investment 104,007 126,906 ------- ------- $509,209 $515,373 ======= ======= The accompanying notes are an integral part of these financial statements. Nortek, Inc. and Subsidiaries Consolidated Statement of Cash Flows For the Three Years Ended December 31, 1993 1993 1992 1991 ------ ------ ------ (Amounts in Thousands) Cash flows from operating activities: Net loss $(20,800) $(24,200) $(27,100) Adjustments to reconcile net loss to cash: Depreciation and amortization 20,726 23,644 28,373 Gain on sale of investment and marketable securities (1,650) (850) (400) (Gain) loss on debt retirements 9,275 (150) (12,600) Loss on businesses sold or held for sale 20,300 19,500 15,200 Settlement of litigation --- --- 11,500 Cumulative effect of an accounting change 3,100 --- --- Deferred federal income tax credit from continuing operations (6,300) (1,700) (9,350) Deferred federal income tax credit on extraordinary loss (3,175) --- --- Changes in certain assets and liabilities, net of effects from acquisitions and dispositions: Accounts receivable, net (11,033) (7,323) (8,862) Prepaids and other current assets (937) 2,443 (2,019) U. S. Federal income tax refund --- 1,803 16,401 Inventories (2,854) (2,807) 11,703 Net assets of discontinued operations --- --- 1,797 Accounts payable 4,360 (1,638) 18,735 Accrued expenses and taxes (3,913) 3,398 (3,087) Long-term assets, liabilities and other, net 5,326 (21) (673) ------- ------- ------- Total adjustments to net loss 33,225 36,299 66,718 ------- ------- ------- Net Cash Provided by Operating Activities 12,425 12,099 39,618 ------- ------- ------- Cash Flows from investing activities: Capital expenditures (10,436) (8,804) (15,902) Proceeds from the sale of property and equipment 5,242 1,045 3,573 Purchase of investments and marketable securities (87,922) (94,671) (195,677) Purchase of restricted investments and marketable securities --- (603) Proceeds from the sale of investments and marketable securities 113,961 72,280 203,133 Proceeds from the sale of restricted investments and marketable securities --- --- 2,972 Net cash proceeds (payments) relating to businesses sold or discontinued (2,420) 38,813 38,496 Change in restricted cash and investments 2,552 13,030 13,972 Other, net (777) 1,080 296 ------- ------- ------- Net Cash Provided by Investing Activities 20,200 22,773 50,260 ------- ------- ------- Cash Flows from financing activities: Purchase of debentures and notes payable (1,383) (21,693) (43,444) Increase in borrowings 7,348 4,197 15,860 Payment of borrowings (4,124) (5,692) (73,911) Cash dividends paid --- --- (324) Purchase of Nortek Common and Special Common Stock --- (2,006) (713) Other, net (1,327) (2,720) (2,357) ------- ------- ------- Net Cash Provided by (Used in) Financing Activities 514 (27,914) (104,889) ------- ------- ------- Net increase (decrease) in unre- stricted cash and investments 33,139 6,958 (15,011) Unrestricted cash and investments at the beginning of the year 23,467 16,509 31,520 ------- ------- ------- Unrestricted cash and investments at the end of the year $56,606 $ 23,467 $ 16,509 ======= ======= ======= The accompanying notes are an integral part of these financial statements. Nortek, Inc. and Subsidiaries Consolidated Statement of Stockholders' Investment For the Three Years Ended December 31, 1993 Cumulative Translation, Addi- Retained Pension Special tional Earnings and Other Common Common Paid-in (Accumulat- Adjust-Treasury Stock Stock Capital ed Deficit) ments Stock ------ ------- ------- -------- ------- (Amounts in Thousands) Balance, December 31, 1990 $15,312 $1,203 $134,493 $55,066 $ ---$(25,331) 126,817 shares of special common stock converted into 126,817 shares of common stock 126 (126) --- --- --- --- 432,292 shares of common treasury stock and 777 shares of special common treasury stock acquired --- --- --- --- --- (714) Net loss --- --- --- (27,100) --- --- ------ ------ ------- ------- ------ ------- Balance, December 31, 1991 15,438 1,077 134,493 27,966 --- (26,045) 86,345 shares of special common stock converted into 86,345 shares of common stock 87 (87) --- --- --- --- 631,701 shares of common treasury stock acquired, net --- --- --- --- --- (2,006) 77,837 shares of common stock issued upon exercise of stock options 77 --- 106 --- --- --- Net loss --- --- --- (24,200) --- --- ------ ------ ------- ------- ------ ------- Balance, December 31, 1992 15,602 990 134,599 3,766 --- (28,051) 140,432 shares of special common stock converted into 140,432 shares of common stock 141 (141) --- --- --- --- 16,400 shares of common stock issued upon exercise of stock options 16 --- 28 --- --- --- Translation adjustment --- --- --- --- (1,337) --- Pension adjustment --- --- --- --- (806) --- Net loss --- --- --- (20,800) --- --- ------ ------ ------- ------- ------ ------- Balance, December 31, 1993 $15,759$ 849 $134,627 $(17,034) $(2,143)$(28,051) ====== ====== ======= ======= ====== ======= The accompanying notes are an integral part of these financial statements. Nortek, Inc. and Subsidiaries Notes to Consolidated Financial Statements 1. Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of Nortek, Inc. and all of its significant wholly-owned subsidiaries (the "Company" or "Nortek") after elimination of intercompany accounts and transactions. Certain amounts in the prior years' financial statements have been reclassified to conform to the presentation at December 31, 1993. On October 2, 1993, the Company began to account for its Dixieline Lumber Company, Inc. subsidiary ("Dixieline") as a business held for sale, through which business the Company conducts its Retail Home Center Operations. As a result, Dixieline's assets and liabilities have been separately reflected in the Company's accompanying consolidated balance sheet, and Dixieline's operating results through October 2, 1993 have been included in the Company's consolidated statement of operations for the year ended December 31, 1993. The Company intends to operate this business until a sale is consummated. (See Note 9.) Cash, Investments and Marketable Securities Investments consist of short-term (maturities of less than 30 days) highly liquid investments which are readily convertible into cash. Investments and marketable securities are carried at the lower of aggregate cost or approximate market price. The Company has classified as restricted, certain cash, investments and marketable securities that are not fully available for use in its operations. At December 31, 1993, approximately $6,687,000 of cash and investments has been pledged as collateral for insurance and other requirements and is classified as restricted in current assets in the accompanying consolidated balance sheet. Disclosures About Fair Value of Financial Instruments The following methods and assumptions were used to estimate fair value of each class of financial instruments for which it is practicable to estimate that value: Cash and Investments-- The carrying amount approximates fair value because of the short maturity of those instruments. Marketable Securities-- The fair value of marketable securities is based on quoted market prices. At December 31, 1993, the fair value of marketable securities approximated the amount on the Company's consolidated balance sheet. Long-Term Debt-- The fair value of long-term indebtedness was estimated based on prices related to transactions involving the Company's long-term indebtedness or the Company's 1994 debt redemptions. (See Note 4.) At December 31, 1993, the fair value of long-term indebtedness approximates the amount on the Company's consolidated balance sheet. Nortek, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Inventories Inventories in the accompanying consolidated balance sheet are valued at the lower of cost or market. At December 31, 1993 and 1992, approximately $53,154,000 and $45,834,000 of total inventories, respectively, were valued on the last-in, first-out method (LIFO). Under the first-in, first-out method (FIFO) of accounting, such inventories would have been $4,982,000 and $11,735,000 greater at December 31, 1993 and 1992, respectively. All other inventories were valued under the FIFO method. The increase in the amount of LIFO inventories in 1993 primarily results from the change in accounting for income taxes. (See Note 3.) Sales Recognition The Company recognizes sales upon the shipment of its products net of applicable provisions for discounts and allowances. The Company also provides for its estimate of warranty and bad debts at the time of shipment as selling, general and administrative expense. Foreign Currency Translation The Company translates the assets and liabilities of its foreign subsidiaries at the exchange rates in effect at year-end. Net sales and expenses are translated using exchange rates in effect during the year. Gains and losses from foreign currency translation are credited or charged to cumulative translation adjustment included in stockholders' investment in the accompanying consolidated balance sheet. Gains and losses from foreign currency transactions were not material in 1992 and 1991. Depreciation and Amortization Depreciation and amortization of property and equipment is provided on a straight-line basis over the estimated useful lives which are generally as follows: Buildings and improvements 10-35 years Machinery and equipment, including leases 3-15 years Leasehold improvements term of lease Expenditures for maintenance and repairs are expensed when incurred. Expenditures for renewals and betterments are capitalized. When assets are sold, or otherwise disposed of, the cost and accumulated depreciation are eliminated and the resulting gain or loss is recognized. Goodwill The Company has classified as goodwill the cost in excess of fair value of the net assets (including tax attributes) of companies acquired in purchase transactions. Goodwill is being amortized on a straight-line method over 40 years. Amortization charged to continuing operations amounted to $2,418,000, $2,548,000 and $2,759,000 for 1993, 1992 and 1991, respectively. At each balance sheet date, the Company evaluates the realizability of goodwill based upon expectations of non-discounted cash flows and operating income for each subsidiary having a material goodwill balance. Based upon its most recent Nortek, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) analysis, the Company believes that no material impairment of goodwill exists at December 31, 1993. Net Earnings (Loss) Per Share Net earnings (loss) per share amounts have been computed using the weighted average number of common and common equivalent shares outstanding during each year. Earnings (loss) per share calculations for all periods presented do not include the effect of common stock equivalents or convertible debentures (and the reduction in related interest expense) because the assumed exercise of stock options and conversion of debentures is anti-dilutive for the net loss per share amounts. Special Common Stock is treated as the equivalent of Common Stock in determining earnings per share results. 2. Cash Flows Interest paid was $26,981,000, $27,436,000 and $38,658,000 in 1993, 1992 and 1991, respectively. The following table summarizes the activity of businesses sold or discontinued included in the accompanying consolidated statement of cash flows: Year Ended December 31, ----------------------- 1993 1992 1991 ---- ---- ---- (Amounts in Thousands) Fair value of assets sold $ --- $ 52,793 $ 58,624 Liabilities assumed by the purchaser --- (13,329) (11,530) Notes receivable and other non-cash proceeds received as part of the proceeds --- (316) (10,090) Cash (paid) received relating to businesses sold or discontinued (2,420) (335) 1,492 ------ ------ ------ Net cash proceeds (payments) relating to businesses sold or discontinued $(2,420) $38,813 $38,496 ====== ====== ====== The following summarizes other non-cash financing and investing activities: Year Ended December 31, ----------------------- 1992 1991 ---- ---- ---- (Amounts in Thousands) Use of restricted cash and investments in settlement of certain litigation (see Note 7) $11,800 $ --- Exchange of debentures (see Note 7) 4,050 --- Settlement of 11% subordinated notes receivable (see Note 7) 2,576 --- Non-compete agreement --- 540 Capitalized lease obligations incurred --- 113 Other 1,556 1,174 Non-cash financing and investing activities were not significant for the year ended December 31, 1993. Nortek, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) 3. Income Taxes In the first quarter of 1993, the Company adopted SFAS No. 109, as a change in accounting method. Prior year financial statements have not been restated to reflect the new accounting method. The effect of adopting this new accounting method in the first quarter of 1993 was not significant to the provision for income taxes as compared to the prior accounting method. For years through December 31, 1992, the provision (credit) for income taxes was computed in accordance with the comprehensive income tax allocation method, which recognizes the tax effects of all income and expense transactions included in each year's consolidated statement of operations, regardless of the year the transactions are reported for tax purposes. The effect of this change in accounting method did not result in a charge to operations for the cumulative effect of an accounting change, but did result in changes to certain account balances on January 1, 1993 relating principally to net deferred income tax liabilities arising from acquisitions that were netted against certain asset and liability balances in the Company's consolidated balance sheet at December 31, 1992 as follows: Effect of Accounting Change ---------- (Amounts in Thousands) Increase in inventory, net $5,347 Increase in property and equipment, net 1,883 Decrease in accrued liabilities and taxes, net 1,833 Increase in other liabilities 99 Decrease in U. S. Federal prepaid income taxes 3,578 Increase in deferred income tax liabilities 5,386 The tax effect of temporary differences which gave rise to significant portions of deferred income tax assets and liabilities as of January 1, 1993 and December 31, 1993, as adjusted for the adoption of SFAS No. 109, is as follows: Dec. 31, Jan. 1, 1993 1993 -------- ------- (Amounts in Thousands) U. S. Federal Prepaid (Deferred) Income Tax Assets Arising From: Accounts receivable $ 1,387 $ 1,353 Inventory (666) (2,229) Insurance reserves 4,576 4,682 Other reserves, liabilities and assets, net 11,725 13,162 Other, net (22) 32 ------ ------ $17,000 $17,000 ====== ====== Nortek, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) Dec. 31, Jan. 1, 1993 1993 -------- ------- (Amounts in Thousands) Deferred (Prepaid) Income Tax Liabilities Arising From: Property and equipment, net $11,709 $16,188 Prepaid pension assets 1,666 1,977 Unamortized debt discount 102 2,369 Insurance reserves (1,024) (556) Other reserves, liabilities and assets, net 844 3,621 Capital loss carryforward (6,217) (5,925) Unrealized loss on business held for sale (3,405) --- Net operating loss carryforward --- (1,350) Contribution carryforward --- (544) Alternative minimum tax carryforward --- (509) Valuation allowances 14,326 11,714 Other, net (1) 15 ------ ------ $18,000 $27,000 ====== ====== At December 31, 1993, the Company has a capital loss carryforward of approximately $17,700,000, which expires in the year 1997. The Company has provided a valuation allowance equal to the tax effect of capital loss carryforwards and certain other deferred income tax assets, since realization of these deferred income tax assets, in part, is dependent on future taxable income which cannot be reasonably assured. At December 31, 1993, the Company has approximately $8,000,000 of net U.S. Federal prepaid income tax assets which are expected to be realized through future operating earnings. At December 31, 1992, under the prior accounting method, prepaid income taxes of approximately $22,000,000, relating principally to accruals not deductible currently, were classified as a current asset, while cumulative deferred income tax liabilities of approximately $29,696,000, relating principally to depreciation differences, were classified as a non-current liability in the accompanying consolidated balance sheet. The following is a summary of the components of loss from continuing operations before income tax credit: Year Ended December 31, ----------------------- 1993 1992 1991 ---- ---- ---- (Amounts in Thousands) Domestic $(17,000) $(24,400) $(52,900) Foreign 5,400 6,400 7,200 ------ ------- ------- $(11,600) $(18,000) $(45,700) ====== ======= ======= Nortek, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) The following is a summary of the provision (credit) for income taxes from continuing operations included in the accompanying consolidated statement of operations: Year Ended December 31, ------------------------ 1993 1992 1991 ---- ---- ---- (Amounts in Thousands) Federal Income Taxes-- Current $2,800 $ 600 $(5,400) Deferred (6,300) (1,700) (9,350) ----- ------ ------- (3,500) (1,100) (14,750) Foreign 2,600 3,200 3,000 State 1,900 900 750 ----- ------ ------- $1,000 $ 3,000 $(11,000) ===== ====== ======= The deferred federal income tax credit from continuing operations includes the following timing differences: Year Ended December 31, ------------------------ 1993 1992 1991 ---- ---- ---- (Amounts in Thousands) Business held for sale $(7,277) $ --- $ --- Change in valuation reserve 2,618 --- --- Accelerated depreciation (1,378) (1,550) (1,320) Accruals not deductible currently 426 1,625 (3,975) Capitalization of inventory for tax purposes (35) 250 (25) Effect of capital loss --- (1,400) --- Alternative minimum income tax --- (275) (3,750) Other, net (654) (350) (280) ----- ------ ------ Total deferred federal income tax credit from continuing operations $(6,300) $(1,700) $(9,350) ===== ====== ====== Income tax (payments) refunds, net, were approximately $(11,950,000), $(1,600,000) and $5,700,000 in 1993, 1992 and 1991, respectively. Nortek, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) The table below reconciles the federal statutory income tax rate to the effective tax rate from continuing operations of approximately 8.6%, 16.7% and 24.1% in 1993, 1992 and 1991, respectively. Year Ended December 31, ------------------------ 1993 1992 1991 ---- ---- ---- (Amounts in Thousands) Income tax credit from continuing operations at the Federal statutory rate $(4,060) $(6,120) $(15,538) Net change from statutory rate: Change in valuation reserve 2,618 --- --- Effect of unrecognized capital losses --- 3,990 --- State taxes, net of federal tax effect 1,235 594 495 Amortization not deductible for tax purposes 746 552 358 Businesses sold (172) 2,827 968 Foreign source deemed income 700 648 2,182 Tax effect on foreign income 196 479 546 Other, net (263) 30 (11) ----- ------ ------- Income tax provision (credit) from continuing operations $ 1,000 $ 3,000 $(11,000) ===== ====== ======= The Company recorded a $1,000,000 income tax credit (principally deferred) in the first quarter of 1993 relating to the cumulative effect of an accounting change for certain post-retirement benefits. In the fourth quarter of 1993, the Company recorded a $3,175,000 deferred income tax credit relating to the extraordinary loss, arising from indebtedness called for redemption. (See Note 4.) In 1991, the Company recorded a $5,000,000 current income tax provision relating to the extraordinary gain on debt retirements. Nortek, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) 4. Notes, Mortgage Notes and Debentures Payable Notes, mortgage notes and debentures payable in the accompanying consolidated balance sheet at December 31, 1993 and 1992 consist of the following: December 31, ------------- 1993 1992 ---- ---- (Amounts in Thousands) Notes payable to banks $ 7,348 $ --- Mortgage notes payable 8,188 11,676 Other 1,141 4,085 9 3/4% Senior Notes due 1997 ("9 3/4% Senior Notes"), net of unamortized original issue discount of $293,000 and $6,967,000 51,152 44,478 13 1/2% senior subordinated debentures due 1997 ("13 1/2% Debentures"), net of unamortized original issue discount of $53,000 and $438,000 79,305 79,685 11 1/2% senior subordinated debentures due 1994 ("11 1/2% Debentures"), net of unamortized original issue discount of $18,000 and $69,000 22,582 22,531 11% subordinated sinking fund debentures due 2004 ("11% Debentures"), net of unamortized debt discount of $18,000 and $666,000 19,406 18,758 10% subordinated sinking fund debentures due 1999 ("10% Debentures"), net of unamortized debt discount of $8,000 and $269,000 2,587 2,742 7 1/2% convertible sinking fund debentures due 2006 ("7 1/2% Convertible Debentures") 15,494 15,793 ------- ------- 207,203 199,748 Less amounts included in current liabilities 37,539 6,810 ------- ------- $169,664 $192,938 ======= ======= On January 14, 1994, the Company redeemed $22,600,000 principal amount of its 11-1/2% Debentures, which were called for redemption in December 1993 and are classified as a current liability in the accompanying consolidated balance sheet. Nortek, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) In February 1994, the Company sold in a public offering $218,500,000 of its 9- 7/8% Senior Subordinated Notes due 2004 ("9-7/8% Notes") at a discount of approximately $1,717,000, which will be amortized over the life of the issue. Net proceeds from the sale of the 9-7/8% Notes, after deducting underwriting commissions and expenses, amounted to approximately $207,695,000, and a portion of such proceeds were used to redeem on March 24, 1994 the Company's outstanding principal amount of indebtedness and pay accrued interest on $51,445,000 of its 9-3/4% Senior Notes, $79,358,000 of its 13-1/2% Debentures, $2,595,000 of its 10% Debentures, and $19,424,000 of its 11% Debentures, all of which were called for redemption on February 22, 1994. The 13-1/2% Debentures were redeemed at 101.5% of the outstanding principal amount thereof, while the other issues were redeemed at par. The call for these debt redemptions resulted in an extraordinary loss of approximately $6,100,000 ($.49 per share) net of an income tax credit of approximately $3,175,000, which was recorded in the fourth quarter of 1993. The unaudited pro forma consolidated loss from continuing operations and fully diluted loss per share would have been $11,800,000 and $.94, respectively for the year ended December 31, 1993, as adjusted for the pro forma effect of this financing and the redemption of the Company's indebtedness, had such transactions been completed as of January 1, 1993. The pro forma data does not purport to be indicative of the results which would actually have been reported, or which may be reported in the future. The pro forma data includes a net after-tax loss of approximately $14,900,000 ($1.19 per share) as a result of the valuation reserve provided on Dixieline (See Note 9). In computing the pro forma loss from continuing operations, interest expense on the indebtedness redeemed during the period that such indebtedness was outstanding was excluded from operating results at an average interest rate of approximately 13.3% (including amortization of debt discounts and deferred debt expense), net of the tax effect. Interest expense was included on the Notes at a rate of approximately 9-7/8% plus amortization of deferred debt expense and debt discount, net of the tax effect. Investment income was assumed earned on the remaining cash proceeds from the debt financing at a rate of 3.5%. The 9-7/8% Notes are redeemable at the option of the Company, in whole or in part, at any time and from time to time, at 104.214% on March 1, 1999, declining to 100% on March 1, 2002 and thereafter. The Company's Canadian subsidiary has a $15,200,000 secured line of credit, of which approximately $11,200,000 in the aggregate is available to the Company. At December 31, 1993, there was approximately $7,000,000 outstanding (all of the proceeds of which borrowings were advanced to the Company) under this secured line of credit bearing interest at rates that approximate the prime rate of interest. At March 15, 1994, there was approximately $2,346,000 outstanding borrowings under this secured line of credit. The line of credit facility is subject to review by April 30, 1994. The Canadian subsidiary pays a commitment fee of .25% per annum on the unutilized portion of the line of credit payable monthly on a pro rata basis. Borrowings are available for Nortek, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) working capital and other general corporate purposes, of which approximately $3,850,000 at March 15, 1994 is available for Nortek and its other subsidiaries' requirements. Mortgage notes payable include various mortgage notes and other related indebtedness payable in installments through 1998 and bearing interest at rates ranging from 2% to 13.5%. Approximately $8,038,000 of such indebtedness is collateralized by property and equipment with an aggregate net book value of approximately $5,901,000 at December 31, 1993. Other obligations include borrowings relating to equipment purchases and other borrowings bearing interest from 2% to 5% and maturing at various dates through 2001. Approximately $1,141,000 of such indebtedness is collateralized by property and equipment with an aggregate net book value of approximately $1,338,000 at December 31, 1993. Mortgage notes payable of a business held for sale principally include various mortgage notes payable of Dixieline in installments through 1997 and bearing interest at an adjustable rate equal to three points over the U. S. treasury bill rate. At December 31, 1993, the current interest rate was approximately 6.23% under these mortgage notes payable. Approximately $8,546,000 of such indebtedness is collateralized by property and equipment with an aggregate net book value of $10,095,000 at December 31, 1993. Maturities of such indebtedness are $255,000 in 1995, $2,769,000 in 1996 and $5,522,000 in 1997. During 1993, the Company acquired, at a discount, in open market transactions approximately $1,202,000 principal amount of its various notes and debentures. These purchases did not result in a gain or loss. During 1992 and 1991, the Company acquired, at a discount, in open market and negotiated transactions, approximately $26,398,000 and $56,485,000, respectively, principal amount of its various notes and debentures. These transactions resulted in an extraordinary gain of $200,000, net of income taxes of $150,000 ($.01 per share) in the second quarter of 1992, an extraordinary loss of $100,000, net of an income tax credit of $100,000 ($.01 per share) in the third quarter of 1992, extraordinary gains of $3,500,000, net of income taxes of $2,500,000 ($.26 per share) in the first quarter of 1991, $1,200,000, net of income taxes of $650,000 ($.09 per share) in the second quarter of 1991, and $2,900,000, net of income taxes of $1,850,000 ($.22 per share) in the fourth quarter of 1991. Discount and deferred costs relating to various notes and debentures in 1993 were principally being amortized over the original life of those issues. Such amortization of discount and deferred costs was approximately $2,100,000, $2,000,000 and $2,000,000 in 1993, 1992 and 1991, respectively. In the fourth quarter of 1993, as a result of the call for redemption of certain of the Company's indebtedness described above, the Company wrote off approximately Nortek, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) $8,100,000 of unamortized deferred debt expense and debt discount and provided a redemption premium of approximately $1,175,000, both of which were recorded as an extraordinary loss. The indenture governing the 9-7/8% Notes restricts, among other things, the payment of cash dividends, repurchase of the Company's capital stock and the making of certain other restricted payments, the incurrence of additional indebtedness, the making of certain investments, mergers, consolidations and sale of assets (all as defined in the indenture). Upon certain asset sales (as defined in the indenture), the Company will be required to offer to purchase, at 100% principal amount plus accrued interest to the date of purchase, 9-7/8% Notes in a principal amount equal to any net cash proceeds (as defined in the indenture) that are not invested in properties and assets used primarily in the same or related business to those owned and operated by the Company at the issue date of the 9-7/8% Notes or at the date of such asset sale and such net cash proceeds were not applied to permanently reduce Senior Indebtedness (as defined in the indenture). The indenture governing the 7 1/2% Convertible Debentures limits the payment of cash dividends and stock payments and requires that the Company maintain a minimum net worth, as defined, of $100,000,000. If the net worth at the end of any two consecutive fiscal quarters falls below the minimum, then on the last day of the fiscal quarter (the "Accelerated Payment Date") next following such second fiscal quarter, the Company will be required to accelerate the then outstanding principal amount due after such Accelerated Payment Date. Such redemptions will continue until the Company's net worth exceeds $100,000,000 or until all the 7 1/2% Convertible Debentures are redeemed. The redemption price of the 7 1/2% Convertible Debentures will be their principal amount plus accrued interest to the Accelerated Payment Date. The Company may credit against its obligation to redeem the 7 1/2% Convertible Debentures upon any Accelerated Payment Date the principal amount of (i) 7- 1/2% Convertible Debentures acquired by the Company and surrendered for cancellation (including converted 7 1/2% Convertible Debentures), and (ii) 7 1/2% Convertible Debentures redeemed or called for redemption otherwise than through operation of the sinking fund or through redemption on an Accelerated Payment Date. In no event shall the failure to meet the minimum net worth stated above at the end of any fiscal quarter be counted toward more than one acceleration of any sinking fund payment. All sinking fund requirements of the 7 1/2% Convertible Debentures have been met. The 7 1/2% Convertible Debentures are redeemable at the option of the Company as a whole or from time to time in part, at 102.25% (as of December 31, 1993) declining to 100% on May 1, 1996. At December 31, 1993 and 1992, the 7 1/2% Convertible Debentures were convertible into shares of Common Stock of the Company at $21.56 per share, which is subject to adjustment under certain conditions. Nortek, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) The following is a summary of maturities of all of the Company's debt obligations, excluding unamortized debt discount, due after December 31, 1994, as adjusted for the pro forma effect of the financing and the redemption of the Company's indebtedness on March 24, 1994: (Amounts in Thousands) 1995 $ 498 1996 533 1997 527 1998 488 Thereafter 234,223 ------- $236,269 ======= After the redemption on March 24, 1994 of certain indebtedness noted above, the indenture governing the 7-1/2% Convertible Debentures will be the most restrictive of the Company's loan agreements and indentures. The payment of cash dividends and stock payments was prohibited at December 31, 1993 and subsequently thereafter. 5. Common Stock, Special Common Stock, Stock Options and Deferred Compensation Each share of Special Common Stock has 10 votes on all matters submitted to a stockholder vote, except that the holders of Common Stock, voting separately as a class, have the right to elect 25% of the directors to be elected at a meeting to the Company's Board of Directors, with the remaining 75% being elected by the combined vote of both classes. Shares of Special Common Stock are generally non-transferable, but are freely convertible on a share-for-share basis into shares of Common Stock. The Company has a rights plan which provides for the right to purchase for $75, one one-hundredth of a share of $1.00 par value Series A Participating Preference Stock for each right held. The rights that are not currently exercisable, are attached to each share of Common Stock and may be redeemed by the Directors at $.01 per share at any time. After a shareholder acquires beneficial ownership of 17% or more of the Company's Common Stock and Special Common Stock, the rights will trade separately and become exercisable entitling a rights holder to acquire additional shares of the Company's Common Stock having a market value equal to twice the amount of the exercise price of the right. In addition, after a person or group ("Acquiring Company") commences a tender offer or announces an intention to acquire 30% or more of the Company's Common Stock and Special Common Stock, the rights will trade separately and, under certain circumstances, will permit each rights holder to acquire common stock of the Acquiring Company, having a market value equal to twice the amount of the exercise price of the right. At December 31, 1993, a total of 2,360,521 shares of Common Stock was reserved as follows: Conversion of convertible debentures 718,646 Stock option plans 792,300 Conversion of special common stock 849,575 --------- 2,360,521 ========= Nortek, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) At December 31, 1993, a total of 43,500 shares of Special Common Stock was reserved for stock option plans. The Company has several stock option plans which provide for the granting of options to certain officers, employees and non-employee directors of the Company. Options granted under the plans vest over periods ranging up to five years and expire from eight to ten years from the date of grant. These Plans provide for the issuance of 1,183,333 shares of the Company's Common Stock and Special Common Stock, and at December 31, 1993, there were options outstanding covering 503,900 shares of Common and Special Common Stock, of which 233,200 options are currently exercisable. Options for 65,100 and 41,400 shares of Common and Special Common Stock became exercisable during 1993 and 1992, respectively. Proceeds from options exercised are credited to common stock and additional paid-in capital. The following table summarizes all Common and Special Common Stock option transactions for the three years ended December 31, 1993: Option Price Number ------------ of Shares Per Share Total --------- --------- ----- Options outstanding at December 31, 1990 354,300 $2.25-$15.69 $1,529,634 Granted 30,000 2.88 86,250 Canceled (7,800) 2.88 (22,425) Options outstanding at December 31, 1991 376,500 $2.25-$15.69 $1,593,459 Exercised (85,700) 2.25-2.88 (240,613) Canceled (50,500) 2.25-8.69 (288,008) Options outstanding at December 31, 1992 240,300 $2.25-$15.69 1,064,838 Granted 280,000 8.75 2,450,000 Exercised (16,400) 2.25-2.875 (44,000) ------- ----------- --------- Options outstanding at December 31, 1993 503,900 $2.25-15.69 $3,470,838 ======= =========== ========= On January 31, 1992, the Company acquired 625,000 shares of its Common Stock in a negotiated transaction for approximately $1,975,000 including expenses. (See Note 4 with respect to limitations on the payment of cash dividends and stock payments.) 6. Pension, Retirement, Profit Sharing Plans and Post-Retirement Benefits The Company and its subsidiaries have various pension, retirement and profit sharing plans requiring contributions to qualified trusts and union administered funds. Pension and profit sharing expense charged to operations aggregated approximately $1,683,000 in 1993, $2,130,000 in 1992, and $1,938,000 in 1991. The Company's policy is to fund currently the actuarially determined annual contribution. Nortek, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) The Company's net pension expense (credit) for its defined benefit plans for 1993, 1992 and 1991 consists of the following components: Year Ended December 31, ----------------------- 1993 1992 1991 ---- ---- ---- (Amounts in Thousands) Service costs $1,685 $1,584 $1,213 Interest cost 1,989 1,967 1,818 Actual net income on plan assets (3,295) (3,173) (4,762) Net amortization and deferred items 822 1,070 2,635 ----- ----- ----- Net pension expense $1,201 $1,448 $ 904 ===== ===== ===== The following table sets forth the funded status of the Company's defined benefit plans and amounts recognized in the Company's consolidated balance sheet: Dec. 31, Dec. 31, 1993 1992 ------------- --------- Plan Assets Accumulated Plan Assets Exceeding Benefit Exceeding Accumulated Obligation Accumulated Benefit Exceeding Benefit Obligation Plan Assets Obligation (Amounts in Thousands) Actuarial present value of benefit obligations at September 30: Vested benefits $17,799 $ 4,221 $17,535 Non-vested benefits 434 305 552 ------ ------ ------ Accumulated benefit obligation 18,233 4,526 18,087 Effect of projected future compensation levels 5,936 --- 5,829 ------ ------ ------ Projected benefit obligation 24,169 4,526 23,916 Plan assets at fair value at September 30 24,055 3,678 26,065 ------ ------ ------ Plan assets in excess of (less than) the projected benefit obligation (114) (848) 2,149 Unrecognized net loss 7,294 806 5,930 Unrecognized transition net asset at January 1 (2,971) --- (3,320) Unrecognized prior service costs 312 652 985 Additional minimum liability --- (1,458) --- ------ ------ ------ Prepaid pension costs (liability) at December 31 $ 4,521 $ (848) $ 5,744 ====== ====== ====== Plan assets include commingled funds, marketable securities, insurance contracts and cash and short-term investments. The weighted average discount rate and rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation were 7.125 percent and 5.5 percent, respectively, in 1993, and 8 percent and 6 percent, respectively, in 1992 and 1991. The expected long-term rate of return on Nortek, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) assets was 8.5 percent in 1993 and 9.5 percent in 1992 and 1991. In 1993, a minimum pension liability and an intangible asset for certain plans was recognized, resulting in a reduction in the Company's stockholders' investment of approximately $806,000. Certain of the Company's subsidiaries provided health care and related benefits, which were modified in 1993, to qualified active and retired beneficiaries. These benefits are net of reimbursement by Medicare and other insurance coverages. Effective January 1, 1993, the Company adopted the accounting requirements of Statement of Financial Accounting Standards ("SFAS") No. 106, "Employers' Accounting for Post-Retirement Benefits Other Than Pensions" and recorded an accumulated post-retirement benefit obligation ("APBO") of approximately $3,100,000 (before income tax credit of approximately $1,000,000) at January 1, 1993 as a charge to operations ($.17 per share, net of tax) as the cumulative effect of an accounting change. Previously, such benefits were charged to operating results in the period that such benefits were paid. Approximately $950,000 of the APBO was paid during 1993 as a result of certain plan modifications. The annual expense for 1993 from adopting SFAS 106 was approximately equal to the expense that would have been recorded under the previous accounting method. The discount rate used in determining the APBO at January 1, 1993 was 8 percent. A 17 percent annual rate of increase in the per capita cost of such health care and related benefits was assumed for determining the APBO at January 1, 1993, decreasing gradually to 6 percent in the year 2009. If the assumed health care and related cost trend rates increased 1 percent for all future years, the APBO at January 1, 1993 could have increased 10 percent. At December 31, 1993, the actuarially determined APBO for remaining plan benefits was approximately $1,400,000, relating principally to one subsidiary of the Company. The annual expense and liability related to these benefits is not significant to the Company's operations or financial position. 7. Commitments and Contingencies The Company provides accruals for all direct and indirect costs associated with the estimated resolution of contingencies at the earliest date at which the incurrence of a liability is deemed probable and the amount of such liability can be reasonably estimated. The Company's Air Conditioning and Heating Products Group's plant in St. Louis, Missouri, which manufactures products for the residential and manufactured housing markets, experienced damage as a result of the flooding of the Mississippi River in July 1993. The plant was closed for several weeks, but returned to full operation in late August 1993. At December 31, 1993, the Company accrued for estimated losses of $14,500,000 related to the flooding, recorded a receivable of approximately $14,500,000 for casualty, property damage and business interruption insurance claims due from its insurance carrier and recorded as a liability approximately $13,200,000 of cash advances received relating to such claims. The Company believes that it has adequate insurance coverage and does not expect this event to have a material adverse effect on the Company's financial condition or results of operations. In July 1992, derivative litigation against the Company and its directors challenging the transactions involving the retirement in 1990 of the Company's Nortek, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) former Chairman was settled. In connection with the settlement, the Company recorded a net after-tax gain on discontinued operations, in the third quarter, of approximately $900,000 ($.07 per share), resulting from the exchange of certain notes (carried at approximately $2,576,000 on Nortek's books at the date of the exchange) due from a company controlled by Nortek's former Chairman and held by the Company for $4,050,000 principal amount of Nortek 13-1/2% Debentures held by such company controlled by Nortek's former Chairman. In December 1991, the Company recorded an $11,500,000 pre-tax charge ($.47 per share, net of tax) in connection with the settlement of litigation with the former selling shareholders of the Company's former Bend Millwork Systems Company. At December 31, 1993, the Company and its subsidiaries, excluding Dixieline, are obligated under lease agreements for the rental of certain real estate and machinery and equipment used in its operations. Minimum annual rental expense aggregates approximately $12,728,000 at December 31, 1993. The obligations are payable as follows: 1994 $4,966,000 1995 2,431,000 1996 1,691,000 1997 1,416,000 1998 1,343,000 Thereafter 881,000 Certain of these lease agreements provide for increased payments based on changes in the consumer price index. Rental expense, from continuing operations in the accompanying consolidated statement of operations, excluding Dixieline, for the years ended December 31, 1993, 1992 and 1991 was approximately $6,562,000, $8,716,000 and $10,583,000, respectively. Under certain of these lease agreements, the Company and its subsidiaries are also obligated to pay insurance and taxes. At December 31, 1993, Dixieline is obligated under lease agreements for the rental of certain real estate and machinery and equipment used in its operations. Minimum rental expense (net of minimum sub lease rental income of approximately $9,327,000) aggregates approximately $25,086,000 at December 31, 1993. Obligations are payable as follows: 1994 $ 2,190,000 1995 1,863,000 1996 1,596,000 1997 1,513,000 1998 1,492,000 Thereafter 16,432,000 Certain of these lease obligations provide for increased payments based on changes in the consumer price index. Dixieline's rental expense, net, from continuing operations included in the Company's accompanying consolidated statement of operations for the years ended December 31, 1993, 1992 and 1991 was approximately $1,225,000, $1,910,000 and $1,851,000, respectively. Under certain of these lease agreements, Dixieline is obligated to pay insurance and taxes. Nortek, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) At December 31, 1993, the Company is contingently liable for obligations (approximately $7,500,000) under Industrial Revenue Bond agreements ("IRB's") relating to facilities of previously owned subsidiaries. During 1992, the Company was notified of events of default relating to the failure of one of these previously owned subsidiaries, obligated on $7,100,000 of these IRB's, to make interest payments of approximately $800,000 due in March and September 1992 and a $75,000 payment of principal and interest due in May 1992. In February 1993, the Company was informed that this former subsidiary filed for protection under Federal bankruptcy laws. The Company has not been informed of what actions might be taken by the holders of these bonds, but it is possible there may be a call for acceleration of payment of the bonds. In March 1994, the Company paid approximately $1,594,000 to the Trustee of these IRB's for interest payments through that date. The Company believes that any liability that may ultimately result from the resolution of this matter, in excess of amounts provided, will not have a material adverse effect on financial position or results of operations of the Company. The Company is subject to other contingencies, including additional legal proceedings and claims arising out of its businesses that cover a wide range of matters, including, among others, environmental matters, contract and employment claims, product liability, warranty and modification, adjustment or replacement of component parts of units sold, which may include product recalls. The Company has used various substances in its products and manufacturing operations which have been or may be deemed to be hazardous or dangerous, and the extent of its potential liability, if any, under environmental, product liability and worker's compensation statutes, rules, regulations and case law is unclear. Further, due to the lack of adequate information and the potential impact of present regulations and any future regulations, there are certain circumstances in which no range of potential exposure may be reasonably estimated. While it is impossible to ascertain the ultimate legal and financial liability with respect to contingent liabilities, including lawsuits, the Company believes that the aggregate amount of such liabilities, if any, in excess of amounts provided, will not have a material adverse effect on the consolidated financial position or results of operations of the Company. 8. Operating Segment Information and Concentration of Credit Risk The Company operates in one industry segment, Residential and Commercial Building Products. No single customer accounts for 10% or more of consolidated net sales. More than 90% of net sales and identifiable segment assets are related to the Company's domestic operations. Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and trade receivables. The Company places its temporary cash investments with high credit quality financial institutions and limits the amount of credit exposure to any one financial institution. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Company's customer base, and their dispersion across many different geographical regions. At December 31, 1993, the Company had no significant concentrations of credit risk. Nortek, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) 9. Businesses Sold or Held for Sale In October 1993, the Company decided to sell Dixieline and provided a pre-tax valuation reserve of approximately $20,300,000 ($1.19 per share, net of tax) in the third quarter of 1993 to reduce the Company's net investment in such business to estimated net realizable value. On January 2, 1992, the Company's Dixieline Products, Inc. subsidiary sold the assets, subject to certain liabilities of its subsidiary, L. J. Smith, Inc. ("L. J. Smith") for approximately $24,000,000. The Company recorded a pre-tax gain on the sale of L. J. Smith of approximately $8,000,000 ($.34 per share, net of tax) in the first quarter of 1992. On October 2, 1992, the Company sold all of the capital stock of its wholly-owned subsidiary, Bend Millwork Systems, Inc. ("Bend") for approximately $17,200,000 in cash and recorded a pre-tax loss on sale in the third quarter of 1992 of approximately $20,500,000 ($1.43 per share, net of tax). In the fourth quarter of 1992, the Company provided additional reserves of approximately $2,000,000 ($.17 per share, net of tax) in connection with the sale of Bend related to purchase price negotiations and settlements. The combined unaudited net sales and pre-tax loss for all businesses sold or held for sale in 1993 and 1992 included in the consolidated statement of operations of the Company were approximately $83,205,000 and $600,000, respectively, for the year ended December 31, 1993, and approximately $185,431,000 and $2,250,000, respectively, for the year ended December 31, 1992. 10. Discontinued Operations Results of discontinued operations include other income and expense items relating to businesses discontinued in prior years, including an increase in reserves of approximately $1,400,000 in the third quarter and $5,000,000 in the fourth quarter of 1992. Results of discontinued operations in 1991 include other income and expense items relating to businesses discontinued in prior years, including proceeds received from the settlement of certain litigation that was pending prior to the sale in 1989 of the Company's former Bradford-White Corporation subsidiary which resulted in a pre-tax gain of approximately $700,000 in the first quarter of 1991 ($.03 per share, net of tax). 11. Net Gain (Loss) on Investment and Marketable Securities During 1993, the Company recorded a pre-tax gain on investment and marketable securities of $1,000,000 ($0.05 per share, net of tax) in the first quarter, a pre-tax gain of $450,000 ($0.02 per share, net of tax) in the second quarter, a $900,000 pre-tax gain ($0.05 per share, net of tax) in the third quarter and a pre-tax loss of $700,000 ($0.04 per share, net of tax) in the fourth quarter. Nortek, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) During 1992, the Company recorded a pre-tax loss on investment and marketable securities of $500,000 ($.03 per share, net of tax) in the first quarter, a pre- tax gain of $850,000 ($.04 per share, net of tax) in the second quarter, a $1,050,000 pre-tax gain ($.06 per share, net of tax) in the third quarter and a pre-tax loss of $550,000 ($.04 per share, net of tax) in the fourth quarter. During 1991, the Company recorded a pre-tax gain on investment and marketable securities of approximately $200,000 ($.01 per share, net of tax) in the first quarter, a pre-tax loss of $1,850,000 ($.09 per share, net of tax) in the second quarter, a pre-tax gain of $350,000 ($.02 per share, net of tax) in the third quarter and a pre-tax gain of $1,700,000 ($.09 per share, net of tax) in the fourth quarter. The pre-tax loss in the second quarter includes a $1,600,000 pre-tax loss ($.07 per share, net of tax) from the sale of the Company's investment in Stanley Interiors' preferred stock (previously recorded in other assets) for approximately $1,000,000 in cash. 12. Selling, General and Administrative Expense In the fourth quarter of 1993, the Company's Plumbing Products Group recorded a pre-tax loss of approximately $2,800,000 ($.15 per share, net of tax) in connection with the curtailment of certain product lines. In the third quarter of 1993, the Company recorded a pre-tax loss of approximately $1,600,000 ($.08 per share, net of tax) as a result of the sale in October 1993 of certain real property and provided a pre-tax reserve of approximately $700,000 ($.04 per share, net of tax) in connection with the consolidation of certain of its manufacturing facilities. During 1991, the Company increased reserves (primarily related to businesses sold) for bad debts and warranties and recorded net after-tax charges of approximately $800,000 ($.06 per share) in the first quarter, $600,000 ($.04 per share) in the second quarter, $600,000 ($.04 per share) in the third quarter, and $800,000 ($.06 per share) in the fourth quarter. Also during 1991, the Company recorded net after-tax charges of approximately $400,000 ($.03 per share) in the second quarter, $800,000 ($.06 per share) in the third quarter and $200,000 ($.01 per share) in the fourth quarter in connection with various litigation matters. 13. Accrued Expenses and Taxes, Net Accrued expenses and taxes, net, consist of the following at December 31, 1993 and 1992: December 31, ------------- 1993 1992 ---- ---- (Amounts in Thousands) Interest $ 4,759 $ 4,840 Insurance 17,677 18,071 Payroll, management incentive and accrued employee benefits 11,647 10,567 Businesses sold or discontinued 8,650 12,963 Other, net 48,689 45,835 ------- ------ $91,422 $92,276 ======= ====== Nortek, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) 14. Summarized Quarterly Financial Data (Unaudited) The following summarizes unaudited quarterly financial data for the years ended December 31, 1993 and December 31, 1992: For the Quarters Ended ---------------------- April 3 July 3 Oct. 2 Dec. 31 ------- ------- ------ ------- (In Thousands except per share amounts) 1993 Net sales $178,707 $195,058 $202,030 $168,318 Gross profit 49,545 54,665 56,985 50,430 Earnings (loss) from continuing operations (1,400) 1,500 (12,900) 200 Earnings (loss) per share from continuing operations: Primary $ (.11) $ .12 $ (1.03) $ .02 Fully diluted $ (.11) $ .12 $ (1.03) $ .02 Net earnings (loss) $ (3,500) $ 1,500 $(12,900) $ (5,900) Net earnings (loss) per share: Primary $ (.28) $ .12 $ (1.03) $ (.47) Fully diluted $ (.28) $ .12 $ (1.03) $ (.47) For the Quarters Ended ---------------------- March 28 June 27 Sept. 26 Dec. 31 -------- ------- ------ ------- (In Thousands except per share amounts) 1992 Net sales $188,868 $215,862 $212,500 $182,749 Gross profit 46,017 54,239 51,317 53,229 Earnings (loss) from continuing operations 100 100 (19,800) (1,400) Earnings (loss) per share from continuing operations: Primary $ .01 $ .01 $ (1.58) $ (.11) Fully diluted $ .01 $ .01 $ (1.58) $ (.11) Net earnings (loss) $ 100 $ 300 $(19,900) $ (4,700) Net earnings (loss) per share: Primary $ .01 $ .02 $ (1.59) $ (.37) Fully diluted $ .01 $ .02 $ (1.59) $ (.37) The Company's earnings (loss) from continuing operations in 1993 includes an approximately $14,900,000 net after tax loss ($1.19 per share) in the third quarter relating to a valuation reserve to reduce the Company's investment in Dixieline to estimated net realizable value. (See Notes 1 and 9.) The net earnings (loss) in 1993 also includes an approximately $2,100,000 net after-tax loss ($0.17 per share) related to the cumulative effect of an accounting change in the first quarter (see Note 6), and an approximately $6,100,000 after-tax extraordinary loss ($0.49 per share) in the fourth quarter related to the call for debt redemption in the first quarter of 1994. (See Note 4.) The Company's earnings (loss) from continuing operations in 1992 includes a net after-tax gain of approximately $4,200,000 ($.34 per share) in the first quarter, a net after-tax loss of approximately $18,200,000 ($1.43 per share) Nortek, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued) in the third quarter and a net after-tax loss of approximately $2,000,000 ($.17 per share) in the fourth quarter on businesses sold. The Company's net loss in the fourth quarter of 1992 also includes a $3,300,000 after-tax loss ($.27 per share) on discontinued operations (see Notes 7 and 9). See Notes 4, 5, 9, 10, 11 and 12 regarding certain other quarterly transactions included in the operating results in the above table. Lower net sales in 1993 and 1992, as compared to the prior year principally reflect the effect of businesses sold or held for sale, partially offset by increased net sales of ongoing operations, in part, resulting from the slight improvement in the residential housing market. (See Management's Discussion and Analysis of Financial Condition and Results of Operations). SCHEDULE I NORTEK, INC. AND SUBSIDIARIES MARKETABLE SECURITIES DECEMBER 31, 1993 NUMBER OF SHARES, MARKET AMOUNT UNITS OR COST VALUE ON THE PRINCIPAL OF EACH OF EACH BALANCE DESCRIPTION AMOUNT ISSUE ISSUE SHEET - ----------- --------- ------- ------- ------- (Dollar Amounts in Thousands) Unrestricted marketable securities: U. S. Governmental and Agency Securities 26,000 $26,321 $25,892 $25,892 SCHEDULE II NORTEK, INC. AND SUBSIDIARIES NOTES AND ACCRUED INTEREST RECEIVABLE FROM EMPLOYEES FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 BALANCE DEDUCTIONS BALANCE BEGINNING AMOUNTS AMOUNTS END OF YEAR ------------ ----------- NAME OF YEAR ADDITIONS COLLECTED WRITTEN OFF CURRENT NON-CURRENT 1991 Ralph R. Papitto(c) $324,940$27,253(a) $ --- $ --- $ --- $352,193 1992 Ralph R. Papitto(c) $352,193$27,253(a) $ --- $ --- $379,446 $ --- ======= ====== ==== ==== ======= ======= 1993 Ralph R. Papitto(c) $379,446$22,711(a) $ ---$402,157(b) $ --- $ --- ======= ====== ==== ======= ======= ======= (a) Accrued interest at a rate of 8.95%. (b) Amounts forgiven and recorded as compensation expense. (c) In connection with the retirement and settlement of the employment agreement and other matters involving the Company's former Chairman, the remaining principal balance and accrued interest was forgiven on October 31, 1993. SCHEDULE V NORTEK, INC. AND SUBSIDIARIES PROPERTY AND EQUIPMENT OTHER (e) BALANCE AT CHANGES BALANCE BEGINNING ADDITIONS DEBIT/ AT END CLASSIFICATION OF YEAR AT COST (CREDIT) OF YEAR - -------------- ---------- --------- ------- ------- (Amounts in Thousands) For the year ended December 31, 1991: Land $ 23,797 $ 33 $ (822) (a)$23,043 (430) (b) 465 (c) Buildings and (2,647) (a) Improvements 95,113 2,201 (8,997) (b)89,027 3,357 (c) (2,575) (a) Machinery and (18,054) (b) Equipment and other 133,658 13,781 (5,304) (c)121,506 ------- ------ ------- ------- $252,568 $16,015 $(35,007) $233,576 ======= ====== ======= ======= For the year ended December 31, 1992: $ (94) (a) Land $ 23,043 $ 10 (1,409) (b)$20,822 (728) (c) Buildings and (1,104) (a) Improvements 89,027 316 (9,915) (b)71,388 (6,936) (c) (4,162) (a) Machinery and (12,790) (b) Equipment and other 121,506 8,478 (1,154) (c)111,878 ------- ------ ------- ------- $233,576 $ 8,804 $(38,292) $204,088 ======= ====== ======= ======= For the year ended December 31, 1993: Land $ 20,822 $ 60 $ (1,603) (c)$ 5,833 (13,446) (d) (103) (a) Buildings and (902) (c) Improvements 71,388 305 (18,379) (d)52,309 (2,649) (a) Machinery and (2,146) (c) Equipment and other 111,878 10,444 (8,544) (d)108,983 ------- ------ ------- ------- $204,088 $10,809 $(47,772) $167,125 ======= ====== ======= ======= (a) Sale, retirement or transfers of property and equipment (b) Sale of businesses (c) Other (d) Transfer of property and equipment of Dixieline to non-current assets of business held for sale (e) The total amount of property and equipment at December 1992, of approximately $204,088,000 above, includes approximately $39,050,000 of Dixieline property and equipment classified as non-current assets of business held for sale in the accompanying consolidated balance sheet. SCHEDULE VI NORTEK, INC. AND SUBSIDIARIES ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY AND EQUIPMENT ADDITIONS (a) BALANCE ATCHARGED TORETIREMENTS BALANCE BEGINNING COSTS AND AND AT END CLASSIFICATION OF YEAR EXPENSES OTHER OF YEAR - -------------- ------------------------------- ------- (Amounts in Thousands) For the year ended December 31, 1991: Buildings and Improvements $19,737 $ 5,189 $ (3,004) $21,922 Machinery and Equipment 46,722 15,563 (9,574) 52,711 ------ ------ ------- ------ $66,459 $20,752 $(12,578) $74,633 ====== ====== ======= ====== For the year ended December 31, 1992: Buildings and Improvements $21,922 $ 4,241 $ (5,797) $20,366 Machinery and Equipment 52,711 13,041 (10,811) 54,941 ------ ------ ------- ------ $74,633 $17,282 $(16,608) $75,307 ====== ====== ======= ====== For the year ended December 31, 1993: Buildings and Improvements $20,366 $ 3,596 $ (7,777) $16,185 Machinery and Equipment 54,941 11,397 (5,977) 60,361 ------ ------ ------- ------ $75,307 $14,993 $(13,754) $76,546 ====== ====== ======= ====== (a) The total amount of accumulated depreciation at December 31, 1992 of approximately $75,307,000 above includes approximately $8,838,000 of Dixieline accumulated depreciation classified in non-current assets of business held for sale in the accompanying consolidated balance sheet. SCHEDULE VIII NORTEK, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS BALANCE CHARGED AT TO COSTS CHARGED DEDUCTIONS BALANCE BEGINNING AND TO OTHER FROM AT END CLASSIFICATION OF YEAR EXPENSES ACCOUNTS RESERVES OF YEAR - -------------- --------- -------- -------- ---------- ------- (Amounts in Thousands) For the year ended December 31, 1991: Allowances for doubtful accounts and sales allowances $4,633 $3,349$(1,160)(b)$(2,189)(a) $4,633 ===== ===== ====== ====== ===== For the year ended December 31, 1992: Allowances for doubtful accounts and sales allowances $4,633 $2,362$ (573)(b)$(2,354)(a) $4,068 ===== ===== ===== ====== ===== For the year ended December 31, 1993: Allowances for doubtful accounts and sales allowances $4,068 $1,832$ (125)(c)$(1,577)(a) $4,198 ===== ===== ===== ====== ===== (a) Amounts written off, net of recoveries. (b) Sale of businesses. (c) Transfer of allowances for doubtful accounts of Dixieline to current assets of business held for sale. SCHEDULE IX NORTEK, INC. AND SUBSIDIARIES SHORT-TERM BORROWINGS DECEMBER 31, 1993 WEIGHTED MAXIMUM AVERAGE AVERAGE AMOUNT AMOUNT AVERAGE INTEREST OUT- OUT- INTEREST CATEGORY OF BALANCE RATE STANDING STANDING RATE AGGREGATE SHORT- AT END AT END DURING DURING DURING TERM BORROWINGS OF YEAR OF YEAR THE YEAR THE YEAR THE YEAR - ---------------- ------- -------- -------- ---------- ---------- (Dollar Amounts in Thousands) Year ended December 31, 1991: Credit Line Borrowings(a) $ --- --- $15,600 $10,900 10.38% Margin Borrowings(b) --- --- 9,000 --- --- Year ended December 31, 1992: Margin Borrowings(b) $ --- --- $13,100 $ 4,831 6.34% Year ended December 31, 1993: Credit Line Borrowings(c) $7,000 6.15% $7,000 $7,000 6.15% Margin Borrowings(b) --- --- 7,000 5,293 5.50% (a) During 1991, the Company's Canadian subsidiary had up to approximately $15,600,000 of borrowings under a secured line of credit. The average amount outstanding and average interest rate during the year was calculated based on outstanding balances and weighted average interest rates at each month end during the year, respectively. (b) During 1991, the Company had margin borrowings outstanding of $9,000,000 for three days at 7.75%. During 1992, the Company had margin borrowings outstanding for 141 days at a weighted average interest rate of approximately 6.34% and a weighted average amount outstanding of approximately $4,831,000. During 1993, the Company had margin borrowings outstanding for 51 days at a weighted average interest rate of approximately 5.50% and a weighted average amount outstanding of approximately $5,293,000. There were no borrowings outstanding at December 31, 1993. (c) On December 30, 1993, the Company's Canadian subsidiary borrowed approximately $7,000,000 under its secured line of credit, and such borrowings were advanced to Nortek, Inc. (See Note 4 of the Notes to Consolidated Financial Statements, included elsewhere herein.) SCHEDULE X NORTEK, INC. AND SUBSIDIARIES SUPPLEMENTARY PROFIT AND LOSS INFORMATION (a) Year Ended December 31, ----------------------- 1993 1992 1991 -------- ---- (Amounts in Thousands) Maintenance and repairs $ 8,258 $10,955 $11,640 ====== ====== ====== Advertising $12,186 $10,963 $11,945 ====== ====== ====== (a)Depreciation and amortization of intangible assets and similar deferrals have been disclosed separately in the Registrant's consolidated financial statements for the three years ended December 31, 1993. Taxes, other than payroll and income taxes, and royalties, as reported in the related consolidated statement of operations, did not exceed 1% of net sales and are therefore not required to be disclosed separately. CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS To Nortek, Inc.: As independent public accountants, we hereby consent to the incorporation of our report dated March 24, 1994 included in this Form 10-K, into the Company's previously filed Registration Statements on Form S-8 (File Nos. 33-22527 and 33-47897) and Form S-3 (File No. 33-4693). ARTHUR ANDERSEN & CO. Boston, Massachusetts, March 24, 1994 EXHIBIT INDEX Exhibits marked with an asterisk are filed herewith. The remainder of the exhibits have heretofore been filed with the Commission and are incorporated herein by reference. Exhibits marked with a double asterisk identify each management contract or compensatory plan or arrangement. 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 November 30, 1993). 4.1 Indenture dated as of May 1, 1986 between the Company and Fleet National Bank relating to the 7 1/2% Convertible Debentures due 2006 (Exhibit 4.1 to Registration Statement No. 33-4693 filed April 23, 1986). 4.2 First Supplemental Indenture dated as of April 23, 1987 between the Company and Fleet National Bank supplementing the Indenture dated May 1, 1986 relating to the 7 1/2% Convertible Debentures due 2006 (Exhibit 4.11 to Form 10-K filed March 30, 1988, File No. 1-6112). 4.3 Rights Agreement dated as of March 31, 1986 as amended and restated as of March 18, 1991 between the Company and State Street Bank and Trust Company, as Rights Agent (Exhibit 1 to Form 8-K filed March 26, 1991, File No. 1-6112). 4.4 Amendment No. 1 dated as of October 6, 1993 to Amended and Restated Rights Agreement dated as of March 18, 1991 (Exhibit 1 to Form 8-K filed October 12, 1993, File No. 1-6112). *4.5 Indenture dated as of February 14, 1994 between the Company and State Street Bank and Trust Company, as Trustee, relating to the 9 7/8% Senior Subordinated Notes due 2004. **10.1 Employment Agreement between Richard L. Bready and the Company, dated as of January 1, 1984 (Exhibit 10.2 to Form 10-K filed March 31, 1986, File No. 1-6112). **10.2 Amendment dated as of March 3, 1988 to Employment Agreement between Richard L. Bready and the Company dated as of January 1, 1984 (Exhibit 19.2 to Form 10-Q filed May 17, 1988, File No. 1-6112). **10.3 Second Amendment dated as of November 1, 1990 to Employment Agreement between Richard L. Bready and the Company dated as of January 1, 1984 (Exhibit 10.3 to Form 10-K filed April 1, 1991, File No. 1-6112). **10.4 Deferred Compensation Agreement dated March 7, 1983 between Richard L. Bready and the Company (Exhibit 10.4 to Registration Statement No. 33-69778 filed February 9, 1994). **10.5 Deferred Compensation Agreement dated March 7, 1983 between Almon C. Hall and the Company (Exhibit 10.5 to Registration Statement No. 33-69778 filed February 9, 1994. **10.6 Deferred Compensation Agreement dated March 7, 1983 between Richard J. Harris and the Company (Exhibit 10.6 to Registration Statement No. 33-69778 filed February 9, 1994). **10.7 1984 Stock Option Plan, as amended through May 27, 1987 (Exhibit 28.2 to Registration Statement No. 33-22527 filed June 15, 1988). **10.8 Change in Control Severance Benefit Plan for Key Employees adopted February 10, 1986, and form of agreement with employees (Exhibit 10.19 to Form 10-K filed March 31, 1986, File No. 1-6112). **10.9 1987 Stock Option Plan (Exhibit 28.3 to Registration Statement No. 33-22527 filed June 15, 1988). **10.10 Form of Indemnification Agreement between the Company and its directors and certain officers (Appendix C to Proxy Statement dated March 23, 1987 for Annual Meeting of Nortek Stockholders, File No. 1-6112). **10.11 1988 General Stock Option Plan (Appendix A to Proxy Statement dated April 1, 1988 for Annual Meeting of Nortek Stockholders, File No. 1-6112). **10.12 1988 General Stock Option Plan III (Appendix C to Proxy Statement dated April 12, 1989 for Annual Meeting of Nortek Stockholders, File No. 1-6112). 10.13 Registration Rights Agreement dated as of October 31, 1990 between the Company and Bready Associates (Exhibit 4 to Schedule 13D filed November 13, 1990 by Bready Associates relating to the Common Stock, par value $1.00 per share, of the Company). **10.14 1990 General Stock Option Plan (Appendix A to Proxy Statement dated April 17, 1991 for Annual Meeting of Nortek Stockholders, File No. 1-6112). *11.1 Calculation of Shares Used in Determining Earnings Per Share. *22.1 List of subsidiaries. EX-3 2 NORTEK 1993 - BYLAWS EX 3.3 As Amended through November 30, 1993 BY-LAWS of NORTEK, INC. SECTION 1. LAW, CERTIFICATE OF INCORPORATION AND BY- LAWS 1.1. These by-laws are subject to the certificate of incorporation of the corporation. In these by-laws, references to law, the certificate of incorporation and by-laws mean the law, the provisions of the certificate of incorporation and the by-laws as from time to time in effect. SECTION 2. STOCKHOLDERS 2.1. Annual Meeting. The annual meeting of stockholders shall be held at 11:00 A.M. on the third Wednesday in July in each year, unless that day be a legal holiday at the place where the meeting is to be held, in which case the meeting shall be held at the same hour on the next succeeding day not a legal holiday, or at such other date and time as shall be designated from time to time by the board of directors and stated in the notice of the meeting, at which they shall elect a board of directors and transact such other business as may be required by law or these by-laws or as may properly come before the meeting. 2.2 Special Meeting in Place of Annual Meeting. If the election for directors shall not be held on the day designated by these by-laws, the directors shall cause the election to be held as soon thereafter as convenient, and to that end, if the annual meeting is omitted on the day herein provided therefor or if the election of directors shall not be held thereat, a special meeting of the stockholders may be held in place of such omitted meeting or election, and any business transacted or election held at such special meeting shall have the same effect as if transacted or held at the annual meeting, and in such case all references in these by-laws to the annual meeting of the stockholders, or to the annual election of directors, shall be deemed to refer to or include such special meeting. Any such special meeting shall be called, and the purposes thereof shall be specified in the call, as provided in Section 2.3. 2.3. Special Meetings. A special meeting of the stockholders may be called at any time by the chairman of the board, if any, the president or by the board of directors. 2.4. Place of Meeting. All meetings of the stockholders for the election of directors or for any other purpose shall be held at such place within or without the State of Delaware as may be determined from time to time by the chairman of the board, if any, the president or the board of directors. Any adjourned session of any meeting of the stockholders shall be held at the place designated in the vote of adjournment. 2.5. Notice of Meetings. Except as otherwise provided by law, a written notice of each meeting of stockholders stating the place, day and hour thereof and, in the case of a special meeting, the purposes for which the meeting is called, shall be given not less then ten nor more than sixty days before the meeting, to each stockholder entitled to vote thereat, and to each stockholder who, by law, by the certificate of incorporation or by these by-laws, is entitled to notice, by leaving such notice with him or at his residence or usual place of business, or by depositing it in the United States mail, postage prepaid, and addressed to such stockholder at his address as it appears in the records of the corporation. Such notice shall be given by the secretary, or by an officer or person designated by the board of directors, or in the case of a special meeting by the officer calling the meeting. As to any adjourned session of any meeting of stockholders, notice of the adjourned meeting need not be given if the time and place thereof are announced at the meeting at which the adjournment was taken except that if the adjournment is for more than thirty days or if after the adjournment a new record date is set for the adjourned session, notice of any such adjourned session of the meeting shall be given in the manner heretofore described. No notice of any meeting of stockholders or any adjourned session thereof need be given to a stockholder if a written waiver of notice, executed before or after the meeting or such adjourned session by such stockholder, is filed with the records of the meeting or if the stockholder attends such meeting without objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any meeting of the stockholders or any adjourned session thereof need be specified in any written waiver of notice. 2.6. Quorum of Stockholders. At any meeting of the stockholders, whether the same be an original or an adjourned session, a quorum shall consist of a majority in interest of all stock issued and outstanding and entitled to vote at the meeting, provided that, except as may otherwise be provided in the certificate of incorporation, when a specified item of business is required to be voted on by a class or series, voting as a class, the holders of one-third of the shares of such class or series shall constitute a quorum for the transaction of such specified item of business. Any meeting may be adjourned from time to time by a majority of the votes properly cast upon the question, whether or not a quorum is present. 2.7. Action by Vote. When a quorum is present at any meeting, whether the same be an original or an adjourned session, a plurality of the votes properly cast for election to any office shall elect to such office and a majority of the votes properly cast upon any question other than an election to an office shall decide the question, except when a larger vote is required by law, by the certificate of incorporation or by these by-laws. No ballot shall be required for any election unless requested by a stockholder present or represented at the meeting and entitled to vote in the election. 2.8. Action without Meetings. Unless otherwise provided in the certificate of incorporation, any action required or permitted to be taken by stockholders for or in connection with any corporate action may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of all of the shares of outstanding stock of the corporation having power to vote. If action is taken by unanimous consent of stockholders, the writing or writings comprising such unanimous consent shall be filed with the records of the meetings of stockholders. In the event that the action which is consented to is such as would have required the filing of a certificate under any of the provisions of the Central Corporation Law of Delaware, if such action had been voted upon by the stockholders at a meeting thereof, the certificate filed under such provision shall state that written consent has been given under Section 228 of said General Corporation Law, in lieu of stating that the stockholders have voted upon the corporate action in question, if such last mentioned statement is required thereby. 2.9. Proxy Representation. Every stockholder may authorize another person or persons to act for him by proxy in all matters in which a stockholder is entitled to participate, whether by waiving notice of any meeting, objecting to or voting or participating at a meeting, or expressing consent or dissent without a meeting. Every proxy must be signed by the stockholder or by his attorney-in-fact. No proxy shall be voted or acted upon after three years from its date unless such proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and, if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the corporation generally. The authorization of a proxy may but need not be limited to specified action, provided, however, that if a proxy limits its authorization to a meeting or meetings of stockholders, unless otherwise specifically provided such proxy shall entitle the holder thereof to vote at any adjourned session but shall not be valid after the final adjournment thereof. 2.10. Inspectors. The directors or the person presiding at the meeting may, but need not, appoint one or more inspectors of election and any substitute inspectors to act at the meeting or any adjournment thereof. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors, if any, shall determine the number of shares of stock outstanding and the voting power of each, the shares of stock represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the person presiding at the meeting, the inspectors shall make a report in writing of any challenge, question or matter determined by them and execute a certificate of any fact found by them. 2.11. List of Stockholders. The secretary shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in his name. The stock ledger shall be the only evidence as to who are stockholders entitled to examine such list or to vote in person or by proxy at such meeting. SECTION 3. BOARD OF DIRECTORS 3.1. Number. The number of directors which shall constitute the whole board shall not be less than three. The number of directors of the corporation at any time shall be the number of directors fixed by resolution adopted by the board of directors. No decrease in the number of directors shall have the effect of shortening the term of any incumbent director. 3.2. Classification, Election and Tenure. The directors, other than those who may be elected by the holders of any class or series of preference stock voting separately by class or series, shall be classified, with respect to the duration of the term for which they severally hold office, into three classes, designated Class I, Class II, and Class III, which shall be as nearly equal in number as possible and as provided by resolution of the board of directors in connection with such election. Each initial director in Class I shall hold office for a term expiring at the 1990 annual meeting of stockholders; each initial director of Class II shall hold office for a term expiring at the 1991 annual meeting of stockholders; and each initial director of Class III shall hold office for a term expiring at the 1992 annual meeting of stockholders. Each director shall serve until his successor is duly elected and qualified or until his earlier death, resignation, removal or disqualification. At each annual meeting of stockholders following the 1989 annual meeting, the stockholders shall elect the successors to the class of directors whose term expires at that meeting to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election and until their successors have been duly elected and qualified or until their earlier death, resignation, removal or disqualification. The board of directors shall increase or decrease the number of directors in one or more classes as may be appropriate whenever it increases or decreases the number of directors pursuant to Section 3.1, in order to ensure that the three classes shall be as nearly equal in number as possible. 3.3. Powers and Qualifications. The business of the corporation shall be managed by or under the direction of the board of directors who shall have and may exercise all the powers of the corporation and do all such lawful acts and things as are not by law, the certificate of incorporation or these by-laws directed or required to be exercised or done by the stockholders. Directors need not be residents of the State of Delaware or stockholders of the corporation. No person shall be qualified for election as a director who has not reached the age of twenty-one years. 3.4. Nominations. Nominations of persons to be elected directors of the corporation, other than nominations submitted on behalf of the incumbent board of directors, must (a) be submitted in writing to the secretary or chief executive officer of the corporation not less than 30 days before the meeting of the stockholders at which such election is to be held; (b) be accompanied by a written statement, as to each such nominee, of his residence and business (if any) address, occupation (if any), date of birth, and record and beneficial holdings of the shares of the corporation; and (c) accompanied by a petition in support of such nomination signed by at least 100 record holders of share of capital stock of the corporation entitled to vote in elections of directors, holding in the aggregate not less than 1% of the shares of capital stock of the corporation entitled to vote in elections of directors outstanding as of the date such petition is submitted. 3.5. Vacancies. Vacancies and any newly created directorships resulting from any increase in the number of directors may be filled by vote of a majority of the directors then in office, although less than a quorum. When one or more directors shall resign from the board, effective at a future date, a majority of the directors then in office, including those who have resigned, shall have power to fill such vacancy or vacancies, the vote or action in writing thereon to take effect when such resignation or resignations shall become effective. The directors shall have and may exercise all their powers notwithstanding the existence of one or more vacancies in their number, subject to any requirements of law or of the certificate of incorporation or of these by-laws as to the number of directors required for a quorum or for any vote or other actions. 3.6. Executive and Other Committees of Directors. The board of directors, by resolution adopted by a majority of the full board of directors, may designate from among its members an executive committee and one or more other committees each of which, to the extent provided in the resolution or these by- laws, shall have and may exercise all the authority of the board of directors, but no such committee shall have the authority of the board of directors in reference to amending the certificate of incorporation, adopting a plan of merger or consolidation, recommending to the shareholders the sale, lease, exchange or other disposition of all or substantially all the property and assets of the corporation otherwise than in the usual and regular course of its business, recommending to the stockholders a voluntary dissolution of the corporation or a revocation thereof, or amending these by-laws. Except as the board of directors may otherwise determine, any such committee may make rules for the conduct of its business, but unless otherwise provided by the board of directors or such rules, its business shall be conducted as nearly as may be in the same manner as is provided by these by-laws for the conduct of business of the board of directors. Each such committee shall serve at the pleasure of the board of directors. Such committees shall keep regular minutes or other records of their proceedings and report the same to the board of directors upon request. 3.7. Regular Meetings. Regular meetings of the board of directors may be held without call or notice at such places within or without the State of Delaware and at such times as the board may from time to time determine, provided that notice of the first regular meeting following any such determination shall be given to absent directors. A regular meeting of the directors may be held without call or notice immediately after and at the same place as the annual meeting of stockholders. 3.8. Special Meetings. Special meetings of the board of directors may be held at any time and at any place within or without the State of Delaware designated in the notice of the meeting, when called by the chairman of the board, if the meeting, when called by the chairman of the board, if any, the president, or by one-third or more in number of the directors, reasonable notice thereof being given to each director by the secretary or by the chairman of the board, if any, the president or any one of the directors calling the meeting. 3.9. Notice. It shall be reasonable and sufficient notice to a director to send notice by mail at least forty- eight hours or by telegram at least twenty-four hours before the meeting addressed to him at his usual or last known business or residence address or to give notice to him in person or by telephone at least twenty-four hours before the meeting. Notice of a meeting need not be given to any director if a written waiver of notice, executed by him before or after the meeting, is filed with the records of the meeting, or to any director who attends the meeting without protesting prior thereto or at its commencement the lack of notice to him. Neither notice of a meeting nor a waiver of a notice need specify the purposes of the meeting. 3.10. Quorum. Except as may be otherwise provided by law, by the certificate of incorporation or by these by-laws, at any meeting of the directors a majority of the directors then in office shall constitute a quorum; a quorum shall not in any case be less than one-third of the total number of directors constituting the whole board. Any meeting may be adjourned from time to time by a majority of the votes cast upon the question, whether or not a quorum is present, and the meeting may be held as adjourned without further notice. 3.11. Action by Vote. Except as may be otherwise provided by law, by the certificate of incorporation or by these by-laws, when a quorum is present at any meeting the vote of a majority of the directors present shall be the act of the board of directors. 3.12. Action Without a Meeting. Any action required or permitted to be taken at any meeting of the board of directors or a committee thereof may be taken without a meeting if all the members of the board or of such committee, as the case may be, consent thereto in writing, and such writing or writings are filed with the records of the meetings of the board or of such committee. Such consent shall be treated for all purposes as the act of the board or of such committee, as the case may be. 3.13. Participation in Meetings by Conference Telephone. Members of the board of directors, or any committee designated by such board, may participate in a meeting of such board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other or by any other means permitted by law. Such participation shall constitute presence in person at such meeting. 3.14. Compensation. In the discretion of the board of directors, each director may be paid such fees for his services as director and be reimbursed for his reasonable expenses incurred in the performance of his duties as a director as the board of directors from time to time may determine. Nothing contained in this section shall be construed to preclude any director from serving the corporation in any other capacity and receiving reasonable compensation therefor. 3.15. Interested Directors and Officers. (a) No contract or transaction between the corporation and one or more of its directors or officers, or between the corporation and any other corporation, partnership, association, or other organization in which one or more of the corporation's directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the board or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if: (1) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the board of directors or the committee, and the board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (2) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (3) The contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified, by the board of directors, a committee thereof, or the stockholders. (b) Common or interested directors may be counted in determining the presence of a quorum at a meeting of the board of directors or of a committee which authorizes the contract or transaction. SECTION 4. OFFICERS AND AGENTS 4.1. Enumeration, Qualification. The officers of the corporation shall be a president, a treasurer, a secretary and such other officers, if any, as the board of directors from time to time may in its discretion elect or appoint including without limitation a chairman of the board, a vice chairman of the board, one or more vice presidents and a controller. The corporation may also have such agents, if any, as the board of directors from time to time may in its discretion choose. Any officer may be but none need be a director or stockholder. Any two or more offices may be held by the same person. Any officer may be required by the board of directors to secure the faithful performance of his duties to the corporation by giving bond in such amount and with sureties or otherwise as the board of directors may determine. 4.2. Powers. Subject to law, to the certificate of incorporation and to the other provisions of these by-laws, each officer shall have, in addition to the duties and powers herein set forth, such duties and powers as are commonly incident to his office and such additional duties and powers as the board of directors may from time to time designate. 4.3. Election. The officers may be elected by the board of directors at the first meeting following the annual meeting of the stockholders or at any other time. At any time or from time to time the directors may delegate to any officer their power to elect or appoint any other officer or any agents. 4.4. Tenure. Each officer shall hold office until the first meeting of the board of directors following the next annual meeting of the stockholders and until his respective successor is chosen and qualified unless a shorter period shall have been specified by the terms of his election or appointment, or in each case until he sooner dies, resigns, is removed or becomes disqualified. Each agent shall retain his authority at the pleasure of the directors, or the officer by whom he was appointed or by the officer who then holds agent appointive power. 4.5. Chairman and Vice Chairman of the Board of Directors, President and Vice President. The chairman of the board, if any, and the vice chairman if any, shall have such duties and powers as shall be designated from time to time by the board of directors. If there is a chairman of the board, he shall preside at all meetings of the stockholders and of the board of directors at which he is present, except as otherwise voted by the board of directors. If there is no chairman of the board or in the absence of the chairman of the board, the president shall preside at all meetings of the stockholders and of the board of directors at which he is present, except as otherwise voted by the board of directors. The vice chairman, if any, shall upon the death or resignation of the chairman as a director or in the event the chairman becomes totally and permanently incapacitated and is unable to serve as a director, succeed to the office of the chairman of the board. If such chairman was also chief executive officer of the corporation, the vice chairman shall succeed to the office of chief executive officer as well. Unless the board of directors otherwise specifies, the chairman of the board, if any, shall be the chief executive officer and shall have direct charge of all business operations of the corporation, and subject to the control of the directors, shall have general supervision over the entire business of the corporation. If a chairman of the board is not elected, the president shall be the chief executive officer. The president shall have the duties and powers specified in these by-laws, shall be the chief operating officer if a chairman of the board is elected and is the chief executive officer, and shall have such other duties and powers as may be determined by the board of directors or by the chief executive officer. Any vice presidents shall have such duties and powers as shall be set forth in these by-laws or as shall be designated from time to time by the board of directors or by the chief executive officer. 4.6. Treasurer and Assistant Treasurers. Except as the board of directors shall otherwise determine, the treasurer shall be the chief financial officer of the corporation and shall be in charge of its funds and valuable papers, and shall have such other duties and powers as may be designated from time to time by the board of directors or by the president. If no controller is elected, the treasurer shall also have the duties and powers of the controller. Any assistant treasurers shall have such duties and powers as shall be designated from time to time by the board of directors, the president or the treasurer. 4.7. Secretary and Assistant Secretaries. The secretary shall record all proceedings of the stockholders, of the board of directors and of committees of the board of directors in a book or series of books to be kept therefor and shall file therein all actions by written consent of stockholders or directors. In the absence of the secretary from any meeting, an assistant secretary, or if there be none or he is absent, a temporary secretary chosen at the meeting, shall record the proceedings thereof. Unless a transfer agent has been appointed the secretary shall keep or cause to be kept the stock and transfer records of the corporation, which shall contain the names and record addresses of all stockholders and the number of shares registered in the name of each stockholder. He shall have such other duties and powers as may from time to time be designated by the board of directors or the president. Any assistant secretaries shall have such duties and powers as shall be designated from time to time by the board of directors, the president or the secretary. 4.8. Compensation. The officers of the corporation shall receive such compensation as shall be affixed from time to time by the board of directors, except that the board of directors may delegate to any officer or officers the power to fix the compensation of any officer, except the chief executive officer of the corporation. No officer shall be prohibited from receiving such salary by reason of the fact that he is also a director of the corporation. SECTION 5. RESIGNATIONS AND REMOVALS 5.1. Any director or officer may resign at any time by delivering his resignation in writing to the chairman of the board, if any, the president, or the secretary or to a meeting of the board of directors. Such resignation shall be effective upon receipt unless specified to be effective at some other time, and without in either case the necessity of its being accepted unless the resignation shall so state. Except as otherwise provided in the certificate of incorporation or these by-laws relating to the rights of the holders of any class or series of preference stock, voting separately by class or series, to elect directors under specified circumstances, any director or directors may be removed from office at any time, but only for cause and only by the affirmative vote, at any regular meeting or special meeting of the stockholders, of not less than two-thirds of the total number of votes of the then outstanding shares of capital stock of the corporation entitled to vote generally in the election of directors, voting together as a single class, but only if notice of such proposal was contained in the notice of such meeting. Any vacancy in the board of directors resulting from any such removal may be filled by vote of a majority of the directors then in office, although less than a quorum, and any director or directors so chosen, shall hold office until the next election of the class for which such directors shall have been chosen and until their successors shall be elected and qualified or until their earlier death, resignation or removal. The board of directors may at any time remove any officer either with or without cause. The board of directors may at any time terminate or modify the authority of any agent. No director or officer resigning and (except where a right to receive compensation shall be expressly provided in a duly authorized written agreement with the corporation) no director or officer removed shall have any right to any compensation as such director or officer (but not excluding rights to indemnification provided in the certificate of incorporation or these by-laws) for any period following his resignation or removal, or any right to damages on account of such removal, whether his compensation be by the month or by the year or otherwise; unless, in the case of a resignation, the directors, or, in the case of removal, the body acting on the removal, shall in their or its discretion provide for compensation. SECTION 6. VACANCIES If the office of the president or the treasurer or the secretary becomes vacant, the directors may elect a successor by vote of a majority of the directors then in office. If the office of any other officer becomes vacant, any person or body empowered to elect or appoint that officer may choose a successor. Each such successor shall hold office for the unexpired term, and in the case of the president, the treasurer and the secretary until his successor is chosen and qualified or in each case until he sooner dies, resigns, is removed or becomes disqualified. Any vacancy of a directorship shall be filled as specified in Section 3.5 of these by-laws. SECTION 7. CAPITAL STOCK 7.1. Stock Certificates. Each stockholder shall be entitled to a certificate stating the number and the class and the designation of the series, if any, of the shares held by him, in such form as shall, in conformity to law, the certificate of incorporation and the by-laws, be prescribed from time to time by the board of directors. Such certificate shall be signed by the chairman or vice chairman of the board, if any, or the president or a vice president and by the treasurer or an assistant treasurer or by the secretary or an assistant secretary. Any of or all the signatures on the certificate may be a facsimile. In case an officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent, or registrar at the time of its issue. 7.2. Loss of Certificates. In the case of the alleged theft, loss, destruction or mutilation of a certificate of stock, a duplicate certificate may be issued in place thereof, upon such terms, including receipt of a bond sufficient to indemnify the corporation and its agents against any claim on account thereof, as the board of directors may prescribe. SECTION 8. TRANSFER OF SHARES OF STOCK 8.1. Transfer on Books. Subject to the restrictions, if any, stated or noted on the stock certificate, shares of stock may be transferred on the books of the corporation by the surrender to the corporation or its transfer agent of the certificate therefor properly endorsed or accompanied by a written assignment and power of attorney properly executed, with necessary transfer stamps affixed, and with such proof of the authenticity of signature as the board of directors or the transfer agent of the corporation may reasonably require. Except as may be otherwise required by law, by the certificate of incorporation or by these by-laws, the corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the Right to receive notice and to vote or to give any consent with respect thereto and to be held liable for such calls and assessments, if any, as may lawfully be made thereon, regardless of any transfer, pledge or other disposition of such stock until the shares have been properly transferred on the books of the corporation. It shall be the duty of each stockholder to notify the corporation of his post office address. 8.2. Record Date and Closings Transfer Books. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days (or such longer period as may be required by law) before the date of such meeting, nor more than sixty days prior to any other action. If no record date is fixed: (a) The record date for determining stockholders entitled to notice of or to vote it a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. (b) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. SECTION 9. INDEMNIFICATION 9.1. The corporation shall, to the maximum extent permitted from time to time under the law of the State of Delaware, indemnify and upon request shall advance expenses to any person who is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit, proceeding or claim, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was or has agreed to be a director or officer of this corporation or while a director or officer is or was serving at the request of this corporation as a director, officer, partner, trustee, fiduciary, employee or agent of any corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, against expenses (including attorney's fees and expenses), judgments, fines, penalties and amounts paid in settlement incurred in connection with the investigation, preparation in connection with such action, suit, proceeding or claim; provided, however, that the foregoing shall not require this corporation to indemnify or advance expenses to any person in connection with any action, suit, proceeding, claim or counterclaim initiated by or on behalf of such person, other than an action to enforce indemnification rights. Such indemnification shall not be exclusive of other indemnification rights arising under any by-law, agreement, vote of directors or stockholders or otherwise and shall inure to the benefit of the heirs and legal representatives of such person. Any such person seeking indemnification under this Section 9.1 shall be deemed to have met the standard of conduct required for such indemnification unless the contrary shall be established. The corporation shall have the power to provide indemnification and advance expenses to any other person, including employees and agents of the corporation and stockholders purporting to act on behalf of the corporation, to the extent permitted by the law of the State of Delaware. SECTION 10. CORPORATE SEAL 10.1. Subject to alteration by the directors, the seal of the corporation shall consist of a flat-faced circular die with the word "Delaware" and the name of the corporation cut or engraved thereon, together with such other words, dates or images as may be approved from time to time by the directors. SECTION 11. EXECUTION OF PAPERS 11.1. Except as the board of directors may generally or in particular cases authorize the execution thereof in some other manner, all deeds, leases, transfers, contracts, bonds, notes, checks, drafts or other obligations made, accepted or endorsed by the corporation shall be signed by the chairman of the board, if any, the president, a vice president or the treasurer. SECTION 12. FISCAL YEAR 12.1. The fiscal year of the corporation shall end on the 31st day of December of each year, or such other date as may be fixed by the board of directors. SECTION 13. AMENDMENTS 13.1. Except as otherwise provided in the certificate of incorporation, and other than Section 3.4 hereof, these by- laws may be amended by the favorable vote of the holders of three-fourths of the shares of the corporation entitled to vote generally in the election of directors or by a majority of a quorum of the board of directors, in either case at any regular or special meeting; any such amendment by the board of directors may be changed by the favorable vote of the holders of three-fourths of the shares of the corporation entitled to vote generally in the election of directors. Section 3.4 hereof may not be amended or rescinded except by the affirmative vote of the holders of not less than two-thirds of the outstanding shares of the corporation entitled to vote generally in the election of directors, at any regular or special meeting, but only if notice of the proposed alteration or amendment was contained in the notice of such meeting. SECTION 14. BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS 14.1 The provisions of Section 203 of the Delaware General Corporation Law shall not apply to the corporation. EX-4 3 NORTEK 1993 - INDENTURE EX 4.5 06640026.O Exhibit 4.5 EXECUTION COPY NORTEK, INC., Company, and STATE STREET BANK AND TRUST COMPANY, Trustee ___________________________________ INDENTURE Dated as of February 14, 1994 ____________________________________ $218,500,000 9-7/8% Senior Subordinated Notes due March 1, 2004 CROSS REFERENCE TABLE (1) TIA Indenture Section Section 310(a)(1) 7.10 (a)(2) 7.10 (a)(3) N.A. (2) (a)(4) N.A. (a)(5) 7.10 (b) 7.08; 7.10 (c) N.A. 311(a) 7.11 (b) 7.11 (c) N.A. 312(a) 2.05 (b) 11.03 (c) 11.03 313(a) 7.06 (b)(1) N.A. (b)(2) 7.06 (c) 11.02 (d) 7.06 314(a) 4.02; 11.02 (b) N.A. (c)(1) 11.04 (c)(2) 11.04 (c)(3) N.A. (d) N.A. (e) 11.05 (f) 4.03 315(a) 7.01 (b) 7.05; 11.02 (c) 7.01 (d) 7.07 (e) 6.11 316(a) (last sentence) 2.08 (a)(1)(A) 6.05 (a)(1)(B) 6.04 (a)(2) N.A. (b) 6.07 (c) N.A. 317(a)(1) 6.08 (a)(2) 6.09 (b) 2.04 318(a) 11.01 _______________________________ (1) Note: This Cross Reference Table shall not, for any purpose, be deemed to be part of this Indenture. (2) N.A. means Not Applicable. TABLE OF CONTENTS (3) Page ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. Definitions 1 SECTION 1.02. Other Definitions 15 SECTION 1.03. Incorporation by Reference of Trust Indenture Act 15 SECTION 1.04. Rules of Construction 16 SECTION 1.05. Acts of Holders 16 SECTION 1.06. Exchange Rates 17 ARTICLE 2 THE SECURITIES SECTION 2.01. Form and Dating 17 SECTION 2.02. Execution and Authentication 18 SECTION 2.03. Registrar and Paying Agent 19 SECTION 2.04. Paying Agent to Hold Money in Trust 19 SECTION 2.05. Securityholder Lists 20 SECTION 2.06. Transfer and Exchange 20 SECTION 2.07. Replacement Securities 21 SECTION 2.08. Outstanding Securities; Determinations of Holders' Action 22 SECTION 2.09. Temporary Securities 22 SECTION 2.10. Cancellation 23 SECTION 2.11. CUSIP Numbers 23 SECTION 2.12. Defaulted Interest 23 ARTICLE 3 REDEMPTION SECTION 3.01. Right to Redeem; Notices to Trustee 24 SECTION 3.02. Selection of Securities to be Redeemed 24 SECTION 3.03. Notice of Redemption 24 SECTION 3.04. Effect of Notice of Redemption 25 SECTION 3.05. Deposit of Redemption Price 25 SECTION 3.06. Securities Redeemed in Part 26 ARTICLE 4 COVENANTS SECTION 4.01. Payment of Securities 26 SECTION 4.02. SEC Reports 26 SECTION 4.03. Compliance Certificates 27 SECTION 4.04. Further Instruments and Acts 28 SECTION 4.05. Maintenance of Office or Agency 28 SECTION 4.06. Limitation on Restricted Payments 29 SECTION 4.07. Limitation on Other Senior Subordinated Indebtedness 30 SECTION 4.08. Limitation on Additional Indebtedness 30 SECTION 4.09. Limitation on Sale or Issuance of Capital Stock of Subsidiaries 33 SECTION 4.10. Limitation on Liens 34 SECTION 4.11. Limitation on Certain Restrictions Affecting Subsidiaries 34 SECTION 4.12. Repurchase Upon Change of Control 35 SECTION 4.13. Limitation on Use of Proceeds from Asset Sales 38 SECTION 4.14. Limitation on Transactions With Affiliates 39 SECTION 4.15. Limitation on Guarantees by Subsidiaries 40 SECTION 4.16. Payment of Taxes and Other Claims 41 SECTION 4.17. Corporate Existence 41 SECTION 4.18. Maintenance of Properties and Insurance 41 SECTION 4.19. Stay, Extension and Usury Laws 42 SECTION 4.20. Investment Company Act 42 SECTION 4.21. Payments for Consents 42 SECTION 4.22. Covenant to Comply with Securities Laws upon Purchase of Securities 43 ARTICLE 5 SUCCESSOR CORPORATION SECTION 5.01. When the Company May Merge or Transfer Assets, Etc. 43 SECTION 5.02. Successor Corporation Substituted 45 ARTICLE 6 DEFAULTS AND REMEDIES SECTION 6.01. Events of Default 45 SECTION 6.02. Acceleration 48 SECTION 6.03. Other Remedies 48 SECTION 6.04. Waiver of Past Defaults 49 SECTION 6.05. Control by Majority 49 SECTION 6.06. Limitation on Suits 49 SECTION 6.07. Rights of Holders to Receive Payment 50 SECTION 6.08. Collection Suit by Trustee 50 SECTION 6.09. Trustee May File Proofs of Claim 50 SECTION 6.10. Priorities 51 SECTION 6.11. Undertaking for Costs 51 SECTION 6.12. Restoration of Rights and Remedies 51 ARTICLE 7 TRUSTEE SECTION 7.01. Duties of Trustee 52 SECTION 7.02. Rights of Trustee 53 SECTION 7.03. Individual Rights of Trustee 54 SECTION 7.04. Trustee's Disclaimer 54 SECTION 7.05. Notice of Defaults 54 SECTION 7.06. Reports by Trustee to Holders 55 SECTION 7.07. Compensation and Indemnity 55 SECTION 7.08. Replacement of Trustee 56 SECTION 7.09. Successor Trustee by Merger 57 SECTION 7.10. Eligibility; Disqualification 57 SECTION 7.11. Preferential Collection of Claims Against the Company 57 ARTICLE 8 DISCHARGE OF INDENTURE SECTION 8.01. Discharge of Liability on Securities 57 SECTION 8.02. Repayment to the Company or Subsidiary Guarantors 59 ARTICLE 9 AMENDMENTS SECTION 9.01. Without Consent of Holders 59 SECTION 9.02. With Consent of Holders 60 SECTION 9.03. Compliance with Trust Indenture Act 61 SECTION 9.04. Revocation and Effect of Consents, Waivers and Actions 61 SECTION 9.05. Notation on or Exchange of Securities 61 SECTION 9.06. Trustee to Sign Supplemental Indentures 62 SECTION 9.07. Effect of Supplemental Indentures 62 ARTICLE 10 SUBORDINATION SECTION 10.01. Agreement to Subordinate 62 SECTION 10.02. Certain Definitions 62 SECTION 10.03. Liquidation; Dissolution; Bankruptcy 63 SECTION 10.04. Default on Senior Indebtedness 64 SECTION 10.05. No Suspension of Remedies 65 SECTION 10.06. When Distribution Must be Paid Over 66 SECTION 10.07. Notice by the Company 67 SECTION 10.08. Subrogation 67 SECTION 10.09. Relative Rights 67 SECTION 10.10. No Waiver of Subordination Provisions 68 SECTION 10.11. Distribution or Notice to Representative 68 SECTION 10.12. Rights of Trustee and Paying Agent 69 SECTION 10.13. Authorization to Effect Subordination 69 SECTION 10.14. Miscellaneous 69 ARTICLE 11 MISCELLANEOUS SECTION 11.01. Trust Indenture Act Controls 70 SECTION 11.02. Notices 70 SECTION 11.03. Communication by Holders with Other Holders 71 SECTION 11.04. Certificate and Opinion as to Conditions Precedent 71 SECTION 11.05. Statements Required in Certificate or Opinion 71 SECTION 11.06. Separability Clause 72 SECTION 11.07. Rules by Trustee, Paying Agent and Registrar 72 SECTION 11.08. Legal Holidays 72 SECTION 11.09. Governing Law 72 SECTION 11.10. No Recourse Against Others 72 SECTION 11.11. Successors 73 SECTION 11.12. Multiple Originals 73 SIGNATURES 74 EXHIBIT A Form of Security EXHIBIT B Terms of Guaranty EXHIBIT C Form of Guaranty _______________________________ (3) This Table of Contents shall not, for any purpose, be deemed to be part of this Indenture. 06640026.O INDENTURE, dated as of February 14, 1994, between Nortek, Inc., a Delaware corporation (the "Company"), and State Street Bank and Trust Company, a Massachusetts banking corporation (the "Trustee"). Each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the Holders of the Company's 9-7/8% Senior Subordinated Notes due March 1, 2004 (the "Securities"): ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01. Definitions. "Acquired Indebtedness" means, with respect to any Person, Indebtedness of such Person (i) assumed in connection with an acquisition of assets or properties from such Person or (ii) existing at the time such Person becomes a Subsidiary of any other Person (in each case other than any Indebtedness incurred in connection with, or in contemplation of, such acquisition or such Person becoming such a 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 (i) 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, or (ii) owns, directly or indirectly, 10% or more of the combined voting power of all classes of the issued and outstanding equity securities of the controlled Person. "Allowable Subsidiary Loans" means Indebtedness of the Company to a Subsidiary not to exceed the Net Cash Proceeds received by the Company as a result of such Subsidiary becoming less than a Wholly-Owned Subsidiary through the sale of Equity Interests in compliance with this Indenture, provided that (i) all such Allowable Subsidiary Loans are contractually subordinated in right of payment to the Securities and (ii) the total amount of all Allowable Subsidiary Loans does not exceed $25,000,000. "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 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, 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. Any transaction consummated in compliance with Article 5 hereof and any Lien permitted under Section 4.10 hereof (and any foreclosure or other sale under any such Lien, except to the extent there are surplus proceeds from such foreclosure) shall not constitute an Asset Sale. "Average Life" means, as of the date of determination, with respect to any debt security, the quotient obtained by dividing (i) the sum of the products of the number of years from the date of determination to the date of each successive scheduled principal payment (assuming the exercise by the obligor of such debt security of all unconditional (other than as to the giving of notice) extension options of each such scheduled payment date) of such debt security multiplied by the amount of such principal payment by (ii) the sum of all such principal payments. "Board of Directors" of any corporation means the Board of Directors of such corporation, or any duly authorized committee of such Board of Directors. "Board Resolution" means, with respect to any Person, a copy of a resolution or resolutions certified by the Secretary or an Assistant Secretary of such Person to have been duly adopted by the Board of Directors of such Person and to be in full force and effect on the date of such certification, as filed with the corporate records of such Person. "Broan Limited Credit Facility" means a credit facility between Broan Limited, a Canadian Subsidiary of the Company, 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. "Business Day" means any day that is not a Saturday, a Sunday or a day on which banking institutions in the Commonwealth of Massachusetts are authorized or required to close. "Capital Lease Obligations" means, with respect to any Person, all obligations of such Person or any of its Subsidiaries under leases of property by such Person or such Subsidiary as lessee which would be capitalized on a balance sheet of such Person prepared in accordance with GAAP, and for purposes of this Indenture the amount of such obligations at any time shall be the aggregate capitalized amount thereof at such time, as determined in accordance with GAAP. "Capital Stock" means any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock (including common or preferred stock) or partnership interests. "Cash Equivalents" means (i) any evidence of Indebtedness, maturing not more than 365 days after the date of acquisition, issued or fully guaranteed or insured by the United States of America, or an instrumentality or agency thereof (provided that the full faith and credit of the United States of America is pledged in support thereof), (ii) any certificate of deposit, overnight bank deposit or bankers acceptance, maturing not more than 365 days after the date of acquisition, issued by, or time deposit of, a commercial banking institution having unsecured long-term debt (or whose holding company has unsecured long-term debt) rated, at the time as of which any Investment therein is made, BBB+ or better by S&P or Moody's or the equivalent of such rating by a successor rating agency, (iii) commercial paper, maturing not more than 90 days after the date of acquisition, issued by a corporation (other than an Affiliate or Subsidiary of the Company) organized and existing under the laws of the United States of America or any State thereof or the District of Columbia which is rated, at the time as of which any Investment therein is made, P-1 or better by Moody's or A-1 or better by S&P, or the equivalent of such rating by a successor rating agency, (iv) Investments in mutual funds, money market funds, investment pools and other savings vehicles, 100% 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, (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 Subsidiaries against fluctuations in the prices of commodities used by the Company or any of its Subsidiaries in the ordinary course of business. "Company Credit Facility" means one or more credit facilities between the Company and one or more banks or other institutional lenders, as the same may be amended, extended, amended and restated, supplemented or otherwise modified or replaced from time to time, specifically designated in each such credit facility as a "Company Credit Facility." All Company Credit Facilities are referred to collectively in this Indenture as the "Company Credit Facility". "Consolidated Amortization Expense" means, with respect to any Person for any period, the amortization expense of such Person and its Subsidiaries, 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; provided, however, that, in the case of the Company, any expenses which are included in any of clauses (ii) through (vi) above for such period and which are attributable to Dixieline Lumber Company shall be deducted from Consolidated Cash Flow of the Company 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 Subsidiary of such Person) of any company or business during such period or since the last day of such period, (iv) the sale or other disposition of assets or properties outside the ordinary course of business by such Person (directly or through a Subsidiary of such Person), and the actual application of the proceeds therefrom, during such period or since the last day of such period, and (v) in the case of the Company and with respect to any such period ending prior to the date on which there shall be four fiscal quarters of the Company which commenced and ended after the issue date of the Securities, the income that could have been earned by the Company if the Cash Proceeds of the issuance of the Securities (net of underwriters' discounts and commissions and amounts used to retire Indebtedness of the Company), if any, received by the Company were invested from the beginning of such period to but excluding the date of receipt by the Company of such Cash Proceeds at the rate in effect on the last day of the last fiscal quarter within such period for United States Treasury securities maturing one year from the date of issuance of such securities, as compiled and published in the then most recent Federal Reserve Statistical Release H.15 (519). "Consolidated Depreciation Expense" means, with respect to any Person for any period, the depreciation and depletion expense of such Person and its 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 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 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, in the case of the Company, any interest income included in Consolidated Net Income of the Company for such period), but excluding any deferred financing fees otherwise includible in Consolidated Interest Expense of the Company 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 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, preferred stock that is not Redeemable Stock or, with respect to the Company, special common stock) of such Person and its 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 for such period, before discontinued operations, extraordinary items and the cumulative effect of a change in accounting principles of such Person and its Subsidiaries, determined on a consolidated basis in accordance with GAAP, provided that there shall also be excluded from 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; (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 other Person (other than a Subsidiary of such Person) except to the extent of cash dividends or distributions paid to such Person by such other Person in such period; (viii) the net income (or loss) of any Subsidiary of such Person except to the extent of the interest of such Person in such Subsidiary, provided that in the case of the Company the net income (or loss) of Dixieline Lumber Company shall be excluded; (ix) the net income (or loss) of any Subsidiary of such Person that is subject to any restriction or limitation on the payment of dividends and other distributions (including loans or advances) by operation of the terms of its charter or by agreement, instrument, judgment, decree, order or governmental regulation applicable to such Subsidiary to the extent of such restriction or limitation in such period; and (x) in the case of the Company, the excess of (a) the 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, pursuant to a plan or other arrangement approved by the Board of Directors of the Company (or of a Reporting Subsidiary of the Company, 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 income taxes recorded by the Company in connection with such 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 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 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 Subsidiaries against fluctuations in currency values to or under which the Company or any of its Subsidiaries is a party or a beneficiary on the issue date of the Securities 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 this Indenture, a member of such Board of Directors who does not have any material direct or indirect financial interest in or with respect to such transaction or series of transactions. "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). "Existing Indebtedness" means Indebtedness of the Company and its Subsidiaries, in existence on the issue date of the Securities. "Existing Investments" means (i) Investments of the Company and its Subsidiaries, in existence on the issue date of the Securities 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 Securities (a) in Ecological Engineering Associates, L.P. in an amount not to exceed $2,100,000 (including such Investments made prior to the issue date of the Securities) and (b) in or related to a joint-venture involving Universal-Rundle Corporation in an amount not to exceed $4,000,000. "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 the Company, of such Reporting Subsidiary, acting in good faith, and evidenced by a Board Resolution of the Company or such Reporting Subsidiary, as the case may be, delivered to the Trustee. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession, from time to time; provided, however, that for purposes of Articles IV and V hereof, GAAP shall be determined on the basis of such principles as in effect on the issue date of the Securities. "guaranty" means, with respect to any obligation, (i) a guaranty (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, of all or any part of such obligation and (ii) an agreement, direct or indirect, contingent or otherwise, the practical effect of which is to assure the payment or performance of (or payment of damages in the event of non-performance) of all or any part of such obligation. "Holder" or "Securityholder" means a Person in whose name a Security is registered on the Registrar's books. "Indebtedness" means, with respect to any Person, without duplication, any indebtedness, contingent or otherwise, (i) with respect to borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof), or evidenced by bonds, notes, debentures or similar instruments or consisting of reimbursement obligations with respect to letters of credit or (ii) representing the deferred and unpaid balance of the purchase price of any property excluding any such balance that constitutes a trade payable or an accrued liability, in each case arising in the ordinary course of business, if and to the extent any of the foregoing indebtedness would appear as a liability upon a balance sheet of such Person prepared on a consolidated basis in accordance with GAAP, and shall also include, to the extent not otherwise included, (a) any Capital Lease Obligations, (b) the maximum fixed repurchase price of any Redeemable Stock, (c) indebtedness secured by a Lien to which the property or assets owned or held by such Person is subject, whether or not the obligations secured thereby shall have been assumed, (d) guaranties of items that would be included within this definition to the extent of such guaranties, and (e) net liabilities in respect of Commodity Agreements, Currency Agreements and Interest Rate Agreements. For purposes of the immediately preceding sentence, the maximum fixed repurchase price of any Redeemable Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Redeemable Stock as if such Redeemable Stock were repurchased on any date on which Indebtedness shall be required to be determined pursuant to this Indenture, provided that if such Redeemable Stock is not then permitted to be repurchased, the repurchase price shall be the book value of such Redeemable Stock. The amount of Indebtedness of any Person at any date shall be without duplication (y) the outstanding balance at such date of all unconditional obligations as described above and the maximum liability of any such contingent obligations at such date and (z) in the case of Indebtedness of others secured by a Lien to which the property or assets owned or held by such Person is subject, the lesser of the Fair Market Value at such date of any property or asset subject to a Lien securing the Indebtedness of others or the amount of the Indebtedness secured. The amount of any Indebtedness issued at a discount shall be equal to the gross proceeds of such issuance (and not the face amount of any bond, note, debenture or similar instrument representing such Indebtedness). "Indenture" means this Indenture, as amended or supplemented from time to time in accordance with the terms hereof, including the provisions of the TIA that are deemed to be a part hereof. "Interest Rate Agreement" means any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement, or other similar agreement or arrangement entered into in the ordinary course of business and designed to protect the Company or any of its Subsidiaries against fluctuations in interest rates to or under which the Company or any of its 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). "Material Subsidiary" of any Person means (i) any Subsidiary Guarantor and (ii) any other Subsidiary of such Person which at the time of determination (a) had assets which, as of the date of such Person's then most recent quarterly consolidated balance sheet, constituted at least 5% of such Person's total assets on a consolidated basis as of such date, in each case determined in accordance with GAAP, (b) had net sales for the 12- month period ending on the date of such Person's most recent quarterly consolidated statement of income which constituted at least 5% of such Person's total net sales on a consolidated basis for such period or (c) had operating income for the 12-month period ending on the date of such Person's most recent quarterly consolidated statement of operating income which constituted at least 10% of such Person's total operating income on a consolidated basis for such period. "Moody's" means Moody's Investors Service, Inc. and its successors. "Net Cash Proceeds" means the aggregate Cash Proceeds received by the Company or any of its 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. "Officer" means, with respect to any corporation, the Chairman of the Board, any Vice Chairman, the President, any Vice President, the Treasurer, the Secretary, any Assistant Treasurer or any Assistant Secretary of such corporation. "Officers' Certificate" means a written certificate containing the information specified in Sections 11.04 and 11.05 herein, signed in the name of the Company by any two of its Officers, and delivered to the Trustee. "Opinion of Counsel" means a written opinion containing the information specified in Sections 11.04 and 11.05 hereof, rendered by legal counsel (who may be counsel to the Company) acceptable to the Trustee. "Permitted Investments" means any of the following: (i) Cash Equivalents; (ii) Existing Investments; (iii) Investments by the Company or a Subsidiary of the Company in any Subsidiary of the Company or any other Person that concurrently with the making of such Investment becomes a Subsidiary of the Company; (iv) guaranties by Subsidiaries of the Company permitted under Section 4.08 or 4.15 hereof; (v) Indebtedness of the Company to any Subsidiary of the Company, provided that such Indebtedness is contractually subordinated in right of payment to the Securities; (vi) Investments by the Company or any of its 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 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 do not exceed $7,500,000 at any one time outstanding; (viii) loans and advances to officers and directors of the Company or any Subsidiary of the Company made in the ordinary course of business or pursuant to an employee benefit plan, up to $3,000,000 in the aggregate at any one time outstanding; (ix) loans and advances to vendors, suppliers and contractors of the Company or any Subsidiary of the Company and made in the ordinary course of business; (x) the receipt by the Company or its Subsidiaries of consideration other than Cash Proceeds in any Asset Sale made in compliance with the terms of this 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 Securities not exceeding in the aggregate at any time outstanding (A) $10,000,000, if at the time of the making of such Investment the Securities are not rated BB+ or better by S&P or Ba1 or better by Moody's, or (B) $20,000,000, but not more than $10,000,000 in any fiscal year of the Company, if at the time of the making of such Investment the Securities are rated BB+ or better by S&P or Ba1 or better by Moody's; provided, however, that upon the sale by the Company of all of the Equity Interests of Dixieline Lumber Company or all or substantially all of the assets of Dixieline Lumber Company, the aggregate amount of Investments permitted to be outstanding pursuant to this clause (xi) shall be increased by the amount, if any, by which the Net Cash Proceeds received by the Company from such sale (plus the amount of cash collection of any non-cash proceeds received by the Company from such sale) exceed the aggregate of all Investments in Dixieline Lumber Company made by the Company or any of its Subsidiaries after the issue date of the Securities; (xii) any Lien permitted under Section 4.10 hereof; and (xiii) Investments by Subsidiaries of the Company not exceeding in the aggregate $5,000,000 at any one time outstanding in Cash Equivalents described in clause (ii) of the definition of such term in this Indenture, provided that for purposes of this clause (xiii) an instrument referred to in such clause (ii) may be issued by any commercial banking institution having capital and surplus of not less than $100,000,000. "Permitted Liens" means (i) Liens securing Indebtedness owing to the Company by a Subsidiary of the Company; (ii) Liens securing Acquired Indebtedness incurred by the Company or any of its Subsidiaries in accordance with the provisions of this Indenture, provided such Liens were not incurred in anticipation of or in connection with the transaction pursuant to which such Acquired Indebtedness was so incurred; (iii) Liens securing Purchase Money Obligations permitted to be incurred by the provisions of this Indenture; (iv) Liens securing Indebtedness permitted by clause (xiv) of Section 4.08 hereof; and (v) any interest or title of a lessor in property subject to any Capital Lease Obligation or operating lease of the Company and of its Subsidiaries. "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. "Purchase Money Obligations" means any Indebtedness of the Company or any of its Subsidiaries incurred to finance the acquisition or construction of any property or business (including Indebtedness incurred within 180 days following such acquisition or construction), including Indebtedness of a Person existing at the time such Person becomes a Subsidiary of the Company or assumed by the Company or a 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 Securities), or upon the happening of any event, matures or is mandatorily redeemable, in whole or in part, prior to the Stated Maturity of the Securities. "Redemption Date" or "redemption date" means the date specified for redemption of the Securities in accordance with the terms of the Securities and this Indenture. "Redemption Price" or "redemption price" shall have the meaning set forth in paragraph 6 of the Securities. "Reporting Subsidiary" means, with respect to any Person, a Subsidiary of such Person required to file periodic reports under Section 13 or 15(d) of the Exchange Act. "S&P" means Standard and Poor's Corporation and its successors. "SEC" means the Securities and Exchange Commission. "Securities" means any of the Company's 9-7/8% Senior Subordinated Notes due March 1, 2004, issued under this Indenture. "Securityholder" or "Holder" means a Person in whose name a Security is registered on the Registrar's books. "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; provided, however, that Forges et Boulonneries D'Ars-sur-Moselle shall not be deemed to be a Subsidiary of the Company so long as (i) all Indebtedness of Forges et Boulonneries D'Ars-sur-Moselle is non-recourse to the Company and its Subsidiaries and (ii) the Company invests not more than $2,000,000 in debt or equity capital of Forges et Boulonneries D'Ars-sur-Moselle on a cumulative basis from the issue date of the Securities. "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 Securities pursuant to a supplemental indenture executed and delivered pursuant to Section 4.15 hereof, including as the context may require either or both of the guaranty of the Securities set forth in Article 12 hereof upon the execution and delivery by a Subsidiary Guarantor of such supplemental indenture and any separate guaranty of the Securities, substantially in the form of Exhibit C hereto, or confirmation of guaranty executed and delivered by such Subsidiary Guarantor pursuant to such supplemental indenture. "TIA" means the Trust Indenture Act of 1939 as amended and as in effect on the date of this Indenture; provided, however, that in the event the TIA is amended after such date, TIA means, to the extent required by any such amendment, the TIA as so amended. "Trust Officer," when used with respect to the Trustee, means any officer assigned to and working in the corporate trust department of the Trustee or any other officer of the Trustee customarily performing functions similar to those performed by any of the above officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Trustee" means the party named as the "Trustee" in the first paragraph of this Indenture until a successor replaces it pursuant to the applicable provisions of this Indenture and, thereafter, shall mean such successor. "Wholly-Owned Subsidiary" of any Person means any Subsidiary of such Person to the extent the entire voting share capital of such Subsidiary is owned by such Person (either directly or indirectly through Wholly-Owned Subsidiaries). SECTION 1.02. Other Definitions. Defined in Term Section "Act"............................................. 1.05 "Acceleration Notice"............................. 6.02 "Bankruptcy Law".................................. 6.01 "Cash Proceeds"................................... 4.13 "Change of Control"............................... 4.12 "Change of Control Offer"......................... 4.12 "Change of Control Payment Date".................. 4.12 "Core Subsidiary"................................. 4.13 "Custodian"....................................... 6.01 "Event of Default"................................ 6.01 "Excess Proceeds"................................. 4.13 "Excess Proceeds Offer"........................... 4.13 "Exchange Act".................................... 4.02 "Existing Liens".................................. 4.10 "incurrence"...................................... 4.08 "Lease Basket".................................... 4.08 "Legal Holiday"................................... 11.08 "Non-Payment Default"............................. 10.04 "Paying Agent".................................... 2.03 "Payment Blockage Period"......................... 10.04 "Payment Default"................................. 10.04 "refinance"....................................... 4.08 "Refinancing Indebtedness"........................ 4.08 "Register"........................................ 2.03 "Registrar"....................................... 2.03 "Restricted Payment".............................. 4.06 "Securities Act".................................. 7.04 "Senior Indebtedness"............................. 10.02 "Specified Senior Indebtedness"................... 10.02 "surviving entity"................................ 5.01 "U.S. Government Obligations"..................... 8.01 SECTION 1.03. Incorporation by Reference of Trust Indenture Act. Whenever this Indenture refers to a provision of the TIA, such provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "Commission" means the SEC. "Indenture securities" means the Securities. "Indenture security holder" means a Securityholder. "Indenture to be qualified" means this Indenture. "Indenture trustee" or "institutional trustee" means the Trustee. "Obligor" on the Securities means the Company and each Subsidiary Guarantor, if any, and each other obligor on the Securities or any Subsidiary Guaranty. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule have the meanings assigned to them by such definitions. SECTION 1.04. Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) "including" means including, without limitation; and (5) words in the singular include the plural, and words in the plural include the singular. SECTION 1.05. Acts of Holders. (1) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. (2) The fact and date of the execution by any Person of any such instrument or writing may be proved in any manner which the Trustee deems sufficient. (3) The ownership of Securities shall be proved by the Register. (4) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security. (5) If the Company shall solicit from the Holders any request, demand, authorization, direction, notice, consent, waiver or other Act, the Company may, at its option, by or pursuant to a Board Resolution, fix in advance a record date for the determination of Holders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other Act, but the Company shall have no obligation to do so. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other Act may be given before or after such record date, but only the Holders of record at the close of business on such record date shall be deemed to be Holders for the purposes of determining whether Holders of the requisite proportion of outstanding securities have authorized or agreed or consented to such request, demand, authorization, directions, notice, consent, waiver or other Act, and for that purpose the outstanding securities shall be computed as of such record date, provided that no such authorization, agreement or consent by the Holders on such record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than six months after the record date. SECTION 1.06. Exchange Rates. Except as otherwise required under GAAP or in connection with the preparation of any financial statements, any computation of the U.S. dollar equivalent of any foreign currency required for any calculation or computation under this Indenture (including, without limitation, in connection with the limitations under the definition of "Consolidated Net Income" and Section 4.03 hereof) shall be made at the exchange rate published in The Wall Street Journal which is in effect as of the close of business on the first Business Day in the month in which such computation is required to be made hereunder. ARTICLE 2 THE SECURITIES SECTION 2.01. Form and Dating. The Securities and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A attached hereto. The Securities may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Security shall be dated the date of its authentication. The terms and provisions contained in the Securities, annexed hereto as Exhibit A, shall constitute, and are hereby expressly made, a part of this Indenture. To the extent applicable, the Company, by its execution and delivery of this Indenture, expressly agrees to such terms and provisions and to be bound thereby. SECTION 2.02. Execution and Authentication. The Securities shall be executed on behalf of the Company by its Chairman of the Board, one of its Vice Chairmen, its President or one of its Vice Presidents, under its corporate seal reproduced thereon attested by its Secretary or one of its Assistant Secretaries. The signature of any such officer on the Securities may be manual or facsimile. Securities bearing the manual or facsimile signatures of individuals who were at any time the proper Officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for in Exhibit A annexed hereto duly executed by the Trustee by manual signature of an authorized officer, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and made available for delivery hereunder. The Trustee shall authenticate and make available for delivery Securities for original issue in the aggregate principal amount of $218,500,000 upon a Board Resolution and a written order of the Company signed by two Officers of the Company, but without any further action by the Company. Such order shall specify the amount of the Securities to be authenticated and the date on which the original issue of Securities is to be authenticated and delivered. The aggregate principal amount of Securities outstanding at any time may not exceed $218,500,000, except as provided in Section 2.07. The Trustee shall act as the initial authenticating agent. Thereafter, the Trustee may appoint an authenticating agent reasonably acceptable to the Company to authenticate Securities. An authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as a Paying Agent to deal with the Company or an Affiliate of the Company. The Securities shall be issuable only in registered form without coupons and only in denominations of $1,000 and any integral multiple thereof. SECTION 2.03. Registrar and Paying Agent. The Company shall maintain or cause to be maintained an office or agency where Securities may be presented for registration of transfer or for exchange ("Registrar"), an office or agency where Securities may be presented or surrendered for purchase or payment ("Paying Agent") and an office or agency where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Registrar shall keep a register of the Securities and of their transfer and exchange (the "Register"). The Company may have one or more co-registrars and one or more additional paying agents. The term Paying Agent includes any additional paying agent. The Company shall enter into an appropriate agency agreement with any Registrar, Paying Agent or co-registrar (if not the Trustee or the Company). The agreement shall implement the provisions of this Indenture that relate to such agent. The Company shall notify the Trustee of the name and address of any such agent. If the Company fails to maintain a Registrar, Paying Agent or agent for service of notices or demands, the Trustee shall act as such and shall be entitled to appropriate compensation therefor pursuant to Section 7.07 hereof. The Company or any Subsidiary or an Affiliate of either of them may act as Paying Agent, Registrar or co-registrar or agent for service of notices and demands. The Company initially appoints the Trustee as Registrar and Paying Agent and agent for service of notices and demands. SECTION 2.04 Paying Agent to Hold Money in Trust. Except as otherwise provided herein, prior to each due date of the principal, premium, if any, and interest on any Security, the Company shall deposit with the Paying Agent a sum of money sufficient to pay such principal, premium, if any, and interest so becoming due. The Company shall require each Paying Agent (other than the Trustee or the Company) to agree in writing that such Paying Agent shall hold in trust for the benefit of Securityholders or the Trustee all money held by the Paying Agent for the payment of principal, premium, if any, and interest on the Securities (whether such money has been paid to it by the Company or any other obligor on the Securities) and shall notify the Trustee of any default by the Company (or any other obligor on the Securities) in making any such payment. At any time during the continuance of any such default, the Paying Agent shall, upon the request of the Trustee, forthwith pay to the Trustee all money so held in trust and account for any money disbursed to it. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee and to account for any money disbursed by it. Upon doing so, the Paying Agent shall have no further liability for the money so paid over to the Trustee. If the Company, a Subsidiary or an Affiliate of either of them acts as Paying Agent, it shall segregate the money held by it as Paying Agent and hold it as a separate trust fund. SECTION 2.05. Securityholder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Securityholders. If the Trustee is not the Registrar, the Company shall cause to be furnished to the Trustee on or before each interest payment date and at such other times as the Trustee may request in writing, within five Business Days of such request, a list in such form as the Trustee may reasonably require of the names and addresses of Securityholders. SECTION 2.06. Transfer and Exchange. Upon surrender for registration of transfer of any Security at the office or agency of the Company designated as Registrar or co-registrar pursuant to Section 2.03 or at the office or agency referred to in Section 4.05, the Company shall execute, and the Trustee shall authenticate and make available for delivery, in the name of the designated transferee or transferees, one or more new Securities of any authorized denomination or denominations, of a like aggregate principal amount. At the option of the Holder, Securities may be exchanged for other Securities of any authorized denomination or denominations, of a like aggregate principal amount, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and make available for delivery, the Securities which the Holder making the exchange is entitled to receive. Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Registrar duly executed, by the Holder or his attorney duly authorized in writing. The Company shall not charge a service charge for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to pay all taxes, assessments or other governmental charges that may be imposed in connection with the transfer or exchange of the Securities from the Securityholder requesting such transfer or exchange (other than any exchange of a temporary Security for a definitive Security not involving any change in ownership). The Company shall not be required to make, and the Registrar need not register, transfers or exchanges of Securities selected for redemption (except, in the case of Securities to be redeemed in part, the portion thereof not to be redeemed) or any Securities for a period of 15 days before a selection of Securities to be redeemed. SECTION 2.07. Replacement Securities. If any mutilated Security is surrendered to the Company or the Trustee, or the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Security, and there is delivered to the Company and the Trustee such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute, and upon its written request, the Trustee shall authenticate and make available for delivery, in exchange for any such mutilated Security or in lieu of any such destroyed, lost or stolen Security, a new Security of like tenor and principal amount, bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, or is about to be purchased by the Company pursuant to Article 3 hereof, the Company in its discretion may, instead of issuing a new Security, pay or purchase such Security, as the case may be. Upon the issuance of new Securities under this Section 2.07, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) in connection therewith. Every new Security issued pursuant to this Section 2.07 in lieu of any mutilated, destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the mutilated, destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. The provisions of this Section 2.07 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. SECTION 2.08. Outstanding Securities; Determinations of Holders' Action. Securities outstanding at any time are all the Securities authenticated by the Trustee except for those cancelled by it, those delivered to it for cancellation, those referred to in Section 2.07 hereof, or purchased by the Company pursuant to Article 3 hereof and those described in this Section 2.08 as not outstanding. A Security does not cease to be outstanding because the Company or an Affiliate thereof holds the Security; provided, however, that in determining whether the Holders of the requisite principal amount of Securities have given or concurred in any request, demand, authorization, direction, notice, consent or waiver hereunder, Securities owned by the Company, any other obligor upon the Securities or any Affiliate of the Company or such other obligor shall be disregarded and deemed not to be outstanding, except that, in determining whether the Trustee shall be protected in relying upon such request, demand, authorization, direction, notice, consent or waiver, only Securities which a Trust Officer of the Trustee knows based upon an examination of the Register to be so owned shall be so disregarded. Subject to the foregoing, only Securities outstanding at the time of such determination shall be considered in any such determination (including determinations pursuant to Articles 6 and 9). If a Security is replaced pursuant to Section 2.07, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Security is held by a bona fide purchaser. If the Paying Agent (other than the Company) holds, in accordance with this Indenture, at maturity or on a Redemption Date, money sufficient to pay the Securities payable on that date, then immediately on the date of maturity or such Redemption Date, as the case may be, such Securities shall cease to be outstanding and interest, if any, on such Securities shall cease to accrue. SECTION 2.09. Temporary Securities. Pending the preparation of definitive Securities, the Company may execute, and upon receipt of an Officers' Certificate from the Company, the Trustee shall authenticate and make available for delivery, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the Officers of the Company executing such Securities may determine, as conclusively evidenced by their execution of such Securities. If temporary Securities are issued, the Company will cause definitive Securities to be prepared without unreasonable delay. After the preparation of definitive Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the temporary Securities at the office or agency of the Company designated for such purpose pursuant to Section 2.03 hereof, without charge to the Holder. Upon surrender for cancellation of anyone or more temporary Securities, the Company shall execute and the Trustee, upon receipt of an Officers' Certificate from the Company, shall authenticate and make available for delivery in exchange therefor a like principal amount of definitive Securities of authorized denominations. Until so exchanged, the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as definitive Securities. SECTION 2.10. Cancellation. All Securities surrendered for payment, purchase by the Company, redemption by the Company pursuant to Article 3 hereof, or registration of transfer or exchange shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly cancelled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and made available for delivery hereunder which the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly cancelled by the Trustee. The Company may not reissue, or issue new Securities to replace Securities it has paid or delivered to the Trustee for cancellation. No Securities shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section 2.10, except as expressly permitted by this Indenture. All cancelled Securities held by the Trustee shall be destroyed by the Trustee. SECTION 2.11. CUSIP Numbers. The Company, in issuing the Securities may use "CUSIP" numbers (if then generally in use), and the Trustee shall use CUSIP numbers in notices of redemption or exchange as a convenience to Holders; provided that any such notice shall state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of redemption or exchange and that reliance may be placed only on the other identification numbers printed on the Securities and any redemption shall not be affected by any defect in or omission of such numbers. SECTION 2.12. Defaulted Interest. If the Company defaults on a payment of interest on the Securities, it shall pay the defaulted interest, plus (to the extent lawful) any interest payable on the defaulted interest (as provided in Section 4.01), to the Persons who are Holders on a subsequent special record date, and such special record date, as used in this Section 2.12 with respect to the payment of any defaulted interest, shall mean the 15th day next preceding the date fixed by the Company for the payment of defaulted interest, whether or not such day is a Business Day. At least 15 days before the subsequent special record date, the Company shall mail to each Holder and to the Trustee a notice that states the subsequent special record date, the payment date and the amount of defaulted interest to be paid. The Company may also pay defaulted interest in any other lawful manner. ARTICLE 3 REDEMPTION SECTION 3.01. Right to Redeem; Notices to Trustee. At any time on and after March 1, 1999, the Company, at its option, may redeem the Securities for cash in accordance with this Article 3 and the provisions of paragraph 6 of the Securities. If the Company elects to redeem Securities pursuant to paragraph 6 of the Securities, it shall notify the Trustee in writing of the Redemption Date, the principal amount of Securities to be redeemed and the Redemption Price. The Company shall give the notice to the Trustee provided for in this Section 3.01 at least 45 days before the Redemption Date (unless a shorter notice shall be satisfactory to the Trustee). SECTION 3.02. Selection of Securities to Be Redeemed. If less than all the outstanding Securities are to be redeemed at any time, the Trustee shall select the Securities to be redeemed by lot or, if such method is prohibited by the rules of any stock exchange on which the Securities are then listed, any other method the Trustee considers reasonable. The Trustee shall make the selection at least 30 but not more than 60 days before the Redemption Date from outstanding Securities not previously called for redemption. Securities and portions of them the Trustee selects shall be in principal amounts of $1,000 or an integral multiple of $1,000. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. The Trustee shall notify the Company promptly of the Securities or portions of Securities to be redeemed. SECTION 3.03. Notice of Redemption. At least 30 days but not more than 60 days before a Redemption Date, the Company shall mail or cause to be mailed a notice of redemption by first- class mail, postage prepaid, to each Holder of Securities to be redeemed at the Holder's last address, as it shall appear on the registry book. A copy of such notice shall be mailed to the Trustee on the same day the notice is mailed to Holders of Securities. The notice shall identify the Securities to be redeemed and shall state: (1) the Redemption Date; (2) the Redemption Price; (3) the CUSIP number (subject to the provisions of Section 2.11 hereof); (4) the name and address of the Paying Agent; (5) that Securities called for redemption must be surrendered to the Paying Agent to collect the Redemption Price; (6) if fewer than all the outstanding Securities are to be redeemed, the identification and principal amounts of the particular Securities to be redeemed; and (7) that, unless the Company defaults in making such redemption payment, interest will cease to accrue on Securities called for redemption on and after the Redemption Date. At the Company's written request, the Trustee shall give the notice of redemption in the Company's name and at the Company's expense; provided, however, that in all cases, the text of such notice of redemption shall be prepared or approved by the Company and the Trustee shall have no responsibility whatsoever with regard to such notice being accurate or correct. SECTION 3.04. Effect of Notice of Redemption. Once notice of redemption is given, Securities called for redemption become due and payable on the Redemption Date and at the Redemption Price. Upon the later of the Redemption Date and the date such Securities are surrendered to the Paying Agent, such Securities called for redemption shall be paid at the Redemption Price plus accrued interest to the Redemption Date, if money sufficient for that purpose has been deposited as provided in Section 3.05 hereof. Notice of redemption shall be deemed to be given when mailed in the manner provided in Section 3.03, whether or not the Holder receives the notice. In any event, failure to give such notice, or any defect therein, shall not affect the validity of the proceedings for the redemption of the Securities. SECTION 3.05. Deposit of Redemption Price. Prior to the Redemption Date, the Company shall deposit with the Paying Agent (or if the Company or a Subsidiary or an Affiliate of either of them is the Paying Agent, shall segregate and hold in trust) money sufficient to pay the Redemption Price of all Securities to be redeemed on that date other than Securities or portions of Securities called for redemption which prior thereto have been delivered by the Company to the Trustee for cancellation. SECTION 3.06. Securities Redeemed in Part. Upon surrender of a Security that is redeemed in part, the Company shall execute, and the Trustee shall authenticate and make available for delivery to the Holder, a new Security (accompanied by a confirmation of guaranty with respect to the Subsidiary Guaranty, if any, duly executed and delivered by each Subsidiary Guarantor party thereto) in an authorized denomination equal in principal amount to the unredeemed portion of the Security surrendered. ARTICLE 4 COVENANTS SECTION 4.01. Payment of Securities. The Company shall pay the principal of, premium, if any, and interest (including interest accruing on or after the filing of a petition in bankruptcy or reorganization relating to the Company, whether or not a claim for post-filing interest is allowed in such proceeding) on the Securities on (or prior to) the dates and in the manner provided in the Securities or pursuant to this Indenture. An installment of principal, premium, if any, or interest shall be considered paid on the applicable date due if on such date the Trustee or the Paying Agent holds, in accordance with this Indenture, money sufficient to pay all of such installment then due. The Company shall pay interest on overdue principal and premium, if any, and interest on overdue installments of interest (including interest accruing on or after the filing of a petition in bankruptcy or reorganization relating to the Company whether or not a claim for post-filing interest is allowed in such proceeding), to the extent lawful, at 2% above the rate per annum borne by the Securities, which interest on overdue interest shall accrue from the date such amounts became overdue. SECTION 4.02. SEC Reports. (1) The Company shall file with the Trustee and supply to each Holder, without cost, within 15 days after it files the same with the SEC, definitive copies of its annual and quarterly reports, information, documents and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) which it is required to file with the SEC pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). In the event that the Company is at any time not subject to the reporting requirements of the Exchange Act, it shall provide to the Trustee and supply to each Holder, without cost, within 15 days after it would have been required to file such information with the SEC, financial statements, including any notes thereto and, with respect to annual reports, an auditors' report by an accounting firm of established national reputation and a "Management's Discussion and Analysis of Financial Condition and Results of Operations," both comparable to that which the Company would have been required to include in such annual reports, information, documents or other reports if the Company had been subject to the requirements of such Sections 13 or 15(d) of the Exchange Act. The Company also shall comply with the other provisions of TIA Section 314(a). (2) So long as any Securities remain outstanding, the Company shall cause its annual report to shareholders and any other financial reports furnished by it to shareholders generally, to be mailed to the Holders at their addresses appearing in the register of Securities maintained by the Registrar in each case at the time of such mailing or furnishing to shareholders. If the Company is not required to furnish annual or quarterly reports to its stockholders pursuant to the Exchange Act, the Company shall cause its financial statements, including any notes thereto and with respect to annual reports, an auditors' report by an accounting firm of established national reputation and a "Management's Discussion and Analysis of Financial Condition and Results of Operations," to be so filed with the Trustee and mailed to the Holders within 120 days after the end of each of the Company's fiscal years (which on the date hereof ends on December 31) and within 60 days after the end of each of the first three quarters of each fiscal year. (3) The Company shall provide the Trustee with a sufficient number of copies of all reports and other documents and information that the Company may be required to deliver to the Securityholders under this Section 4.02. SECTION 4.03. Compliance Certificates. (1) The Company shall deliver to the Trustee within 90 days after the end of each of the Company's fiscal years an Officers' Certificate executed by Officers of the Company, stating whether or not the signers know of any Default or Event of Default. Such certificate shall contain a certification from the principal executive officer, principal financial officer or principal accounting officer of the Company as to his or her knowledge of the Company's compliance with all conditions and covenants under this Indenture. For purposes of this Section 4.03(1), such compliance shall be determined without regard to any period of grace or requirement of notice provided under this Indenture. If they do know of such a Default or Event of Default, the certificate shall describe any such Default or Event of Default, and its status. (2) So long as not contrary to the then current recommendation of the American Institute of Certified Public Accountants, the Company shall deliver to the Trustee within 120 days after the end of each fiscal year a written statement by the Company's independent certified public accountants stating (a) that their audit examination has included a review of the terms of this Indenture and the Securities as they relate to accounting matters, and (b) whether, in connection with their audit examination, any Default has come to their attention and, if such a Default has come to their attention, specifying the nature and period of the existence thereof; provided, however, that the independent certified public accountants delivering such statement shall not be liable in respect of such statement by reason of any failure to obtain knowledge of any such Default or Event of Default that would not be disclosed in the course of an audit examination conducted in accordance with GAAP. (3) The Company shall deliver to the Trustee as soon as possible and in any event within 15 days after the Company becomes aware of the occurrence of each Default or Event of Default, which is continuing, an Officers' Certificate setting forth the details of such Default or Event of Default, and the action which the Company proposes to take with respect thereto. SECTION 4.04. Further Instruments and Acts. Upon request of the Trustee, the Company shall execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purposes of this Indenture. SECTION 4.05. Maintenance of Office or Agency. The Company will maintain or cause to be maintained an office or agency of the Trustee, Registrar and Paying Agent where Securities may be presented or surrendered for payment, where Securities may be surrendered for registration of transfer, exchange or redemption and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The corporate trust office of the Trustee at the address specified in Section 11.02 hereof shall initially be such office or agency for all of the aforesaid purposes. The Company shall give prompt written notice to the Trustee of any change of location of such office or agency. If at any time the Company shall fail to maintain or cause to be maintained any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee set forth in Section 11.02 hereof. The Company may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in location of any such other office or agency. SECTION 4.06. Limitation on Restricted Payments. The Company shall not, and shall not permit any of its 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 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 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 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 Subsidiaries (other than Capital Stock or other Equity Interests held by the Company or any Wholly-Owned Subsidiary of the Company); (iii) prepay, repay, purchase, repurchase, redeem, defease or otherwise acquire or retire for value, prior to a scheduled repayment date, scheduled mandatory sinking fund payment date or maturity date any Indebtedness of the Company that is subordinate in right of payment to the Securities (other than in connection with any refinancing of such Indebtedness permitted by this Indenture); or (iv) make any Investment other than Permitted Investments (each such action described in any of clauses (i) through (iv) above being referred to as a "Restricted Payment"), if, at the time of such Restricted Payment: (1) a Default or Event of Default shall have occurred and be continuing or shall occur as a consequence thereof; (2) such Restricted Payment, together with the aggregate amount of all other Restricted Payments declared or made on or after the issue date of the Securities (including, without duplication, Restricted Payments described in the next succeeding paragraph), exceeds the sum of (A) 50% of the cumulative Consolidated Net Income of the Company for the period commencing on January 1, 1994 through the last day of the fiscal quarter immediately preceding the date of such proposed Restricted Payment (or, if the 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 Subsidiary of the Company) from the issuance and sale of either Capital Stock of the Company (other than Redeemable Stock or any Capital Stock convertible into any security other than such Capital Stock) or Indebtedness that is convertible into Capital Stock of the Company (other than Redeemable Stock or any Capital Stock convertible into any security other than such Capital Stock), to the extent such Indebtedness is actually converted into such Capital Stock; and (C) $20,000,000; or (3) the Company could not incur at least $1.00 of additional Indebtedness pursuant to the first paragraph of Section 4.08 hereof. The foregoing provisions shall not prohibit, so long as no Default or Event of Default shall have occurred and be continuing or shall occur as a consequence thereof, (i) the payment of any dividend within 60 days after the date of declaration thereof, if at such date of declaration such payment would have complied with the provisions of this Indenture; or (ii) the declaration and payment by a Reporting Subsidiary of the Company 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. The amount of any dividend or other distribution (other than cash) shall be equal at least to the Fair Market Value of the asset(s) proposed to be transferred by the Company or such Subsidiary of the Company, as the case may be, pursuant to such dividend or other distribution. The Company shall deliver to the Trustee within 90 days after the end of each of the Company's fiscal years in which a Restricted Payment is made under the first paragraph of this Section 4.06, an Officers' Certificate setting forth the aggregate amount of Restricted Payments made in such fiscal year, briefly describing the nature or type of Restricted Payments made in such fiscal year and stating that each such Restricted Payment is permitted by this Section 4.06. SECTION 4.07. Limitation on Other Senior Subordinated Indebtedness. The Company shall not incur, issue, create, assume, guarantee or otherwise become liable for any Indebtedness that is contractually subordinated in right of payment to any Senior Indebtedness and contractually senior in right of payment to the Securities. SECTION 4.08. Limitation on Additional Indebtedness. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable with respect to (each, an "incurrence") any Indebtedness, including, without limitation, Acquired Indebtedness; provided, however, that the Company may incur Indebtedness if (i) no Default or Event of Default shall have occurred and be continuing at the time or after giving effect to the incurrence of such Indebtedness and (ii) the Consolidated Cash Flow Coverage Ratio of the Company for the four full fiscal quarters ending immediately prior to the date of the incurrence of such additional Indebtedness is at least 2.0 to 1.0. The foregoing limitations set forth in this Section 4.08 shall not apply, without duplication, to: i) Existing Indebtedness; ii) Indebtedness of (a) the Company represented by the Securities or (b) any Subsidiary Guarantor under any Subsidiary Guaranty; iii) Indebtedness of the Company under the Company Credit Facility, up to $60,000,000 in aggregate outstanding principal amount (including the available undrawn amount of any letters of credit issued thereunder) at any time; iv) Indebtedness of (a) Broan Limited under the Broan Limited Credit Facility, provided that such Indebtedness shall not exceed at any time $20,100,000 (Canadian) in aggregate outstanding principal amount (including the available undrawn amount of any letters of credit issued under such facility) and shall be secured only by Liens on assets of Broan Limited and (b) the Company under its limited guaranty of not more than $10,000,000 (Canadian) of the Indebtedness of Broan Limited under the Broan Limited Credit Facility; v) Indebtedness of Aubrey Manufacturing, Inc. or Broan Mfg. Co., Inc. not exceeding at any time $3,000,000 in aggregate outstanding principal amount and, if secured, secured only by Liens on certain real property owned by such Persons; vi) Indebtedness of Universal-Rundle Corporation for working capital or joint venture investment purposes not exceeding at any time $4,000,000 in aggregate outstanding principal amount and, if secured, secured only by Liens on assets of Universal-Rundle Corporation; vii) Indebtedness of the Company to any of its Wholly-Owned Subsidiaries, provided that such Indebtedness is contractually subordinated in right of payment to the Securities, or Indebtedness of any Subsidiary of the Company to the Company or to any other Wholly-Owned Subsidiary of the Company, provided that if the Company or any of its Subsidiaries incurs Indebtedness to a Wholly-Owned Subsidiary of the Company which, at any time after such incurrence, ceases to be a Wholly-Owned Subsidiary, then all such Indebtedness in excess of the amount of Allowable Subsidiary Loans shall be deemed to have been incurred at the time such former Wholly-Owned Subsidiary ceases to be a Wholly-Owned Subsidiary of the Company; viii) Indebtedness of a Subsidiary of the Company under a guaranty of Indebtedness of the Company (other than the Securities) which causes such Subsidiary to become a Subsidiary Guarantor pursuant to Section 4.15 hereof; (ix) Indebtedness of the Company and its Subsidiaries under Interest Rate Agreements, Currency Agreements and Commodity Agreements, provided that (a) in the case of Interest Rate Agreements, such Interest Rate Agreements relate to Indebtedness permitted to be incurred under this Indenture and the notional principal amount of the obligations of the Company and its 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 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; (x) Indebtedness of the Company under its guaranty of payment of the principal of and interest on and certain expenses relating to certain industrial revenue bonds issued for the benefit of Spaulding Composites Company, Inc.; (xi) Indebtedness of the Company and its Subsidiaries under guaranties of Indebtedness incurred in the ordinary course of business of suppliers, licensees, franchisees or customers; (xii) Indebtedness incurred by the Company and its Subsidiaries consisting of Purchase Money Obligations and Capital Lease Obligations not exceeding at any time $15,000,000 in aggregate outstanding principal amount; (xiii) Acquired Indebtedness incurred by a 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, after giving pro forma effect to the acquisition of such Subsidiary by the Company; (xiv) Indebtedness of the Company and its Subsidiaries in respect of performance bonds, bankers' acceptances and surety or appeal bonds provided in the ordinary course of business; (xi) other Indebtedness of the Company and its Subsidiaries not to exceed at any time $10,000,000 in aggregate outstanding principal amount; (xvi) Liens permitted under Section 4.10 hereof; and (xvii) Indebtedness ("Refinancing Indebtedness") created, incurred, issued, assumed or guaranteed in exchange for, or the proceeds of which are used to extend, refinance, renew, replace, substitute or refund ("refinance"), Indebtedness described in the preceding paragraph or referred to in clauses (i) through (xv) above; provided, however, that (a) the principal amount of such Refinancing Indebtedness (or if such Refinancing Indebtedness is issued at a price less than the principal amount thereof, the original issue amount of such Refinancing Indebtedness), together with the principal amount of any remaining Indebtedness under the agreement or instrument governing the Indebtedness being refinanced, shall not exceed (1) in the case of Refinancing Indebtedness incurred to refinance Indebtedness permitted to be incurred under any of clauses (iii) through (vi) and (xv) above, an amount which, when added to all other Indebtedness outstanding under such clause, shall not exceed the aggregate amount of Indebtedness permitted to be incurred under such clause, and (2) in the case of Refinancing Indebtedness incurred to refinance Indebtedness permitted to be incurred under any of clauses (i), (ii) and (vii) through (xiv) above, the aggregate amount of such Indebtedness outstanding at the time of such refinancing, in either case, after giving effect to any mandatory reductions in principal or other repayments required under the agreement or instrument governing such Indebtedness; (b) except in the case of Refinancing Indebtedness that refinances all of the Securities outstanding at the time of such refinancing, such Refinancing Indebtedness shall be subordinated in right of payment to the Securities at least to the same extent as the Indebtedness to be refinanced; (c) in the case of Refinancing Indebtedness incurred to refinance (1) any Existing Indebtedness, (2) the Securities, or (3) Indebtedness that ranks pari passu with or junior in right of payment to the Securities, 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 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. Any Indebtedness incurred pursuant to this Section 4.08 shall be subject to the limitations set forth in Section 4.07 hereof. For purposes of this Section 4.08, the accretion of original issue discount on Indebtedness shall not be deemed to be an incurrence of Indebtedness. SECTION 4.09. Limitation on Sale or Issuance of Capital Stock of Subsidiaries. The Company shall not (i) sell or otherwise convey or dispose of any Equity Interests of any of its Subsidiaries except to the Company or a Wholly-Owned Subsidiary of the Company, or as permitted by Sections 4.10 or 4.13 hereof or (ii) permit any of its Subsidiaries to issue or sell to any Person except the Company or a Wholly-Owned Subsidiary of the Company (a) any preferred stock of such Subsidiaries or (b) except as permitted by Section 4.13 hereof, any other Equity Interests of such Subsidiary. SECTION 4.10. Limitation on Liens. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien on any of its assets or properties, now owned or hereafter acquired, or any income or profits therefrom, securing any Indebtedness that is pari passu with or contractually subordinated in right of payment to the Securities unless the Company or such Subsidiary, as the case may be, simultaneously executes and delivers a supplemental indenture to this Indenture providing that (i) the Securities are secured by such Lien equally and ratably with any and all other Indebtedness secured by such Lien or (ii) in the case of Indebtedness contractually subordinated in right of payment to the Securities, the Lien securing such Indebtedness shall be subordinate in right of payment to the Lien securing the Securities to the same extent that such Indebtedness is subordinated to the Securities. The foregoing limitations set forth in this Section 4.10 shall not apply to: (i) Liens securing Acquired Indebtedness incurred by the Company or any Subsidiary of the Company and permitted by Section 4.08 hereof, provided that such Liens attach solely to the assets acquired and do not extend to or cover any property or assets of the Company or any of its Subsidiaries; (ii) Liens securing Refinancing Indebtedness incurred to refinance Indebtedness that has been secured by a Lien permitted under this Indenture, provided that such Liens do not extend to or cover any property or assets of the Company or any of its Subsidiaries not securing the Indebtedness so refinanced; (iii) Liens securing Existing Indebtedness; or (iv) Permitted Liens. SECTION 4.11. Limitation on Certain Restrictions Affecting Subsidiaries. The Company shall not, and shall not permit any of its 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 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 Subsidiaries, (ii) pay or repay any Indebtedness owed to the Company or any of its Subsidiaries which owns Equity Interests in such Subsidiary, (iii) make loans or advances to the Company or any of its Subsidiaries which owns Equity Interests in such Subsidiary, (iv) transfer any of its properties or assets to the Company or any of its Subsidiaries which owns Equity Interests in such Subsidiary, or (v) guarantee any Indebtedness of the Company or any other Subsidiary of the Company except, in each case, for such encumbrances or restrictions existing under or by reason of (a) applicable law, (b) this Indenture, (c) customary nonassignment provisions of any lease governing a leasehold interest of the Company or any of its Subsidiaries, (d) any instrument governing Indebtedness of a Person acquired by the Company or any of its 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 Securities, (f) the Company Credit Facility and (g) any agreement effecting a refinancing of Indebtedness issued pursuant to any agreement or instrument referred to in clause (d) or (e) 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 Subsidiary of the Company to grant any Lien to the extent otherwise permitted in this Indenture. SECTION 4.12. Repurchase Upon Change of Control. Upon the occurrence of a Change of Control, each Holder shall have the right to require the repurchase of such Holder's Securities pursuant to the offer described below (the "Change of Control Offer") at a purchase price equal to 101% of the aggregate principal amount plus accrued and unpaid interest, if any, to the date of purchase. Immediately following any Change of Control, the Company shall mail a notice to the Trustee and to each Holder stating: (1) that the Change of Control Offer is being made pursuant to this Section 4.12 and that all Securities tendered will be accepted for payment; (2) the purchase price and the purchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed) (the "Change of Control Payment Date"); (3) that any Security not tendered will continue to accrue interest; (4) that, unless the Company defaults in the payment thereof, all Securities accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest on and after the Change of Control Payment Date; (5) that Holders electing to have any Securities purchased pursuant to a Change of Control Offer will be required to surrender the Securities 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; (6) that Holders will be entitled to withdraw their election on the terms and conditions set forth in such notice; and (7) that Holders whose Securities are being purchased only in part will be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered; provided that each Security purchased and each such new Security issued shall be in a principal amount of $1,000 or an integral multiple thereof. On the Change of Control Payment Date, the Company shall (1) accept for payment all Securities or portions thereof tendered, pursuant to the Change of Control Offer, (2) deposit with the Paying Agent money sufficient to pay the purchase price of all Securities or portions thereof so tendered, and (3) deliver, or cause to be delivered to the Trustee, all Securities so tendered together with an Officers' Certificate specifying the Securities or portions thereof tendered to the Company. The Paying Agent shall promptly mail, to each Holder of Securities so tendered, payment in an amount equal to the purchase price for such Securities, and the Trustee shall promptly authenticate and mail to such Holder a new Security equal in principal amount to any unpurchased portion of the Securities surrendered; provided that each such new Security shall be in a principal amount of $1,000 or an integral multiple thereof. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. A "Change of Control" shall be deemed to have occurred at such time as any of the following events shall occur: (i) there is consummated any consolidation or merger of the Company with or into another corporation, or all or substantially all of the assets of the Company are sold, leased or otherwise transferred or conveyed to another Person (other than pursuant to a bona fide pledge of assets to secure Indebtedness made in accordance with this Indenture), and the holders of the Company's common stock outstanding immediately prior to such consolidation, merger, sale, lease or other transfer or conveyance do not hold, directly or indirectly, at least a majority of the common stock of the continuing or surviving corporation immediately after such consolidation or merger or at least a majority of the Equity Interests of such Person; (ii) there is filed a report on Schedule 13D or 14D-1 (or any successor schedule, form or report) pursuant to the Exchange Act disclosing that any person (defined, solely for the purposes of the Change of Control provision, as the term "person" is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act or any successor provision to either of the foregoing) has become the beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of 50% or more of the combined voting power of all the Company's then outstanding securities entitled to vote generally for the election of directors; provided, however, that a person shall not be deemed to be the beneficial owner of, or to own beneficially, (A) any securities tendered pursuant to a tender or exchange offer made by or on behalf of such person or any of such person's Affiliates or associates until such tendered securities are accepted for purchase or exchange thereunder, or (B) any securities if such beneficial ownership (1) arises solely as a result of a revocable proxy delivered in response to a proxy or consent solicitation made pursuant to the applicable rules and regulations under the Exchange Act, and (2) is not also then reportable on Schedule 13D (or any successor schedule) under the Exchange Act; or (iii) during any consecutive two-year period, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new directors whose election by such Board of Directors or whose nomination for election by the stockholders of the Company was approved by a vote of 66-2/3% of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company then in office. Notwithstanding anything to the contrary set forth in this Section 4.12, 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, or any other Person holding securities of the Company for or pursuant to the terms of any such employee benefit plan, filing or becoming obligated to file a report under or in response to Schedule 13D or Schedule 14D-1 (or any successor schedule, form or report) under the Exchange Act disclosing beneficial ownership by it of securities of the Company, whether in excess of 50% of the combined voting power of the Company's then outstanding securities entitled to vote generally for the election of directors or otherwise. SECTION 4.13. Limitation On Use of Proceeds from Asset Sales. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, consummate any Asset Sale unless (i) the Company or such 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, (ii) at least 75% of the consideration from such Asset Sale is received at the closing in the form of cash, Cash Equivalents (together with cash, "Cash Proceeds") or indebtedness for borrowed money of the Company or such Subsidiary that is assumed by the transferee of any such assets or any such indebtedness of any Subsidiary of the Company whose stock is purchased by the transferee, and (iii) with respect to any Asset Sale involving the Equity Interests of any Wholly-Owned Subsidiary of the Company or, in the case of subclause (b) below, any Subsidiary of the Company that was a Wholly-Owned Subsidiary of the Company prior to the first public offering referred to in such subclause (b), (a) the Company or another Wholly-Owned Subsidiary of the Company shall in such Asset Sale sell all of the Equity Interests it owns of such Subsidiary or receive Cash Proceeds at the closing of such Asset Sale in an amount not less than 75% of the Fair Market Value of all Equity Interests of such Subsidiary owned by the Company or such other Wholly-Owned Subsidiary of the Company, whether or not sold, or (b) the Company or another Subsidiary of the Company may sell, or such Subsidiary may issue, in such Asset Sale not more than 20% of the shares of common stock of such Subsidiary in one or more public offerings for cash only if, as of the date of such Asset Sale, after giving pro forma effect to such Asset Sale by excluding, in the determination of Consolidated Cash Flow of the Company for the four full consecutive fiscal quarters ending immediately prior to the date of such Asset Sale, that portion of the Consolidated Cash Flow accounted for by such Subsidiary equal to the portion of the common stock of such Subsidiary being sold or issued in such Asset Sale, the Company could incur at least $1.00 of additional Indebtedness pursuant to the first paragraph of Section 4.08 hereof. Notwithstanding anything to the contrary in the preceding sentence, the sale by the Company of all Equity Interests of Dixieline Lumber Company or all or substantially all of the assets of Dixieline Lumber Company shall not be deemed an Asset Sale except to the extent that the Company or any of its Subsidiaries makes after the issue date of the Securities any Investment in Dixieline Lumber Company, in which event the aggregate amount of all such Investments shall be deemed Net Cash Proceeds without regard to the $5,000,000 exception set forth in the definition of the term Asset Sale in this Indenture. Any Net Cash Proceeds (a) in excess of the amount of cash applied by the Company or any Subsidiary of the Company during the period beginning six months prior to the date of the Asset Sale (but not prior to the issue date of the Securities) 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 Securities or at the date of such Asset Sale and (b) not applied within 12 months after the date of the Asset Sale to permanently reduce Senior Indebtedness shall be deemed to be "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $10,000,000, the Company shall make an offer (the "Excess Proceeds Offer") to apply the Excess Proceeds to purchase the Securities. The Excess Proceeds Offer must be in cash in an amount equal to 100% of the principal amount plus accrued and unpaid interest to the date fixed for the closing of such offer, substantially in accordance with the procedures for a Change of Control Offer described in Section 4.12 hereof. To the extent that the aggregate amount of Securities 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 Securities surrendered by Holders exceeds the amount of Excess Proceeds, the Trustee shall select the Securities to be purchased on a pro rata basis, subject to the limitation on the authorized denominations of the Securities. Notwithstanding the limitations set forth in the immediately preceding paragraph: (i) the Company and its Subsidiaries may, in the ordinary course of business, sell, lease, or otherwise transfer or dispose of assets acquired and held for resale in the ordinary course of business; (ii) the Company may sell, lease, or otherwise transfer or dispose of assets pursuant to and in accordance with the provisions of Article 5 hereof; (iii) the Company and its Subsidiaries may sell, lease or otherwise transfer or dispose of damaged, worn out or obsolete property in the ordinary course of business or other property no longer necessary for the proper conduct of their businesses; and (iv) the Company and its Subsidiaries may abandon assets or properties which are no longer useful in their businesses and cannot be sold. SECTION 4.14. Limitation on Transactions With Affiliates. Except as otherwise permitted by this Indenture, neither the Company nor any of its 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 Subsidiaries, unless (i) such transaction or series of transactions is in the best interests of the Company or such Subsidiary based on all relevant facts and circumstances; (ii) such transaction or series of transactions is fair to the Company or such Subsidiary and on terms that are no less favorable to the Company or such 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; and (iii) (a) with respect to a transaction or series of related trans actions involving aggregate payments in excess of $1,000,000, 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 comply 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, with respect to a transaction requiring the valuation of real property, a nationally recognized real estate appraisal firm, that such transaction or series of transactions is fair to the Company from a financial point of view. The foregoing limitation shall not apply to: (i) an Investment to be made by the Company pursuant to a commitment authorized by the Board of Directors of the Company prior to the issue date of the Securities in Ecological Engineering Associates, L.P. in an amount not to exceed $2,100,000 (including such Investments made prior to the issue date of the Securities); (ii) any payment of money or issuance of securities by the Company or any 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; (iii) 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 Subsidiaries and reimbursement of expenses related thereto; or (iv) transactions between the Company and any Subsidiary of the Company, or between one Subsidiary of the Company and another Subsidiary of the Company, provided that not more than 5% of such Subsidiary is owned by any Affiliate of the Company or any of its Subsidiaries (other than the Company or a Wholly-Owned Subsidiary of the Company). SECTION 4.15. Limitation on Guaranties by Subsidiaries. The Company shall not permit any Subsidiary of the Company, directly or indirectly, to assume, guarantee or in any other manner become liable with respect to any Indebtedness of the Company or any Subsidiary Guarantor (other than the Securities), unless such Subsidiary is a Subsidiary Guarantor or simultaneously executes and delivers (i) to the Company and the Trustee a supplemental indenture to this Indenture providing for a Subsidiary Guaranty of the Securities by such Subsidiary and any other Subsidiary Guarantors by adding an Article 12 to this Indenture, in the form of Exhibit B hereto, which Subsidiary Guaranty shall be subordinated to Guarantor Senior Indebtedness of such Subsidiary Guarantor to the extent set forth in such Exhibit B; and (ii) to the Trustee a Subsidiary Guaranty substantially in the form of Exhibit C hereto. No Lien on the properties or assets of any Subsidiary of the Company permitted by Section 4.10 hereof shall constitute a guaranty of the payment of any Indebtedness of the Company for purposes of this Section 4.15. SECTION 4.16. Payment of Taxes and Other Claims. The Company shall pay or discharge or cause to be paid or discharged, before any penalty accrues thereon, (i) all material taxes, assessments and governmental charges levied or imposed upon the Company or any of its Subsidiaries upon the income, profits or property of the Company or any of its Subsidiaries and (ii) all material lawful claims for labor, materials and supplies which, if unpaid, would by law become a Lien upon the property of the Company or any of its Subsidiaries; provided that none of the Company or any of its Subsidiaries shall be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claims the amount, applicability or validity of which is being contested in good faith by appropriate proceedings and for which adequate provision has been made or where the failure to effect such payment or discharge is not adverse in any material respect to the Holders. SECTION 4.17. Corporate Existence. Subject to Article 5 hereof, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and the corporate, partnership or other existence of any of its Subsidiaries in accordance with the respective organizational documents of such Subsidiary and the rights (charter and statutory), licenses and franchises of the Company and its Subsidiaries; provided, however, that the Company shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any such Subsidiary, if the Board of Directors of the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries taken as a whole and that the loss thereof is not adverse in any material respect to the Holders. SECTION 4.18. Maintenance of Properties and Insurance. The Company shall cause all material properties owned by or leased to it or any of its Subsidiaries and used or useful in the conduct of its business or the business of such Subsidiary to be maintained and kept in normal condition, repair and working order and supplied with all necessary equipment and shall cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section 4.18 shall prevent the Company or any of its Subsidiaries from discontinuing the maintenance of any such properties, if such discontinuance is desirable in the conduct of its business or the business of such Subsidiary. The Company shall provide or cause to be provided, for itself and any of its Subsidiaries, insurance (including appropriate self-insurance) against loss or damage of the kinds customarily insured against by corporations similarly situated and owning like properties, including, but not limited to, public liability insurance, with reputable insurers in such amounts with such deductibles and by such methods as shall be customary for corporations similarly situated in the industry. SECTION 4.19. Stay, Extension and Usury Laws. The Company covenants (to the extent it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law has been enacted. SECTION 4.20. Investment Company Act. The Company shall not become an investment company subject to registration under the Investment Company Act of 1940, as amended. SECTION 4.21. Payments for Consents. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration whether by way of interest, fee or otherwise, to any Holder of any Securities for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture or the Securities unless such consideration is offered to be paid or agreed to be paid to all Holders of the Securities which so consent, waive or agree to amend in the time frame set forth in solicitation documents relating to such consent, waiver or agreement. SECTION 4.22. Covenant to Comply with Securities Laws upon Purchase of Securities. In connection with any offer to purchase or purchase of Securities under Section 4.12 or 4.13 hereof, the Company shall (i) comply with Rule 14e-1 under the Exchange Act, and (ii) otherwise comply with all Federal and state securities laws so as to permit the rights and obligations under Sections 4.12 and 4.13 hereof to be exercised in the time and in the manner specified in Sections 4.12 and 4.13 hereof. ARTICLE 5 SUCCESSOR CORPORATION SECTION 5.01. When the Company May Merge or Transfer Assets, Etc. (a) The Company shall not consolidate with, merge with or into, or transfer all or substantially all of its assets (as an entirety or substantially as an entirety in one transaction or a series of related transactions) to, any Person or permit any Person to merge with or into it, or permit any of its Subsidiaries to enter into any such transaction or transactions if such transaction or transactions in the aggregate would result in a transfer of all or substantially all of the assets of the Company and its Subsidiaries on a consolidated basis, unless: (1) the Company shall be the continuing Person, or the Person, if other than the Company, formed by such consolidation or into which the Company is merged or to which 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 a supplemental indenture, executed and delivered to the Trustee, in form and substance satisfactory to the Trustee, all the obligations of the Company under the Securities and this Indenture, and this Indenture remains in full force and effect; (2) immediately before and immediately after giving effect to such transaction, no Event of Default and no Default shall have occurred and be continuing; (3) the Person which is formed by or survives such consolidation or merger or to which such assets are transferred (the "surviving entity"), after giving pro forma effect to such transaction, could incur $1.00 of additional Indebtedness under the first paragraph of Section 4.08 hereof; (4) immediately after giving effect to such transaction on a pro forma basis the Consolidated Net Worth of the surviving entity shall be equal to or greater than the Consolidated Net Worth of the Company immediately before such transaction; and (5) each Subsidiary Guarantor, if any, unless it is the other party to the applicable transaction described above or its Subsidiary Guaranty, after giving effect to such transaction, is to be released in accordance with the terms hereof and of such Subsidiary Guaranty, shall have confirmed by supplemental indenture that its Subsidiary Guaranty shall apply to the obligations of the Company or the surviving entity under this Indenture. In connection with any such consolidation, merger or transfer, the Company shall deliver, or cause to be delivered, to the Trustee, in form and substance reasonably satisfactory to the Trustee, an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and the supplemental indenture in respect thereto comply with this Section 5.01(a) and that all conditions precedent provided for in this Indenture relating to such transactions have been complied with. (b) A Subsidiary Guarantor shall not, and the Company shall not permit a Subsidiary Guarantor to, consolidate with, or merge with or into, any Person unless its Subsidiary Guaranty, after giving effect to such merger or consolidation, is to be released in accordance with the terms hereof and of such Subsidiary Guaranty or: (1) such Subsidiary Guarantor or the Company shall be the continuing person or the resulting or surviving person in such transaction ("the surviving entity") or the surviving entity shall be a corporation organized and existing under the laws of the United States or any state thereof or the District of Columbia and shall expressly assume, by a supplemental indenture executed and delivered to the Trustee, in form and substance reasonably satisfactory to the Trustee, all of the obligations of such Subsidiary Guarantor under this Indenture, as modified by such supplemental indenture, and its Subsidiary Guaranty; and (2) immediately before and immediately after giving effect to such merger or consolidation, no Event of Default and no Default shall have occurred and be continuing. In connection with any such consolidation or merger, the Company shall deliver, or caused to be delivered, to the Trustee, in form and substance reasonably satisfactory to the Trustee, an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation or merger, and if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with this Section 5.01(b) and that all conditions precedent provided for in this Indenture relating to such transaction have been complied with. SECTION 5.02. Successor Corporation Substituted. Upon any consolidation or merger, or any transfer of all or substantially all of the assets of the Company and its Subsidiaries on a consolidated basis, in accordance with Section 5.01 hereof, the successor Person formed by such consolidation or into which the Company or any Subsidiary Guarantor, as the case may be, is merged or the successor Person to which such transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company or such Subsidiary Guarantor, as the case may be, under this Indenture and, in the case of such Subsidiary Guarantor, under such Subsidiary Guaranty, with the same effect as if such successor Person had been named as the Company in this Indenture or as such Subsidiary Guarantor in this Indenture and such Subsidiary Guaranty, as the case may be, and when a successor Person assumes all the obligations of its predecessor under this Indenture, the Securities or a Subsidiary Guaranty, the predecessor shall be released from those obligations; provided, however, that in the case of a transfer by lease, the predecessor shall not be released from the payment of principal of, premium, if any, and interest on the Securities. ARTICLE 6 DEFAULTS AND REMEDIES SECTION 6.01. Events of Default. An "Event of Default" occurs if one of the following shall have occurred and be continuing: (1) the Company defaults in the payment, when due and payable, of (i) interest on any Security and the default continues for a period of 30 days, or (ii) the principal of or premium, if any, on any Securities when the same becomes due and payable at maturity, by acceleration, on the Redemption Date, on the Change of Control Payment Date, on any payment date respecting an Excess Proceeds Offer or otherwise; (2) the Company fails to comply with any of its covenants or agreements under Section 4.06, Section 4.12 or Article 5 hereof; (3) the Company fails to comply with any of its covenants or agreements in the Securities or this Indenture (other than those referred to in clause (1) or (2) above), or any Subsidiary Guarantor fails to comply with any of its covenants or agreements in this Indenture or its Subsidiary Guaranty, and 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 Subsidiaries (or the payment of which is guaranteed by the Company or any of its Subsidiaries, excluding, however, the guaranty of the Company referred to in clause (x) of the second paragraph of Section 4.08 hereof) 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 $10,000,000 or more; (5) the Company or any of its Material Subsidiaries 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 Material Subsidiaries in an involuntary case or proceeding; (B) appoints a Custodian of the Company or any of its Material Subsidiaries for all or substantially all of its properties; (C) order the liquidation of the Company or any of its Material Subsidiaries; (D) and in each case the order or decree remains unstayed and in effect for 60 days; (7) final judgments for the payment of money which in the aggregate exceed $10,000,000 shall be rendered against the Company or any of its Subsidiaries by a court and shall remain unstayed or undischarged for a period of 60 days; or (8) any Subsidiary Guaranty ceases to be in full force and effect or is declared null and void, or any Subsidiary Guarantor denies that it has any further liability under any Subsidiary Guaranty or gives notice to such effect (in each case other than by reason of the termination of this Indenture or the release of such Subsidiary Guaranty in accordance with the terms of this Indenture and such Subsidiary Guaranty) and such condition shall have continued for the period and after receipt by the Company of the notice specified below. "Bankruptcy Law" means Title 11, United States Code, or any similar Federal or state law for the relief of debtors. "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator, custodian or similar official under any Bankruptcy Law. A Default under clause (3) or (8) above is not an Event of Default until the Trustee notifies the Company or the Holders of at least 25% in aggregate principal amount of the Securities 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 a failure to comply with Section 4.12 hereof) pursuant to the provisions of this Section 6.01 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 Securities pursuant to paragraph 6 of the Securities, an equivalent premium shall also become and be immediately due and payable to the extent permitted by law, anything in this Indenture or in the Securities contained to the contrary notwithstanding. In the case of an Event of Default as a result of a failure to comply with Section 4.12 hereof occurring by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the premium which the Company would have to pay pursuant to Section 4.12 hereof, such premium shall also become and be immediately due and payable at such time as the principal and interest on the Securities become due and payable pursuant to Section 6.02 hereof to the extent permitted by law, anything in this Indenture or in the Securities contained to the contrary notwithstanding. SECTION 6.02. Acceleration. If any Event of Default (other than an Event of Default specified in clause (5) or (6) of Section 6.01 hereof) occurs and is continuing, the Trustee may, by notice to the Company, or the Holders of at least 25% in aggregate principal amount of the Securities then outstanding may, by notice to the Company and the Trustee (each, an "Acceleration Notice"), and the Trustee shall, upon the request of such Holders, declare the principal of the Securities, premium, if any, and accrued interest on the Securities to be due and payable (i) immediately, if no amount is outstanding and no commitment is in effect under Specified Senior Indebtedness, or (ii) if any amount is outstanding or any commitment is in effect under Specified Senior Indebtedness, upon the earlier of five Business Days after delivery of the Acceleration Notice to the Company and the agent of the holders of Specified Senior Indebtedness by the Trustee or the Holders, as the case may be, or acceleration of the Specified Senior Indebtedness, and thereupon the Trustee may, at its discretion, proceed to protect and enforce the rights of the Holders by appropriate judicial proceedings. If any Event or Default under clause (5) or (6) of Section 6.01 hereof occurs, all principal, premium, if any, and interest on the Securities then outstanding shall ipso facto become and be immediately due and payable without declaration or other act on the part of the Trustee or any Holder. The Holders of at least a majority in aggregate principal amount of the Securities then outstanding by written notice to the Trustee and to the Company may rescind an acceleration and its consequences (except an acceleration due to a default in payment of the principal or interest on any of the Securities) if all existing Events of Default have been cured or waived except non-payment of principal or interest that has become due solely because of the acceleration. SECTION 6.03. Other Remedies. If any Event of Default occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of, premium, if any, or interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture. The Trustee may maintain a proceeding even if the Trustee does not possess any of the Securities or does not produce any of the Securities in the proceeding. A delay or omission by the Trustee or any Securityholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of, or acquiescence in, the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative. SECTION 6.04. Waiver of Past Defaults. The Holders of not less than a majority in aggregate principal amount of the Securities at the time outstanding, by notice to the Trustee (and without notice to any other Securityholder), may waive an existing Default or Event of Default and its consequences except (i) an Event of Default described in Section 6.01(1) hereof, or (ii) a Default in respect of a provision that under Section 9.02 hereof cannot be amended without the consent of each Securityholder affected. When a Default or Event of Default is waived, it is deemed cured and shall cease to exist, but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any consequent right. SECTION 6.05. Control by Majority. The Holders of not less than a majority in aggregate principal amount of the Securities at the time outstanding may direct, by an instrument or concurrent instruments in writing delivered to the Trustee, the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture or that the Trustee determines in good faith is unduly prejudicial to the rights of other Securityholders or would involve the Trustee in personal liability. The Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. SECTION 6.06. Limitation on Suits. Except as provided in Section 6.07 hereof, a Securityholder may not pursue any remedy with respect to this Indenture or the Securities unless: (1) the Holder gives to the Trustee written notice stating that an Event of Default is continuing; (2) the Holders of at least 25% in aggregate principal amount of the Securities at the time outstanding make a written request to the Trustee to pursue the remedy; (3) such Holder or Holders offer to the Trustee reasonable security or indemnity against any loss, liability or expense satisfactory to the Trustee; (4) the Trustee does not comply with the request within 30 days after receipt of the notice, the request and the offer of security or indemnity; and (5) the Holders of a majority in aggregate principal amount of the Securities at the time outstanding do not give the Trustee a direction inconsistent with the request during such 30- day period. A Securityholder may not use this Indenture to prejudice the rights of any other Securityholder or to obtain a preference or priority over any other Securityholder. SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of the principal amount, premium, if any, or interest, in respect of the Securities held by such Holder, on or after the respective due dates expressed in the Securities, any Redemption Date, any Change in Control Payment Date or any payment date respecting an Excess Proceeds Offer, or to bring suit for the enforcement of any such payment on or after such respective dates or the right to convert, shall not be impaired or affected adversely without the consent of each such Holder. SECTION 6.08. Collection Suit by Trustee. If an Event of Default described in Section 6.01(1) hereof occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company or any other obligor on the Securities for the whole amount owing with respect to the Securities and the amounts provided for in Section 7.07 hereof. SECTION 6.09. Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or the property of the Company or to any other obligor on the Securities or the property of such obligor, the Trustee shall be entitled and empowered, by intervention in such proceeding or otherwise: (1) to file and prove a claim for the whole amount of the principal amount, premium, if any, and interest on the Securities and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders allowed in such judicial proceeding; and (2) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any Custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 6.10. Priorities. If the Trustee collects any money pursuant to this Article 6, it shall pay out the money in the following order: FIRST: to the Trustee for amounts due under Section 7.07 hereof; SECOND: to Securityholders for amounts due and unpaid on the Securities for the principal amount, Redemption Price or interest, if any, as the case may be, ratably, without preference or priority of any kind, according to such amounts due and payable on the Securities; and THIRD: the balance, if any, to the Company or to the Person or Persons otherwise entitled thereto. The Trustee may fix a record date and payment date for any payment to Securityholders pursuant to this Section 6.10. SECTION 6.11. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant (other than the Trustee) in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07 hereof or a suit by Holders of more than 10% in aggregate principal amount of the Securities at the time outstanding. SECTION 6.12 Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture, any Security or any Subsidiary Guaranty and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case the Company, each Subsidiary Guarantor, if any, the Trustee and the Holders shall, subject to any determination in such proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. ARTICLE 7 TRUSTEE SECTION 7.01. Duties of Trustee. (1) If an Event of Default has occurred and is continuing (and is not cured), the Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in its exercise as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. (2) Except during the continuance of an Event of Default: (A) the Trustee need perform only those duties that are specifically set forth in this Indenture and not others and no implied covenants or obligations shall be read into this Indenture against the Trustee and the duties of the Trustee shall be determined solely by the express provisions of this Indenture; and (B) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, in the case of any such certificate or opinion which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. The Trustee shall not be liable for any interest on any money received by it. (3) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that: (A) this paragraph (3) does not limit the effect of paragraph (2) of this Section 7.01; (B) the Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (C) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Sections 6.04 or 6.05 hereof. (4) Whether or not expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (1), (2), (3), (5) and (7) of this Section 7.01 and Section 7.02. (5) The Trustee may refuse to perform any duty or exercise any right or power or extend or risk its own funds or otherwise incur any financial liability unless it receives reasonable security or indemnity satisfactory to it against any loss, liability or expense. (6) Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money held by it hereunder. (7) The Trustee shall not be deemed to have knowledge of the existence of any fact or matter unless such fact or matter is known to one of its Trust Officers. SECTION 7.02. Rights of Trustee. (1) The Trustee may rely on any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in any such document but the Trustee may, in its discretion, make such further inquiry or investigation into such facts or matters stated in any such document as it sees fit. (2) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate and an Opinion of Counsel. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate and Opinion of Counsel. (3) The Trustee may act through agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (4) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers. (5) The Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (6) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security and indemnity satisfactory to it against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction. SECTION 7.03. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. Any Paying Agent, Registrar or co-registrar may do the same with like rights. However, the Trustee must comply with Section 7.10 and 7.11 hereof. SECTION 7.04. Trustee's Disclaimer. The Trustee makes no representation as to the validity or adequacy of this Indenture or the Securities, it shall not be accountable for the Company's use of the proceeds from the Securities, and it shall not be responsible for any statement in the registration statement for the Securities under the Securities Act of 1933, as amended (the "Securities Act") (other than statements contained in the Form T-1 filed with the SEC under the TIA) or in this Indenture or the Securities (other than its certificate of authentication), or the determination as to which beneficial owners are entitled to receive any notices hereunder. SECTION 7.05. Notice of Defaults. If a Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to each Securityholder as their names and addresses appear on the Security Register notice of the Default within 90 days after it becomes known to the Trustee unless such Default shall have been cured or waived. Except in the case of a Default described in Section 6.01(1) hereof, the Trustee may withhold such notice if and so long as a committee of Trust Officers in good faith determines that the withholding of such notice is in the interests of Securityholders. SECTION 7.06. Reports by Trustee to Holders. Within 60 days after each May 15th beginning with May 15, 1994, the Trustee shall mail to each Securityholder a brief report dated as of such May 15th in accordance with and to the extent required under Section 313 of the TIA. A copy of each report at the time of its mailing to Securityholders shall be filed with the Company, the SEC and each stock exchange on which the Securities are listed. The Company agrees to promptly notify the Trustee whenever the Securities become listed on any stock exchange and of any delisting thereof. SECTION 7.07. Compensation and Indemnity. The Company agrees: (1) To pay to the Trustee from time to time such compensation as shall be agreed in writing between the Company and the Trustee for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) To reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses, disbursements and advances of its agents and counsel and other persons not regularly in its employ), including all reasonable expenses, disbursements and advances incurred or made by the Trustee in connection with any membership on any creditor's committee, except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (3) To indemnify the Trustee, its officers, directors and shareholders, for, and to hold it harmless against, any and all loss, liability or expense, incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The Trustee shall have a claim and lien prior to the Securities as to all property and funds held by it hereunder for any amount owing it or any predecessor Trustee pursuant to this Section 7.07, except with respect to funds held in trust for the payment of principal of, premium, if any, or interest on particular Securities. The Company's payment obligations pursuant to this Section 7.07 and shall survive the discharge of this Indenture. When the Trustee renders services or incurs expenses after the occurrence of a Default specified in Section 6.01(5) or (6) hereof, the compensation for services and expenses are intended to constitute expenses of administration under any Bankruptcy Law. SECTION 7.08. Replacement of Trustee. The Trustee may resign by so notifying the Company in writing at least 30 days prior to the date of the proposed resignation; provided, however, no such resignation shall be effective until a successor Trustee has accepted its appointment pursuant to this Section 7.08. The Holders of a majority in aggregate principal amount of the Securities at the time outstanding may remove the Trustee by so notifying the Trustee in writing and may appoint a successor Trustee subject to the consent of the Company. The Trustee shall resign if: (1) the Trustee fails to comply with Section 7.10 hereof; (2) the Trustee is adjudged bankrupt or insolvent; (3) a receiver or public officer takes charge of the Trustee or its property; or (4) the Trustee otherwise becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint, by a Board Resolution, a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Securityholders. Subject to payment of all amounts owing to the Trustee under Section 7.07 hereof and subject further to its lien under Section 7.07, the retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee. If a successor Trustee does not take office within 30 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of a majority in aggregate principal amount of the Securities at the time outstanding may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10 hereof, any Securityholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. SECTION 7.09. Successor Trustee by Merger. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all its corporate trust business or assets (including this Trusteeship) to, another corporation, the resulting, surviving or transferee corporation without any further act shall be the successor Trustee. SECTION 7.10. Eligibility; Disqualification. The Trustee shall at all times satisfy the requirements of TIA Section 310(a)(1) and (5). The Trustee shall have a combined capital and surplus of at least $50,000,000 as set forth in its most recent published annual report of condition. The Trustee shall comply with TIA Section 310(b). In determining whether the Trustee has conflicting interests as defined in TIA Section 310(b)(1), the provisions contained in the proviso to TIA Section 310(b)(1) shall be deemed incorporated herein. SECTION 7.11. Preferential Collection of Claims Against the Company. If and when the Trustee shall be or become a creditor of the Company (or any other obligor under the Securities), the Trustee shall be subject to the provisions of the TIA regarding the collection of claims against the Company (or any such other obligor). ARTICLE 8 DISCHARGE OF INDENTURE SECTION 8.01. Discharge of Liability on Securities. When (i) the Company delivers to the Trustee all outstanding Securities (other than Securities replaced pursuant to Section 2.07 hereof or Securities which are purchased pursuant to Section 4.12 or 4.13 hereof or Securities for whose payment money has theretofore been held in trust and thereafter repaid to the Company, as provided in Section 8.02 hereof) for cancellation or (ii) the Company irrevocably deposits with the Trustee money and/or direct non-callable obligations of, or non-callable obligations guaranteed by, the United States of America for the payment of which guarantee or obligation the full faith and credit of the United States is pledged ("U.S. Government Obligations"), maturing as to principal and interest in such amounts and at such times as are sufficient, without consideration of any reinvestment of such interest, to pay principal of, premium, if any, and interest on, the outstanding Securities (other than Securities replaced pursuant to Section 2.07 hereof) to maturity or redemption, as the case may be, in accordance with the terms of this Indenture and the Securities issued hereunder, and if in either case the Company pays all other sums payable hereunder by the Company, then this Indenture shall, subject to Sections 2.06 and 7.07 hereof, and each Subsidiary Guaranty, if any, shall except as to the obligations of the Subsidiary Guarantor thereunder in respect of such Sections, cease to be of further effect. The Trustee shall join in the execution of any documents prepared by the Company acknowledging satisfaction and discharge of this Indenture and each such Subsidiary Guaranty on written demand of the Company accompanied by an Officers' Certificate and Opinion of Counsel and at the cost and expense of the Company. In the case of any such deposit pursuant to clause (ii) above, the obligation to pay the principal of and any interest on such Securities and the obligations under Section 7.07 hereof shall continue until the Securities are paid in full (provided that the provisions of Section 7.07 hereof shall survive the payment of the Securities and discharge of the Indenture). The Company will be entitled to make such a deposit if the Company has delivered to the Trustee (i)(A) a ruling directed to the Trustee from the Internal Revenue Service to the effect that the holders of the Securities will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and defeasance of this Indenture and will be subject to federal income tax on the same amount and in the same manner and at the same times, as would have been the case if such deposit and defeasance had not occurred, or (B) an opinion of counsel, reasonably satisfactory to the Trustee, to the same effect as clause (i)(A) above, (ii) an Opinion of Counsel (who may be an employee of or counsel for the Company), and an Officers' Certificate in accordance with this Indenture and (iii) a report from a nationally recognized firm of independent public accountants stating that the amount of such deposit is sufficient to pay and discharge the amounts described in clause (ii) above with respect to the Securities. If the Trustee or Paying Agent is unable to apply any money in accordance with this Section 8.01 by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the obligations of the Company and each Subsidiary Guarantor under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to this Section 8.01 until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with this Section 8.01; provided, however, that if the Company or any Subsidiary Guarantor, as the case may be, makes any payment of interest on or principal of any Security following the reinstatement of its obligations, the Company or any Subsidiary Guarantor, as the case may be, shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money held by the Trustee or Paying Agent. SECTION 8.02. Repayment to the Company or Subsidiary Guarantors. Subject to Section 7.07 hereof, the Trustee and the Paying Agent shall promptly pay to the Company, or if deposited with the Trustee by any Subsidiary Guarantor, to such Subsidiary Guarantor, upon written request any excess money or U.S. Government Obligations held by them at any time. The Trustee and the Paying Agent shall return to the Company or any Subsidiary Guarantor, as the case may be, upon written request any money held by them for the payment of any amount with respect to the Securities that remains unclaimed for two years; provided, however, that the Trustee or such Paying Agent, before being required to make such return, may, in the name and at the expense of the Company, cause to be published once in The Wall Street Journal or another daily newspaper of national circulation or mail to each such Holder notice that such money or securities remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such mailing, any unclaimed money or securities then remaining will be returned to the Company. After return to the Company or any Subsidiary Guarantor, Holders entitled to the money must look to the Company for payment as general creditors unless an applicable abandoned property law designates another Person, and all liability of the Trustee and such Paying Agent with respect to such money shall cease. ARTICLE 9 AMENDMENTS SECTION 9.01. Without Consent of Holders. From time to time, when authorized by Board Resolutions of each of them, the Company and the Trustee, without notice to or the consent of the Holders of the Securities issued hereunder, may amend or supplement this Indenture or the Securities as follows: (1) to cure any ambiguity, defect or inconsistency; (2) to comply with Article 5 hereof; (3) to provide for uncertificated Securities in addition to or in place of certificated Securities so long as such uncertificated Securities are in registered form for purposes of the Internal Revenue Code of 1986, as amended; (4) to make any other change that does not adversely affect the rights of any Securityholder; (5) to comply with any requirement of the SEC in connection with the qualification of this Indenture under the TIA; or (6) to add any Subsidiary of the Company as a Subsidiary Guarantor pursuant to the terms of Article 12 hereof. SECTION 9.02. With Consent of Holders. With the written consent of the Holders of at least a majority in aggregate principal amount of the Securities at the time outstanding, the Company and the Trustee may amend this Indenture or the Securities or may waive future compliance by the Company or any Subsidiary Guarantor with any provisions of this Inden ture, the Securities or such Subsidiary Guarantor's Subsidiary Guaranty. However, without the consent of each Securityholder affected, a waiver or an amendment to this Indenture or the Securities may not: (1) reduce the percentage of principal amount of the Securities whose Holders must consent to an amendment or waiver; or (2) make any change to the Stated Maturity of the principal of, premium, if any, or any interest on the Securities or any Redemption Price thereof, or impair the right to institute suit for the enforcement of any such payment or make any Security payable in money or securities other than that stated in the Security; or (3) make any change in Article 10 hereof or, if applicable, Article 12 hereof that adversely affects the rights of any Holder of Securities or any change to any other section hereof that adversely affects the rights of any Holder of Securities under Article 10 hereof or, if applicable, Article 12 hereof; or (4) waive a default in the payment of the principal of, premium, if any, or interest on, any Security; or (5) make any change in the provisions of Sections 4.12, 4.13, 6.04 or 6.07 hereof; (6) release any Subsidiary Guarantor from any of its obligations under its Subsidiary Guaranty or this Indenture other than in compliance with Section 12.08 hereof; or (7) make any change to Sections 9.01 or 9.02 hereof. It shall not be necessary for the consent of the Holders under this Section 9.02 to approve the particular form of any proposed amendment, but it shall be sufficient if such consent approves the substance thereof. In the event that certain Holders are willing to defer or waive certain obligations of the Company hereunder with respect to Securities held by them, such deferral or waiver shall not be deemed to affect any other Holder who receives the subject payment or performance in a timely manner. After an amendment or waiver under this Section 9.02 becomes effective, the Company shall mail to each Holder a notice briefly describing the amendment or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amendment or waiver. SECTION 9.03. Compliance with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article 9 shall comply with the TIA. SECTION 9.04. Revocation and Effect of Consents, Waivers and Actions. Until an amendment, waiver or other action by Holders becomes effective, a consent to it or any other action by a Holder of a Security hereunder is a continuing consent by the Holder and every subsequent Holder of that Security or portion of the Security that evidences the same obligation as the consenting Holder's Security, even if notation of the consent, waiver or action is not made on the Security. However, any such Holder or subsequent Holder may revoke the consent, waiver or action as to such Holder's Security or portion of the Security if the Trustee receives the notice of revocation before the consent of the requisite aggregate principal amount of the Securities then outstanding has been obtained and not revoked. After an amendment, waiver or action becomes effective, it shall bind every Securityholder, except as provided in Section 9.02 hereof. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment or waiver. If a record date is fixed, then, notwithstanding the first two sentences of the immediately preceding paragraph, those Persons who were Holders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to consent to such amendment, supplement or waiver or to revoke any consent previously given, whether or not such Persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 90 days after such record date. SECTION 9.05. Notation on or Exchange of Securities. Securities authenticated and made available for delivery after the execution of any supplemental indenture pursuant to this Article 9 may, and shall, if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities so modified as to conform, in the opinion of the Trustee and the Board of Directors, to any such supplemental indenture may be prepared and executed by the Company and authenticated and made available for delivery by the Trustee in exchange for outstanding Securities. SECTION 9.06. Trustee to Sign Supplemental Indentures. The Trustee shall sign any supplemental indenture authorized pursuant to this Article 9 if the supplemental indenture does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may, but need not, sign it. In signing such amendment the Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Officers' Certificate and Opinion of Counsel stating that such supplemental indenture is authorized or permitted by this Indenture. SECTION 9.07. Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article 9, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and made available for delivery hereunder shall be bound thereby. ARTICLE 10 SUBORDINATION SECTION 10.01. Agreement to Subordinate. The Company agrees, and each Securityholder by accepting a Security agrees, that the indebtedness evidenced by the Securities (including principal, premium, if any, and interest) is subordinated in right of payment, to the extent and in the manner provided in this Article 10 to the prior payment in full of all Senior Indebtedness, and that the subordination is for the benefit of the holders of the Senior Indebtedness. SECTION 10.02. Certain Definitions. "Senior Indebtedness" means the principal of, premium, if any, and interest on any Indebtedness of the Company, whether outstanding on the issue date of the Securities or hereafter created, incurred, assumed or guaranteed (unless, in the case of any particular Indebtedness, the instrument under which such Indebtedness is created, incurred, assumed or guaranteed expressly provides that such Indebtedness shall not be senior or superior in right of payment to the Securities), including, without limiting the generality of the foregoing, the principal of, premium, if any, and interest (including interest accruing after the commencement of any proceeding under Bankruptcy Law, whether or not such interest is an allowable claim) on, and all other obligations in respect of, Specified Senior Indebtedness but excluding: (i) any Indebtedness represented by the Company's 7-1/2% Convertible Debentures due 2006; (ii) any Indebtedness of the Company to any of its Subsidiaries or other Affiliates; (iii) any Indebtedness hereafter incurred by the Company that is contractually subordinated in right of payment to any Senior Indebtedness; (iv) amounts owed for goods, materials or services purchased in the ordinary course of business or for compensation to employees; (v) any Indebtedness in respect of any Capital Lease Obligation created, incurred, assumed or guaranteed prior to or, unless designated in the instrument evidencing such Capital Lease Obligation as "Senior Indebtedness", after the issue date of the Securities; (vi) Indebtedness represented by Redeemable Stock; (vii) Indebtedness which when incurred is without recourse to the Company; (viii) Indebtedness of the Company under the guaranty referred to in clause (x) of the second paragraph of Section 4.08 hereof and any Indebtedness incurred by the Company in any refinancing, replacement or settlement thereof and (ix) Indebtedness of the Company and NorFleet, Inc. under their guaranties of the obligations under the Indebtedness secured by the building and real property where the Company's headquarters are located and other nearby real property. "Specified Senior Indebtedness" means (i) any Indebtedness outstanding under the Company Credit Facility and all fees, expenses, indemnities and other monetary obligations in respect thereof and (ii) any other Senior Indebtedness and all fees, expenses, indemnities and other monetary obligations in respect thereof, under a single credit facility or agreement between the Company and one or more banks or other lenders or under separate credit facilities or agreements between the Company and one or more banks or other lenders, entered into substantially at the same time and having substantially the same terms, which, at the time of creation thereof or determination, had or has an aggregate principal amount outstanding, together with any unutilized commitments to lend, of at least $15,000,000 and is specifically designated in the instrument or instruments evidencing such Senior Indebtedness as "Specified Senior Indebtedness." SECTION 10.03. Liquidation; Dissolution; Bankruptcy. Upon any (i) bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property, (ii) assignment for the benefit of creditors or any marshalling of the assets and liabilities of the Company or (iii) distribution to creditors of the Company in a liquidation or dissolution of the Company: (1) holders of Senior Indebtedness shall be entitled to receive payment in full in cash or, at the option of the holders of such Senior Indebtedness, cash equivalents of such Senior Indebtedness (including, in the case of Specified Senior Indebtedness, interest accruing after the commencement of any such proceeding at the rate specified in the instrument evidencing the applicable Specified Senior Indebtedness, whether or not a claim therefor is allowed, to the date of payment of such Specified Senior Indebtedness) before Securityholders shall be entitled to receive any payment of principal of, premium, if any, or interest on the Securities; and (2) until the Senior Indebtedness (as provided in subsection (1) above) is paid in full in cash or, at the option of the holders of the Senior Indebtedness, cash equivalents, any distribution to which Securityholders would be entitled but for this Article 10 shall be made to holders of Senior Indebtedness, as their interests may appear, except that Securityholders may receive securities that (i) are subordinated to Senior Indebtedness and to any securities issued in exchange for Senior Indebtedness to at least the same extent as the Securities are subordinated to Senior Indebtedness and (ii) have no maturity or mandatory prepayment prior to the final maturity of any securities issued in exchange for Senior Indebtedness. For purposes of this Article 10, a distribution may consist of cash, securities or other property, by set-off or otherwise. The consolidation of the Company with, or the merger of the Company into, another corporation or the liquidation or dissolution of the Company following the conveyance or transfer of its properties and assets substantially as an entirety to another Person upon the terms and conditions set forth in Article 5 hereof shall not be deemed a dissolution, winding up, liquidation or reorganization, for the purposes of this Section 10.03 if the corporation formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer such properties and assets substantially as an entirety, as the case may be, shall, as a part of such consolidation, merger, conveyance or transfer comply with the conditions set forth in Article 5 hereof. SECTION 10.04. Default on Senior Indebtedness. The Company may not pay principal of, premium, if any, or interest on the Securities and may not make any deposit pursuant to the provisions of Article 8 hereof or acquire any Securities for cash or property if: (1) a default in the payment of the principal of, premium, if any, interest, fees or expenses on any Senior Indebtedness occurs and is continuing (a "Payment Default") and the Trustee or the Paying Agent receives a notice of the default from a Person who may give it pursuant to Section 10.12 hereof; or (2) a default, other than a Payment Default, on any Specified Senior Indebtedness occurs and is continuing that then permits the holders (or the agent) of such Specified Senior Indebtedness to accelerate its maturity immediately and without any further notice (other than notice of such permitted acceleration) or grace periods (a "Non-Payment Default"), and such default is either the subject of judicial proceedings or the Trustee or the Paying Agent receives a notice of the default from a Person who may give it pursuant to Section 10.12 hereof. The Trustee or the Paying Agent shall resume payments (including any missed payments) on the Securities and may make any deposit pursuant to the provisions of Article 8 hereof or acquire them (i) in the case of a Payment Default, when the default is cured or waived or the Senior Indebtedness to which such default relates is discharged, or when the right under this Indenture to prevent any such payment is waived by written notice to the Trustee by or on behalf of the holders of such Senior Indebtedness, or (ii) in the case of a Non-Payment Default, at the end of the period (the "Payment Blockage Period") ending on the earlier of (a) when the default is cured or waived, the Specified Senior Indebtedness to which such default relates is discharged or such Payment Blockage Period is terminated by written notice to the Trustee by or on behalf of the holders of such Specified Senior Indebtedness, or (b) the 179th day after the receipt by the Trustee or the Paying Agent of the notice commencing such Payment Blockage Period. Not more than one Payment Blockage Period may be commenced with respect to the Securities during any period of 360 consecutive days, and there shall be a period of at least 181 consecutive days in each period of 360 consecutive days when no Payment Blockage Period is in effect. In addition, no default which existed or was continuing on the date of the commencement of any Payment Blockage Period with respect to the Specified Senior Indebtedness and which was known to the holders (or the agent) of such Specified Senior Indebtedness on such date of commencement, shall be made the basis for the commencement of a second Payment Blockage Period by the holders (or the agent) of such Specified Senior Indebtedness whether or not within a period of 360 consecutive days unless such default shall have been cured or waived for a period of not less than 90 consecutive days. SECTION 10.05. No Suspension of Remedies. Nothing contained in this Article 10 shall limit the right of the Trustee or the Holders of Securities to take any action to accelerate the maturity of the Securities or to pursue any other rights or remedies thereunder or under applicable law; provided, however, that all Senior Indebtedness of the Company then or thereafter due and payable, shall first be paid in full in cash or, at the option of the holders of the Senior Indebtedness, cash equivalents before the Holders shall be entitled to receive any payment of principal of, premium, if any, or interest on the Securities. Notwithstanding the foregoing, any acceleration of the maturity of the Securities or other remedies pursued hereunder or under applicable law due to the default by the Company to make a payment required by Section 6.01(1) hereof resulting from the operation of Section 10.04 hereof shall be automatically rescinded or discontinued to the extent permitted by applicable law and all Events of Default which permitted the acceleration of the Securities or the pursuit of other remedies hereunder or under applicable law shall be deemed to be automatically and permanently cured to the extent permitted by applicable law if (i) the payment or payments the omission of which gave rise to the Event of Default is or are made within 179 days after the date on which the Trustee or the Paying Agent received notice of the default or defaults on the Senior Indebtedness and (ii) at the time of such automatic rescission no other Event of Default or Default shall have occurred and be continuing. Such automatic rescission shall be effective as of the date the conditions specified in clauses (i) and (ii) above are satisfied. SECTION 10.06. When Distribution Must Be Paid Over. In the event that the Company shall make any payment to the Trustee on account of the principal of, premium, if any, or interest on the Securities at a time when such payment is prohibited by Section 10.03, 10.04 or 10.05 hereof, such payment shall be held by the Trustee, in trust for the benefit of, and shall be paid forthwith over and delivered, upon written request, to, the holders of Senior Indebtedness (pro rata as to each of such holders on the basis of the respective amounts of Senior Indebtedness held by them) or their representative, as their respective interests may appear, for application to the payment of all Senior Indebtedness in full in accordance with their terms, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness. If a distribution is made to Securityholders that because of this Article 10 should not have been made to them, the Securityholders who receive the distribution shall hold it in trust for holders of Senior Indebtedness (pro rata as to each of such holder on the basis of the respective amounts of Senior Indebtedness held by them) or their representative, as their respective interests may appear, for application to the payment of all Senior Indebtedness remaining unpaid to the extent necessary to pay all Senior Indebtedness in full in accordance with their terms, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness. With respect to the holders of Senior Indebtedness, the Trustee undertakes to perform only such obligations on the part of the Trustee as are specifically set forth in this Article 10, and no implied covenants or obligations with respect to the holders of Senior Indebtedness shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness. SECTION 10.07. Notice by the Company. The Company shall promptly notify the Trustee and the Paying Agent of any facts known to the Company that would cause a payment of principal of or interest on the Securities to violate this Article 10, but failure to give such notice shall not affect the subordination of the Securities to the Senior Indebtedness provided in this Article 10. Nothing in this Article 10 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 7.07 hereof. SECTION 10.08. Subrogation. After all Senior Indebtedness is paid in full in cash or, at the option of the holders of Senior Indebtedness, cash equivalents and until the Securities are paid in full, Securityholders shall be subrogated to the rights of holders of Senior Indebtedness to receive distributions applicable to Senior Indebtedness to the extent that distributions otherwise payable to Securityholders have been applied to the payment of Senior Indebtedness. If any payment or distribution to which the Holders would otherwise have been entitled but for the provisions of this Article 10 shall have been applied pursuant to the provisions of this Article 10 to the payment of all amounts payable in respect of the Senior Indebtedness of the Company, then and in such case, the Holders shall be entitled to receive from the holders of such Senior Indebtedness at the time outstanding any payment or distributions received by such holders of Senior Indebtedness in excess of the amount sufficient to pay all amounts payable in respect of the Senior Indebtedness of the Company in full in cash or, at the option of the holders of Senior Indebtedness, cash equivalents. SECTION 10.09. Relative Rights. This Article 10 defines the relative rights of Securityholders and holders of Senior Indebtedness. Nothing in this Indenture shall: (1) impair, as between the Company and Securityholders, the obligation of the Company, which is absolute and unconditional, to pay principal of and interest on the Securities in accordance with their terms; (2) affect the relative rights of Securityholders and creditors of the Company other than holders of Senior Indebtedness; or (3) prevent the Trustee or any Securityholder from exercising its available remedies upon a Default or Event of Default, subject to the rights of holders of Senior Indebtedness under this Article 10. If the Company fails because of this Article 10 to pay principal of or interest on a Security on the due date, the failure is still a Default or Event of Default. The provisions of this Article 10 shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any Senior Indebtedness is rescinded or must otherwise be returned by any holder of Senior Indebtedness upon the insolvency, bankruptcy or reorganization of the Company or otherwise, all as though such payment had not been made. SECTION 10.10. No Waiver of Subordination Provisions. No right of any holder of Senior Indebtedness to enforce the subordination of the Indebtedness evidenced by the Securities shall be impaired by any act or failure to act by the Company or by its failure to comply with this Indenture. The holders of Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of the Securities and without incurring responsibility to the Holders of the Securities and without impairing or releasing the subordination provided in this Article 10 or the obligations hereunder of the Holders of the Securities to the holders of Senior Indebtedness, do any one or more of the following: (i) except as otherwise provided in Section 4.08 hereof, change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Indebtedness or an instrument evidencing the same or any agreement under which Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Indebtedness; (iii) release any person liable in any manner for the collection or payment of Senior Indebtedness; and (iv) exercise or refrain from exercising any rights against the Company or any other person. SECTION 10.11. Distribution or Notice to Representative. Whenever a distribution is to be made or a notice given to holders of Senior Indebtedness, the distribution may be made and the notice given to their representative. Upon any payment or distribution of assets of the Company referred to in this Article 10, the Trustee and the Securityholders shall be entitled to rely upon any order or decree made by any court of competent jurisdiction or upon any certificate of such representative or of the liquidating trustee or agent or other person making any distribution to the Trustee or to the Securityholders for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of the Senior Indebtedness and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 10. SECTION 10.12. Rights of Trustee and Paying Agent. The Trustee or Paying Agent shall not at any time be charged with the knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee unless and until the Trustee or Paying Agent shall have received written notice thereof from the holders (or the agent) of Senior Indebtedness; and, prior to the receipt of any such written notice, the Trustee or Paying Agent shall be entitled to assume conclusively that no such facts exist. Unless at least two Business Days prior to the date on which by the terms of this Indenture any monies are to be deposited by the Company with the Trustee or any Paying Agent (whether or not in trust) for any purpose (including, without limitation, the payment of either the principal of or the interest on any Security), the Trustee or Paying Agent shall have received with respect to such monies the notice provided for in the preceding sentence, the Trustee or Paying Agent shall have full power and authority to receive such monies and to apply the same to the purpose for which they were received, and shall not be affected by any notice to the contrary which may be received by it on or after such date. The foregoing shall not apply to the Paying Agent if the Company is acting as Paying Agent. The Trustee in its individual or any other capacity may hold Senior Indebtedness with the same rights it would have if it were not Trustee. SECTION 10.13. Authorization to Effect Subordination. Each Holder of a Security by his acceptance thereof authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article 10, and appoints the Trustee as attorney- in-fact for any and all purposes. SECTION 10.14. Miscellaneous. (a) All rights and interests under this Article 10 of the holders of Senior Indebtedness, and all agreements and obligations of the Holders, the Trustee and the Company under this Article 10, shall remain in full force and effect irrespective of: (i) any exchange, release or non-perfection of any Lien securing Senior Indebtedness, or any release or amendment or waiver of or consent to departure from any guaranty, for all or any of the Senior Indebtedness; or (ii) any other circumstance that might otherwise constitute a defense available to, or a discharge of the Company in respect of Senior Indebtedness or the Trustee in respect of this Indenture. (b) The provisions of this Article 10 constitute a continuing agreement and shall (i) remain in full force and effect until the Senior Indebtedness shall have been paid in full, (ii) be binding upon the holders and the Trustee, the Company and their successors and assigns, and (iii) inure to the benefit of and enforceable by each other holder of Senior Indebtedness and their successors, transferees and assigns. ARTICLE 11 MISCELLANEOUS SECTION 11.01. Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by operation of subsection (c) of Section 318 of the TIA, the imposed duties shall control. The provisions of Sections 310 to 317, inclusive, of the TIA that impose duties on any Person (including provisions automatically deemed included in an indenture unless the indenture provides that such provisions are excluded) are a part of and govern this Indenture, except as, and to the extent, expressly excluded from this Indenture, as permitted by the TIA. SECTION 11.02. Notices. Any notice or communication shall be in writing and delivered in Person or mailed by first- class mail, postage prepaid, addressed as follows: if to the Company: Nortek, Inc. 50 Kennedy Plaza Providence, RI 02903-2360 Attention: Mr. Richard L. Bready if to any Subsidiary Guarantor: [Name of Guarantor] c/o Nortek Inc. 50 Kennedy Plaza Providence, RI 02903-2360 Attention: President if to the Trustee: State Street Bank and Trust Company 225 Franklin Street Boston, MA 12110 Attention: Corporate Trust Administration The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications. Any notice or communication given to a Securityholder shall be mailed to the Securityholder at the Securityholder's address as it appears on the registration books of the Registrar and shall be sufficiently given if so mailed within the time prescribed. Failure to mail a notice or communication to a Securityholder or any defect in it shall not affect its sufficiency with respect to other Securityholders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not received by the addressee. If the Company mails a notice or communication to the Securityholders, it shall mail a copy to the Trustee and each Registrar, Paying Agent or co-registrar. SECTION 11.03. Communication by Holders with Other Holders. Securityholders may communicate pursuant to TIA Section 312(b) with other Securityholders with respect to their rights under this Indenture or the Securities. The Company, the Trustee, the Registrar, the Paying Agent and anyone else shall have the protection of TIA Section 312(c). SECTION 11.04. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (1) an Officers' Certificate stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent have been complied with. SECTION 11.05. Statements Required in Certificate or Opinion. Each Officers' Certificate and Opinion of Counsel with respect to compliance with a covenant or condition provided for in this Indenture shall include: (1) a statement that each Person making such Officers' Certificate or Opinion of Counsel has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such Officers' Certificate or Opinion of Counsel are based; (3) a statement that, in the opinion of each such Person, he has made such examination or investigation as is necessary to enable such Person to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement that, in the opinion of such Person, such covenant or condition has been complied with; provided, however, that with respect to matters of fact, an Opinion of Counsel may rely on an Officers' Certificate or certificates of public officials. SECTION 11.06. Separability Clause. In case any provision in this Indenture, the Securities or any Subsidiary Guaranty shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 11.07. Rules by Trustee, Paying Agent and Registrar. The Trustee may make reasonable rules for action by or a meeting of Securityholders. The Registrar and Paying Agent may make reasonable rules for their functions. SECTION 11.08. Legal Holidays. A "Legal Holiday" is any day other than a Business Day. If any specified date (including a date for giving notice) is a Legal Holiday, the action shall be taken on the next succeeding day that is not a Legal Holiday, and, if the action to be taken on such date is a payment in respect of the Securities, no principal, premium, if any, or interest installment shall accrue for the intervening period. SECTION 11.09. GOVERNING LAW. THIS INDENTURE, THE SECURITIES AND EACH SUBSIDIARY GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. SECTION 11.10. No Recourse Against Others. A director, officer, employee or stockholder, as such, of the Company or any Subsidiary Guarantor shall not have any liability for any obligations of the Company under the Securities or this Indenture or for any obligations of such Subsidiary Guarantor under its Subsidiary Guaranty or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder shall waive and release all such liability. The waiver and release shall be part of the consideration for the issue of the Securities. SECTION 11.11. Successors. All agreements of the Company and any Subsidiary Guarantor in this Indenture, the Securities and any Subsidiary Guaranties shall bind their successors. All agreements of the Trustee in this Indenture shall bind its successor. SECTION 11.12. Multiple Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. One signed copy is enough to prove this Indenture. SIGNATURES IN WITNESS WHEREOF, the undersigned, being duly authorized, have executed this Indenture on behalf of the respective parties hereto as of the date first above written. NORTEK, INC. By: /s/ Richard L. Bready Name: ____________________________ Title: Chairman STATE STREET BANK AND TRUST COMPANY By: /s/ Robert C. Butzier Name: ____________________________ Title: Vice President EXHIBIT A [FORM OF FACE OF SECURITY] NORTEK, INC. 9-7/8% Senior Subordinated Note due March 1, 2004 No.______ CUSIP No.___________ $____________ Nortek, Inc., a Delaware corporation ("the Company", which term includes any successor corporation under the Indenture hereinafter referred to), promises to pay to _______________________ or registered assigns, the principal amount of ____________________ Dollars on March 1, 2004. Interest Payment Dates: March 1 and September 1, commencing September 1, 1994. Record Dates: February 15 and August 15. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof which further provisions shall for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Company has caused this Security to be signed manually or by facsimile by its duly authorized officers and a facsimile of its corporate seal to be affixed hereto or imprinted hereon. NORTEK, INC. By: Name: Title: ATTESTED: By: Name: Title: [SEAL] Dated: TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities referred to in the within-mentioned Indenture. STATE STREET BANK AND TRUST COMPANY By: Authorized Officer [FORM OF REVERSE SIDE OF SECURITY] 9-7/8% Senior Subordinated Note due March 1, 2004 1 Interest Nortek, Inc., a Delaware corporation ("the Company"), promises to pay interest on the principal amount of this Security at the rate per annum shown above. Interest will be payable semi- annually on each interest payment date, commencing September 1, 1994. Interest on the Securities will accrue from the most recent date to which interest has been paid, or if no interest has been paid, from February 22, 1994; provided that, if there is no existing Event of Default in the payment of interest and if this Security is authenticated between a record date referred to on the face hereof and the next succeeding interest payment date, interest shall accrue from such interest payment date. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company shall pay interest on overdue principal and interest on overdue installments of interest, to the extent lawful, at 2% above the rate per annum borne by the Securities. 2 Method of Payment The Company will pay interest on the securities (except defaulted interest) to the persons who are registered Holders at the close of business on the February 15 and August 15, as the case may be, immediately preceding the interest payment date even if the Security is cancelled on registration of transfer or registration of exchange (other than with respect to the purchase of Securities pursuant to an offer to purchase securities made in connection with Section 4.12 or 4.13 of the Indenture after such record date). Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay principal, premium, if any, and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, the Company may pay principal and interest by its check payable in such money. It may mail an interest payment to a Securityholder's address as it appears on the Register. 3 Paying Agent and Registrar Initially, the Trustee will act as Paying Agent and Registrar. The Company may appoint and change any Paying Agent or Registrar without notice, other than notice to the Trustee. The Company or any Subsidiary or an Affiliate of either of them may act as Paying Agent, Registrar or coregistrar. 4 Indenture The Company issued the Securities under an Indenture, dated as of February 14, 1994 (the "Indenture"), between the Company and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended and as in effect on the date of the Indenture (the "TIA") and as provided in the Indenture. Capitalized terms used herein and not defined herein have the meaning ascribed thereto in the Indenture. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and the TIA for a statement of those terms. The Securities are unsecured senior subordinated obligations of the Company limited to $218,500,000 aggregate principal amount. 5 Guaranties This Security may be entitled after the date hereof to certain senior subordinated Subsidiary Guaranties made for the benefit of the Securityholders. Reference is hereby made to Section 4.15 of the Indenture and to Exhibits B and C to the Indenture for the terms of any such Subsidiary Guaranty. 6 Optional Redemption The Securities are redeemable as a whole, or from time to time in part, at any time on and after March 1, 1999 at the option of the Company at the following redemption prices (expressed as a percentage of principal) together with accrued and unpaid interest to the Redemption Date if redeemed in the twelve-month period commencing: March 1, Redemption Price 1999 104.214% 2000 102.809% 2001 101.405% 2002 and thereafter 100.000% 7 Notice of Redemption Notice of redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Securities to be redeemed at the Holder's registered address. Securities in denominations larger than $1,000 of principal amount may be redeemed in part but only in integral multiples of $1,000 of principal amount. 8 Requirement that the Company Offer to Purchase Securities under Certain Circumstances Subject to the terms and conditions of the Indenture, the Company shall become immediately obligated to offer to purchase the Securities pursuant to Section 4.12 of the Indenture after the occurrence of a Change in Control of the Company at a price equal to 101% of aggregate principal amount plus accrued and unpaid interest, if any, to the date of purchase. In addition, to the extent that there are Net Cash Proceeds from Asset Sales which are not reinvested, the Company will be obliged to offer to purchase Securities at 100% of principal amount plus accrued and unpaid interest, if any, in accordance with Section 4.13 of the Indenture. 9 Subordination The Securities are subordinated to Senior Indebtedness (as defined in the Indenture). To the extent provided in the Indenture, Senior Indebtedness must be paid before the Securities may be paid. The Company agrees, and each Securityholder by accepting a Security agrees, to such subordination and authorizes the Trustee to give it effect. 10 Denominations; Transfer; Exchange The Securities are in registered form, without coupons, in denominations of $1,000 of principal amount and integral multiples of $1,000. A Holder may transfer or exchange Securities in accordance with the Indenture. The Registrar may require a holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not transfer or exchange any Securities selected for redemption (except, in the case of a Security to be redeemed in part, the portion of the Security not to be redeemed) or any Securities for a period of 15 days before selection of Securities to be redeemed. 11 Persons Deemed Owners The registered Holder of this Security may be treated as the owner of this Security for all purposes. 12 Amendment; Waiver Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Securities may be amended with the written consent of the Holders of at least a majority in aggregate principal amount of the Securities at the time outstanding and (ii) certain defaults or noncompliance with certain provisions may be waived with the written consent of the Holders of a majority in aggregate principal amount of the Securities at the time outstanding. Subject to certain exceptions set forth in the Indenture, without the consent of any Securityholder, the Company and the Trustee may amend the Indenture or the Securities to cure any ambiguity, defect or inconsistency, or to comply with Article 5 of the Indenture, or to provide for uncertificated Securities in addition to certificated Securities, or to comply with any requirements of the Securities and Exchange Commission in connection with the qualification of the Indenture under the TIA, or to make any change that does not adversely affect the rights of any Securityholder. 13 Defaults and Remedies Under the Indenture, Events of Default include (i) default in payment of the principal amount, premium, if any, or interest, in respect of the Securities when the same becomes due and payable subject, in the case of interest, to the grace period contained in the Indenture; (ii) failure by the Company to comply with other agreements in the Indenture or the Securities, subject to notice and lapse of time; (iii) certain events of acceleration prior to maturity of certain indebtedness; (iv) certain final judgments which remain undischarged; (v) certain events of bankruptcy or insolvency; or (vi) certain failures of Subsidiary Guaranties. If an Event of Default occurs and is continuing, the Trustee, or the Holders of at least 25% in aggregate principal amount of the Securities at the time outstanding, may declare all the Securities to be due and payable immediately. Certain events of bankruptcy or insolvency are Events of Default which will result in the Securities becoming due and payable immediately upon the occurrence of such Events of Default. Securityholders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Securities unless it receives reasonable indemnity or security. Subject to certain limitations, Holders of a majority in aggregate principal amount of the Securities at the time outstanding may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing Default (except a Default in payment of amounts specified in clause (i) above) if it determines that withholding notice is in their interests. 14 Trustee Dealings with the Company Subject to certain limitations imposed by the TIA, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with and collect obligations owed to it by the Company or its Affiliates and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. 15 No Recourse Against Others A director, officer, employee or stockholder, as such, of the Company or any Subsidiary Guarantor shall not have any liability for any obligations of the Company under the Securities or the Indenture or for any obligations of a Subsidiary Guarantor under its Subsidiary Guaranty or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. 16 Authentication This Security shall not be valid until an authorized officer of the Trustee manually signs the Trustee's Certificate of Authentication on the other side of this Security. 17 Abbreviations Customary abbreviations may be used in the name of a Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with right of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors Act). 18 Unclaimed Money If money for the payment of principal or interest remains unclaimed for two years, the Trustee or Paying Agent will pay the money back to the Company or, if applicable, a Subsidiary Guarantor upon request. After that, Holders entitled to money must look to the Company or such Subsidiary Guarantor for payment. 19 Discharge Prior to Maturity If the Company or any Subsidiary Guarantor deposits with the Trustee or Paying Agent money or U.S. Government Obligations sufficient to pay the principal of and interest on the Securities to maturity, the Company and the Subsidiary Guarantors will be discharged from the Indenture except for certain Sections thereof. 20 Successor When a successor Person to the Company or a Subsidiary Guarantor assumes all the obligations of its predecessor under the Securities, a Subsidiary Guaranty and the Indenture such predecessor shall be released from those obligations. 21 Governing Law THE INDENTURE, THIS SECURITY AND ANY SUBSIDIARY GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. ASSIGNMENT FORM To assign this Security, fill in the form below: (I) or (we) assign and transfer this Security to: _____________________________________________________________ (insert assignee's social security or tax I.D. number) _____________________________________________________________ _____________________________________________________________ _____________________________________________________________ _____________________________________________________________ (print or type assignee's name, address and zip code) and irrevocably appoint _____________________________________ ________________ agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. Dated:_____________ Signature:____________________________ (Sign exactly as your name appears on the other side of this Security) Signature Guarantee:______________________________________________________ (Participant in recognized signature guarantee medallion program) OPTION OF HOLDER TO ELECT PURCHASE If you wish to elect to have all or any portion of this Security purchased by the Company pursuant to Section 4.12 ("Change of Control Offer") or Section 4.13 ("Excess Proceeds Offer") of the Indenture, check the applicable boxes: [ ] Change of Control Offer: [ ] Excess Proceeds Offer: in whole [ ] in whole [ ] in part [ ] in part [ ] Amount to be Amount to be purchased: $_____ purchased: $_____ Dated: _________________ Signature:______________________ (Sign exactly as your name appears on the other side of this Security) Signature Guarantee:___________________________________________________ (Participant in recognized signature guarantee medallion program) Social Security Number or Taxpayer Identification Number:__________________________________ EXHIBIT B ARTICLE 12 GUARANTY OF SECURITIES SECTION 12.01. Subsidiary Guaranty. Subject to the provisions of this Article 12, each Subsidiary Guarantor hereby unconditionally guarantees to each Holder of a Security authenticated and delivered by the Trustee and to the Trustee that: (i) the principal of, premium, if any, and interest on the Securities will be duly and punctually paid in full when due, whether at maturity, by acceleration or otherwise, and interest on the overdue principal and (to the extent permitted by law) interest, if any, on the Securities and all other obligations of the Company or the Subsidiary Guarantors to the Holders or the Trustee hereunder or thereunder (including fees and expenses) will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (ii) in case of any extension of time of payment or renewal of any Securities or any such obligations with respect to the Securities, the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at Stated Maturity, by acceleration or otherwise. This Subsidiary Guaranty is a present and continuing guaranty of payment and performance, and not of collectibility. Accordingly, failing payment when due of any amount so guaranteed, or failing performance of any other obligation of the Company to the Holders under this Indenture or the Securities, for whatever reason, each Subsidiary Guarantor shall be obligated to pay, or to perform or cause the performance of, the same immediately. Each Subsidiary Guarantor hereby agrees that its obligations under its Subsidiary Guaranty shall be absolute and unconditional, irrespective of any invalidity, irregularity or unenforceability of the Securities or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Securities with respect to any provisions hereof or thereof, any release of any other Subsidiary Guarantor or any other obligor under the Securities, the recovery of any judgment against the Company, any action to enforce the same, whether or not a Subsidiary Guaranty is affixed to any particular Security, or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each Subsidiary Guarantor hereby waives the benefit of diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company or any other obligor under the Securities, any right to require a proceeding first against the Company or any such obligor, protest, notice and all demands whatsoever and covenants that its Subsidiary Guaranty will not be discharged except by complete performance of the obligations contained in the Securities, this Indenture and its Subsidiary Guaranty. If any Holder or the Trustee is required by any court or otherwise to return to the Company or to any Subsidiary Guarantor, or any custodian, trustee, liquidator or other similar official acting in relation to the Company or such Subsidiary Guarantor, any amount paid by the Company or such Subsidiary Guarantor to the Trustee or such Holder, each Subsidiary Guaranty, to the extent theretofore discharged, shall be reinstated in full force and effect. Each Subsidiary Guarantor further agrees that, as between it, on the one hand, and the Holders of Securities and the Trustee, on the other hand, (i) subject to this Article 12, the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 6 hereof for the purposes of each Subsidiary Guaranty, notwith standing any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed by this Subsidiary Guaranty, and (ii) in the event of any acceleration of such obligations as provided in Article 6 hereof, such obligations (whether or not due and payable) shall forthwith become due and payable by each Subsidiary Guarantor for the purpose of its Subsidiary Guaranty. Upon the effectiveness of any acceleration of the obligations guaranteed by this Subsidiary Guaranty, the Trustee shall promptly make a demand for payment of such obligations by each Subsidiary Guarantor under this Subsidiary Guaranty. The obligations of the Subsidiary Guarantors under this Subsidiary Guaranty shall be joint and several. Each Subsidiary Guaranty shall remain in full force and effect and continue to be effective should any petition be filed by or against the Company for liquidation or reorganization, should the Company become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of the Company's assets, and shall, to the fullest extent permitted by law, continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Securities are, pursuant to appli cable law, rescinded, or reduced in amount, or must otherwise be restored or returned by any obligee on the Securities, whether as a "voidable preference," "fraudulent transfer" or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Securities shall, to the fullest extent permitted by law, be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. No stockholder, officer, director, employer or incorporator, past, present or future, of any Subsidiary Guarantor, as such, shall have any personal liability under such Subsidiary Guarantor's Subsidiary Guaranty by reason of his, her or its status as such stockholder, officer, director, employer or incorporator. The Subsidiary Guarantors shall have the right to seek contribution from any non-paying Subsidiary Guarantor so long as the exercise of such right does not impair the rights of the Holders under any Subsidiary Guaranty. Each Subsidiary Guaranty may be modified from time to time, without the consent of the Holders, to reflect such fraudulent conveyance savings provisions, net worth or maximum amount limitations as to recourse or similar provisions as are set forth in, and after giving effect to, any guaranty by any Subsidiary Guarantor of any Senior Indebtedness with respect to the Company Credit Facility as such guaranty may be amended or otherwise modified from time to time, provided that no such modification of this Subsidiary Guaranty shall adversely affect the Holders in any respect or shall disadvantage the Holders relative to the holders of Guarantor Senior Indebtedness of such Subsidiary Guarantor with respect to the Company Credit Facility other than by operation of the subordination provisions of this Article 12. SECTION 12.02. Execution and Delivery of Subsidiary Guaranty. The validity and enforceability of this Subsidiary Guaranty shall not be affected by the fact that it is not affixed to any particular Security, and each Subsidiary Guarantor hereby agrees that its Subsidiary Guaranty shall remain in full force and effect notwithstanding any failure to endorse on each Security a notation of such Subsidiary Guaranty. If an Officer of a Subsidiary Guarantor whose signature is on the Indenture or a Subsidiary Guaranty no longer holds that office at the time the Trustee authenticates any Security or at any time thereafter, such Subsidiary Guarantor's Subsidiary Guaranty of such Security shall be valid nevertheless. The delivery by any Subsidiary Guarantor to the Trustee of any Subsidiary Guaranty as required by Section 4.15 shall constitute due delivery of such Subsidiary Guaranty on behalf of such Subsidiary Guarantor to and for the benefit of all Holders of the Securities. SECTION 12.03. Additional Guarantors. Any person may become a guarantor of the Securities by executing and delivering to the Trustee (i) a supplemental indenture in form and substance satisfactory to the Trustee, which subjects such person to the provisions of this Indenture as a guarantor of the Securities, and (ii) an Opinion of Counsel to the effect that such supplemental indenture has been duly authorized and executed by such person and constitutes the legal, valid, binding and enforceable obligation of such person (subject to such customary exceptions concerning fraudulent conveyance laws, creditors' rights and equitable principles as may be acceptable to the Trustee in its discretion). SECTION 12.04. Release of Subsidiary Guarantor. Notwithstanding anything to the contrary contained in this Indenture, in the event that a Subsidiary Guarantor is released from all obligations which pursuant to Section 4.15 hereof obligate it to become a Subsidiary Guarantor, such Subsidiary Guarantor shall be deemed automatically and unconditionally released from all obligations under its Subsidiary Guaranty without any further action required on the part of the Trustee or any Holder, provided that the provisions of Section 4.15 hereof shall apply anew in the event that such Subsidiary Guarantor subsequent to being released incurs any obligations that pursuant to Section 4.15 hereof obligate it to become a Subsidiary Guarantor. In addition, upon the sale or other disposition of all of the Capital Stock of a Subsidiary Guarantor by the Company or a Subsidiary of the Company to, or upon the consolidation or merger of a Subsidiary Guarantor with or into, any person other than the Company or an Affiliate of the Company or any of its Subsidiaries, such Subsidiary Guarantor shall be deemed automatically and unconditionally released from all obligations under its Subsidiary Guaranty without any further action required on the part of the Trustee or any Holder, provided that such sale or other disposition, or consolidation or merger is made in accordance with the terms of this Indenture, including Sections 4.13 and 5.01 hereof; provided, however, that the foregoing proviso shall not apply to the sale or disposition of a Subsidiary Guarantor or of the Capital Stock thereof in a foreclosure proceeding (whether or not judicial) to the extent that such proviso would be inconsistent with the requirements of the Uniform Commercial Code. Notwithstanding the immediately preceding sentence, upon receipt of a request of the Company accompanied by an Officers' Certificate certifying as to the compliance with this Section 12.04, the Trustee shall deliver an appropriate instrument evidencing the release of such Subsidiary Guarantor. Any Subsidiary Guarantor not so released or the entity surviving such Subsidiary Guarantor, as applicable, shall remain or be liable under its Subsidiary Guaranty as provided in this Article 12. SECTION 12.05. Agreement to Subordinate. Each Subsidiary Guarantor agrees, and each Securityholder by accepting a Security agrees, that all payments pursuant to the Subsidiary Guaranty made by such Subsidiary Guarantor (including principal, premium, if any, and interest) are subordinated in right of payment, to the extent and in the manner provided in this Article 12, to the prior payment in full of all Guarantor Senior Indebtedness of such Subsidiary Guarantor, and that the subordination is for the benefit of the holders of such Guarantor Senior Indebtedness. SECTION 12.06. Certain Definitions. "Guarantor Senior Indebtedness" means, with respect to any Subsidiary Guarantor, the principal of, premium, if any, and interest on any Indebtedness of such Subsidiary Guarantor, whether outstanding on the issue date of the Securities or thereafter created, incurred, assumed or guaranteed (unless, in the case of any particular Indebtedness, the instrument under which such Indebtedness is created, incurred, assumed or guaranteed expressly provides that such Indebtedness shall not be senior or superior in right of payment to the Subsidiary Guaranty of such Subsidiary Guarantor), including, without limiting the generality of the foregoing, the principal of, premium, if any, and interest (including interest accruing after the commencement of any proceeding under Bankruptcy Law, whether or not such interest is an allowable claim) on, and all other obligations in respect of, Specified Guarantor Senior Indebtedness but excluding (i) Indebtedness evidenced by the Subsidiary Guaranty of such Subsidiary Guarantor; (ii) any Indebtedness of such Subsidiary Guarantor to any of its Subsidiaries or other Affiliates; (iii) any Indebtedness incurred by such Subsidiary Guarantor that is contractually subordinated in right of payment to any Guarantor Senior Indebtedness; (iv) amounts owed for goods, materials or services purchased in the ordinary course of business or for compensation to employees; (v) any Indebtedness in respect of any Capital Lease Obligation created, incurred, assumed or guaranteed prior to or, unless designated in the instrument evidencing such Capital Lease Obligation as "Senior Indebtedness", after the effective date of the Subsidiary Guaranty of such Subsidiary Guarantor; (vi) Indebtedness represented by Redeemable Stock of such Subsidiary Guarantor; and (vii) Indebtedness which when incurred is without recourse to such Subsidiary Guarantor. "Specified Guarantor Senior Indebtedness" means, with respect to any Subsidiary Guarantor, any Guarantor Senior Indebtedness of such Subsidiary Guarantor which consists of a guaranty of any Specified Senior Indebtedness and all fees, expenses, indemnities and other monetary obligations with respect to such Guarantor Senior Indebtedness. SECTION 12.07. Liquidation; Dissolution; Bankruptcy. Upon any (i) bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to a Subsidiary Guarantor or its property, (ii) assignment for the benefit of creditors or any marshalling of the assets and liabilities of such Subsidiary Guarantor or (iii) distribution to creditors of such Subsidiary Guarantor in a liquidation or dissolution of such Subsidiary Guarantor: (1) holders of Guarantor Senior Indebtedness of such Subsidiary Guarantor shall be entitled to receive payment in full in cash or, at the option of the holders of such Guarantor Senior Indebtedness, cash equivalents of such Guarantor Senior Indebtedness (including, in the case of Guarantor Senior Indebtedness which also constitutes Specified Guarantor Senior Indebtedness, interest accruing after the commencement of any such proceeding at the rate specified in the instrument evidencing the applicable Specified Guarantor Senior Indebtedness, whether or not a claim therefor is allowed, to the date of payment of such Specified Guarantor Senior Indebtedness) before Securityholders shall be entitled to receive any payment pursuant to the Subsidiary Guaranty of such Subsidiary Guarantor on account of principal of, premium, if any, or interest on the Securities; and (2) until the Guarantor Senior Indebtedness (as provided in subsection (1) above) is paid in full in cash or, at the option of the holders of such Guarantor Senior Indebtedness, cash equivalents, any distribution to which Securityholders would be entitled but for this Article 12 shall be made to holders of such Guarantor Senior Indebtedness, as their interests may appear, except that Securityholders may receive securities that (i) are subordinated to Guarantor Senior Indebtedness and to any securities issued in exchange for Guarantor Senior Indebtedness to at least the same extent as the Subsidiary Guaranty is subordinated to Guarantor Senior Indebtedness and (ii) have no maturity or mandatory prepayment prior to the final maturity of any securities issued in exchange for Guarantor Senior Indebtedness. For purposes of this Article 12, a distribution may consist of cash, securities or other property, by set-off or otherwise. The consolidation of a Subsidiary Guarantor with, or the merger of a Subsidiary Guarantor into, another corporation upon the terms and conditions set forth in Article 5 hereof shall not be deemed a dissolution, winding up, liquidation or reorganization, for the purposes of this Section 12.07 if the corporation formed by such consolidation or into which the Subsidiary Guarantor is merged, as the case may be, shall, as part of such consolidation or merger comply with the conditions set forth in Article 5 hereof. SECTION 12.08. Default on Guarantor Senior Indebtedness. No Subsidiary Guarantor may make any payment, pursuant to its Subsidiary Guaranty or otherwise, on account of principal of, premium, if any, or interest on the Securities, make any deposit pursuant to the provisions of Article 8 hereof or acquire any Securities for cash or property if: (i) a default in the payment of the principal of, premium, if any, or interest on, (a) any Guarantor Senior Indebtedness or (b) any Senior Indebtedness with respect to which such Subsidiary Guarantor is an obligor or guarantor occurs and is continuing (a "Guarantor Payment Default") and the Trustee or the Paying Agent receives a notice of the default from a Person who may give it pursuant to Section 12.16 or Section 10.12 hereof, as the case may be; or (ii) a Payment Blockage Period is in effect with respect to Specified Senior Indebtedness which is guaranteed by such Subsidiary Guarantor pursuant to Specified Guarantor Senior Indebtedness of such Subsidiary Guarantor. Such Subsidiary Guarantor shall resume making any and all required payments in respect of obligations under its Subsidiary Guaranty (i) in the case of a Guarantor Payment Default, when the default is cured or waived or the Guarantor Senior Indebtedness or Senior Indebtedness to which such default relates is discharged, or when the right under this Indenture to prevent any such payment is waived by written notice to the Trustee by or on behalf of the holders of such Guarantor Senior Indebtedness or Senior Indebtedness, or (ii) in the case of such a Payment Blockage Period referred to in clause (ii) above, at the end of such Payment Blockage Period. SECTION 12.09. No Suspension of Remedies. Nothing contained in this Article 12 shall limit the right of the Trustee or the Holders of Securities to take any action to accelerate the maturity of the Securities or to pursue any other rights or remedies thereunder or under any Subsidiary Guaranty or applicable law; provided, however, that all Guarantor Senior Indebtedness of any Subsidiary Guarantor then or thereafter due and payable shall first be paid in full in cash or, at the option of the holders of such Guarantor Senior Indebtedness, cash equivalents before the Holders shall be entitled to receive any payment in respect of the Subsidiary Guaranty of such Subsidiary Guarantor. SECTION 12.10. When Distribution Must Be Paid Over. In the event that any Subsidiary Guarantor shall make any payment to the Trustee on account of its Subsidiary Guaranty at a time when such payment is prohibited by Section 12.07, 12.08 or 12.09 hereof, such payment shall be held by the Trustee, in trust for the benefit of, and shall be paid forthwith over and delivered, upon written request, to, the holders of Guarantor Senior Indebtedness (pro rata as to each of such holders on the basis of the respective amounts of Guarantor Senior Indebtedness held by them) or their representative, as their respective interests may appear, for application to the payment of all Guarantor Senior Indebtedness in full in accordance with their terms, after giving effect to any concurrent payment or distribution to or for the holders of Guarantor Senior Indebtedness. If a distribution is made to Securityholders that because of this Article 12 should not have been made to them, the Securityholders who receive the distribution shall hold it in trust for holders of Guarantor Senior Indebtedness (pro rata as to each of such holder on the basis of the respective amounts of Guarantor Senior Indebtedness held by them) or their representative, as their respective interests may appear, for application to the payment of all Guarantor Senior Indebtedness remaining unpaid to the extent necessary to pay all Guarantor Senior Indebtedness in full in accordance with its terms, after giving effect to any concurrent payment or distribution to or for the holders of Guarantor Senior Indebtedness. With respect to the holders of Guarantor Senior Indebtedness, the Trustee undertakes to perform only such obligations on the part of the Trustee as are specifically set forth in this Article 12, and no implied covenants or obligations with respect to the holders of Guarantor Senior Indebtedness shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Guarantor Senior Indebtedness. SECTION 12.11. Notice by Company or Subsidiary Guarantor. Each of the Company and the Subsidiary Guarantors shall promptly notify the Trustee and the Paying Agent of any facts known to it that would cause a payment of any obligations in respect of such Subsidiary Guarantor's Subsidiary Guaranty to violate this Article 12, but failure to give such notice shall not affect the subordination of any Subsidiary Guaranty to Guarantor Senior Indebtedness provided in this Article 12. Nothing in this Article 12 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 7.07 hereof. SECTION 12.12. Subrogation With Respect to Subsidiary Guarantor. After all Guarantor Senior Indebtedness of any Subsidiary Guarantor is paid in full in cash or, at the option of the holders of such Guarantor Senior Indebtedness, cash equivalents and until the Securities are paid in full, Securityholders shall be subrogated to the rights of holders of such Guarantor Senior Indebtedness to receive distributions applicable to such Guarantor Senior Indebtedness to the extent that distributions otherwise payable to Securityholders have been applied to the payment of such Guarantor Senior Indebtedness. If any payment or distribution to which the Holders would otherwise have been entitled but for the provisions of this Article 12 shall have been applied pursuant to the provisions of this Article 12 to the payment of all amounts payable in respect of the Guarantor Senior Indebtedness of any Subsidiary Guarantor, then and in such case, the Holders shall be entitled to receive from the holders of such Guarantor Senior Indebtedness at the time outstanding any payment or distributions received by such holders of Guarantor Senior Indebtedness in excess of the amount sufficient to pay all amounts payable in respect of the Guarantor Senior Indebtedness of such Subsidiary Guarantor in full in cash or, at the option of the holders of such Guarantor Senior Indebtedness, cash equivalents. SECTION 12.13. Relative Rights. This Article 12 defines the relative rights of Securityholders and holders of Guarantor Senior Indebtedness. Nothing in this Indenture shall: (1) impair, as between any Subsidiary Guarantor and Securityholders, the obligations of such Subsidiary Guarantor under its Subsidiary Guaranty in accordance with its terms, which obligations are absolute and unconditional; (2) affect the relative rights against such Subsidiary Guarantor of Securityholders and creditors of such Subsidiary Guarantor other than holders of Guarantor Senior Indebtedness of such Subsidiary Guarantor; or (3) prevent the Trustee or any Securityholder from exercising its available remedies upon a Default or Event of Default, subject to the rights of holders of Guarantor Senior Indebtedness of any Subsidiary Guarantor under this Article 12. If any Subsidiary Guarantor fails because of this Article 12 to make a payment in respect of its obligations under its Subsidiary Guaranty, the failure is still a Default or Event of Default. The provisions of this Article 12 shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any Guarantor Senior Indebtedness is rescinded or must otherwise be returned by any holder of Guarantor Senior Indebtedness upon the insolvency, bankruptcy or reorganization of a Subsidiary Guarantor or otherwise, all as though such payment had not been made. SECTION 12.14. No Waiver of Subordination Provisions. No right of any holder of Guarantor Senior Indebtedness of any Subsidiary Guarantor to enforce the subordination of the Indebtedness evidenced by the Subsidiary Guaranty of such Subsidiary Guarantor shall be impaired by any act or failure to act by such Subsidiary Guarantor or by its failure to comply with this Indenture. The holders of Guarantor Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of the Securities and without incurring responsibility to the Holders of the Securities and without impairing or releasing the subordination provided in this Article 12 or the obligations hereunder of the Holders of the Securities to the holders of Guarantor Senior Indebtedness, do any one or more of the following: (i) except as otherwise provided in Section 4.08 hereof, change the manner, place or terms of payment or extend the time of payment of, or renew or alter, any Guarantor Senior Indebtedness or any Senior Indebtedness to which such Guarantor Senior Indebtedness relates, or the instruments evidencing the same or any agreements under which such Guarantor Senior Indebtedness or Senior Indebtedness, as the case may be, is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing any Guarantor Senior Indebtedness or any Senior Indebtedness to which such Guarantor Senior Indebtedness relates; (iii) release any person liable in any manner for the collection or payment of any Guarantor Senior Indebtedness or any Senior Indebtedness to which such Guarantor Senior Indebtedness relates; and (iv) exercise or refrain from exercising any rights against any Subsidiary Guarantor or any other person. SECTION 12.15. Distribution or Notice to Representative. Whenever a distribution is to be made or a notice given to holders of Guarantor Senior Indebtedness, the distribution may be made and the notice given to their representative. Upon any payment or distribution of assets of any Subsidiary Guarantor referred to in this Article 12, the Trustee and the Securityholders shall be entitled to rely upon any order or decree made by any court of competent jurisdiction or upon any certificate of such representative or of the liquidating trustee or agent or other person making any distribution to the Trustee or to the Securityholders for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of the Guarantor Senior Indebtedness and other Indebtedness of such Subsidiary Guarantor, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 12. SECTION 12.16. Rights of Trustee and Paying Agent. The Trustee or Paying Agent shall not at any time be charged with the knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee relating to a Subsidiary Guarantor's Subsidiary Guaranty unless and until the Trustee or Paying Agent shall have received written notice thereof from the holders (or the agent) of Guarantor Senior Indebtedness; and, prior to the receipt of any such written notice, the Trustee or Paying Agent shall be entitled to assume conclusively that no such facts exist. Unless at least two Business Days prior to the date on which by the terms of this Indenture any monies are to be deposited by a Subsidiary Guarantor with the Trustee or any Paying Agent (whether or not in trust) for any purpose (including, without limitation, the payment of either the principal of or the interest on any Security), the Trustee or Paying Agent shall have received with respect to such monies the notice provided for in the preceding sentence, the Trustee or Paying Agent shall have full power and authority to receive such monies and to apply the same to the purpose for which they were received, and shall not be affected by any notice to the contrary which may be received by it on or after such date. The foregoing shall not apply to the Paying Agent if the Company is acting as Paying Agent. The Trustee in its individual or any other capacity may hold Guarantor Senior Indebtedness with the same rights it would have if it were not Trustee. SECTION 12.17. Authorization to Effect Subordination. Each Holder of a Security by his acceptance thereof authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article 12, and appoints the Trustee as attorney- in-fact for any and all purposes. SECTION 12.18. Miscellaneous. (a) All rights and interests under this Article 12 of the holders of Guarantor Senior Indebtedness, and all agreements and obligations of the Holders, the Trustee, the Company and any Subsidiary Guarantor under this Article 12, shall remain in full force and effect irrespective of: (i) any exchange, release or non-perfection of any Lien securing Guarantor Senior Indebtedness, or any release or amendment or waiver of or consent to departure from any guaranty, for all or any of the Guarantor Senior Indebtedness; or (ii) any other circumstance that might otherwise constitute a defense available to, or a discharge of any Subsidiary Guarantor in respect of Guarantor Senior Indebtedness or the Trustee in respect of this Indenture. (b) The provisions of this Article 12 constitute a continuing agreement and shall (i) remain in full force and effect until the Guarantor Senior Indebtedness of each Subsidiary Guarantor shall have been paid in full, (ii) be binding upon the holders and the Trustee, the Company and each Subsidiary Guarantor and their respective successors and assigns, and (iii) inure to the benefit of and enforceable by each other holder of Guarantor Senior Indebtedness and its successors, transferees and assigns. EXHIBIT C SENIOR SUBORDINATED GUARANTY For value received, the undersigned hereby unconditionally guarantees to the holder of a Security (as that term is defined in the Indenture dated as of February 14, 1994 (the "Indenture"), between Nortek, Inc. (the "Company") and State Street Bank and Trust Company, as trustee (the "Trustee")) and the Trustee, the payments of principal of, premium, if any, and interest on such Security in the amounts and at the time when due and interest on the overdue principal, premium, if any, and interest, if any, of such Security, if lawful, and the payments or performance of all other obligations of the Company under the Indenture or the Securities, all in accordance with and subject to the terms and limitations of such Security, Article 12 of the Indenture and this Guaranty. This Guaranty shall become effective in accordance with Article 12 of the Indenture. The validity and enforceability of this Guaranty shall not be affected by the fact that it is not affixed to any particular Security. The obligations of the undersigned to the holders of Securities and to the Trustee pursuant to this Guaranty and the Indenture are expressly set forth in Article 12 of the Indenture and reference is hereby made to the Indenture for the precise terms of this Guaranty and all of the other provisions of the Indenture to which this Guaranty relates. The Indebtedness (as defined in the Indenture) evidenced by this Guaranty is, to the extent and in the manner provided in the Indenture, subordinate and subject in right of payment to the prior payment in full in cash or cash equivalents of all Guarantor Senior Indebtedness (as defined in the Indenture). Each holder of a Security, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee, on behalf of such holder, to take such action as may be necessary or appropriate to effectuate the subordination as provided in the Indenture and (c) appoints the Trustee attorney-in-fact of such holder for such purpose; provided, however, that such subordination provisions shall cease to affect amounts deposited in accordance with the defeasance provisions of the Indenture upon the terms and conditions set forth therein. This Guaranty is subject to release upon the terms set forth in the Indenture. [NAME OF SUBSIDIARY GUARANTOR] By: Name: Title: EX-11 4 NORTEK 1993 - SHARES CALCULATION EX 11.1 F-1 EXHIBIT 11.1 NORTEK, INC. AND SUBSIDIARIES CALCULATION OF SHARES USED IN DETERMINING EARNINGS PER SHARE 1993 1992 1991 ---- ---- ---- Calculation of the number of shares to be used in computing earnings per share: Weighted average common and special common shares issued during the period 16,598,819 16,542,132 16,514,312 Less average common and special common shares held in the Treasury (4,066,602) (3,965,771) (3,053,842) ---------- ---------- ---------- Weighted average number of common and special common shares outstanding during the period 12,532,217 12,576,361 13,460,470 Dilutive effect of stock options considered common stock 90,215 69,043 --- ---------- ---------- ---------- Weighted average number of common and common equivalent shares outstanding during ther period 12,622,432 12,645,404 13,460,470 ========== ========== ========== Calculation of the number of shares to be used in computing fully diluted earnings per share: Weighted average number of common and special common shares outstanding during the period 12,532,217 12,576,361 13,460,470 Dilutive effect of stock options considered common stock equivalents computed under the treasury stock method using the greater of the price at the end of the period or the average price during the period 109,571 78,552 --- Dilutive effect of assuming conversion of the Company's 7-1/2% convertible debentures 720,507 755,971 794,666 9% convertible debentues --- --- 56,697 ---------- ---------- ---------- 13,362,295 13,410,884 14,311,833 ========== ========== ========== Note: Earnings (loss) per share calculations for the years ended December 31, 1993, 1992 and 1991 do not include the effect of common stock equivalents or convertible debentures (and the reduction in related expense) because the assumed exercise of stock options and the conversion of debentures is anti-dilutive for the net loss per share amounts. EX-22 5 NORTEK 1993 - SUBSIDIARIES LIST EX 22.1 td/annual/sublist.doc Exhibit 22.1 LIST OF SUBSIDIARIES -------------------- Set forth below is a list of all subsidiaries of the Company as of December 31, 1993 the assets and operations of which are included in the Consolidated Financial Statements of Nortek, Inc., except subsidiaries that, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary: STATE OF NAME OF SUBSIDIARY INCORPORATION ------------------ ------------- Broan Limited Ontario Broan Mfg. Co., Inc. Wisconsin Aubrey Manufacturing, Inc. Delaware Monarch Metal Products Corporation Illinois Dixieline Lumber Company Delaware Dixieline Builders Fund Control, Inc. California Jensen Industries, Inc. Delaware Linear Corporation California Linear H.K. Manufacturing Limited Hong Kong We Monitor America Incorporated Colorado Moore-O-Matic, Inc. Wisconsin M & S Systems, Inc. Delaware Nordyne, Inc. Delaware Commercial Environmental Systems Group, Inc. Delaware Mammoth, Inc. Delaware Governair Corporation Oklahoma Temtrol, Inc. Oklahoma Raphael, Ltd. Delaware Universal-Rundle Corporation Delaware -----END PRIVACY-ENHANCED MESSAGE-----