REGISTRATION NO. 333-58876
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 4
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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FEDDERS CORPORATION
(Exact name of registrant as specified in its charter)
<Table>
DELAWARE 3585 22-2572390
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</Table>
505 MARTINSVILLE ROAD
LIBERTY CORNER, NEW JERSEY 07938-0813
TELEPHONE: (908) 604-8686
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
ROBERT N. EDWARDS, ESQ.
VICE PRESIDENT AND GENERAL COUNSEL
FEDDERS CORPORATION
505 MARTINSVILLE ROAD
LIBERTY CORNER, NEW JERSEY 07938-0813
TELEPHONE: (908) 604-8686
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable following the date that this registration statement has become
effective and all other conditions to the merger of FC Merger Sub, Inc. with and
into Fedders Corporation pursuant to the merger agreement described in the
enclosed document have been satisfied or waived.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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PROXY STATEMENT/PROSPECTUS FOR FEDDERS CORPORATION
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD FEBRUARY 26, 2002
29,888,620 SHARES OF COMMON STOCK, PAR VALUE $.01
2,493,047 SHARES OF CLASS B STOCK, PAR VALUE $.01
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January , 2002
Dear Fellow Stockholder:
You are cordially invited to attend the annual meeting of stockholders of
Fedders Corporation to be held at 10:30 a.m., on February 26, 2002.
In addition to the election of directors and other matters customarily
addressed at our annual meeting, you are being asked to approve a proposal to
recapitalize Fedders through a merger of FC Merger Sub, Inc., a wholly owned
subsidiary of Fedders, with and into Fedders, with Fedders as the surviving
corporation.
In the recapitalization, Fedders voting Common Stock, par value $1.00 per
share, and non-voting Class A Stock, par value $1.00 per share, will be combined
into a single class of new voting Common Stock, par value $.01 per share, and
Fedders voting Class B Stock, par value $1.00 per share, will be exchanged for a
class of new voting Class B Stock, par value $.01 per share. Each share of
voting Common Stock will entitle its holder to 1.1 shares of new voting Common
Stock, and each share of non-voting Class A Stock will entitle its holder to one
share of new voting Common Stock. Each share of voting Class B Stock will
entitle its holder to 1.1 shares of new voting Class B Stock. Consummation of
the recapitalization is conditioned on approval of (i) the proposal to delete
Section VI of clause A of Article Second of Fedders' certificate of
incorporation, (ii) the recapitalization and (iii) each of the changes to
Fedders' certificate of incorporation that will be made as a result of the
recapitalization.
In evaluating the recapitalization, the board of directors received an
opinion from its financial advisor, TM Capital Corp., as to the fairness, from a
financial point of view, of the proposed transaction. See "Fairness Opinion of
TM Capital Corp." beginning on page 29. BASED ON THIS OPINION AS WELL AS EACH
BOARD MEMBER'S INDEPENDENT EVALUATION OF THE RECAPITALIZATION, THE BOARD OF
DIRECTORS BELIEVES THAT THIS SIMPLIFIED CAPITAL STRUCTURE WILL ENHANCE
STOCKHOLDER VALUE BY ELIMINATING POTENTIAL INVESTOR CONFUSION, ADMINISTRATIVE
EXPENSE, AND PERCEIVED NEGATIVE IMPACT ON THE MARKET PRICE OF OUR COMMON STOCK
AND CLASS A STOCK THAT RESULTS FROM HAVING A DUAL, VOTING AND NON-VOTING, CLASS
STRUCTURE FOR OUR LISTED STOCK. THE BOARD OF DIRECTORS ALSO BELIEVES THAT THE
COMBINATION OF OUR COMMON STOCK AND CLASS A STOCK MAY POTENTIALLY INCREASE THE
LIQUIDITY, TRADING VOLUME, AND TRADING EFFICIENCIES OF OUR LISTED STOCK, AND
POTENTIALLY INCREASE OUR INVESTOR BASE.
The accompanying proxy statement/prospectus provides detailed information
about the recapitalization. Please read the entire proxy statement/prospectus
and the appendices carefully.
It is important that your shares be represented at the meeting, whether or
not you are personally able to be present. THE BOARD OF DIRECTORS STRONGLY
RECOMMENDS THAT YOU VOTE FOR APPROVAL OF EACH OF THE PROPOSALS SET FORTH IN THIS
PROXY STATEMENT/ PROSPECTUS. Please sign, date and return your proxy as soon as
possible. If you do attend and wish to vote in person, your proxy can be revoked
at your request. Your prompt response in immediately returning the enclosed
proxy card will be appreciated. If you prefer, you may cast your vote toll-free
by telephone or online over the Internet. Simply follow the instructions
contained on the enclosed proxy card.
THE TRANSACTIONS CONTEMPLATED IN THIS PROXY STATEMENT/PROSPECTUS INVOLVE
RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 11.
Sincerely,
SAL GIORDANO, JR.
Chairman, Chief Executive Officer
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS DOCUMENT IS , 2002 AND IT IS FIRST BEING MAILED
TO STOCKHOLDERS ON OR ABOUT , 2002.
FEDDERS CORPORATION
LIBERTY CORNER, NEW JERSEY 07938
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 26, 2002
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NOTICE IS HEREBY GIVEN that the annual meeting of stockholders of Fedders
Corporation will be held at the Somerset Hills Hotel, 200 Liberty Corner Road,
Warren, New Jersey 07060 on Tuesday, February 26, 2002 at 10:30 a.m. for the
following purposes:
1. to approve the recapitalization of Fedders through a merger of FC
Merger Sub, Inc., a wholly owned subsidiary of Fedders, with and into
Fedders, with Fedders as the surviving corporation;
2. to approve each of the following changes to Fedders' certificate
of incorporation that will be made as a result of the recapitalization:
- the Class A Stock will be eliminated;
- the par value of the new Common Stock and the new Class B Stock will
be $0.01, currently the par value of the Common Stock and the Class
B Stock is $1.00;
- the new Common Stock and the new Class B Stock will have alternating
preferences with respect to payments or distributions in the event
of any dissolution, liquidation or winding up of Fedders, currently
there is no such liquidation preference;
- each share of new Class B Stock will share equally with each share
of new Common Stock in the payment of dividends, currently each
share of Class B Stock receives 90% of the dividends paid to each
share of Common Stock;
- the new Class B Stock will automatically be converted into shares of
new Common Stock if the number of outstanding shares of new Class B
Stock falls below 2.5% of the aggregate number of issued and
outstanding shares of new Common Stock and new Class B Stock,
currently the Class B Stock will automatically be converted into
shares of Common Stock if the number of outstanding shares of Class
B Stock falls below 5% of the aggregate number of issued and
outstanding shares of Common Stock and Class B Stock; and
- the restated certificate of incorporation will provide that any
action required or permitted to be taken by the stockholders must be
effected at a duly called annual or special meeting of stockholders
and the ability of the stockholders to consent in writing to the
taking of any action will be specifically denied, currently Fedders'
certificate of incorporation does not contain any such provision;
3. to approve the amendment of Fedders' certificate of incorporation
to delete Section VI of clause A of Article Second which provides that in
any merger or consolidation the holders of Class A Stock are entitled to
receive the same per share consideration as is received by the holders of
the Common Stock;
4. to elect nine (9) directors to hold office until the next annual
meeting of stockholders and until each such director's successor shall have
been elected and shall have qualified; and
5. to ratify the appointment of Deloitte & Touche LLP as Fedders'
independent auditors.
Consummation of the recapitalization is conditioned on approval of (i) the
proposal to delete Section VI of clause A of Article Second of Fedders'
certificate of incorporation, (ii) the recapitalization and (iii) each of the
changes to Fedders' certificate of incorporation that will be made as a result
of the recapitalization.
In the recapitalization, Fedders voting Common Stock, par value $1.00 per
share, and non-voting Class A Stock, par value $1.00 per share, will be combined
into a single class of new voting Common Stock, par value $.01 per share, and
Fedders voting Class B Stock, par value $1.00 per share, will be exchanged for a
new class of voting Class B Stock, par value $.01 per share. Each share of
voting Common Stock will entitle its holder to 1.1 shares of new voting Common
Stock, and each share of non-voting Class A Stock will entitle its holder to
one share of new voting Common Stock. Each share of voting Class B Stock will
entitle its holder to 1.1 shares of new voting Class B Stock.
By order of the board of directors
KENT E. HANSEN
Executive Vice President and Secretary
Dated: January , 2002
Liberty Corner, New Jersey
IMPORTANT: THE BOARD OF DIRECTORS INVITES YOU TO ATTEND THE MEETING IN
PERSON, BUT IF YOU ARE UNABLE TO BE PERSONALLY PRESENT, PLEASE DATE, SIGN AND
RETURN THE ENCLOSED PROXY IMMEDIATELY. NO POSTAGE IS REQUIRED IF THE PROXY IS
RETURNED IN THE ENCLOSED ENVELOPE AND MAILED IN THE UNITED STATES. IF YOU
PREFER, YOU MAY CAST YOUR VOTE TOLL-FREE BY TELEPHONE OR ONLINE OVER THE
INTERNET. SIMPLY FOLLOW THE INSTRUCTIONS CONTAINED ON THE ENCLOSED PROXY CARD.
THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS INCORPORATES IMPORTANT BUSINESS
AND FINANCIAL INFORMATION ABOUT FEDDERS THAT IS NOT INCLUDED IN OR DELIVERED
WITH THIS DOCUMENT. STOCKHOLDERS MAY OBTAIN DOCUMENTS INCORPORATED BY REFERENCE
IN THIS DOCUMENT FREE OF CHARGE BY REQUESTING THEM ORALLY OR IN WRITING FROM
FEDDERS AT THE FOLLOWING ADDRESS:
<Table>
MAIL: TELEPHONE: (908) 604-8686
Fedders Corporation FACSIMILE: (908) 604-8576
505 Martinsville Road E-MAIL: khansen@fedders.com
Liberty Corner, NJ 07938-0813
</Table>
IF YOU WOULD LIKE TO REQUEST DOCUMENTS FROM US, PLEASE DO SO BY FEBRUARY
15, 2002 TO RECEIVE THEM BEFORE THE ANNUAL MEETING.
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
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Summary Term Sheet.......................................... 1
Description of Business................................ 1
The Recapitalization and Related Matters............... 1
Interests of Certain Persons in the Recapitalization... 4
Additional Matters to be Considered at the Annual
Meeting............................................... 5
Questions and Answers About the Annual Meeting.............. 6
Risk Factors................................................ 11
Market Prices and Dividends................................. 13
Selected Consolidated Financial Data........................ 14
Comparative Per Share Data.................................. 16
Selected Unaudited Pro Forma Consolidated Condensed
Financial Data............................................ 17
The Annual Meeting.......................................... 20
Date, Place and Time................................... 20
Purpose of the Annual Meeting.......................... 20
Record Date; Stock Entitled to Vote; Vote Required;
Quorum................................................ 20
Voting of Proxies...................................... 21
Revocation of Proxies.................................. 21
Matters to be Acted on at the Annual Meeting........... 21
How to Vote Your Proxy................................. 21
Proxy Solicitation Information......................... 21
Special Factors............................................. 23
Background of the Proposed Recapitalization............ 23
Background of the Proposed Deletion of Section VI of
Clause A of Article Second of the Certificate of
Incorporation......................................... 25
Board Review of the Recapitalization................... 26
Recommendations of the Fedders Board; Reasons for the
Recapitalization...................................... 27
Review of the Recapitalization by Filing Parties....... 29
Fairness Opinion of TM Capital Corp. .................. 29
Effect of the Recapitalization......................... 33
Stockholder Vote....................................... 34
Interests of Certain Persons in the Recapitalization... 35
Financing the Recapitalization......................... 39
Material Federal Income Tax Consequences of the
Recapitalization...................................... 39
Information Concerning the Directors and Executive Officers
of Fedders and FC Merger Sub.............................. 40
Fedders Corporation.................................... 40
FC Merger Sub, Inc. ................................... 42
Information About Fedders and Certain Affiliates............ 42
Fedders Corporation.................................... 42
FC Merger Sub, Inc. ................................... 42
Giordano Holding Corporation........................... 42
Salvatore Giordano..................................... 43
Sal Giordano, Jr. ..................................... 43
Joseph Giordano........................................ 43
The Recapitalization........................................ 44
General................................................ 44
What Fedders Stockholders Will Receive................. 44
</Table>
i
<Table>
<Caption>
PAGE
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Conditions to Completion of the Recapitalization....... 44
Amendment of the Recapitalization Agreement............ 46
Abandonment of the Recapitalization.................... 46
Estimated Fees and Expenses of the Recapitalization.... 46
Effective Time of the Recapitalization................. 46
Regulatory Matters..................................... 46
Appraisal Rights....................................... 46
Employee Benefit Plans................................. 49
Employee Stock Options................................. 49
New York Stock Exchange Listing........................ 49
Recent Transactions in Securities........................... 50
Financial Statements........................................ 51
Unaudited Pro Forma Consolidated Condensed Financial
Data.................................................. 51
Ratio of Earnings to Fixed Charges..................... 54
The Recapitalization Agreement.............................. 55
General................................................ 55
Effect on Capital Stock................................ 55
Fractional Shares...................................... 55
Closing................................................ 55
Restated Certificate of Incorporation.................. 55
By-Laws................................................ 55
Directors and Officers................................. 56
Termination............................................ 56
Amendments and Waiver.................................. 56
Description of Fedders Capital Stock Before and After the
Recapitalization.......................................... 57
General................................................ 57
Fedders Common Stock................................... 57
Fedders Class A Stock.................................. 58
Fedders Class B Stock.................................. 59
Election of Directors....................................... 62
Meetings and Committees of the Board of Directors...... 63
Security Ownership of Directors and Executive Officers
of Fedders............................................ 64
Section 16(a) Beneficial Ownership Reporting
Compliance............................................ 64
Principal Stockholders of Fedders...................... 64
Executive Compensation................................. 65
Summary Compensation Table............................. 65
Options/SAR Grants Table............................... 65
Aggregated Option/SAR Exercises and Fiscal Year-End
Option/SAR Value Table................................ 66
Ten Year Option/SAR Repricings......................... 66
Report of Audit Committee.............................. 69
Compensation Committee Interlocks and Insider
Participation......................................... 69
Report of the Compensation Committee on Executive
Compensation.......................................... 69
Performance Graph...................................... 70
Ratification of Selection of Independent Auditors........... 72
Legal Matters............................................... 72
Experts..................................................... 73
Annual Report............................................... 73
Stockholder Proposals -- Next Annual Meeting................ 73
</Table>
ii
<Table>
<Caption>
PAGE
----
Other Matters............................................... 73
Where You Can Find More Information......................... 73
Forward-Looking Statements.................................. 74
List of Annexes
Annex A -- Recapitalization Agreement and Plan of
Merger
Annex B -- Fairness Opinion of TM Capital Corp.
Annex C -- Section 262 of the General Corporation Law
of the State of Delaware
Annex D -- Audit Committee Charter
</Table>
iii
SUMMARY TERM SHEET
This summary highlights the material information contained in this
document, but may not include all of the information that you, as a stockholder,
would like to know. To fully understand the recapitalization and for a more
complete description of the legal terms of the recapitalization, you should
carefully read this entire document, including the appendices and the other
documents we refer to in this document. See "Where You Can Find More
Information" beginning on page 73. The principal executive offices of Fedders
Corporation ("Fedders") are located at 505 Martinsville Road, Liberty Corner,
New Jersey 07938-0813. Fedders' telephone number is (908) 604-8686.
DESCRIPTION OF BUSINESS
- FEDDERS CORPORATION. Fedders, a Delaware corporation, is a leading
global manufacturer of air treatment products, including air
conditioners, air cleaners, dehumidifiers and humidifiers, and thermal
technology products. Fedders was established more than 100 years ago and
has been in the air treatment business for more than 50 years. Fedders
has been expanding into a broad variety of air treatment businesses.
Fedders is a filing person for the recapitalization.
- FC MERGER SUB, INC. FC Merger Sub, Inc., a wholly owned subsidiary of
Fedders, is a newly formed Delaware corporation created for the sole
purpose of implementing the recapitalization. It has not conducted any
business since its formation. At the time of the recapitalization, FC
Merger Sub, Inc. will merge into Fedders and cease to exist. FC Merger
Sub, Inc. is a filing person for the recapitalization.
THE RECAPITALIZATION AND RELATED MATTERS
- AMENDMENT OF CERTIFICATE OF INCORPORATION AND RECAPITALIZATION. You are
being asked to adopt an amendment to Fedders' certificate of
incorporation to delete Section VI of clause A of Article Second, which
provides that in any merger or consolidation the holders of Class A Stock
are entitled to receive the same per share consideration as is received
by the holders of Common Stock. You are also being asked to approve a
recapitalization of Fedders through a merger of FC Merger Sub, Inc., a
wholly owned subsidiary of Fedders, with and into Fedders, with Fedders
as the surviving corporation. In addition, you are being asked to approve
each of the changes to Fedders' certificate of incorporation that will be
made as a result of the recapitalization. Consummation of the
recapitalization is conditioned on approval of (i) the proposal to delete
Section VI of clause A of Article Second of Fedders' certificate of
incorporation, (ii) the recapitalization and (iii) each of the changes to
Fedders' certificate of incorporation that will be made as a result of
the recapitalization.
- CHANGES TO BE MADE TO THE CERTIFICATE OF INCORPORATION AS A RESULT OF THE
RECAPITALIZATION. The changes that will be made to Fedders' certificate
of incorporation if the recapitalization is approved are as follows:
- the Class A Stock will be eliminated;
- the par value of the new Common Stock and the new Class B Stock will be
$0.01, currently the par value of the Common Stock and the Class B Stock
is $1.00;
- the new Common Stock and the new Class B Stock will have alternating
preferences with respect to payments or distributions in the event of
any dissolution, liquidation or winding up of Fedders, currently there
is no such liquidation preference;
- each share of new Class B Stock will share equally with each share of
new Common Stock in the payment of dividends, currently each share of
Class B Stock receives 90% of the dividends paid to each share of Common
Stock;
- the new Class B Stock will automatically be converted into shares of new
Common Stock if the number of outstanding shares of new Class B Stock
falls below 2.5% of the aggregate number of issued and outstanding
shares of new Common Stock and new Class B Stock, currently the Class B
1
Stock will automatically be converted into shares of Common Stock if the number
of outstanding shares of Class B Stock falls below 5% of the aggregate number of
issued and outstanding shares of Common Stock and Class B Stock; and
- the restated certificate of incorporation will provide that any action
required or permitted to be taken by the stockholders must be effected
at a duly called annual or special meeting of stockholders and the
ability of the stockholders to consent in writing to the taking of any
action will be specifically denied, currently Fedders' certificate of
incorporation does not contain any such provision.
You are being asked to vote upon and approve each of these changes to our
certificate of incorporation. Consummation of the recapitalization is
conditioned on your approval of each of these changes.
- TREATMENT OF THE COMMON STOCK IN THE RECAPITALIZATION. At the effective
time of the recapitalization, each outstanding share of Common Stock will
be exchanged for 1.1 shares of new Common Stock. The new Common Stock
will be entitled to one vote per share, and will be listed for trading on
the New York Stock Exchange under the symbol "FJC." It will have a par
value of $0.01 and the new Common Stock and the new Class B Stock will
have alternating preferences with respect to payments or distributions in
the event of a liquidation of Fedders. See "Description of Fedders
Capital Stock Before and After the Recapitalization" beginning on page 57
of this document.
- TREATMENT OF THE CLASS A STOCK IN THE RECAPITALIZATION. The proposed
deletion of Section VI of clause A of Article Second of the certificate
of incorporation will eliminate the right of the holders of Class A Stock
to receive the same per share consideration as is received by the holders
of Common Stock in any merger or consolidation, which will allow the
recapitalization to be consummated on the terms described in this
document. At the effective time of the recapitalization, each outstanding
share of non-voting Class A Stock will be exchanged for one share of new
voting Common Stock. See "Description of Fedders Capital Stock Before and
After the Recapitalization" beginning on page 57 of this document.
- TREATMENT OF THE CLASS B STOCK IN THE RECAPITALIZATION. At the effective
time of the recapitalization, each outstanding share of Class B Stock
will be exchanged for 1.1 shares of new Class B Stock. The new Class B
Stock will have voting rights but will not be listed for trading. The new
Class B Stock will generally be entitled to one vote per share, but will
be entitled to the special voting rights currently enjoyed by the holders
of Class B Stock. It will have a par value of $0.01 and the new Common
Stock and the new Class B Stock will have alternating preferences with
respect to payments or distributions in the event of a liquidation of
Fedders. To compensate the holders of new Class B Stock for the decrease
in voting power resulting from the ability of the former Class A
stockholders to vote their new Common Stock, a modification will be made
to the dividend rights of the Class B Stock such that after the
recapitalization, holders of the new Class B Stock will share equally in
the payment of dividends with holders of the new Common Stock. After the
recapitalization, the new Class B Stock will automatically convert into
new Common Stock if the number of outstanding shares of new Class B Stock
falls below 2.5% of the aggregate number of outstanding shares of new
Common Stock and new Class B Stock. See "Description of Fedders Capital
Stock Before and After the Recapitalization" beginning on page 57 of this
document.
- TREATMENT OF STOCK OPTIONS IN THE RECAPITALIZATION. Employee options to
buy shares of Fedders' Common Stock outstanding at the time of the
recapitalization will be adjusted, resulting in options to purchase a
number of shares of new Common Stock determined by multiplying the number
of shares of Common Stock subject to an option by 1.1. Employee options
to buy shares of Class A Stock outstanding at the time of the
recapitalization will be converted into options to buy an equivalent
number of shares of new Common Stock. See "Employee Stock Options"
beginning on page 49.
- STOCKHOLDER VOTE. The proposed amendment to the certificate of
incorporation to delete Section VI of clause A of Article Second requires
approval of at least a majority of the voting power of the shares of
Common Stock, Class A Stock and Class B Stock, each voting separately as
a class. Assuming the proposed deletion of Section VI of clause A of
Article Second of the certificate of incorporation is
2
approved, the recapitalization and each of the changes to Fedders' certificate
of incorporation that will be made as a result of the recapitalization will
require the approval of at least a majority of the voting power of the shares of
Common Stock and Class B Stock, voting together as a single class.
Although the holders of Common Stock and Class B Stock will have a
separate vote on the recapitalization and each of the changes that will be
made to Fedders' certificate of incorporation as a result of the
recapitalization, approval of each of the items is conditioned upon
approval of all of the items. Thus, a vote against the recapitalization or
any of the changes that will be made to the certificate of incorporation
will be deemed a vote against all such proposals. See "Stockholder Vote"
beginning on page 34. As of November 30, 2001, in any vote of stockholders
in which the holders of the Common Stock, Class A Stock and Class B Stock
vote as separate classes and the holders of Class B Stock have one vote
per share, the directors and executive officers of Fedders control
approximately 2.9% of the aggregate voting power of the Common Stock,
29.3% of the aggregate voting power of the Class A Stock and 99.8% of the
aggregate voting power of the Class B Stock. In any vote of stockholders
in which the holders of the Common Stock and the Class B Stock vote
together as a single class and the holders of Class B Stock have one vote
per share, the directors and executive officers of Fedders control
approximately 16.7% of the aggregate voting power. Approval of the
recapitalization is not conditioned upon the favorable vote of a majority
of Fedders' unaffiliated stockholders.
- FAIRNESS OPINION OF TM CAPITAL CORP. In deciding to approve the
recapitalization of the Common Stock, Class A Stock and Class B Stock,
the board of directors considered an opinion from its financial advisor,
TM Capital Corp., as to the fairness, from a financial point of view, to
the Common stockholders and Class A stockholders, of the exchange of each
share of Common Stock for 1.1 shares of new Common Stock and each share
of Class A Stock for one share of new Common Stock. The opinion is
summarized in the section entitled "Fairness Opinion of TM Capital Corp."
beginning on page 29 of this document. In addition, the opinion is
attached as Annex B to this document. We encourage you to read both the
summary and the opinion in its entirety.
- RECOMMENDATION OF FEDDERS' BOARD OF DIRECTORS. Fedders' board of
directors has determined that (i) the proposed deletion of Section VI of
clause A of Article Second of Fedders' certificate of incorporation, (ii)
the recapitalization and (iii) each of the changes that will be made to
the certificate of incorporation as a result of the recapitalization are
procedurally and substantively fair. It has unanimously approved the
recapitalization, and recommends that you vote FOR (i) the proposed
deletion of Section VI of clause A of Article Second of the certificate
of incorporation, (ii) the recapitalization and (iii) each of the changes
to be made to the certificate of incorporation as a result of the
recapitalization.
- MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE RECAPITALIZATION. In the
opinion of Skadden, Arps, Slate, Meagher & Flom LLP, which is based upon
the representations of Fedders, the recapitalization should constitute a
"recapitalization" within the meaning of Section 368(a)(1)(E) of the
Internal Revenue Code. Accordingly, you should not recognize any gain or
loss upon the receipt of new Common Stock or Class B Stock in exchange
for your old Common Stock, Class A Stock or Class B Stock in the
recapitalization (except with respect to cash received in lieu of
fractional shares). See "Material Federal Income Tax Consequences of the
Recapitalization" beginning on page 39.
- CONDITIONS TO COMPLETION OF THE RECAPITALIZATION. A number of conditions
must be met or waived before the recapitalization will be completed. The
most significant conditions are that:
- Fedders receives the required stockholder approval for the proposed
amendment to delete Section VI of clause A of Article Second of the
certificate of incorporation;
- Fedders receives the required stockholder approval for the
recapitalization;
- Fedders receives the required stockholder approval for each of the
changes to its certificate of incorporation that will be made as a
result of the recapitalization;
3
- the registration statement filed with the Securities and Exchange
Commission in connection with the issuance of the shares of new Common
Stock and new Class B Stock after the recapitalization becomes
effective;
- the New York Stock Exchange approves the listing of the shares of the
new Common Stock;
- if a filing becomes necessary under the Hart-Scott-Rodino Antitrust
Improvements Act, all waiting periods have expired or terminated;
- Fedders receives all necessary material licenses, permits, consents,
approvals, authorizations, qualifications and orders of governmental
authorities and parties to contracts with Fedders and its subsidiaries;
and
- Fedders files a certificate of merger with the Secretary of State of
Delaware.
- APPRAISAL RIGHTS. Holders of Class B Stock, which is not listed on any
stock exchange, are entitled to appraisal rights in connection with the
recapitalization. Class B stockholders who do not vote for the
recapitalization proposal and who dissent by complying with the
procedures required by the Delaware General Corporation Law ("DGCL") will
have the right to receive payment for the fair value of their shares as
of the effective date of the recapitalization, as determined by the
Delaware Court of Chancery. Any Class B stockholders who are entitled to
appraisal rights must, in order to exercise such rights, demand such
rights BEFORE the vote on the recapitalization at the annual meeting of
stockholders. The Giordano Holding Corporation holds approximately 99.8%
of the Class B Stock. Salvatore Giordano, Fedders' Chairman Emeritus and
a director, Sal Giordano, Jr., Fedders' Chairman and Chief Executive
Officer and Joseph Giordano, a director of Fedders, exercise all the
voting power of Giordano Holding Corporation. They have unanimously
indicated their intention not to cause the Giordano Holding Corporation
to exercise its statutory appraisal rights. Holders of Common Stock or
Class A Stock are not entitled to appraisal rights by virtue of the
recapitalization because the Common Stock and the Class A Stock are
listed on the New York Stock Exchange and the Common Stock and Class A
Stock are being combined into new Common Stock in the recapitalization.
See "The Recapitalization -- Appraisal Rights" beginning on page 46.
INTERESTS OF CERTAIN PERSONS IN THE RECAPITALIZATION.
- VOTING POWER. As of November 30, 2001, the directors and executive
officers of Fedders together controlled 393,836 shares of the Common
Stock, or approximately 2.9% of the Common Stock, 4,368,235 shares of
Class A Stock, or approximately 29.3% of the Class A Stock and 2,262,566
shares of the Class B Stock, or approximately 99.8% of the Class B Stock.
As of November 30, 2001, in any vote of stockholders in which the holders
of the Common Stock and the Class B Stock vote together as a single class
and the holders of Class B Stock have one vote per share, the directors
and executive officers of Fedders controlled approximately 16.7% of the
aggregate voting power. Fedders estimates that after the
recapitalization, in any such vote of stockholders, the directors and
executive officers will control approximately 22.5% of the aggregate
voting power.
As of November 30, 2001, in any vote of stockholders in which the holders
of the Common Stock and the Class B Stock vote together as a single class
and the holders of Class B Stock have ten votes per share, the directors
and executive officers of Fedders controlled approximately 63.4% of the
aggregate voting power. Fedders estimates that after the
recapitalization, in any such vote of stockholders, the directors and
executive officers will control approximately 54.2% of the aggregate
voting power.
- BENEFICIAL OWNERSHIP. As of November 30, 2001, Fedders' directors and
executive officers beneficially owned 393,836 shares of Common Stock, or
approximately 2.9% of the Common Stock, 4,368,235 shares of Class A
Stock, or approximately 29.3% of the Class A Stock and 2,262,566 shares
of the Class B Stock, or approximately 99.8% of the Class B Stock. After
the recapitalization, the directors and executive officers will
beneficially own approximately 16.1% of the new Common Stock and 99.8% of
the new Class B Stock.
4
ADDITIONAL MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
In addition to voting on the recapitalization and related matters, we are
asking holders of Common Stock and Class B Stock to vote their shares on the
following matters:
- to elect nine (9) members to our board of directors; and
- to ratify the appointment of Deloitte & Touche LLP as our independent
auditors.
5
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
Q: WHAT AM I BEING ASKED TO VOTE ON?
A: We are asking the holders of Common Stock, Class A Stock and Class B Stock
to vote their shares for an amendment to Fedders' certificate of
incorporation to delete Section VI of clause A of Article Second, which
provides that in any merger or consolidation the holders of Class A Stock
are entitled to receive the same per share consideration as is received by
the holders of Common Stock.
In addition, we are asking the holders of Common Stock and Class B Stock to
vote their shares on the following matters:
(i) the recapitalization of Fedders Corporation, through the merger of FC
Merger Sub, Inc., a wholly owned subsidiary of Fedders, with and into
Fedders, with Fedders as the surviving corporation;
(ii) each of the changes to Fedders' certificate of incorporation that will
be made as a result of the recapitalization;
(iii) the election of directors; and
(iv) the ratification of the appointment of our independent auditors.
In the proposed recapitalization, Fedders voting Common Stock, par value
$1.00 per share, and non-voting Class A Stock, par value $1.00 per share,
will be combined into a single class of new voting Common Stock, par value
$.01 per share, and Fedders voting Class B Stock, par value $1.00 per share,
will be exchanged for a class of new voting Class B Stock, par value $.01
per share. Each share of voting Common Stock will entitle its holder to 1.1
shares of new voting Common Stock, and each share of non-voting Class A
Stock will entitle its holder to one share of new voting Common Stock. Each
share of voting Class B Stock will entitle its holder to 1.1 shares of new
voting Class B Stock.
Q: WHO IS ELIGIBLE TO VOTE AT THE ANNUAL MEETING?
A: You are eligible to vote your shares of Common Stock, Class A Stock and
Class B Stock at the annual meeting if you were a stockholder of record of
those shares on the record date. The record date for the annual meeting is
the close of business on December 28, 2001.
Q: WHY SHOULD I VOTE IN FAVOR OF THE RECAPITALIZATION, RESULTING IN THE
COMBINATION OF FEDDERS COMMON STOCK AND CLASS A STOCK INTO ONE CLASS OF NEW
VOTING COMMON STOCK AND THE EXCHANGE OF VOTING CLASS B STOCK FOR NEW VOTING
CLASS B STOCK?
A: The recapitalization will simplify Fedders' capital structure. Fedders
believes that its stock is undervalued, limiting, among other things, its
ability to use its stock for acquisitions and to attract, retain or
incentivize employees. We believe that the recapitalization will benefit
both Fedders and you as a stockholder of Fedders by, among other things:
- eliminating potential investor confusion and additional administrative
expenses caused by having two classes of listed stock, voting and
non-voting;
- eliminating the perceived negative impact on the market price of Fedders
stock that results from dual listing; and
- potentially increasing Fedders' investor base and the liquidity, trading
volume, and trading efficiencies of Fedders' listed stock.
6
Q: WHAT IS THE POSITION OF THE BOARD OF DIRECTORS REGARDING THE
RECAPITALIZATION, THE AMENDMENTS THAT WILL BE MADE TO FEDDERS' CERTIFICATE
OF INCORPORATION, THE ELECTION OF DIRECTORS AND THE RATIFICATION OF THE
APPOINTMENT OF FEDDERS' INDEPENDENT AUDITORS?
A: The board of directors has unanimously approved the recapitalization, and
recommends that you vote FOR (i) the proposed deletion of Section VI of
clause A of Article Second of the certificate of incorporation, (ii) the
recapitalization and (iii) each of the changes to the certificate of
incorporation that will be made as a result of the recapitalization. The
board of directors also recommends that you vote FOR the nominees for
directors indicated herein and the ratification of Deloitte & Touche LLP as
our independent auditors.
Q: HOW MANY VOTES ARE NEEDED TO APPROVE THE PROPOSED DELETION OF SECTION VI OF
CLAUSE A OF ARTICLE SECOND OF THE CERTIFICATE OF INCORPORATION, THE
RECAPITALIZATION AND EACH OF THE CHANGES TO THE CERTIFICATE OF INCORPORATION
THAT WILL BE MADE AS A RESULT OF THE RECAPITALIZATION?
A: The proposed deletion of Section VI of clause A of Article Second of the
certificate of incorporation requires approval of at least a majority of the
voting power of the shares of Common Stock, Class A Stock and Class B Stock,
each voting separately as a class.
Assuming the amendment to the certificate of incorporation is approved, the
recapitalization and each of the changes to the certificate of incorporation
that will be made as a result of the recapitalization will require the
approval of at least a majority of the voting power of the shares of Common
Stock and Class B Stock, voting together as a single class.
Approval of the proposed deletion of Section VI of clause A of Article
Second of the certificate of incorporation, the recapitalization and each of
the changes to be made to the certificate of incorporation as a result of
the merger is not conditioned upon the favorable vote of a majority of
Fedders' unaffiliated stockholders.
Fedders' directors and executive officers have indicated that they intend to
vote the shares they hold, and the shares over which they exercise voting
control, FOR (i) the proposed deletion of Section VI of clause A of Article
Second of the certificate of incorporation, (ii) the recapitalization and
(iii) each of the changes to the certificate of incorporation that will be
made as a result of the recapitalization. The board of directors of Fedders
unanimously approved the recapitalization at a meeting held on February 27,
2001. As of November 30, 2001, these directors and executive officers were
entitled to vote, or exercised voting power over shares entitled to vote,
approximately 4,368,235 shares of Class A Stock, or 29.3% of the outstanding
Class A Stock, 393,836 shares of Common Stock, or approximately 2.9% of the
outstanding Common Stock and 2,262,566 shares of Class B Stock, or
approximately 99.8% of the outstanding Class B Stock, representing 16.7% of
the aggregate outstanding Common Stock and Class B Stock, voting together as
a single class.
Q: HOW MANY VOTES ARE NEEDED TO APPROVE THE ELECTION OF THE NOMINEES FOR
DIRECTOR INDICATED HEREIN AND THE RATIFICATION OF OUR INDEPENDENT AUDITORS?
A: Under the DGCL, approval of the election of directors requires a plurality
of the votes of the shares of Common Stock and Class B Stock, voting
together as a single class, present in person or represented by proxy at the
annual meeting, provided that such shares constitute a quorum. Approval of
the proposal for the ratification of the appointment of Fedders' independent
auditors requires the affirmative vote of at least a majority of the shares
of Common Stock and Class B Stock, present in person or represented by proxy
at the annual meeting.
Q: WHAT WILL I RECEIVE IN THE RECAPITALIZATION IF IT IS APPROVED?
A: In exchange for each share of Common Stock that you own, you will receive
1.1 shares of new Common Stock.
7
In exchange for each share of Class A Stock that you own, you will receive one
share of new Common Stock.
In exchange for each share of Class B Stock that you own, you will receive 1.1
shares of new Class B Stock.
Q: WILL I HAVE ANY APPRAISAL RIGHTS IF I DO NOT VOTE IN FAVOR OF THE
RECAPITALIZATION?
A: Holders of Common Stock and Class A Stock are not entitled to statutory
appraisal rights.
Holders of Class B Stock will be entitled to statutory appraisal rights if
they do not vote in favor of the recapitalization, provided that they demand
such rights BEFORE the annual meeting of stockholders, by following the
procedures described in this document. As of November 30, 2001, the Giordano
Holding Corporation held approximately 99.8% of the Class B Stock. Salvatore
Giordano, Fedders' Chairman Emeritus and a director, Sal Giordano, Jr.,
Fedders' Chairman and Chief Executive Officer and Joseph Giordano, a
director of Fedders, exercise all the voting power of Giordano Holding
Corporation. They have unanimously indicated their intention not to cause
Giordano Holding Corporation to exercise its statutory appraisal rights. See
"The Recapitalization -- Appraisal Rights" beginning on page 46.
Q: WHAT ARE MY INCOME TAX CONSEQUENCES FROM THE RECAPITALIZATION?
A: Subject to the assumptions and qualifications set forth under the heading
"Material Federal Income Tax Consequences of the Recapitalization" beginning
on page 39, in the opinion of Skadden, Arps, Slate, Meagher & Flom LLP, the
exchange of your old Common Stock and Class A Stock for new shares of Common
Stock and the exchange of your old Class B Stock for new shares of Class B
Stock should constitute a "recapitalization" under Section 368(a)(1)(E) of
the Internal Revenue Code. Accordingly, you should not recognize any gain or
loss upon the receipt of new Common Stock or new Class B Stock in exchange
for your old Common Stock, Class A Stock or Class B Stock pursuant to the
recapitalization (except with respect to cash received in lieu of fractional
shares).
We strongly encourage you to consult your tax advisor regarding the material
tax consequences of the recapitalization to you based on your particular
circumstances. See "Material Federal Income Tax Consequences of the
Recapitalization" beginning on page 39.
Q: HOW WILL MY RIGHTS AS A STOCKHOLDER DIFFER AFTER THE RECAPITALIZATION?
A: After the recapitalization occurs, your rights as a holder of shares of new
Common Stock or shares of new Class B Stock will be governed by the restated
certificate of incorporation attached as Exhibit A to the recapitalization
agreement attached hereto as Annex A rather than the current certificate of
incorporation. The differences between the current certificate of
incorporation and the restated certificate of incorporation that will govern
Fedders following the recapitalization are described beginning on page 57 of
this document.
Generally, holders of new Common Stock and new Class B Stock will have
similar rights as they did before the recapitalization, although they will
hold 1.1 shares of new Common Stock and new Class B Stock, respectively, for
each share of Common Stock and Class B Stock they held prior to the
recapitalization. Class A stockholders will have the right to one vote for
each share of new Common Stock received.
The new Common Stock and the new Class B Stock will each have a par value of
$0.01. The Common Stock, Class A Stock and Class B Stock currently each have
a par value of $1.00. In addition, the new Common Stock and the new Class B
Stock will have alternating preferences with respect to payments or
distributions in the event of a liquidation of Fedders. The new Common Stock
will first have the right to receive a payment of $0.25 per share before any
payment or distribution is made or set apart for the new Class B Stock. The
new Class B Stock will then have the right to receive a payment of $0.50 per
share before any additional payment or distribution is set apart for the new
Common Stock. Finally, the new Common Stock will have the right to receive
an additional payment of $0.25 per share before any
8
additional payment or distribution is made or set apart for the new Class B
Stock. After payment of the liquidation preferences, holders of the new
Common Stock and the new Class B Stock will be entitled to share in the
remaining assets of Fedders on a pro rata basis.
Holders of the new Class B Stock will share equally in the payment of
dividends with holders of the new Common Stock. Currently, if a cash
dividend is paid on the Common Stock, a cash dividend of 90% of the amount
paid on each share of Common Stock is payable on each share of Class B
Stock. In addition, the new Class B Stock will automatically convert into
new Common Stock if the number of outstanding shares of new Class B Stock
falls below 2.5% of the aggregate number of outstanding shares of new Common
Stock and new Class B Stock. Currently, the Class B Stock is convertible
into Common Stock if the number of outstanding shares of Class B Stock falls
below 5% of the aggregate number of outstanding shares of Common Stock and
Class B Stock.
The restated certificate of incorporation will provide that any action
required or permitted to be taken by stockholders must be effected at a duly
called annual or special meeting, and the ability of stockholders of Fedders
to consent in writing to the taking of any action will be specifically
denied. Fedders' current certificate of incorporation does not currently
provide for, or prohibit such stockholder action by written consent. Under
current Delaware law, unless otherwise provided in the certificate of
incorporation, any action required or permitted to be taken by stockholders
may be taken without a meeting or notice to all stockholders and without a
stockholder vote if a written consent setting forth the action to be taken
is signed by the holders of shares of outstanding stock having the requisite
number of votes that would be necessary to authorize such action if it were
taken at a meeting of stockholders.
Q: WHAT SHOULD I DO NOW?
A: You should mail your signed and dated proxy card(s) in the enclosed envelope
as soon as possible so that your shares will be represented and voted at the
annual meeting. No postage is required if the proxy is returned in the
enclosed envelope and mailed in the United States. If you prefer, you may
cast your vote toll-free by telephone or online over the Internet. Simply
follow the instructions contained on the enclosed proxy card(s).
Q: IF I AM NOT GOING TO ATTEND THE ANNUAL MEETING SHOULD I RETURN MY PROXY
CARD(S)?
A: Yes. Returning your proxy card(s) ensures that your shares will be
represented at the annual meeting, even if you are unable to attend or do
not want to attend.
Q: CAN I CHANGE MY VOTE AFTER I MAIL MY PROXY CARD(S)?
A: Yes. You can change your vote by:
- sending a written notice to Fedders' Corporate Secretary that is received
prior to the annual meeting that states that you are revoking your proxy.
If your broker holds your shares, contact your broker;
- submitting another proxy by telephone or via the Internet;
- signing a new, later dated proxy card and delivering it to Fedders' proxy
solicitor prior to the annual meeting; or
- attending the annual meeting, and voting in person.
Your presence at the annual meeting will not, in and of itself, revoke your
proxy.
Q: WHAT IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER?
A: Your broker will vote your shares with respect to the recapitalization only
if you provide written instructions to your broker on how to vote, so it is
important that you provide your broker with instructions. If you do not
provide your broker with instructions, your shares will not be voted with
respect to the recapitalization and will not count toward approval of the
recapitalization. To ensure that your
9
broker receives your instructions, we suggest that you send them in the
envelope enclosed with the instructions. If you wish to vote in person at
the meeting, and hold your shares in your broker's name, you must contact
your broker and request a document called a "legal proxy." You must bring
this legal proxy to the meeting in order to vote in person.
Q: WHAT IF I DO NOT VOTE OR DO NOT INSTRUCT MY BROKER TO VOTE MY SHARES?
A: Abstentions and broker non-votes will be counted as votes against the
recapitalization and the ratification of our independent auditors.
Abstentions and broker non-votes will not be considered a part of the voting
power present with respect to the election of directors.
Q: DO I NEED TO SEND IN MY SHARE CERTIFICATES?
A: No. After the recapitalization is completed, the transfer agent will send
Fedders stockholders written instructions for exchanging stock certificates.
Q: WHO CAN ANSWER MY QUESTIONS?
A: If you have questions regarding the annual meeting or need assistance in
voting your shares, please contact Fedders' proxy solicitor:
D.F. King & Co., Inc.
77 Water Street
New York, NY 10005
Telephone: (212) 269-5550
All other questions should be directed to:
Fedders Corporation
505 Martinsville Road,
Liberty Corner, New Jersey 07938
Attn: Kent E. Hansen
Telephone: (908) 604-8686
10
RISK FACTORS
The proposed recapitalization of Fedders involves significant risks. In
addition to reviewing other information in this proxy statement/prospectus, you
should carefully consider the following factors before deciding to vote on the
proposed recapitalization and related matters.
THE RECAPITALIZATION MAY NOT BENEFIT FEDDERS OR OUR STOCKHOLDERS.
The combination of Fedders Common Stock and Class A Stock into a single class of
new voting Common Stock may not enhance stockholder value or improve the
liquidity and marketability of Fedders Common Stock. As of November 30, 2001,
there were 13,634,759 shares of Common Stock outstanding. After the
recapitalization, there will be approximately 29,888,620 shares of new Common
Stock outstanding. This increase in the outstanding shares of new Common Stock
may result in an immediate decrease in the market value of the new Common Stock
compared with the Common Stock. In addition, factors unrelated to our stock or
our business, such as the general perception of the recapitalization by the
investment community, may cause a decrease in the value of the new Common Stock
and impair its liquidity and marketability. Furthermore, securities markets
worldwide have recently experienced significant price and volume fluctuations.
This market volatility, as well as general economic, market or political
conditions, could cause a reduction in the market price and liquidity of new
Common Stock following the recapitalization, particularly if the
recapitalization is not viewed favorably by the investment community.
THE RECAPITALIZATION WILL NOT ELIMINATE THE SPECIAL RIGHT OF THE CLASS B STOCK
TO TEN VOTES PER SHARE ON THE ELECTION OF DIRECTORS.
The recapitalization will not eliminate the special rights of the Class B Stock,
and in particular, the right of the Class B Stock, to ten votes per share in the
election of directors if either:
- more than 15% of the outstanding shares of Common Stock are beneficially
owned by a person or group of persons acting in concert (unless such
person or group is also the beneficial owner of a majority of the shares
of Class B Stock on such record date); or
- a nomination for the board of directors is made by a person or group of
persons acting in concert, other than the board of directors (unless such
nomination is made by one or more holders of Class B Stock, acting in
concert, who beneficially own more than 15% of the outstanding shares of
Class B Stock).
As of November 30, 2001, in any vote on the election of directors in which the
holders of the Class B Stock have ten votes per share, the holders of Class B
Stock controlled approximately 63.4% of the aggregate voting power. After the
recapitalization the holders of Class B Stock will control approximately 54.2%
of the aggregate voting power in any election of directors in which the holders
of the Class B Stock have ten votes per share. Thus after the recapitalization
the holders of new Class B Stock will have the ability to elect the majority of
our board of directors in any election of directors in which the holders of the
Class B Stock have ten votes per share. As of November 30, 2001, 99.8% of the
Class B Stock was held by Giordano Holding Corporation. Giordano Holding
Corporation's voting and investment power is shared by Salvatore Giordano, Sal
Giordano, Jr. and Joseph Giordano. Salvatore Giordano is the Chairman Emeritus
of Fedders' board, has been a director of Fedders since 1945, and has acted in a
variety of executive capacities for Fedders. Sal Giordano, Jr. is the Chairman
and Chief Executive Officer of Fedders and has been a director since 1965.
Joseph Giordano has been a director of Fedders since 1961 and has retired from
executive responsibilities for the past five years. Giordano Holding Corporation
thus has, and after the recapitalization will continue to have, sufficient
representation on our board of directors and votes as a stockholder to influence
decisions that may adversely affect the market price of our new Common Stock or
otherwise be detrimental to Fedders or the holders of new Common Stock. This
could cause our business to suffer and the trading price of our new Common Stock
to decline. In addition, the general perception of the recapitalization may be
less favorable because the recapitalization will not eliminate the special
rights of the holders of Class B Stock.
11
THERE WAS NO NEGOTIATION OF THE TERMS OF THE PROPOSED RECAPITALIZATION ON BEHALF
OF THE HOLDERS OF COMMON STOCK AND CLASS A STOCK.
The terms of the proposed recapitalization were determined by our board of
directors, upon review of an oral and written fairness opinion prepared by TM
Capital and review of the substantive and procedural fairness of the proposed
transaction. Because no one negotiated the terms of the proposed
recapitalization on behalf of the holders of our Common Stock and Class A Stock,
the terms described in this proxy statement/prospectus may not be as favorable
as those which may have been obtained if such stockholders were represented in
negotiations over terms.
12
MARKET PRICES AND DIVIDENDS
Fedders' Common Stock and Class A Stock are currently listed on the New
York Stock Exchange under the symbols "FJC" and "FJA," respectively. The Class B
Stock is not listed. The following table sets forth the high and low sales
prices and dividend amounts paid for the Common Stock and Class A Stock as
reported by the New York Stock Exchange Composite Tape and the dividends paid on
the Class B Stock for each quarterly period during Fedders' last two fiscal
years.
<Table>
<Caption>
COMMON STOCK CLASS A STOCK CLASS B STOCK
---------------------- ---------------------- -------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS DIVIDENDS
---- --- --------- ---- --- --------- -------------
2000
First Quarter................................ $6 9/16 $5 1/4 $0.030 $5 3/4 $4 5/8 $0.030 $0.027
Second Quarter............................... 6 5 1/16 0.030 5 1/4 4 5/8 0.030 0.027
Third Quarter................................ 6 1/4 5 1/4 0.030 5 7/8 4 7/8 0.030 0.027
Fourth Quarter............................... 6 3/16 4 3/4 0.030 5 15/16 4 1/2 0.030 0.027
2001
First Quarter................................ $5 3/16 $3 3/8 $0.030 $4 7/8 $3 1/4 $0.030 $0.027
Second Quarter............................... 5.51 4.5 0.030 4.63 4.13 0.030 0.027
Third Quarter................................ 5.60 4.06 0.030 5.02 4.07 0.030 0.027
Fourth Quarter............................... 5.24 4.45 0.030 4.80 3.90 0.030 0.027
2002
First Quarter................................ $4.80 $2.30 $0.030 $4.05 $1.55 $0.030 $0.027
</Table>
The last reported sale price of shares of Common Stock as reported by the
New York Stock Exchange Composite Tape on Monday, February 26, 2001, the last
trading day immediately prior to the public announcement of the
recapitalization, was $5.15 per share. The last reported sale price of shares of
Class A Stock as reported by the New York Stock Exchange Composite Tape on
Monday, February 26, 2001, the last trading day immediately prior to the public
announcement of the proposed combination, was $4.37 per share.
The last reported sale price of Common Stock as reported by the New York
Stock Exchange Composite Tape on January 3, 2002 was $3.70 per share. The last
reported sale price of Class A Stock as reported by the New York Stock Exchange
Composite Tape on January 3, 2002 was $3.31 per share.
13
SELECTED CONSOLIDATED FINANCIAL DATA
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth selected consolidated financial data of
Fedders as of and for each of the periods indicated. Fedders derived the
consolidated financial data as of and for each of the annual periods presented
from Fedders' audited consolidated financial statements. This information is
only a summary and you should read it in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the historical consolidated financial statements, and the related schedules and
notes, contained in Fedders' annual report on Form 10-K, which is incorporated
by reference herein, and other information that Fedders has filed with the
Securities and Exchange Commission. See "Where You Can Find More Information"
beginning on page 73.
CONSOLIDATED STATEMENT OF OPERATIONS DATA
<Table>
<Caption>
FISCAL YEAR ENDED AUGUST 31,
----------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
Net sales(1)............................ $405,697 $416,181 $362,048 $327,912 $318,769
Gross profit............................ 68,700 104,828 84,591 69,770 70,076
Percent of net sales.................... 16.9% 25.2% 23.4% 21.3% 22.0%
Operating income (loss)................. (15,045) 46,854 40,258 12,810 31,729
Percent of net sales.................... (3.7)% 11.3% 11.1% 3.9% 10.0%
(Loss) income before income taxes....... (33,263) 30,474 30,986 4,603 28,867
Percent of net sales.................... (8.2)% 7.3% 8.6% 1.4% 9.1%
Net (loss) income....................... (22,453) 20,401 20,724 2,992 18,764
Net (loss) income attributable to common
stockholders.......................... (22,453) 20,401 20,724 2,992 16,344
Earnings (loss) per share:
Basic.............................. $ (0.71) $ 0.58 $ 0.56 $ 0.07 $ 0.42
Diluted............................ (0.71) 0.57 0.56 0.07 0.39
Dividends per share declared:
Convertible Preferred (2).......... -- -- -- -- 0.318
Common/Class A..................... $ 0.120 $ 0.120 $ 0.105 $ 0.085 $ 0.080
Class B............................ 0.108 0.108 0.095 0.077 0.072
Other Financial Data:
Adjusted earnings before interest,
taxes, depreciation and
amortization(5)(6)................. 24,746 58,786 54,613 41,757 42,232
Capital expenditures.................. 10,773 9,858 9,378 8,497 9,236
Depreciation and amortization......... 15,431 13,076 10,279 9,263 9,935
Cash flow provided by (used in):
Operating activities.................. $ 5,919 $ 4,619 $ 51,989 $ 39,302 $ (8,826)
Investing activities.................. (30,327) (15,037) (48,778) (6,650) (8,808)
Financing activities.................. (11,593) (19,898) 23,312 (52,059) 37,732
</Table>
14
CONSOLIDATED BALANCE SHEET DATA
<Table>
<Caption>
AUGUST 31,
----------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
Cash and cash equivalents............... $ 51,192 $ 87,193 $117,509 $ 90,986 $110,393
Total assets............................ 362,332 388,175 382,342 304,629 329,014
Long-term debt (including current
portion)(3)........................... 168,455 166,434 161,363 111,013 115,380
Stockholders' equity(4)................. 73,014 112,260 108,933 104,792 145,687
</Table>
- ---------------
(1) In accordance with Emerging Issues Task Force No. 00-10, "Accounting for
Shipping and Handling Fees and Costs," 2000, 1999, 1998 and 1997 shipping
expenses have been reclassified from net sales to cost of sales to conform
to the current year presentation.
(2) In September 1997, Fedders redeemed each share of its Convertible Preferred
Stock for 1.022 shares of Class A Stock.
(3) In August 1999, a subsidiary of Fedders issued $50,000 of 9 3/8% Senior
Subordinated Notes, proceeds of which were utilized in part, to replenish
cash used to acquire Trion, Inc. In August 1997, the same subsidiary issued
$100,000 of 9 3/8% Senior Subordinated Notes, proceeds of which were
utilized, in part, to fully redeem $22,100 of 8.5% Convertible Subordinated
Debentures, including accrued interest.
(4) During fiscal 2001, Fedders repurchased 2,998 shares of Common and Class A
Stock at an average price of $4.39 per share for a total of $13,169,
excluding commissions. During fiscal 2000, Fedders repurchased 2,768 shares
of Common and Class A Stock at an average price of $4.87 per share for a
total of $13,484. During fiscal 1999, Fedders repurchased 2,601 shares of
Common and Class A Stock at an average price of $5.08 per share for a total
of $13,215. During fiscal 1998, Fedders repurchased 7,720 shares of
Preferred, Common and Class A Stock at an average price of $5.93 per share
for a total of $45,750. During fiscal 1997, Fedders repurchased 4,335 shares
of Class A Stock at an average price of $5.78 per share for a total of
$25,041 and 705 shares of Convertible Preferred Stock at $6.25 per share for
a total of $4,408.
(5) In fiscal 2001, Adjusted EBITDA results exclude $8,947 of asset impairment,
employee severance and other restructuring charges, $4,031 of one-time
inventory charges, $7,583 of deferred compensation charge relating to the
retirement of an officer of Fedders, an additional $2,283 of other
non-recurring inventory write-offs, $1,364 of operating losses incurred at
the Tennessee and Maryland facilities subsequent to the announcement that
production at these facilities would cease, $726 non-cash charge for the
re-pricing of a majority of unexercised stock options and $716 of other
one-time charges. In fiscal 1999, the amount shown excludes a charge for the
restructuring ($3,100). For fiscal 1998, the amount shown excludes a charge
for the 1998 restructuring ($16,750) and early retirement program ($2,891).
(6) Adjusted EBITDA represents income before income taxes plus net interest
expense, depreciation and amortization (excluding amortization of debt
discounts and deferred financing costs), certain one-time charges, and a
certain non-cash charge. Adjusted EBITDA is presented because we believe it
is an indicator of our ability to incur and service debt and is used by our
lenders in determining compliance with financial covenants. However,
Adjusted EBITDA should not be considered as an alternative to cash flow from
operating activities, as a measure of liquidity or as an alternative to net
income as a measure of operating results in accordance with generally
accepted accounting principles. Our definition of Adjusted EBITDA may differ
from definitions of Adjusted EBITDA used by other companies.
15
COMPARATIVE PER SHARE DATA
The following table sets forth book value per share, earnings per share and
dividends declared per share on a historical and pro forma basis for the Fedders
capital stock. Fedders derived the pro forma per share information from the
unaudited pro forma consolidated financial statements presented elsewhere in
this document. The table should be read in conjunction with the selected
consolidated financial data and historical consolidated financial statements,
and related schedules and notes thereto, included, or incorporated by reference,
in this document.
<Table>
<Caption>
FISCAL YEAR
ENDED
AUGUST 31,
2001
-----------
Book value per common share:
Reported.................................................. $2.37
Pro forma................................................. 2.25
Cash dividends declared per share:
Common and Class A
Reported............................................... 0.12
Pro forma.............................................. 0.12
Class B
Reported............................................... 0.108
Pro forma.............................................. 0.120
Loss per share -- basic:
Reported.................................................. (0.71)
Pro forma................................................. (0.67)
Loss per share -- diluted:
Reported.................................................. (0.71)
Pro forma................................................. (0.67)
</Table>
16
SELECTED UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL DATA
The unaudited pro forma consolidated condensed financial data is derived
from the application of pro forma adjustments to major categories of Fedders'
consolidated financial statements for the fiscal year ended August 31, 2001, to
illustrate the effect of the transaction related to the recapitalization of all
of Fedders' outstanding shares of capital stock. The pro forma adjustments are
described in the accompanying notes and are based upon available information
that Fedders believes is reasonable. These tables do not present all of Fedders'
financial information.
The unaudited pro forma consolidated condensed financial data do not
purport to be indicative of what Fedders' operations would have been had the
recapitalization taken place on the dates indicated. This information should be
read together with Fedders' consolidated financial statements and the notes
thereto which are incorporated by reference in this document, and the
information under "Selected Consolidated Financial Data" beginning on page 14.
The unaudited pro forma consolidated recapitalization table represents the
effect on stockholders' equity due to the recapitalization of capital stock as
if the recapitalization had been completed on August 31, 2001. The unaudited
recapitalization data is derived from the Consolidated Balance Sheet of Fedders
as of August 31, 2001. Information is presented to reflect pro forma adjustments
for the recapitalization of Fedders Common and Class A Stock into a single class
of new Common Stock and the exchange of Class B Stock for new Class B Stock.
The pro forma earnings per share calculations reflect the effect of the
recapitalization. The information is derived from the audited Consolidated
Statements of Operations and Comprehensive Income for the fiscal year ended
August 31, 2001. The information is presented to reflect the pro forma effect on
earnings per share as a result of the change in the weighted average number of
shares outstanding due to the recapitalization.
17
PRO FORMA CONSOLIDATED CONDENSED UNAUDITED RECAPITALIZATION TABLE
(AS OF AUGUST 31, 2001)
<Table>
<Caption>
AS OF
AUGUST 31, PRO FORMA AS
2001 ADJUSTMENTS ADJUSTED
---------- ----------- --------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
Stockholders' Equity:
Preferred Stock, $1.00 par value, 15,000,000 shares
authorized; no shares issued and outstanding, actual;
no shares issued and outstanding, as adjusted......... -- -- --
Common Stock, $1.00 par value, 80,000,000 shares
authorized; 16,135,459 shares issued and 13,634,759
shares outstanding, actual; no shares issued and
outstanding, as adjusted.............................. $16,135 $ (16,135)(a) --
New Common Stock, $0.01 par value, 70,000,000 shares
authorized; no shares issued and outstanding, actual;
38,046,620 shares issued and 29,888,220 outstanding,
as adjusted........................................... -- 380(a) $ 380
Class A Stock, $1.00 par value, 60,000,000 shares
authorized; 20,297,616 shares issued and 14,889,986
shares outstanding, actual; no shares issued and
outstanding, as adjusted.............................. 20,298 (20,298)(a) --
Class B Stock, $1.00 par value, 7,500,000 shares
authorized; 2,266,406 shares issued and outstanding,
actual; no shares issued and outstanding, as
adjusted.............................................. 2,267 (2,267)(b) --
New Class B Stock, $0.01 par value, 5,000,000 shares
authorized; no shares issued and outstanding, actual;
2,493,047 shares issued and outstanding, as
adjusted.............................................. -- 25(b) 25
Paid-in capital.......................................... 31,146 38,295(c) 69,441
Retained earnings........................................ 43,313 -- 43,313
Treasury stock, at cost, 7,908,330 shares of Common and
Class A Stock, actual; 8,158,400 shares of new Common
Stock, as adjusted.................................... (37,322) -- (37,322)
Deferred compensation.................................... (658) -- (658)
Accumulated other comprehensive loss..................... (2,165) -- (2,165)
------- --------- --------
Total stockholders' equity................................. $73,014 $ -- $ 73,014
======= ========= ========
</Table>
- ---------------
Notes to the Pro Forma Consolidated Condensed Unaudited Recapitalization Table
(a) Pro forma adjustments as of August 31, 2001 assume all outstanding shares of
Fedders' Common and Class A Stock are exchanged for new Common Stock at an
exchange ratio of 1.1 shares of new Common Stock for each share of Common
Stock exchanged and one share of new Common Stock for each share of Class A
Stock exchanged. On a pro forma basis, 38,046,620 shares of the new Common
Stock would be issued after the merger. The Class A Stock ceases to exist
after the merger. The par value of the new Common Stock is $.01 per share.
(b) Pro forma adjustments reflect the Fedders Class B Stock exchanged for new
Class B Stock on a pro forma basis. 2,493,047 shares of new Class B Stock
are issued at a par value of $.01 per share.
(c) Reflects the net effect of the recapitalization on paid-in capital as a
result of the pro forma adjustments due to the exchange of shares and the
reduction in the par value to $.01 per share of both the new classes of
Common and Class B Stock.
18
PRO FORMA UNAUDITED COMPARATIVE CONDENSED CONSOLIDATED EARNINGS PER SHARE
<Table>
<Caption>
FISCAL YEAR ENDED
AUGUST 31, 2001
-----------------
Net income (loss)(a):
As reported............................................... $(22,453)
Pro forma................................................. $(22,453)
Earnings (loss) per share(b):
Basic as reported......................................... $ (0.71)
Basic pro forma........................................... $ (0.67)
Diluted as reported....................................... $ (0.71)
Diluted pro forma......................................... $ (0.67)
Weighted average shares(c):
Basic as reported......................................... 31,808
Basic pro forma........................................... 33,489
Diluted as reported....................................... 31,808
Diluted pro forma......................................... 33,489
Cash dividends per share(d):
As reported:
Common and Class A.......................................... $ 0.120
Class B..................................................... 0.108
Pro forma:
New Common and Class B...................................... 0.120
</Table>
- ---------------
Notes to the Pro Forma Unaudited Comparative Condensed Consolidated Earnings Per
Share
(a) Pro forma net income remains unchanged for the period.
(b) Pro forma earnings per share reflect the recapitalization assuming all
outstanding shares are exchanged at the beginning of the fiscal year for the
years being reported. Basic and diluted earnings per share are computed by
dividing net income by the respective weighted average shares outstanding
for the periods presented. Basic and diluted pro forma earnings per share
are adjusted to reflect the impact of the recapitalization on the number of
weighted average shares outstanding.
(c) Pro forma weighted average shares reflect an increase in the number of
shares outstanding due to the recapitalization and exchange of all Common
and Class A Stock into new Common Stock, and Class B Stock into new Class B
Stock.
(d) Pro forma cash dividends per share reflect the impact of the
recapitalization on the weighted average number of shares outstanding and
the result of both the new Common and new Class B Stock sharing equally in
the payment of dividends.
19
THE ANNUAL MEETING
THE MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING ARE OF GREAT IMPORTANCE
TO FEDDERS STOCKHOLDERS. ACCORDINGLY, STOCKHOLDERS ARE URGED TO READ CAREFULLY
AND CONSIDER THE INFORMATION PRESENTED IN THIS PROXY STATEMENT/PROSPECTUS AND
ITS ATTACHMENTS. STOCKHOLDERS ARE ALSO URGED TO GIVE A PROXY TO BE VOTED AT THE
ANNUAL MEETING EITHER (I) OVER THE TELEPHONE BY CALLING A TOLL-FREE NUMBER, (II)
ELECTRONICALLY, USING THE INTERNET, OR (III) BY MAILING IN THE ENCLOSED PROXY
CARD.
DATE, PLACE AND TIME
The annual meeting is scheduled to be held at 10:30 a.m., local time on
February 26, 2002, at the Somerset Hills Hotel, 200 Liberty Corner Road, Warren,
New Jersey 07060.
PURPOSE OF THE ANNUAL MEETING
The purpose of the annual meeting is to consider and take action upon (i)
the proposed amendment to Fedders' certificate of incorporation deleting Section
VI of clause A of Article Second which provides that in any merger or
consolidation the holders of Class A Stock are entitled to receive the same per
share consideration as is received by the holders of the Common Stock, (ii) the
recapitalization agreement and plan of merger, dated December 28, 2001, between
Fedders Corporation and FC Merger Sub, Inc., a wholly owned subsidiary of
Fedders Corporation, (iii) each of the changes to Fedders' certificate of
incorporation that will be made as a result of the recapitalization, (iv) the
election of nine (9) directors, and (v) the ratification of the appointment of
our independent auditors.
RECORD DATE; STOCK ENTITLED TO VOTE; VOTE REQUIRED; QUORUM
Owners of record of shares of Fedders Common Stock, Class A Stock and Class
B Stock on the close of business on December 28, 2001, the record date for the
annual meeting, are entitled to receive notice of and vote at the annual
meeting. Such holders will be entitled to one vote per share of Common Stock,
Class A Stock or Class B Stock held as of the record date.
A quorum of stockholders is necessary for a valid meeting. The required
quorum for the transaction of business at the annual meeting, in person or by
proxy, is a majority of the total voting power of all the outstanding shares of
Common Stock and Class B Stock and a majority of the total voting power of all
the outstanding shares of Class A Stock entitled to vote on the record date.
Under the terms of the certificate of incorporation and the DGCL, the
proposed deletion of Section VI of clause A of Article Second of the certificate
of incorporation requires approval of at least a majority of the voting power of
the shares of Common Stock, Class A Stock and Class B Stock, each voting
separately as a class.
Assuming the proposed deletion is approved, the recapitalization and each
of the changes to the certificate of incorporation that will be made as a result
of the merger will require the approval of at least a majority of the voting
power of the shares of Common Stock and Class B Stock, voting together as a
single class.
Abstentions and broker non-votes each will be included in determining the
number of shares present at the annual meeting for the purpose of determining
the presence of a quorum. Because Fedders is seeking the affirmative vote of the
holders of Common Stock, Class A Stock and Class B Stock to approve the proposed
deletion of Section VI of clause A of Article Second of the certificate of
incorporation and the affirmative vote of the holders of Common Stock and Class
B Stock to approve the recapitalization and each of the changes to the
certificate of incorporation that will be made as a result of the
recapitalization, abstentions and broker non-votes will have the same effect as
votes against such matters. Abstentions and broker non-votes will not be
considered a part of the voting power present with respect to a vote on the
election of directors or the ratification of our independent auditors.
20
A broker non-vote occurs when a broker is not permitted to vote on a matter
without instructions from the beneficial owner of the shares and no instruction
is given. Under New York Stock Exchange rules, if your broker holds your shares
in its name, your broker may not vote your shares on the recapitalization
proposal absent instructions from you. Therefore, without your voting
instructions, a broker non-vote will occur.
VOTING OF PROXIES
Stockholders of record can give a proxy to be voted at the annual meeting
either (i) over the telephone by calling a toll-free number, (ii)
electronically, using the Internet, or (iii) by mailing in the enclosed proxy
card. Stockholders who hold their shares in "street name" must vote their shares
in the manner prescribed by their brokers.
The telephone and Internet voting procedures have been set up for your
convenience and have been designed to authenticate your identity, to allow you
to give voting instructions, and to confirm that those instructions have been
recorded properly. If you are a stockholder of record and you would like to vote
by telephone or by using the Internet, please refer to the specific instructions
set forth on the enclosed proxy card. If you wish to vote using a paper format
and you return your signed proxy to us before the annual meeting, we will vote
your shares as you direct.
If you do not specify on your proxy card (or when giving your proxy by
telephone or over the Internet) how you want to vote your shares, Fedders will
vote them in favor of the recapitalization.
REVOCATION OF PROXIES
You can revoke your proxy at any time before it is exercised at the annual
meeting in any of four ways:
- sending a written notice to Fedders' Corporate Secretary that is received
prior to the annual meeting that states that you are revoking your proxy.
If your broker holds your shares, contact your broker;
- submitting another proxy by telephone or via the Internet;
- signing a new, later dated proxy card and delivering it to Fedders' proxy
solicitor prior to the annual meeting; or
- attending the annual meeting, and voting in person.
Your presence at the annual meeting will not, in and of itself, revoke your
proxy.
MATTERS TO BE ACTED ON AT THE ANNUAL MEETING
Amendment of the certificate of incorporation, adoption of the
recapitalization agreement, approval of the changes to Fedders' certificate of
incorporation that will be made as a result of the recapitalization, election of
directors and ratification of the appointment of our independent auditors are
the only matters to be presented or acted upon at the annual meeting. The
actions proposed in this proxy statement/prospectus are not matters that can be
voted on by brokers holding shares for beneficial owners without the owner's
specific instructions. Accordingly, all beneficial owners of Fedders stock are
urged to return the enclosed proxy card marked to indicate their votes or to
contact their brokers to determine how to vote.
HOW TO VOTE YOUR PROXY
Stockholders should NOT send any stock certificates with their proxy cards.
You should mail your signed and dated proxy card(s) in the enclosed envelope as
soon as possible so that your shares will be represented and voted at the annual
meeting. No postage is required if the proxy is returned in the enclosed
envelope and mailed in the United States.
PROXY SOLICITATION INFORMATION
Fedders is furnishing this document to you in connection with the
solicitation by Fedders' board of directors of the enclosed form of proxy for
the February 26, 2002 annual meeting. All costs of soliciting
21
proxies, including reimbursement of fees of certain brokers, fiduciaries and
nominees in obtaining voting instructions from beneficial owners, will be paid
by Fedders. In addition, Fedders has retained D.F. King & Co., Inc. to assist in
the distribution and solicitation of proxies and will pay D.F. King & Co., Inc.
a fee estimated not to exceed $7,500 plus $4.00 per completed telephone call,
plus reimbursement of reasonable expenses.
22
SPECIAL FACTORS
BACKGROUND OF THE PROPOSED RECAPITALIZATION
Fedders authorized its Class A Stock in February 1992, adding it to the
existing Common Stock and Class B Stock. At the time the three class capital
structure was implemented, the board of directors considered potential
advantages and disadvantages of the structure and determined that the structure
would be in the best interests of Fedders and all of its stockholders for
numerous reasons including the following:
- Financing Flexibility and Employee Benefit Plans. The board of directors
believed that implementing the three class structure would provide
Fedders with increased flexibility in the future to utilize the Class A
Stock to fund employee benefit plans and to raise equity capital or to
issue convertible preferred stock as a means to finance future growth
without diluting the voting power of Fedders' existing stockholders,
including the Giordano family.
- Continuity. Because the three class structure would allow the Giordano
family to maintain their voting power, the board of directors believed
that the three class structure might reduce the risk of a disruption in
the continuity of Fedders' long-term plans and objectives that could
otherwise result from the issuance of Common Stock. The board also
believed that this reduced risk of disruption in Fedders' business might
enhance the ability of Fedders to attract and retain highly qualified key
employees. The board of directors thought that the three class structure
would allow employees to continue to concentrate on their
responsibilities without undue concern that the future of Fedders could
be affected by real or perceived succession issues or an unwanted
takeover that might be triggered by any substantial divestiture by the
Giordano family or their estates of their Class B Stock. Furthermore, by
reducing the risk of succession issues or unwanted takeover, the board of
directors believed that the three class structure would strengthen
existing and potential business relationships, including banking
arrangements, with parties who may in the future become concerned about
changes in control of Fedders.
At various times since adoption of Fedders' capital structure with three
classes of stock, two classes of which were listed, the board of directors has
considered the possibility that, in practice, the disadvantages of Fedders'
capital structure outweighed its potential advantages. The board noted that the
Class A Stock has, since the time of its listing, traded at a discount to the
Common Stock. The board has also noted that Fedders has not been able to use the
Class A Stock in its acquisition program or to raise equity capital to fund
future growth. Given that Fedders has not enjoyed the intended benefits of the
Class A Stock, it has felt the disadvantages of its three-class capital
structure more strongly, especially in light of the prevalence of single class
capital structures among publicly held companies. The disadvantages of the
capital structure that have been noted by the board of directors include, among
others, the following:
- potential confusion due to the complicated nature of Fedders' capital
structure, which may diminish investor interest, analyst coverage, and
the size of Fedders' investor base;
- additional administrative expenses; and
- impaired liquidity, trading volume, and trading efficiencies.
The board of directors determined that its primary objective was to
increase stockholder value by simplifying Fedders' capital structure. In May
2000, the board began informally discussing with TM Capital Corp. the
possibility of combining Fedders' three classes of stock into one class as a
means of increasing the trading price of the Common Stock and enhancing
stockholder value together with a number of possible reclassification or
restructuring transactions by which Fedders could enhance stockholder value,
including the possible repurchase of a significant number of shares of Fedders'
outstanding Class A Stock and/or the possible recapitalization of the Common
Stock and Class A Stock into one class of common shares. In June 2000, the board
of directors engaged TM Capital as its financial advisor to analyze transactions
that involved a recapitalization of Fedders' Common Stock and Class A Stock. The
board of directors reviewed the available
23
transaction alternatives and the relative economic benefits of those
alternatives to Fedders and its stockholders. The transaction alternatives
discussed by the board included the following:
- an increase in Fedders' existing open market share repurchase program,
which was implemented in August 1998;
- a self-tender offer for a significant percentage of the Class A Stock;
- an exchange offer for a significant percentage of the Class A Stock;
- a purchase of or exchange offer for the Class B Stock, which would result
in the exchange of the Class A Stock for Common Stock;
- a recapitalization of the Common Stock and Class A Stock through a merger
of a newly formed, wholly owned subsidiary of Fedders with and into
Fedders, in which voting Common Stock and non-voting Class A Stock would
be exchanged for shares of a new single class of voting Common Stock; and
- a combination of a self-tender or exchange offer and the recapitalization
transaction described in the previous bullet.
After reviewing the possible transaction alternatives, the board decided
that neither a self-tender offer, an exchange offer for Common Stock, Class A
Stock and/or Class B Stock, nor an increase in the existing open market share
repurchase program would meet its objectives in a satisfactory way. The board's
view was based on the fact that:
- none of those transactions, by itself, would eliminate Fedders' dual
class capital structure;
- a transaction with the holders of Class B Stock did not appear likely to
be structured on terms acceptable to such holders, given the then current
trading price of Fedders' stock; and
- a tender offer, exchange offer or increased open market repurchase
program, without a combination of the Common Stock and Class A Stock into
a single class, could adversely affect the liquidity of the Common Stock
and/or Class A Stock by significantly decreasing the number of shares
outstanding. Additionally, it would be difficult to structure an exchange
offer in a way that would not have adverse tax consequences for the
holders of the Class A Stock.
During the summer of 2000, the board concentrated on structures that
involved exchanging the Class B Stock for Common Stock. Under the Company's
certificate of incorporation, when the number of outstanding shares of Class B
Stock falls below 5% of the aggregate number of the issued and outstanding
shares of Common Stock and Class B Stock, each share of Class B Stock is
automatically converted into one share of Common Stock and each share of Class A
Stock is automatically converted into one share of Common Stock. Accordingly,
under the Company's certificate of incorporation, an exchange of the Class B
Stock for Common Stock would reduce the Company's three classes of stock to one.
A conversion of the Class B Stock into Common Stock would, however, deprive the
Class B stockholders of certain special rights, including super majority voting
power in certain circumstances. The voting power of the Class B Stock would be
further diluted by the conversion of the non-voting Class A Stock into voting
Common Stock. The holders of the Class B Stock believed, and the board agreed,
that the Class B stockholders should be compensated for the loss of the Class B
Stock's special rights and the dilution of its voting power, principally through
the issuance of a greater number of shares of Common Stock to the holders of the
Class B Stock than the one for one ratio provided for in the certificate of
incorporation. A proposal was presented to the board for discussion regarding a
ratio of 1.5 shares of Common Stock for each share of Class B Stock. TM Capital
prepared a preliminary analysis of the transaction and the proposed ratio but
was not requested to and did not prepare a fairness opinion. TM Capital's
analysis was reviewed with the board and with the Class B stockholders, and
following this review, the Class B stockholders determined not to proceed with
this proposal.
In February 2001, the board began to reconsider recapitalization
transactions, this time concentrating only on transactions that combined the
Class A Stock and the Common Stock. The board believed that combining Fedders'
two classes of listed stock into one would achieve most of its objectives in
simplifying its
24
capital structure and, by leaving the Class B Stock outstanding, could be
structured in a way acceptable to the Class B stockholders. In February 2001, a
proposed transaction was again discussed with TM Capital, which undertook an
analysis of the proposal as to its fairness to Fedders' stockholders. TM Capital
and the board discussed proposing to the Class B stockholders a recapitalization
transaction in which each share of Class A Stock would be converted into one
share of a new class of voting Common Stock, each share of Common Stock would be
converted into 1.1 shares of the new class of Common Stock and each share of
Class B Stock would be converted into 1.1 shares of a new class of Class B
Stock. The board made this proposal to the Class B stockholders who indicated
that they would support this transaction.
At the regular meeting of the board of directors held on February 27, 2001,
the board, together with Fedders' financial advisors, presented for
consideration the proposed recapitalization and combination of the Common Stock
and Class A Stock pursuant to a merger. At that meeting, TM Capital delivered
its oral opinion to the directors, which was subsequently confirmed in writing,
that the exchange of each share of Common Stock for 1.1 shares of new Common
Stock, each share of Class A Stock for one share of new Common Stock and each
share of Class B Stock for 1.1 shares of new Class B Stock was fair, from a
financial point of view, to holders of the Common Stock and Class A Stock. Based
on the advice of TM Capital, the board of directors determined that it was in
the best interests of the stockholders as a whole to complete the
recapitalization.
At that meeting, the board determined that the proposed recapitalization
was in the best interests of Fedders and its stockholders and formally approved
the recapitalization and related merger by the unanimous vote of the directors
present at the meeting.
The board of directors determined that a recapitalization of the Common
Stock and Class A Stock through a merger would best meet its objectives because
the recapitalization, subject to approval of the proposed deletion of Section VI
of clause A of Article Second of the certificate of incorporation, is a one-step
transaction that would not require Fedders to incur new indebtedness and could
qualify as a tax-free reorganization under the Internal Revenue Code.
Furthermore, it would best serve the objectives of the board to:
- enhance stockholder value; and
- improve liquidity and marketability of the Common Stock by combining
Fedders' two classes of listed stock into one class.
The directors at the February 27, 2001 meeting also approved the ratios
proposed by TM Capital upon which the Common Stock and Class A Stock would be
exchanged for new Common Stock and the Class B Stock exchanged for new Class B
Stock. After this decision, the board of directors unanimously recommended that
the recapitalization be submitted to a vote of the stockholders. Thereafter, a
preliminary version of this document was prepared by the board of directors and
filed with the Securities and Exchange Commission.
BACKGROUND OF THE PROPOSED DELETION OF SECTION VI OF CLAUSE A OF ARTICLE SECOND
OF THE CERTIFICATE OF INCORPORATION
In deciding to pursue a recapitalization of Fedders through a merger, the
board of directors recognized that an amendment would be required to the current
certificate of incorporation as a condition to consummation of the
recapitalization. Under Article Second, clause A, Section VI of the current
certificate of incorporation of Fedders, in the event of a merger or
consolidation of Fedders with or into another entity, the holders of the Class A
Stock are entitled to the same per share consideration in such transaction as is
received by the holders of the Common Stock. However, under the terms of the
proposed recapitalization, the holders of Common Stock will receive 1.1 shares
of new Common Stock while the holders of Class A Stock will only receive one
share of Common Stock. Thus, in order to proceed with the recapitalization as
contemplated, the provision in the current certificate of incorporation must be
deleted or amended. The board decided that the provision should be deleted in
its entirety.
In reviewing the fairness of the proposed deletion of Section VI of clause
A of Article Second of the certificate of incorporation and the
recapitalization, the board of directors looked at all of the consequences of
25
eliminating the right of holders of the Class A Stock to receive the same per
share consideration as holders of Common Stock in a merger or consolidation of
Fedders. Despite losing this right, as a result of the recapitalization, the
exchange of the non-voting Class A Stock for voting new Common Stock will result
in the holders of Class A Stock gaining the right to vote their shares.
Furthermore, the different exchange ratios for the Common Stock and the Class A
Stock compensate the holders of Common Stock, who already enjoy voting rights,
for the dilution in voting power that will be caused as a result of the exchange
of the non-voting Class A Stock for voting new Common Stock. Based on these
considerations, the board of directors concluded that the proposed amendment
deleting Section VI of clause A of Article Second of the certificate of
incorporation was fair to all stockholders of Fedders and recommends that you
vote FOR such amendment.
Under the terms of the certificate of incorporation and the DGCL, the
proposed deletion of Section VI of clause A of Article Second of the certificate
of incorporation requires approval of at least a majority of the voting power of
the shares of Common Stock, Class A Stock and Class B Stock, each voting
separately as a class.
BOARD REVIEW OF THE RECAPITALIZATION
The board of directors reviewed certain steps which it felt were necessary
to facilitate the proposed recapitalization.
The board decided to modify the par value of the new Common Stock and the
new Class B Stock to be issued in the recapitalization and to add an alternating
liquidation preference for the new Common Stock and the new Class B Stock. See
"Description of Fedders Capital Stock Before and After the Recapitalization"
beginning on page 57 for a more complete description of these changes.
The board of directors believed it was necessary to make certain changes to
the new Class B Stock to take into account the impact the recapitalization will
have on the special rights enjoyed by the Class B Stock, including the right of
the Class B Stock to ten votes per share on the election of directors. As of
November 30, 2001, in any vote of stockholders in which the holders of the
Common Stock and the Class B Stock vote together as a single class and the
holders of Class B Stock have ten votes per share, the directors and executive
officers of Fedders control approximately 63.4% of the aggregate voting power.
The board of directors estimates that after the recapitalization, in any such
vote of stockholders, the directors and executive officers will control
approximately 54.2% of the aggregate voting power. To compensate the holders of
new Class B Stock for this decrease, the board decided to modify the dividend
rights of the Class B Stock. Currently, if a cash dividend is paid on the Common
Stock a cash dividend of 90% of the amount paid on each share of Common Stock is
payable on each share of Class B Stock. After the recapitalization, the new
Class B Stock will share equally in the payment of dividends with the new Common
Stock. See "Description of Fedders Capital Stock Before and After the
Recapitalization" beginning on page 57 for a more complete description of the
special voting rights of the Class B Stock and the changes to the dividends
rights of the Class B Stock.
The board of directors considered, more generally, that the
recapitalization would reduce the relative voting power of holders of Common
Stock and Class B Stock as a result of the exchange of currently non-voting
Class A Stock for new Common Stock.
The board also took into account the fact that the recapitalization will
cause the number of outstanding shares of new Class B Stock to decrease as a
percentage of the aggregate number of outstanding shares of new Common Stock and
new Class B Stock. Because of this, the board of directors decided to modify the
automatic conversion rights of the Class B Stock. Currently, the Class B Stock
is automatically converted into Common Stock if the number of outstanding shares
of Class B Stock falls below 5% of the aggregate number of outstanding shares of
Common Stock and Class B Stock. The number of shares of Class B Stock
outstanding as of November 30, 2001, represent approximately 14.3% of the
aggregate number of outstanding shares of Class B Stock and Common Stock. After
the recapitalization, the number of shares of Class B Stock outstanding will
represent approximately 7.7% of the aggregate number of shares of Class B Stock
and Common Stock. To adjust for this percentage reduction, the board of
directors decided that the new Class B Stock will automatically convert into new
Common Stock if the number of outstanding shares of new Class B
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Stock falls below 2.5% of the aggregate number of outstanding shares of new
Common Stock and new Class B Stock.
The board also determined that the restated certificate of incorporation
should specifically provide that any action required or permitted to be taken by
stockholders must be effected at a duly called annual or special meeting of
stockholders, and the ability of the stockholders to consent in writing to the
taking of any action would be specifically denied. The current certificate of
incorporation does not currently provide for, or prohibit such stockholder
action by written consent. Under current Delaware law, unless otherwise provided
in the certificate of incorporation, any action required or permitted to be
taken by Fedders' stockholders may be taken without a meeting, without notice to
all stockholders and without a stockholder vote if a written consent setting
forth the action to be taken is signed by the holders of shares of outstanding
stock having the requisite number of votes that would be necessary to authorize
such action if it were taken at a meeting of stockholders.
Proposals for stockholder action typically involve issues important to all
stockholders relating to Fedders and its future. Consequently, the board of
directors determined that such proposals should be considered at an annual or
special meeting of stockholders, following notice to all stockholders, where the
issues can be discussed by all interested persons. The restated certificate of
incorporation is designed to achieve this result by requiring all actions that
require the approval of stockholders to be considered at a meeting of
stockholders. The notice provisions currently provided in Article I, Section 4
of Fedders' by-laws together with the restated certificate of incorporation
provide the board of directors with the opportunity to inform stockholders of a
proposed action, together with the board's recommendation or position with
respect to a proposed stockholder action, thereby enabling stockholders to
better determine whether they desire to attend the stockholder meeting or grant
a proxy to the board of directors in connection with the disposition of any such
business.
The board of directors unanimously approved the restated certificate of
incorporation because it believes it is in the best interests of all
stockholders to be informed of any action to be taken by the stockholders,
including approval of a merger or sale of assets. Transactions such as mergers
or sales of assets that have not been negotiated or approved by the board could
seriously disrupt the business and management of Fedders and result in terms
which may be less favorable to the stockholders as a whole than would be
available in transactions approved by the board. Board-approved transactions may
be carefully planned and undertaken at an opportune time in order to obtain
maximum value for all of Fedders' stockholders.
Conversely, the restated certificate of incorporation may be
disadvantageous to stockholders because it may limit their ability to amend the
by-laws or remove directors pursuant to a written consent. Any such holder or
group of holders would have to wait until the annual meeting of stockholders to
seek approval for such action. It may also be perceived to be disadvantageous
because it could discourage future attempts to acquire control of Fedders even
though a majority of stockholders may believe it is in their best interests or
that they might receive a substantial premium.
RECOMMENDATIONS OF THE FEDDERS BOARD; REASONS FOR THE RECAPITALIZATION
Fedders' board of directors has determined that the benefits of the
recapitalization outweigh any disadvantages that may result from the
recapitalization, and recommends that you vote FOR the proposed recapitalization
and each of the changes to the certificate of incorporation that will be made as
a result of the recapitalization. The recapitalization as currently contemplated
cannot be completed unless at least a majority of the voting power of the shares
of Common Stock, Class A Stock and Class B Stock, each voting separately as a
class, approve the proposed deletion of Section VI of clause A of Article Second
of the certificate of incorporation. Assuming the proposed deletion is approved,
the recapitalization and each of the changes to the certificate of incorporation
that will be made as a result of the recapitalization will require the approval
of at least a majority of the voting power of the outstanding Common Stock and
Class B Stock, voting together as a single class. Approval of the
recapitalization is not conditioned upon the favorable vote of a majority of
Fedders' unaffiliated stockholders.
The board of directors noted that directors and executive officers
controlling, as of November 30, 2001, approximately 2.9% of the outstanding
voting power of the Common Stock, 29.3% of the outstanding voting power of the
Class A Stock and 99.8% of the outstanding voting power of the Class B Stock
have committed
27
to vote their shares in favor of the proposed deletion of Section VI of clause A
of Article Second of the certificate of incorporation. The board further noted
that directors and executive officers beneficially owning, as of November 30,
2001, approximately 16.7% of the outstanding voting power of the Common Stock
and Class B Stock, voting together as a single class, have committed to vote
their shares in favor of the recapitalization and each of the changes to the
certificate of incorporation that will be made as a result of the
recapitalization.
The board of directors considered that approval of the recapitalization is
not conditioned upon the favorable vote of a majority of the unaffiliated
stockholders of Fedders. Notwithstanding the absence of a requirement that
unaffiliated stockholders separately approve the recapitalization, the board of
directors believes that the procedure that was followed in determining to
approve the recapitalization was fair to all stockholders of Fedders. As
described above, the entire board of directors of Fedders, including the
independent, non-employee directors of Fedders, unanimously approved the
recapitalization. Also, as discussed above, the recapitalization is conditioned
upon the amendment of the certificate of incorporation to delete Article Second,
clause A, Section VI. This proposed deletion requires, among other things, the
approval of at least a majority of the voting power of the shares of Common
Stock voting separately as a class. As of November 30, 2001, the directors and
executive officers of Fedders controlled only 2.9% of the aggregate voting power
of the Common Stock. The agreement that governs the recapitalization contains
provisions which allow the board of directors to terminate the recapitalization
at any time before the merger becomes effective for any reason, including if the
recapitalization would not be in the best interests of the stockholders. Thus,
although the recapitalization is not structured to require approval of a
majority of the unaffiliated stockholders, the board of directors nevertheless
believes that the recapitalization is procedurally and substantively fair to the
unaffiliated stockholders of Fedders. The non-employee directors of Fedders have
not retained an unaffiliated representative to act solely on behalf of
unaffiliated stockholders for purposes of negotiating the terms of the
recapitalization and/or preparing a report concerning the fairness of the
recapitalization. The board of directors did not believe it necessary to, and it
did not, form a special committee in connection with its consideration of the
recapitalization.
In determining whether to approve the recapitalization and related merger,
and in the process of determining that the recapitalization is substantively
fair to all Fedders stockholders, the board of directors considered a number of
factors, and came to believe the recapitalization will:
- eliminate potential investor confusion caused by having two classes of
listed stock with similar characteristics except voting rights;
- simplify Fedders' capital structure, which may generate increased
investor interest, expanded analyst coverage, and a larger investor base;
- eliminate additional administrative expenses caused by Fedders' capital
structure;
- potentially increase the liquidity, trading volume, and trading
efficiencies of the new Common Stock;
- increase efficiency and flexibility in raising capital and issuing
additional shares if, when, and to the extent desired by Fedders; and
- eliminate perceived negative impact on the market price of Fedders' stock
that results from having two classes of listed stock with similar
characteristics except voting rights.
In connection with its deliberations, the board of directors did not
consider, and did not request that TM Capital evaluate, Fedders' net book value
per share, going concern value, or liquidation value. The board did not view
these valuations to be relevant measures, because the recapitalization does not
contemplate either a sale of Fedders or an offer to purchase Fedders stock.
Instead, the recapitalization involves a combination of Class A Stock and Common
Stock into new Common Stock and Class B Stock into new Class B Stock through a
merger with FC Merger Sub, Inc. As discussed above, the board considered the
fairness of the ratios of new Common Stock and new Class B Stock to holders of
Class A Stock, Common Stock and Class B Stock. However, the Fedders board did
not believe that evaluating Fedders' net book value per share, going
28
concern value or liquidation value would provide Fedders stockholders with
material information regarding the recapitalization.
After considering the foregoing, the board of directors determined that the
terms of the recapitalization are both procedurally and substantively fair to
the stockholders of Fedders, including the holders of Class A Stock. In reaching
its determination as to fairness, the board did not assign specific weights to
particular factors, but rather considered all factors as a whole. This
discussion of information and factors considered by the board of directors is
not intended to be exhaustive, but includes all material factors considered by
the board in approving the proposed recapitalization. The board of directors
also relied on the experience and expertise of its financial advisor for
quantitative analysis of the exchange ratio for the recapitalization. See
"Fairness Opinion of TM Capital Corp." below.
The board of directors approved the recapitalization in principle on
February 27, 2001. TM Capital acted as financial advisor to Fedders in
connection with the recapitalization and assisted it in developing the terms of
the recapitalization. Fedders has agreed to pay TM Capital a fee for its
services and to indemnify it against certain liabilities, including those under
the federal securities laws. At a meeting held on February 27, 2001, the board
of directors unanimously approved the detailed terms of the recapitalization. At
the February 27, 2001 meeting, the board of directors received an oral opinion
which was later confirmed in writing on March 1, 2001, from TM Capital that, as
of that date and subject to the assumptions and limitations set forth in such
opinion, the consideration to be received by the holders of Common Stock and
Class A Stock in the recapitalization was fair, from a financial point of view,
to such holders. See "Fairness Opinion of TM Capital Corp."
REVIEW OF THE RECAPITALIZATION BY FILING PARTIES
Each of FC Merger Sub, Inc., Salvatore Giordano, Sal Giordano, Jr. and
Joseph Giordano is (together with Fedders) a filing party for the
recapitalization. Each such filing party has reviewed the terms and conditions
of the recapitalization, including the factors reviewed by Fedders' board of
directors and the fairness opinion of TM Capital Corp. and has determined that
the recapitalization is both procedurally and substantively fair to the
unaffiliated stockholders of Fedders. See "Fairness Opinion of TM Capital Corp."
below.
FAIRNESS OPINION OF TM CAPITAL CORP.
TM Capital has acted as financial advisor to Fedders and its board of
directors in connection with their examination of the fairness, from a financial
point of view, to the holders of all outstanding shares of Fedders Class A Stock
and Common Stock of the exchange of each share of Class A Stock for one share of
new Fedders Common Stock and each share of Common Stock for 1.1 shares of new
Fedders Common Stock. As part of the proposed recapitalization transaction,
holders of outstanding Class B Stock will receive 1.1 shares of new Class B
Stock. In providing its opinion, TM Capital necessarily included the Class B
Stock in certain analyses, but its opinion is intended solely for holders of
Class A and Common Stock.
TM Capital was retained by the board of directors:
(1) to advise Fedders and its board of directors on the
recapitalization of the Class A and Common Stock into a new class of
Fedders Common Stock; and
(2) to render a written opinion as to the fairness, from a financial
point of view, to the holders of outstanding Fedders Class A and Common
Stock, of the ratio at which each share of Class A and Common Stock is
exchanged for a new class of Fedders Common Stock.
Fedders hired TM Capital based on its qualifications and expertise in
providing financial advice to companies and its reputation as a nationally
recognized investment banking firm. TM Capital was paid a fee of $175,000 for
the issuance of its opinion upon delivery of the written opinion to the board of
directors. Payment of the fee was not conditional on the conclusion reached by
TM Capital in its opinion. Fedders has also agreed to indemnify TM Capital
against potential liabilities arising out of its engagement.
29
At the request of Fedders' board of directors, TM Capital delivered to the
board of directors an analysis of the proposed recapitalization and its oral
fairness opinion on February 27, 2001. The fairness opinion was subsequently
confirmed in writing on March 1, 2001. The opinion stated that, based upon and
subject to the matters set forth in the opinion, the exchange of each share of
Class A Stock for one share of new Common Stock and each share of Common Stock
into 1.1 shares of new Common Stock was fair, from a financial point of view, to
the holders of all outstanding Fedders Class A and Common Stock. The full text
of the opinion is attached as Annex B to this document and describes the
assumptions made, matters considered, and limits on the scope of the review
undertaken by TM Capital. You are urged to read the opinion carefully and in its
entirety.
TM Capital's opinion addresses only the fairness, from a financial point of
view, to the holders of all outstanding Fedders Class A and Common Stock of the
exchange of each share of Class A Stock for one share of new Fedders Common
Stock and each share of Common Stock for 1.1 shares of new Fedders Common Stock.
The opinion does not address the merits of the underlying decision by Fedders to
approve the proposed recapitalization and does not constitute a recommendation
to any stockholder as to how he or she should vote with respect to the proposed
recapitalization.
In determining the appropriate analyses to conduct, and when performing
those analyses, TM Capital made numerous assumptions with respect to industry
performance, general business, financial, market and economic conditions and
other matters, many of which are beyond the control of Fedders. The analyses
which TM Capital performed are not necessarily indicative of actual values or
actual future results, which may be significantly more or less favorable than
suggested by the analyses. The analyses were prepared solely as part of TM
Capital's analysis of the fairness, from a financial point of view, of the
recapitalization to the holders of the Class A and Common Stock.
TM Capital did not express any opinion as to the price at which the Class A
Stock, Common Stock, or the new Fedders Common Stock to be issued in the
recapitalization will trade at any future time. Those trading prices may be
affected by a number of factors, including:
(1) dispositions of shares of the new Fedders Common Stock within a
short period of time after the completion of the recapitalization;
(2) changes in prevailing interest rates and other factors which
generally influence the price of securities;
(3) adverse changes in the capital markets;
(4) the occurrence of adverse changes in the financial condition,
business, assets, results of operations, or prospects of Fedders or the
markets in which it participates;
(5) any necessary actions by or restrictions of federal, state, or
other governmental agencies or regulatory authorities; and
(6) completion of the recapitalization on the terms and conditions
described in this document and the Annexes attached hereto.
In connection with its review of the proposed recapitalization and in the
preparation of its opinion, TM Capital reviewed and analyzed:
(1) Fedders' Forms 10-K and related financial information for the
years ended August 31, 1996 to 2000 and Form 10-Q and the related unaudited
financial information for the three months ended November 30, 2000;
(2) Fedders' Schedule 14A filed in connection with its Annual Meeting
held December 19, 2000 and subsequent Forms 4 and Forms 13-F;
(3) The historical market prices and trading activity for the Class A
Stock and the Common Stock for the period from January 2, 1998 to February
22, 2001;
30
(4) The historical market prices and trading activity for the Class A
Stock and the Common Stock compared to that of certain publicly traded
companies which TM Capital deemed to be relevant;
(5) The financial position and results of operations of Fedders
compared to that of certain companies which TM Capital deemed to be
relevant;
(6) The terms of transactions in which public companies with two
classes of common stock were combined into a single class of stock;
(7) The terms of transactions in which public companies with two
classes of common stock were acquired;
(8) Premiums paid in relevant transactions in which the purchaser
acquired a substantial share of the target company; and
(9) Other financial analyses and investigations as it deemed
necessary or appropriate in arriving at its opinion.
TM Capital performed the financial analyses described below, and reviewed
with Fedders' management and board of directors the assumptions upon which its
analyses were based, as well as other factors. The summary set forth below is
not a complete description of the analyses performed or factors considered by TM
Capital.
Summary of Analyses. In connection with its opinion, TM Capital reviewed
and analyzed:
(1) Similar historical recapitalization transactions;
(2) Dual class, publicly-traded companies;
(3) Historical acquisitions of dual class public companies;
(4) The historical trading activity of Fedders' Class A and Common
Stock;
(5) Premiums paid for significant ownership purchases; and
(6) The terms, control and voting rights of the Class A, Common and
Class B Stock before and after the proposed recapitalization.
Analysis of Historical Recapitalization Transactions. TM Capital
identified and analyzed 16 recapitalization transactions occurring among
publicly-traded companies in 1998 to 2001. In each recapitalization transaction,
two publicly-traded classes of stock of a single company with different voting
rights were recapitalized as, and combined into, a single class of common stock.
For each of the companies identified for the analysis, TM Capital examined the
number of new shares received in the recapitalization for each share of the
stock that had more votes per share (the "Control Voting Stock") and the number
of new shares received in the recapitalization for each share of the stock that
had fewer (or no) votes per share (the "Non-Control Stock").
Of the 16 transactions examined, 11 were transactions that used a
one-for-one exchange ratio for each share exchanged. The remaining five
transactions provided greater consideration for the Control Voting Stock than
for the Non-Control Stock. In three transactions this was accomplished through
an exchange ratio for the Control Voting Stock greater than 1.0. In one case
this was accomplished through an exchange ratio for the Non-Control Stock of
less than 1.0, and in another case this was accomplished through the payment of
additional cash consideration to the holder of the Control Stock. For
comparability, TM Capital calculated on a pro forma basis the equivalent
exchange ratio for each of these transactions if they had achieved the same
economic result through the exchange ratio for the Control Voting Stock.
Based upon this methodology, the exchange ratio for the Control Voting
Stock in the five transactions ranged from 1.01 to 1.32, with an average of
1.14, as compared to the ratio of 1.10 in the proposed Fedders recapitalization.
The dilution of the ownership interest of the Non-Control Stock in these
transactions ranged from 1.63% to 5.67%, with an average of 3.01%, as compared
to the dilution of 5.04% in the proposed Fedders recapitalization. TM Capital
then calculated on a pro forma basis the exchange ratio for each transaction if
the
31
dilution percentage from each transaction were applied to the 46.88% ownership
proportion represented by Fedders' Non-Control Stock. These adjusted exchange
ratios ranged from 1.03 to 1.11, with an average of 1.06, as compared to the
ratio of 1.10 in the proposed Fedders recapitalization.
TM Capital also calculated the ratio of the share prices of the Control
Voting Stock to the Non-Control Stock as of the day prior to the announcement of
each of these five transactions. These ratios ranged from 0.93 to 1.21, with an
average of 1.02, as compared to a ratio of 1.13 for Fedders. TM Capital then
compared the exchange ratio in each transaction to the prior trading ratio of
the Control Voting Stock to the Non-Control Stock. The difference in these
ratios ranged from 0.32 higher than the trading ratio to 0.20 lower than the
trading ratio. On average the exchange ratio in these five transactions was 0.12
higher than the trading ratio. In the proposed Fedders recapitalization, the
exchange ratio was calculated to be 0.03 lower than the trading ratio of the
Control Voting Stock to the Non-Control Stock prior to the transaction.
Analysis of Dual Class Publicly Traded Companies. TM Capital identified
and analyzed a group of 52 publicly traded U.S. companies with a minimum market
capitalization of $50 million that had two classes of publicly traded common
stock with different voting rights. TM Capital analyzed the discount or premium
at which the lesser voting shares trade relative to greater voting shares. As of
the date of this analysis, the trading spread between the dual class shares of
those companies averaged a discount of 4.11%, while the trading spread between
Fedders Common Stock and Fedders Class A Stock was a discount of 11.76%.
Analysis of Historical Acquisitions of Dual Class Public Companies. TM
Capital identified and analyzed 24 acquisitions occurring in 1998 to 2001 of
companies with two classes of common stock with different voting rights. Out of
those 24 transactions, 21 used a one-for-one exchange ratio and three had
exchange ratios in which an additional premium was paid to the control
shareholders. For each of these three transactions the consideration paid to the
holders of each class of stock was examined to determine the percentage by which
the price per share paid to holders of the higher voting shares exceeded the
price per share paid to holders of lower voting shares. In the three
transactions, the additional premium paid to the control shareholders ranged
from 9.1% to 30.0% and averaged 16.4%. TM Capital considered it useful to review
such acquisition premiums as an indication of the premium which control
shareholders may forego if an acquisition were to follow the recapitalization;
however, as the proposed recapitalization is not an acquisition, TM Capital did
not consider it meaningful to directly compare such premium to the premium paid
in the recapitalization.
Analysis of the Historical Trading Activity of Fedders' Class A and Common
Shares. TM Capital reviewed and analyzed the historical trading activity of
Fedders' Class A and Common Stock. This analysis included an examination of the
average trading discount at which the Class A Stock traded as compared to the
Common Stock. Based on daily closing prices from January 2, 1998 to February 22,
2001, the discount between the Class A and Common Stock averaged 6.9%. The
discount for the period from January 2, 2001 to February 22, 2001 averaged
13.2%. For similar periods, the average daily trading volumes of the shares of
Class A Stock as a percentage of the average daily trading volumes of the shares
of Class A Stock and Common Stock combined were 39.8% and 22.3% respectively.
Analysis of Premiums Paid for Significant Ownership Purchases. TM Capital
reviewed 98 transactions from 1998 to February 2001, and analyzed the premiums
paid in those transactions for significant positions of equity ranging from 10%
to 50%. The corresponding premiums ranged from less than -51% to as much as 386%
with an average premium of 40.9%. TM Capital considered it useful to review such
share purchase premiums as an indication of the premium which control
shareholders may forego if a share purchase were to follow the recapitalization;
however, as the proposed recapitalization is not a share purchase, TM Capital
did not consider it meaningful to directly compare such premium to the premium
paid in the recapitalization.
Terms, Control and Voting Rights of Class A, Common and Class B Shares
Before and After the Proposed Recapitalization. TM Capital analyzed the control
and voting rights of each of the classes of stock as they were on December 31,
2000 and as they would be if the proposed recapitalization had occurred at such
time. Under the capitalization as of December 31, 2000, Class A, Common and
Class B shareholders have 46.88%, 46.02% and 7.09% of the economic ownership and
0.00%, 86.65% and 13.35% of the votes, respectively. Additionally, under the
capitalization as of December 31, 2000, in the event of a 15% share
32
purchase or a proxy contest the Class B shareholders have 60.65% of the votes,
the Common shareholders have 39.35% of the votes, while the Class A shareholders
have no votes. Under the proposed recapitalization, the former Class A, former
Common and Class B shareholders would have 44.52%, 48.07% and 7.41% of the
economic ownership and 44.52%, 48.07% and 7.41% of the votes, respectively.
Additionally, under the proposed recapitalization, in the event of a 15% share
purchase or a proxy contest the Class B shareholders would have 44.45% of the
votes, the former Common shareholders would have 28.84% of the votes, and the
former Class A shareholders would have 26.71%.
Conclusion. The foregoing description is only a summary of the material
aspects of the financial analyses used by TM Capital in connection with
rendering its opinion. The preparation of a fairness opinion is a complex
process and is not necessarily susceptible to partial analysis or summary
description. Selecting portions of the analyses or of the summary set forth
above, without considering the analyses as a whole, could create an incomplete
view of the processes underlying TM Capital's opinion.
In arriving at its opinion, TM Capital considered the results of all these
analyses. The analyses were prepared solely for the purposes of TM Capital
providing its opinion as to the fairness, from a financial point of view, to the
holders of all outstanding Fedders Class A and Common Stock of the exchange of
each share of Class A Stock for one share of new Common Stock and each share of
Common Stock for 1.1 shares of new Common Stock, and do not purport to be
appraisals or necessarily reflect the prices at which securities actually may be
sold. Any analysis of the fairness, from a financial point of view, to the
stockholders of Fedders, involves complex considerations and judgments. TM
Capital's opinion and the related presentation to Fedders' board on February 27,
2001 was one of many factors taken into consideration by Fedders' board of
directors in approving the recapitalization.
TM Capital's opinion was for the use and benefit of Fedders' board of
directors in its consideration of the proposed recapitalization. TM Capital was
not requested to opine as to, and its opinion does not in any manner address,
Fedders' underlying business decision to proceed with or effect the
recapitalization, or the relative merits of the recapitalization as compared to
any alternative business strategies which might exist for Fedders or the effect
of any other transaction in which Fedders might engage.
TM Capital advised Fedders in its August 1999 acquisition of Trion, Inc.,
for which TM Capital received a fee of $525,000, and TM Capital advised Fedders
in its March 2001 acquisition of Polenz GmbH, for which TM Capital received a
fee of $270,000.
EFFECT OF THE RECAPITALIZATION
Business and Operations; Officers and Directors. Fedders expects that the
recapitalization will have no impact on its operations. Following the
recapitalization, Fedders will continue its current businesses under the Fedders
Corporation name. The Fedders board of directors and executive officers at the
effective time of the recapitalization, will remain in office following the
recapitalization. Pro forma consolidated financial statements are included
elsewhere in this document to reflect the material changes in the consolidated
financial statements following completion of the recapitalization.
Number of Outstanding Shares. After the recapitalization, Fedders will
have only two classes of stock, both of which will be voting. The
recapitalization will increase the total number of shares of Common Stock and
Class B Stock. As of November 30, 2001, approximately 13,634,759 shares of
Common Stock, 14,890,386 shares of Class A Stock and 2,266,406 shares of Class B
Stock, or a total of approximately 30,791,551 shares, were outstanding.
Following the recapitalization, approximately 29,888,620 shares of new Fedders
Common Stock and approximately 2,493,047 shares of new Fedders Class B Stock
will be outstanding. Following the recapitalization, Fedders Class A Stock will
no longer be listed on the New York Stock Exchange and will be eligible for
termination of registration under the Securities Exchange Act of 1934. The new
Fedders Common Stock will be listed on the New York Stock Exchange and
registered under the Securities Exchange Act of 1934.
Effect on Share Prices. No assurances can be given as to the market price
of new Common Stock after the recapitalization. It is expected that the market
price of new Common Stock after the recapitalization will
33
reflect both a greater number of shares of new Common Stock outstanding and the
cancellation of the Class A Stock. The post-recapitalization price of new Common
Stock may be lower than the pre-recapitalization price of Common Stock.
Changes to be Made to the Certificate of Incorporation as a Result of the
Recapitalization. The changes that will be made to Fedders' certificate of
incorporation if the recapitalization is approved are as follows:
- the Class A Stock will be eliminated;
- the par value of the new Common Stock and the new Class B Stock will be
$0.01, currently the par value of the Common Stock and the Class B Stock
is $1.00;
- the new Common Stock and the new Class B Stock will have alternating
preferences with respect to payments or distributions in the event of any
dissolution, liquidation or winding up of Fedders, currently there is no
such liquidation preference;
- each share of new Class B Stock will share equally with each share of new
Common Stock in the payment of dividends, currently each share of Class B
Stock receives 90% of the dividends paid to each share of Common Stock;
- the new Class B Stock will automatically be converted into shares of new
Common Stock if the number of outstanding shares of new Class B Stock
falls below 2.5% of the aggregate number of issued and outstanding shares
of new Common Stock and new Class B Stock, currently the Class B Stock
will automatically be converted into shares of Common Stock if the number
of outstanding shares of Class B Stock falls below 5% of the aggregate
number of issued and outstanding shares of Common Stock and Class B
Stock; and
- the restated certificate of incorporation will provide that any action
required or permitted to be taken by the stockholders must be effected at
a duly called annual or special meeting of stockholders and the ability
of the stockholders to consent in writing to the taking of any action
will be specifically denied, currently Fedders' certificate of
incorporation does not contain any such provision.
STOCKHOLDER VOTE
Under the terms of the certificate of incorporation and the DGCL, the
proposed amendment to the certificate of incorporation to delete Section VI of
clause A of Article Second requires approval of at least a majority of the
voting power of the shares of Common Stock, Class A Stock and Class B Stock,
each voting separately as a class.
Assuming the proposed deletion of Section VI of clause A of Article Second
of the certificate of incorporation is approved, the recapitalization and each
of the changes to Fedders' certificate of incorporation that will be made as a
result of the recapitalization will require the approval of at least a majority
of the voting power of the shares of Common Stock and Class B Stock, voting
together as a single class. Although the holders of Common Stock and Class B
Stock will have a separate vote on the recapitalization and each of the changes
that will be made to Fedders' certificate of incorporation as a result of the
recapitalization, approval of each of the items is conditional upon approval of
all of the items. Thus, a vote against the recapitalization or any of the
changes that will be made to the certificate of incorporation as a result of the
recapitalization will be deemed a vote against all such proposals.
As of November 30, 2001, in any vote of stockholders in which the holders
of the Common Stock, Class A Stock and Class B Stock vote as separate classes
and the holders of Class B Stock have one vote per share, the directors and
executive officers of Fedders controlled approximately 2.9% of the aggregate
voting power of the Common Stock, 29.3% of the aggregate voting power of the
Class A Stock and 99.8% of the aggregate voting power of the Class B Stock. As
of November 30, 2001, in any vote of stockholders in which the holders of the
Common Stock and the Class B Stock vote together as a single class and the
holders of Class B Stock have one vote per share, the directors and executive
officers of Fedders controlled approximately 16.7% of the aggregate voting
power.
34
Under the terms of the certificate of incorporation and the DGCL, certain
important transactions, including mergers (except where the other party to the
merger is a majority-owned subsidiary of Fedders), require a separate vote of
shares of the Class B Stock, voting separately as a class. However, the
recapitalization does not require a separate vote of the Class B Stock because
the merger is being completed with a wholly-owned subsidiary of Fedders, FC
Merger Sub, Inc. Fedders' certificate of incorporation provides that the holders
of Class A Stock are not entitled to vote at any meeting of the stockholders or
otherwise, except as may be specifically required by applicable law. The DGCL
requires the vote of the holders of the Class A Stock, voting as a separate
class, for the proposed deletion of Section VI of clause A of Article Second of
the certificate of incorporation but does not require the vote of the holders of
Class A Stock for the recapitalization and each of the changes to the
certificate of incorporation that will be made as a result of the
recapitalization. In addition, approval of the recapitalization is not
conditioned upon the favorable vote of a majority of Fedders' unaffiliated
stockholders.
INTERESTS OF CERTAIN PERSONS IN THE RECAPITALIZATION
You should be aware of the interests that directors and executive officers
who are also stockholders of Fedders, including Salvatore Giordano, the Chairman
Emeritus and a director, Sal Giordano, Jr., the Chairman and Chief Executive
Officer, and Joseph Giordano, a director of Fedders, have in the
recapitalization. These interests may be different than the interests of other
stockholders.
EFFECT ON VOTING POWER.
As of November 30, 2001, the directors and executive officers of Fedders
together controlled 393,836 shares of the Common Stock, or approximately 2.9% of
the Common Stock, 4,368,235 shares of Class A Stock, or approximately 29.3% of
the Class A Stock and 2,262,566 shares of the Class B Stock, or approximately
99.8% of the Class B Stock.
As of November 30, 2001, in any vote of stockholders in which the holders
of the Common Stock and the Class B Stock vote together as a single class and
the holders of Class B Stock have one vote per share, the directors and
executive officers of Fedders controlled approximately 16.7% of the aggregate
voting power. The board of directors estimates that after the recapitalization,
in any such vote of stockholders, the directors and executive officers will
control approximately 22.5% of the aggregate voting power.
As of November 30, 2001, in any vote of stockholders in which the holders
of the Common Stock and the Class B Stock vote together as a single class and
the holders of Class B Stock have ten votes per share, the directors and
executive officers of Fedders controlled approximately 63.4% of the aggregate
voting power. The board of directors estimates that after the recapitalization,
in any such vote of stockholders, the directors and executive officers will
control approximately 54.2% of the aggregate voting power.
EFFECT ON BENEFICIAL INTEREST.
As of November 30, 2001, the directors and executive officers beneficially
owned approximately 2.9% of the Common Stock, 29.3% of the Class A Stock and
99.8% of the Class B Stock. After the recapitalization, the directors and
executive officers will beneficially own approximately 16.1% of the new Common
Stock and 99.8% of the new Class B Stock. As of November 30, 2001, each director
and executive officer owned beneficially the number of shares of Common Stock,
Class A Stock and Class B Stock set forth in the following table. Shares subject
to acquisition are included and noted appropriately. Unless otherwise indicated,
the owners listed have sole voting and investment power.
EFFECT ON FILING PARTIES' INTEREST IN NET BOOK VALUE AND NET EARNINGS OF
FEDDERS.
As of November 30, 2001, Salvatore Giordano beneficially owned, in the
aggregate, 3,496,897 shares of Common Stock, Class A Stock and Class B Stock,
including shares held by corporations with respect to which he shares voting and
investment power, or 11.4% of the total outstanding stock of Fedders. As of
November 30, 2001, 11.4% of the total outstanding capital stock of Fedders
represented an interest in (i) approximately $8,324,000 of Fedders' net book
value at August 31, 2001 and (ii) approximately
35
$2,559,642 of Fedders' net loss for the fiscal year ended August 31, 2001. After
the recapitalization, Salvatore Giordano will beneficially own, in the
aggregate, 3,723,263 shares of Common Stock and Class B Stock, or 11.5% of the
capital stock of Fedders to be outstanding following the recapitalization.
Assuming the recapitalization had been consummated on August 31, 2001, 11.5% of
the total outstanding capital stock of Fedders would have represented an
interest in (i) approximately $8,397,000 of Fedders' net book value at August
31, 2001 and (ii) approximately $2,582,095 of Fedders' net loss for the fiscal
year ended August 31, 2001.
As of November 30, 2001, Sal Giordano, Jr. beneficially owned, in the
aggregate, 4,250,498 shares of Common Stock, Class A Stock and Class B Stock,
including shares held by corporations with respect to which he shares voting and
investment power, or 13.8% of the total outstanding stock of Fedders. As of
November 30, 2001, 13.8% of the total outstanding capital stock of Fedders
represented an interest in (i) approximately $10,076,000 of Fedders' net book
value at August 31, 2001 and (ii) approximately $3,098,514 of Fedders' net loss
for the fiscal year ended August 31, 2001. After the recapitalization, Sal
Giordano, Jr. will beneficially own, in the aggregate, 4,476,864 shares of
Common Stock and Class B Stock, or 13.8% of the capital stock of Fedders to be
outstanding following the recapitalization. Assuming the recapitalization had
been consummated on August 31, 2001, 13.8% of the total outstanding capital
stock of Fedders would have represented an interest in (i) approximately
$10,076,000 of Fedders' net book value at August 31, 2001 and (ii) approximately
$3,098,514 of Fedders' net loss for the fiscal year ended August 31, 2001.
As of November 30, 2001, Joseph Giordano beneficially owned, in the
aggregate, 3,611,759 shares of Common Stock, Class A Stock and Class B Stock,
including shares held by corporations with respect to which he shares voting and
investment power, or 11.7% of the total outstanding stock of Fedders. As of
November 30, 2001, 11.7% of the total outstanding capital stock of Fedders
represented an interest in (i) approximately $8,543,000 of Fedders' net book
value at August 31, 2001 and (ii) approximately $2,627,001 of Fedders' net loss
for the fiscal year ended August 31, 2001. After the recapitalization, Joseph
Giordano will beneficially own, in the aggregate, 3,839,406 shares of Common
Stock and Class B Stock, or 11.9% of the capital stock of Fedders to be
outstanding following the recapitalization. Assuming the recapitalization had
been consummated on August 31, 2001, 11.9% of the total outstanding capital
stock of Fedders would have represented an interest in (i) approximately
$8,689,000 of Fedders' net book value at August 31, 2001 and (ii) approximately
$2,671,907 of Fedders' net loss for the fiscal year ended August 31, 2001.
As of November 30, 2001, FC Merger Sub, Inc. beneficially owned no Common
Stock, Class A Stock or Class B Stock of Fedders and the recapitalization will
have no impact on its interest in the net book value and net earnings of
Fedders.
36
PRIOR TO THE RECAPITALIZATION(1)
<Table>
<Caption>
COMMON STOCK CLASS A STOCK CLASS B STOCK
----------------------------- ------------------------------------ -------------------------
NAME OF BENEFICIALLY PERCENT BENEFICIALLY BENEFICIALLY PERCENT
BENEFICIAL OWNER OWNED OF CLASS OWNED PERCENT OF CLASS OWNED OF CLASS
- ---------------- ------------ ------------ ------------ ---------------- ------------ --------
DIRECTORS
Salvatore Giordano............... 1,100(2) Less than 1% 1,233,231(4)(5) 8.3% 2,262,566(9) 99.8%
Sal Giordano, Jr................. 1,100(2) Less than 1% 1,986,832(4)(6) 13.3% 2,262,566(9) 99.8%
William J. Brennan............... 5,000 Less than 1% 81,207 Less than 1% -- 0.0%
David C. Chang................... -- 0.0% 15,230 Less than 1% -- 0.0%
Michael L. Ducker................ -- 0.0% 5,322 Less than 1% -- 0.0%
Joseph Giordano.................. 13,910(2) Less than 1% 1,335,283(4)(7) 9.0% 2,262,566(9) 99.8%
C.A. Keen........................ -- 0.0% 89,973 Less than 1% -- 0.0%
Howard S. Modlin................. 256,800(3) 1.9% 407,062(8) 2.7% -- 0.0%
S.A. Muscarnera.................. 55,000 Less than 1% 154,736 Less than 1% -- 0.0%
Anthony E. Puleo................. 22,000 Less than 1% 42,707 Less than 1% -- 0.0%
OFFICERS
Jordan Bruno..................... -- 0.0% 5,000 Less than 1% -- 0.0%
Nancy DiGiovanni................. -- 0.0% 3,005 Less than 1% -- 0.0%
Robert N. Edwards................ -- 0.0% -- 0.0% -- 0.0%
Daryl G. Erbs.................... -- 0.0% 30,769 Less than 1% -- 0.0%
Michael B. Etter................. -- 0.0% 25,000 Less than 1% -- 0.0%
Mark Eubank...................... -- 0.0% -- Less than 1% -- 0.0%
Michael Giordano................. 16,000 Less than 1% 70,088 Less than 1% -- 0.0%
Sal Giordano III................. 100 Less than 1% 3,719 Less than 1% -- 0.0%
Kent E. Hansen................... -- 0.0% 3,500 Less than 1% -- 0.0%
Judy Katz........................ 26 Less than 1% 3,474(10) Less than 1% -- 0.0%
Robert L. Laurent, Jr............ 20,000 Less than 1% 322,419 2.2% -- 0.0%
Joseph B. Noselli................ -- 0.0% -- 0.0% -- 0.0%
Marlene M. Volpe................. 5,000 Less than 1% 36,296 Less than 1% -- 0.0%
Total Officers and Directors..... 393,836 2.9% 4,368,235 29.3% 2,262,566 99.8%
<Caption>
TOTAL OF ALL CLASSES
-------------------------------
NAME OF BENEFICIALLY PERCENT OF TOTAL
BENEFICIAL OWNER OWNED OUTSTANDING
- ---------------- ------------ ----------------
DIRECTORS
Salvatore Giordano............... 3,496,897 11.4%
Sal Giordano, Jr................. 4,250,498 13.8%
William J. Brennan............... 86,207 Less than 1%
David C. Chang................... 15,230 Less than 1%
Michael L. Ducker................ 5,322 Less than 1%
Joseph Giordano.................. 3,611,759 11.7%
C.A. Keen........................ 89,973 Less than 1%
Howard S. Modlin................. 663,862 2.2%
S.A. Muscarnera.................. 209,736 Less than 1%
Anthony E. Puleo................. 64,707 Less than 1%
OFFICERS
Jordan Bruno..................... 5,000 Less than 1%
Nancy DiGiovanni................. 3,005 Less than 1%
Robert N. Edwards................ -- Less than 1%
Daryl G. Erbs.................... 30,769 Less than 1%
Michael B. Etter................. 25,000 Less than 1%
Mark Eubank...................... -- Less than 1%
Michael Giordano................. 86,088 Less than 1%
Sal Giordano III................. 3,819 Less than 1%
Kent E. Hansen................... 3,500 Less than 1%
Judy Katz........................ 3,500 Less than 1%
Robert L. Laurent, Jr............ 342,419 1.1%
Joseph B. Noselli................ -- 0.0%
Marlene M. Volpe................. 41,296 Less than 1%
Total Officers and Directors..... 7,024,637 22.8%
</Table>
- ---------------
(1) All amounts shown include shares which the named individuals have the right
to acquire beneficial ownership of within 60 days as a result of the
transactions described in Rule 13d-3(d) of the Securities Exchange Act of
1934, as amended.
(2) The amount shown includes 1,100 shares which are held by a corporation in
which Messrs. Salvatore Giordano, Sal Giordano, Jr. and Joseph Giordano are
officers, directors and stockholders and share voting and investment power
over such shares.
(3) Shares owned by members of Mr. Modlin's family, as to which Mr. Modlin
disclaims beneficial ownership.
(4) Includes 743,309 shares which are held by corporations in which Messrs.
Salvatore Giordano, Sal Giordano, Jr. and Joseph Giordano are officers,
directors and stockholders, and share voting and investment power over such
shares.
(5) Includes 204,292 shares held of record by Mr. Giordano's wife, and 78,861
shares held of record by Mr. Giordano's wife in trust for their
grandchildren, as to which Mr. Giordano disclaims beneficial ownership.
(6) Includes 18,119 shares held of record by Mr. Giordano's wife, 264,659
shares held of record by Mr. Giordano's wife in trust for their
grandchildren, as to which Mr. Giordano disclaims beneficial ownership, and
71,630 shares held by Mr. Giordano in trust as trustee for himself.
(7) Includes 71,630 shares held by Mr. Giordano in trust as trustee for himself
and 192,769 shares held by Mr. Giordano in trust for his grandchildren.
(8) Includes 392,062 shares owned by members of Mr. Modlin's family, as to
which Mr. Modlin disclaims beneficial ownership.
37
(9) Shares are owned by Giordano Holding Corporation, as to which Messrs.
Salvatore Giordano, Sal Giordano, Jr. and Joseph Giordano share voting and
investment power.
(10) Includes 474 shares held by Ms. Katz's husband in trust for their minor
daughter, as to which Ms. Katz disclaims beneficial ownership.
If the recapitalization had occurred on November 30, 2001, each director
and executive officer would beneficially own the number of shares of new Common
Stock and new Class B Stock set forth on the following table.
AFTER THE RECAPITALIZATION(1)
<Table>
<Caption>
COMMON STOCK CLASS B STOCK TOTAL OF ALL CLASSES
----------------------------------- --------------------------- -------------------------------
BENEFICIALLY PERCENT OF BENEFICIALLY PERCENT OF BENEFICIALLY PERCENT OF TOTAL
NAME OF BENEFICIAL OWNER OWNED CLASS OWNED CLASS OWNED OUTSTANDING
- ------------------------ ------------ ------------ ------------ ---------- ------------ ----------------
DIRECTORS
Salvatore Giordano.......... 1,234,441(2)(4)(5) 4.1% 2,488,822(8) 99.8% 3,723,263 11.5%
Sal Giordano, Jr............ 1,988,042(2)(4)(6) 6.7% 2,488,822(8) 99.8% 4,476,864 13.8%
William J. Brennan.......... 86,707 Less than 1% -- 0.0% 86,707 Less than 1%
David C. Chang.............. 15,230 Less than 1% -- 0.0% 15,230 Less than 1%
Michael L. Ducker........... 5,322 Less than 1% -- 0.0% 5,322 0.0%
Joseph Giordano............. 1,350,584(2)(4)(7) 4.5% 2,488,822(8) 99.8% 3,839,406 11.9%
C.A. Keen................... 89,973 Less than 1% -- 0.0% 89,973 Less than 1%
Howard S. Modlin............ 689,542(3) 2.3% -- 0.0% 689,542 2.1%
S.A. Muscarnera............. 215,236 Less than 1% -- 0.0% 215,236 Less than 1%
Anthony E. Puleo............ 66,907 Less than 1% -- 0.0% 66,907 Less than 1%
OFFICERS
Jordan Bruno................ 5,000 Less than 1% -- 0.0% 5,000 Less than 1%
Nancy DiGiovanni............ 3,005 Less than 1% -- 0.0% 3,005 Less than 1%
Robert N. Edwards........... -- 0.0% -- 0.0% -- 0.0%
Daryl G. Erbs............... 30,769 Less than 1% -- 0.0% 30,769 Less than 1%
Michael B. Etter............ 25,000 Less than 1% -- 0.0% 25,000 Less than 1%
Michael Giordano............ 87,688 Less than 1% -- 0.0% 87,688 Less than 1%
Sal Giordano III............ 3,829 Less than 1% -- 0.0% 3,829 Less than 1%
Kent E. Hansen.............. 3,500 Less than 1% -- 0.0% 3,500 Less than 1%
Judy Katz................... 3,502(9) Less than 1% -- 0.0% 3,502 Less than 1%
Robert L. Laurent, Jr....... 344,419 1.2% -- 0.0% 344,419 1.1%
Joseph B. Noselli........... -- 0.0% -- 0.0% -- 0.0%
Marlene M. Volpe............ 41,796 Less than 1% -- 0.0% 41,796 Less than 1%
Total Officers and
Directors.................. 4,801,454 16.1% 2,488,822 99.8% 7,290,276 22.5%
</Table>
- ---------------
(1) All amounts shown include shares which the named individuals have the right
to acquire beneficial ownership of within 60 days as a result of the
transactions described in Rule 13d-3(d) of the Securities Exchange Act of
1934, as amended.
(2) The amount shown includes 1,100 shares held prior to the recapitalization by
a corporation in which Messrs. Salvatore Giordano, Sal Giordano, Jr. and
Joseph Giordano are officers, directors and stockholders and share voting
and investment power over such shares.
(3) Includes 256,800 shares of Common Stock and 392,062 shares of Class A Stock
owned prior to the recapitalization by members of Mr. Modlin's family, as to
which Mr. Modlin disclaims beneficial ownership.
(4) Includes 743,309 shares of Class A Stock held prior to the recapitalization
by corporations in which Messrs. Salvatore Giordano, Sal Giordano, Jr. and
Joseph Giordano are officers, directors and stockholders, and share voting
and investment power over such shares.
(5) Includes 204,292 shares of Class A Stock held of record prior to the
recapitalization by Mr. Giordano's wife, and 78,861 shares of Class A Stock
held of record by Mr. Giordano's wife in trust for their grandchildren, as
to which Mr. Giordano disclaims beneficial ownership.
38
(6) Includes 18,119 shares of Class A Stock held of record prior to the
recapitalization by Mr. Giordano's wife, 264,659 shares of Class A Stock
held of record by Mr. Giordano's wife in trust for their grandchildren, as
to which Mr. Giordano disclaims beneficial ownership, and 71,630 shares of
Class A Stock held prior to the recapitalization by Mr. Giordano in trust as
trustee for himself.
(7) Includes 71,630 shares of Class A Stock held prior to the recapitalization
by Mr. Giordano in trust as trustee for himself and 192,769 shares of Class
A Stock held prior to the recapitalization by Mr. Giordano in trust for his
grandchildren.
(8) Includes 2,262,566 share of Class B Stocks owned prior to the
recapitalization by Giordano Holding Corporation, as to which Messrs.
Salvatore Giordano, Sal Giordano, Jr. and Joseph Giordano share voting and
investment power.
(9) Includes 474 shares of Common Stock held prior to the recapitalization by
Ms. Katz's husband in trust for their minor daughter, as to which Ms. Katz
disclaims beneficial ownership.
FINANCING THE RECAPITALIZATION
No outside financing is required in order to complete the proposed
recapitalization. Fedders will use existing cash to make any cash payments
payable in lieu of fractional shares upon the exchange of the Common Stock and
Class A Stock for new Common Stock and the Class B Stock for new Class B Stock.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE RECAPITALIZATION
The following discussion summarizes the material U.S. federal income tax
consequences of the recapitalization to holders of Common Stock, Class A Stock
and Class B Stock. This discussion assumes that such shares are held as capital
assets and does not address all of the U.S. federal income tax consequences that
may be relevant to particular stockholders in light of their individual
circumstances or to stockholders that are subject to special rules, such as:
- financial institutions,
- mutual funds,
- tax-exempt organizations,
- insurance companies,
- dealers in securities or foreign currencies,
- persons (including traders in securities) using a mark-to-market method
of accounting,
- stockholders who hold such shares as a hedge against currency risk or as
part of a straddle, constructive sale or conversion transaction or
- stockholders who acquired their shares upon the exercise of employee
stock options or otherwise as compensation.
The following discussion is based upon the Internal Revenue Code, laws,
regulations, rulings and decisions in effect as of the date of this proxy
statement, all of which are subject to change, possibly with retroactive effect.
Tax consequences under state, local and foreign laws are not addressed herein.
No ruling has been or will be sought from the Internal Revenue Service as to the
U.S. federal income tax consequences of the recapitalization and the following
discussion is not binding on the Internal Revenue Service. YOU ARE STRONGLY
URGED TO CONSULT YOUR TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO YOU OF
THE RECAPITALIZATION, INCLUDING THE APPLICATION OF FEDERAL, STATE, LOCAL AND
FOREIGN INCOME AND OTHER TAX LAWS BASED ON YOUR PARTICULAR FACTS AND
CIRCUMSTANCES.
In the opinion of Skadden, Arps, Slate, Meagher & Flom LLP, which is based
upon representations of Fedders, the recapitalization should constitute a
"recapitalization" within the meaning of Section 368(a)(1)(E) of the Internal
Revenue Code. Accordingly, you should not recognize any gain or loss
39
upon the receipt of new Common Stock or Class B Stock in exchange for your old
Common Stock, Class A Stock or Class B stock pursuant to the recapitalization
(except, as described below, with respect to cash received in lieu of fractional
shares).
A stockholder's aggregate adjusted tax basis in the new Common Stock or new
Class B Stock received in the recapitalization should be equal to such
stockholder's aggregate tax basis in its old Common Stock, Class A Stock or
Class B Stock surrendered in exchange therefor (adjusted with respect to
fractional shares). A stockholder's holding period for the new Common Stock or
new Class B Stock received in the recapitalization should include such
stockholder's holding period for its old Common Stock, Class A Stock or Class B
Stock surrendered in exchange therefor.
Stockholders that receive cash in lieu of fractional shares as a result of
the recapitalization will be treated as having received such fractional shares
as a result of the recapitalization and then as having sold such fractional
shares for cash. The amount of any capital gain or loss attributable to such
sale will be equal to the difference between the cash received with respect to
the fractional shares and the ratable portion of such stockholder's tax basis of
the Common Stock or Class B Stock surrendered that is allocated to such
fractional shares. Any such capital gain or loss will be long-term capital gain
or loss if such stockholder's holding period for such Common Stock or Class B
Stock exceeded 12 months upon consummation of the recapitalization.
THE PRECEDING DISCUSSION IS GENERAL IN NATURE AND DOES NOT CONSIDER ANY
PARTICULAR STOCKHOLDER'S INDIVIDUAL FACTS AND CIRCUMSTANCES. SINCE THE TAX
CONSEQUENCES OF THE RECAPITALIZATION TO YOU WILL DEPEND ON YOUR PARTICULAR FACTS
AND CIRCUMSTANCES, YOU ARE STRONGLY URGED TO CONSULT YOUR TAX ADVISOR AS TO THE
TAX CONSEQUENCES TO YOU OF THE RECAPITALIZATION.
INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE OFFICERS
OF FEDDERS AND FC MERGER SUB
The following people are the current executive officers and directors of
Fedders and FC Merger Sub. After the combination, the current directors and
executive officers of Fedders will remain in office. Furthermore, with respect
to the directors and executive officers of Fedders and FC Merger Sub:
- all are citizens of the United States;
- none have been convicted in a criminal proceeding during the past five
years (excluding traffic violations or similar misdemeanors); and
- none have been a party to any judicial or administrative proceeding
during the past five years (except for matters that were dismissed
without sanction or settlement) that resulted in a judgment, decree, or
final order enjoining the person from future violations of, or
prohibiting activities subject to, federal or state securities laws, or a
finding of any violation of federal or state securities laws.
Unless otherwise noted, the principal business address of each person
listed below is the address of Fedders and 505 Martinsville Road, Liberty
Corner, New Jersey 07938. Neither Fedders nor FC Merger Sub has been convicted
in a criminal proceeding during the past five years (excluding traffic
violations or similar misdemeanors). Neither Fedders nor FC Merger Sub has been
a party to any judicial or administrative proceeding during the past five years
(except for matters that were dismissed without sanction or settlement) that
resulted in a judgment, decree, or final order enjoining the person from future
violations of, or prohibiting activities subject to, federal or state securities
laws, or a finding of any violation of federal or state securities laws
Only one of the current ten members of Fedders' board of directors holds a
position with Fedders and the remaining nine individuals are independent,
non-employee directors.
FEDDERS CORPORATION
Information regarding each of the directors of Fedders is included in the
section entitled "Election of Directors" beginning on page 62.
40
The following individuals are the other current executive officers of
Fedders:
Jordan Bruno, age 50, was elected Vice President, Taxes of Fedders in
December 2000. Previously, Mr. Bruno was an appointed officer of Fedders from
1999 to December 2000 and prior thereto, Director of Taxes since 1995. Mr. Bruno
has been employed by Fedders since September 1991.
Nancy DiGiovanni, age 49, was elected Treasurer of Fedders in October 1998.
Prior to her election, she served as Assistant Treasurer of Fedders since 1989.
Robert N. Edwards, age 55, was elected Vice President and General Counsel
of Fedders in June 2000. Mr. Edwards has been General Counsel of Fedders since
1995. Mr. Edwards has been employed by Fedders since November 1992.
Daryl G. Erbs, age 43, has been Senior Vice President, International since
March 2001. Previously he was Senior Vice President, Technology and Vice
President, Technology of Fedders since August 1999. Prior to joining Fedders in
February 1999, Mr. Erbs worked for Carrier Corporation for many years, serving
in a variety of engineering management positions.
Michael B. Etter, age 46, was elected President and Chief Operating Officer
in June 2000. Previously, Mr. Etter was Senior Vice President of Fedders and
Chairman and Chief Executive Officer of Fedders Air Conditioning since May 1,
1999. Mr. Etter served as Vice President of Materials Management and Global
Purchasing for Fedders from December 1997 to May 1999 and, prior thereto, Vice
President, Materials Management since 1995. Mr. Etter has been employed by
Fedders since May 1977.
Mark Eubank, age 47, was elected Vice President in April 2001. Previously,
he was President of Eubank Manufacturing Enterprises, Inc., a subsidiary of
Fedders, for more than five years.
Michael Giordano, age 37, was elected Executive Vice President, Finance and
Administration and Chief Financial Officer in June 2000. Previously, Mr.
Giordano was Vice President, Finance and Chief Financial Officer of Fedders
since July 1, 1999. Mr. Giordano also served as Senior Vice President of Fedders
International, Inc. from 1998 until being elected to his current position and,
prior thereto, Managing Director of the Singapore office of Fedders
International since 1995. Mr. Giordano has been employed by Fedders since June
1990. Mr. Giordano is a grandson of Salvatore Giordano.
Sal Giordano III, age 42, was elected Group Vice President, Engineered
Products in December 1999. Mr. Giordano was a Vice President of Fedders since
August 1996 and President of Melcor Corporation from 1995. Mr. Giordano has been
employed by Fedders since February 1983. Mr. Giordano is a grandson of Salvatore
Giordano.
Kent E. Hansen, age 54, was elected Executive Vice President and Secretary
in June 2000. Previously, Mr. Hansen was Senior Vice President and Secretary
from August 1996 and, prior thereto, Vice President, Finance and General Counsel
of NYCOR, Inc.
Judy A. Katz, age 49, was elected Vice President, Strategic Planning in
June 2000. Previously, Ms. Katz held the position of Vice President,
Communications and Planning since August 1998 and, prior thereto, Director,
Strategic Support since September 1995. Ms. Katz has been employed by Fedders
since September 1990.
Robert L. Laurent, Jr., age 46, is the Executive Vice President,
Acquisitions and Alliances of Fedders since January 1999. From 1995 to January
1999, Mr. Laurent was the Executive Vice President, Finance and Administration
and Chief Financial Officers of Fedders. Mr. Laurent has been employed by
Fedders since August 1980.
Joseph B. Noselli, age 45, was elected Corporate Controller in June 2000.
Previously, Mr. Noselli was with Ingersoll-Rand Co. from 1980 to 2000, most
recently as Vice President and Controller of its production equipment group.
41
Marlene M. Volpe, age 65, was elected Vice President, Human Resources in
June 2000. Previously, Ms. Volpe was Vice President, Recruitment and Leadership
Development since 1995. She has been employed by Fedders since October 1971.
FC MERGER SUB, INC.
The board of directors of FC Merger Sub is currently made up of Sal
Giordano, Jr., Kent E. Hansen and Michael Giordano. Information regarding these
individuals can be found above in "Information Concerning the Directors and
Executive Officers of Fedders and FC Merger Sub -- Fedders Corporation"
beginning on page 40 as well as under "Election of Directors" beginning on page
62.
FC Merger Sub's executive officers are Sal Giordano, Jr., President, Kent
E. Hansen, Vice President and Secretary, Michael Giordano, Vice President, Nancy
DiGiovanni, Treasurer, and Robert N. Edwards, Assistant Secretary. Information
regarding these individuals can be found above in "Information Concerning the
Directors and Executive Officers of Fedders and FC Merger Sub -- Fedders
Corporation" beginning on page 40 as well as under "Election of Directors"
beginning on page 62.
INFORMATION ABOUT FEDDERS AND CERTAIN AFFILIATES
FEDDERS CORPORATION
Fedders Corporation
505 Martinsville Road,
Liberty Corner, New Jersey 07938
Telephone: (908) 604-8686
Fedders, a Delaware corporation, is a leading global manufacturer of air
treatment products, including air conditioners, air cleaners, dehumidifiers and
humidifiers, and thermal technology products. Fedders was established more than
100 years ago and has been in the air treatment business for more than 50 years.
Fedders has been expanding into a broad variety of air treatment businesses.
Fedders is a filing person for the recapitalization.
FC MERGER SUB, INC.
FC Merger Sub, Inc.
505 Martinsville Road,
Liberty Corner, New Jersey 07938
Telephone: (908) 604-8686
FC Merger Sub, Inc., a wholly owned subsidiary of Fedders, is a newly
formed Delaware corporation created for the sole purpose of implementing the
recapitalization. It has not conducted any business since its formation. At the
time of the recapitalization, FC Merger Sub, Inc. will merge into Fedders and
cease to exist. FC Merger Sub, Inc. is a filing person for the recapitalization.
GIORDANO HOLDING CORPORATION
505 Martinsville Road
P.O. Box 850
Liberty Corner, New Jersey 07938
Telephone: (908) 604-8686
Giordano Holding Corporation is a holding company as to which Salvatore
Giordano, Sal Giordano, Jr. and Joseph Giordano share voting and investment
power. Giordano Holding Corporation was created solely for the purpose of
holding certain investments, including Fedders stock.
Giordano Holding Corporation has not been convicted in a criminal
proceeding since its creation, nor has it been a party to any judicial or
administrative proceeding since its creation that resulted in a judgment,
42
decree, or final order enjoining it from future violations of, or prohibiting
activities subject to, federal or state securities laws, or a finding of any
violation of federal or state securities laws.
SALVATORE GIORDANO
c/o Fedders Corporation
505 Martinsville Road,
Liberty Corner, New Jersey 07938
Telephone: (908) 604-8686
Salvatore Giordano is the Chairman Emeritus of Fedders' board and has been
a director of Fedders since 1945. Mr. Giordano had been associated with Fedders
in an executive capacity for more than five years. He is currently a member of
the Executive Committee of Fedders.
SAL GIORDANO, JR.
c/o Fedders Corporation
505 Martinsville Road,
Liberty Corner, New Jersey 07938
Telephone: (908) 604-8686
Sal Giordano, Jr. is the Chairman and Chief Executive Officer of Fedders
and has been a director since 1965. Mr. Giordano has been associated with
Fedders in an executive capacity for more than five years. He is also currently
the Chairman of the Nominating Committee and a member of the Executive Committee
of Fedders. Mr. Giordano is the son of Salvatore Giordano.
JOSEPH GIORDANO
c/o Fedders Corporation
505 Martinsville Road,
Liberty Corner, New Jersey 07938
Telephone: (908) 604-8686
Joseph Giordano has been a director of Fedders since 1961. Mr. Giordano has
been retired for the past five years. He was a Senior Vice President of Fedders
until his retirement on August 31, 1992, and President of NYCOR, Inc. until its
merger into Fedders on August 13, 1996. Mr. Giordano is currently a member of
the Executive and Finance Committees. Mr. Giordano is the son of Salvatore
Giordano.
43
THE RECAPITALIZATION
(ITEMS 1-8 ON COMMON STOCK AND CLASS B PROXY;
ITEM 1 ON CLASS A PROXY)
If you are a holder of record of Fedders Common Stock or Class B Stock and
you return a signed proxy or proxies in the enclosed form(s), the shares
represented by your proxy or proxies will be voted for approval of the
recapitalization and for the adoption of the recapitalization agreement
described in this document, unless you instruct otherwise. Fedders' board of
directors has unanimously approved and adopted the recapitalization agreement, a
copy of which is attached as Annex A and incorporated in this document by
reference. The following discussion highlights the material information about
the proposed recapitalization of the Fedders Common Stock, Class A Stock and
Class B Stock, but may not include all of the information that you, as a
stockholder, would like to know. The board of directors urges you to read the
agreement attached to this document as Annex A in its entirety.
GENERAL
Subject to the satisfaction of the conditions to completion of the
recapitalization, including the approval of the proposed deletion of Section VI
of clause A of Article Second of the certificate of incorporation and the
recapitalization and each of the changes to the certificate of incorporation
that will be made as a result of the recapitalization and adoption of the merger
agreement by the stockholders of Fedders, FC Merger Sub, Inc. will be merged
with and into Fedders at the effective time. The "effective time" is the time at
which the merger will become effective under Delaware law. Fedders will be the
surviving corporation and will continue to do business under the name "Fedders
Corporation."
WHAT FEDDERS STOCKHOLDERS WILL RECEIVE
In the recapitalization, Fedders Common Stock and Class A Stock will be
exchanged for new Common Stock and Fedders Class B Stock will be exchanged for
new Class B Stock. As a result of this recapitalization:
- Each share of Common Stock will be exchanged for 1.1 shares of new Common
Stock;
- Each share of Class A Stock will be exchanged for one share of new Common
Stock; and
- Each share of Class B Stock will be exchanged for 1.1 shares of new Class
B Stock.
Any stockholder who would in the aggregate hold less than one share of new
Common Stock or new Class B Stock after the exchange will not receive fractional
shares. In lieu of any such fractional shares, each holder of Common Stock or
Class B Stock who would otherwise have been entitled to a fraction of a share of
new Common Stock or new Class B Stock, as the case may be, upon surrender of
their Common Stock or Class B Stock will be paid cash upon such surrender in an
amount equal to the product of such fraction multiplied by the closing sale
price of the new Common Stock on the New York Stock Exchange on the date upon
which the merger becomes effective, or, if the new Common Stock is not so traded
on such day, the closing sale price on the next day on which such stock is
traded on the New York Stock Exchange.
As of November 30, 2001, there were 13,634,759 shares of Common Stock
outstanding, 14,890,386 shares of Class A Stock outstanding and 2,266,406 shares
of Class B Stock outstanding.
CONDITIONS TO COMPLETION OF THE RECAPITALIZATION
Completion of the recapitalization is subject to various conditions that
must be satisfied or waived prior to the recapitalization. These conditions
include that:
- Fedders receives the required stockholder approval for the proposed
amendment to delete Section VI of clause A of Article Second of the
certificate of incorporation;
- Fedders receives the required stockholder approval for the
recapitalization;
- Fedders receives the required stockholder approval for each of the
changes to its certificate of incorporation that will be made as a result
of the recapitalization;
44
- the registration statement filed with the Securities and Exchange
Commission in connection with the issuance of the new Common Stock and
new Class B Stock becomes effective;
- the New York Stock Exchange approves the listing of the new Fedders
Common Stock;
- if a filing becomes necessary under the Hart-Scott-Rodino Antitrust
Improvements Act, all waiting periods have expired or terminated;
- Fedders receives all necessary material licenses, permits, consents,
approvals, authorizations, qualifications and orders of governmental
authorities and parties to contracts with Fedders and its subsidiaries;
and
- Fedders files a certificate of merger with the Secretary of State of
Delaware.
The only material United States regulatory approvals that may be required
are certain filings under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and its associated rules. Under this act, certain existing
holders of Fedders Common Stock, Class A Stock and/or Class B Stock may be
required to furnish certain information to the Antitrust Division of the United
States Department of Justice and the Federal Trade Commission. Based on the
reported sale price of shares of Common Stock and Class A Stock as of November
30, 2001, no filings will be required under the Hart-Scott-Rodino Antitrust
Improvements Act. If circumstances change, the existing holders of Fedders
Common Stock, Class A Stock and/or Class B Stock will make any necessary
filings. If such filings become necessary, a condition to the completion of the
recapitalization will be that the required waiting periods under such act must
have expired or terminated.
Fedders does not anticipate that any of the conditions to the
recapitalization will be waived. Fedders expects that the recapitalization will
be completed as soon as practicable after the conditions to the completion are
satisfied, or at such later date as is, in the judgment of Fedders' board of
directors, in the best interests of the stockholders of Fedders.
Under the terms of the certificate of incorporation and the DGCL, the
proposed amendment to the certificate of incorporation to delete Section VI of
clause A of Article Second requires approval of at least a majority of the
voting power of the shares of Common Stock, Class A Stock and Class B Stock,
each voting separately as a class.
Assuming the proposed deletion of Section VI of clause A of Article Second
of the certificate of incorporation is approved, the recapitalization and each
of the changes to Fedders' certificate of incorporation that will be made as a
result of the recapitalization will require the approval of at least a majority
of the voting power of the shares of Common Stock and Class B Stock, voting
together as a single class.
Fedders' directors and executive officers have indicated that they intend
to vote FOR (i) the proposed deletion of Section VI of clause A of Article
Second of the certificate of incorporation, (ii) the recapitalization and (iii)
each of the changes to the certificate of incorporation that will be made as a
result of the recapitalization. As of November 30, 2001, these directors and
executive officers were entitled to vote approximately: (i) 393,836 shares of
Common Stock, representing approximately 2.9% of the voting power of the Common
Stock; (ii) 4,368,235 shares of Class A Stock, or approximately 29.3% of the
outstanding Class A Stock; (iii) 2,262,566 shares of Class B Stock, or
approximately 99.8% of the outstanding Class B Stock; and (iv) 2,656,402 shares
of Common Stock and Class B Stock representing approximately 16.7% of the voting
power of the Common Stock and Class B Stock, voting together as a single class.
Approval of the recapitalization will also constitute approval of:
- the restated certificate of incorporation attached as Exhibit A to the
recapitalization agreement attached hereto as Annex A, which will be in
effect upon consummation of the recapitalization; and
- the conversion of outstanding stock options and rights for Common Stock
or Class A Stock into options or rights to receive shares of new Common
Stock.
Fedders would re-solicit the approval of its stockholders if (i) the
information contained in this proxy statement/prospectus contained an untrue
statement of a material fact or omitted to state a material fact
45
necessary to make the statements made in this proxy statement/prospectus not
misleading or (ii) Fedders desired to materially alter the terms of the
recapitalization.
AMENDMENT OF THE RECAPITALIZATION AGREEMENT
The agreement governing the transaction provides that the boards of
directors of Fedders and FC Merger Sub, Inc., by mutual written agreement, may
amend, modify, or supplement the agreement, at any time prior to the effective
time of the merger, notwithstanding any approval of this Agreement by the
stockholders of either or both of Fedders and FC Merger Sub, Inc.
ABANDONMENT OF THE RECAPITALIZATION
The agreement governing the transaction provides that the board of
directors may terminate the agreement or abandon the recapitalization in its
sole discretion, notwithstanding adoption and approval of the agreement by the
stockholders of either or both of Fedders and FC Merger Sub, Inc.
ESTIMATED FEES AND EXPENSES OF THE RECAPITALIZATION
The following table sets forth the estimated expenses incurred and to be
incurred by Fedders in connection with the combination. These fees will be paid
by Fedders.
<Table>
Filing/registration fees.................................... $ 40,000
NYSE listing fees........................................... $ 6,000
Printing and engraving costs................................
Legal fees and expenses..................................... $450,000
========
Accounting fees and expenses................................
Financial advisory fees and expenses........................
Depositary fees and expenses................................
Proxy solicitation fees and expenses........................ $ 10,000
Public relations fees and expenses..........................
Miscellaneous...............................................
--------
Total....................................................... $
========
</Table>
EFFECTIVE TIME OF THE RECAPITALIZATION
The recapitalization will become effective upon the date that the
certificate of merger is filed with the Secretary of State of the State of
Delaware. This is expected to occur on or around February 26, 2002 following the
annual meeting.
REGULATORY MATTERS
To complete the recapitalization:
- Fedders must file a certificate of merger with the Secretary of State of
Delaware; and
- if a filing becomes necessary under the Hart-Scott-Rodino Antitrust
Improvements Act, all waiting periods must have expired or terminated.
Fedders does not need to comply with any other federal or state regulatory
requirements or obtain any other regulatory approvals in order to effect the
combination.
APPRAISAL RIGHTS
If the recapitalization is completed, the Class B stockholders will be
entitled to seek an appraisal of, and be paid in cash the "fair value" of, their
shares instead of receiving the stock or cash that they would otherwise
46
be entitled to under the recapitalization agreement. These rights are commonly
referred to as "appraisal rights." Section 262 of the Delaware General
Corporation Law sets forth the requirements that must be satisfied and the
procedures that must be followed to exercise appraisal rights. Section 262 is
reproduced in Annex C to this proxy statement/prospectus. Because Fedders Common
Stock and Class A Stock is listed on the New York Stock Exchange, holders of
Common Stock and Class A Stock are not entitled to appraisal rights under
Section 262.
Giordano Holding Corporation holds approximately 99.8% of the Class B
Stock. Salvatore Giordano, Fedders' Chairman Emeritus, Sal Giordano, Jr.,
Fedders' Chairman and Chief Executive Officer, and Joseph Giordano, a director
of Fedders, collectively hold all of the voting power of Giordano Holding
Corporation. They have unanimously indicated their intention not to cause the
Giordano Holding Corporation to exercise its statutory appraisal rights.
Any Class B stockholders who are entitled to appraisal rights must, in
order to exercise such rights, demand such rights BEFORE the vote on the
recapitalization at the annual meeting of stockholders. Failure to satisfy the
requirements and follow the procedures set forth in Section 262 may result in a
loss of appraisal rights. If a Class B stockholder demands appraisal but is
determined not to be entitled to such rights or otherwise loses such rights, the
Class B stockholder will be entitled to receive the consideration that such
stockholder would have been entitled to under the terms of the recapitalization
agreement as if such stockholder had not sought to exercise appraisal rights.
Appraisal rights are available only to record holders of shares.
Section 262 requires Fedders to notify the Class B stockholders, at least
20 days before the annual meeting, as to the availability of appraisal rights
and to provide the Class B stockholders with a copy of Section 262. This proxy
statement/prospectus, including Annex C, serves as the required notice.
To exercise statutory appraisal rights, a Class B stockholder must:
- deliver to Fedders before the vote on the recapitalization a written
demand for an appraisal of the shares of Class B Stock;
- continuously hold shares of Class B Stock from the date the Class B
stockholder delivers a written demand for an appraisal through the
effective date of the recapitalization; and
- not vote in favor of the recapitalization agreement.
In addition, if neither any Class B stockholder who has demanded appraisal
rights nor Fedders has filed a petition in the Delaware Court of Chancery
demanding a determination of the fair value of the shares for which appraisal is
sought within 120 days after the effective date of the recapitalization, then
all appraisal rights will be lost. Fedders has no obligation and does not intend
to file such an appraisal petition. Accordingly, it is the obligation of the
Class B stockholders seeking appraisal to file an appropriate appraisal petition
with the Court of Chancery within the 120-day time period prescribed by Section
262 of the DGCL.
Any demand for an appraisal must be in writing, signed and mailed or
delivered to:
Fedders Corporation
505 Martinsville Road
Liberty Corner, New Jersey 07938-0813
Attn: Corporate Secretary
A written demand must reasonably inform Fedders of the identity of the
Class B stockholder and of the Class B stockholder's intent to demand appraisal
of his, her or its shares of Class B Stock. Voting against the recapitalization
or otherwise failing to vote for the recapitalization will not by itself
constitute a demand for an appraisal or sufficient notice of an election to
exercise appraisal rights. If a Class B stockholder sells or otherwise transfers
or disposes of the shares of Class B Stock before the effective time of the
recapitalization, such stockholder will lose the appraisal rights with respect
to those shares.
A demand for appraisal should be signed by or on behalf of the Class B
stockholder exactly as the Class B stockholder's name appears on the Class B
stockholder's stock certificates. If the shares are owned of record in
47
a fiduciary capacity, such as by a trustee, guardian or custodian, the demand
should be executed in that capacity, and if the shares are owned of record by
more than one person, as in a joint tenancy or tenancy in common, the demand
should be executed by or on behalf of all joint owners. An authorized agent,
including one or more joint owners, may execute a demand for appraisal on behalf
of a record holder; however, in the demand the agent must identify the record
owner or owners and expressly disclose that the agent is executing the demand as
an agent for the record owner or owners. A record holder such as a broker who
holds shares as nominee for several beneficial owners may exercise appraisal
rights for the shares held for one or more beneficial owners and not exercise
appraisal rights for the shares held for other beneficial owners. In this case,
the written demand should state the number of shares for which appraisal rights
are being demanded. When no number of shares is stated, the demand will be
presumed to cover all shares held of record by the broker or nominee.
If the recapitalization is completed, Fedders will send, within 10 days
after the effective date of the recapitalization, notice of the effective date
of the recapitalization to each Class B stockholder who has properly demanded
appraisal rights under Section 262 and has not voted in favor of the
recapitalization agreement.
If a Class B stockholder has complied with the requirements for exercising
appraisal rights, then during the 120 days following the effective date of the
recapitalization, such stockholder may request from Fedders a statement as to
the aggregate number of shares not voted in favor of the recapitalization
agreement and with respect to which demands for appraisal have been received and
the number of holders of those shares. Upon receiving any such request, which
must be made in writing, Fedders will mail a statement of that information to
such Class B stockholder within 10 days.
If a petition for an appraisal is filed within the 120 day period
prescribed by Section 262, the Delaware Court of Chancery will hold a hearing on
the petition to determine the stockholders entitled to appraisal rights and the
"fair value" of their shares as of the effective date of the recapitalization.
The determination of fair value will not include any element of value arising
from the accomplishment or expectation of the recapitalization. The court will
also determine a fair rate of interest, if any, to be paid upon the amount
determined to be the fair value of the shares. The court may determine that the
fair value of the shares is more than, the same as or less than the value of the
consideration that you otherwise would have been entitled to receive under the
recapitalization agreement. The Delaware Supreme Court has stated that "proof of
value by any techniques or methods that are generally considered acceptable in
the financial community and otherwise admissible in court" should be considered
in the appraisal proceedings.
The costs of the action may be determined by the Delaware Court of Chancery
and taxed upon the parties as the court deems equitable in the circumstances.
Upon application of a stockholder, the court may order that all or a portion of
the expenses incurred by any stockholder in an appraisal proceeding, including,
without limitation, reasonable attorneys' fees and the fees and expenses of
experts utilized in the appraisal proceeding, be charged pro rata against the
value of all of the shares entitled to appraisal.
If a Class B stockholder has duly demanded an appraisal of shares of Class
B Stock, such stockholder will not, after the effective date of the
recapitalization, be entitled to vote those shares for any purpose, nor will
such stockholder be entitled to the payment of dividends or other distributions
on those shares, except for dividends or other distributions payable to
stockholders as of a record date before the effective date of the
recapitalization.
A Class B stockholder may withdraw demand for appraisal within 60 days
after the effective date of the recapitalization. Any attempt to withdraw a
demand more than 60 days after the effective date of the recapitalization will
require Fedders' written approval. Once a petition for appraisal is filed with
the Delaware Court of Chancery, the appraisal proceeding may not be dismissed
without court approval. If a demand for appraisal rights has been effectively
withdrawn, the Class B stockholder will receive the consideration in the
recapitalization which the Class B stockholder would otherwise be entitled to
under the terms of the recapitalization agreement as if such stockholder had not
sought to exercise appraisal rights.
48
If a Class B stockholder is entitled to appraisal rights and properly
demands appraisal, but fails to perfect the appraisal rights, otherwise loses
the appraisal rights or effectively withdraws the demand for an appraisal, the
shares of Class B Stock will be converted into the right to receive the
consideration that the Class B stockholder would have been entitled to under the
terms of the recapitalization agreement if such stockholder had not sought to
exercise appraisal rights.
EMPLOYEE BENEFIT PLANS
Except as described below with respect to stock benefits, all of Fedders'
employee benefit and welfare plans, such as medical plans and pension plans, are
expected to continue substantially unchanged and benefits under these plans are
not expected to be substantially affected by the recapitalization. Fedders
expects that substantially all plans providing stock benefits will continue in
effect after the recapitalization, adjusted to reflect shares of new Common
Stock instead of Common Stock or Class A Stock. Fedders, however, reserves the
right to modify any employee benefit or welfare plan.
EMPLOYEE STOCK OPTIONS
Each of the outstanding employee options to purchase shares of Fedders
Common Stock will be converted into options to purchase that number of shares of
new Common Stock determined by multiplying the number of shares of Common Stock
currently subject to such options by 1.1. Each of the outstanding employee
options to purchase shares of Fedders Class A Stock will be converted into
options to purchase that number of shares of new Common Stock equal to the
number of shares of Class A Stock currently subject to such option.
NEW YORK STOCK EXCHANGE LISTING
Fedders is in the process of obtaining the necessary approval from the New
York Stock Exchange in order to effect the recapitalization. Fedders Common
Stock is currently listed on the New York Stock Exchange under the symbol "FJC."
Following the recapitalization, the new Fedders Common Stock will continue to be
listed on the New York Stock Exchange under the symbol "FJC." Fedders Class A
Stock, which is currently listed on the New York Stock Exchange under the symbol
"FJA," will no longer be listed after the recapitalization and will cease to
exist. The new Class B Stock will continue to be unlisted.
49
RECENT TRANSACTIONS IN SECURITIES
The following table indicates, with respect to any purchases of Common
Stock and/or Class A Stock made by Fedders or affiliates of Fedders since August
1999, the range of prices paid for the shares, the amount of shares purchased,
and the average purchase price for the shares for each quarterly period since
August 1999:
<Table>
<Caption>
AVERAGE PURCHASE
SECURITIES PURCHASED RANGE OF PRICES PAID PRICE
--------------------- ------------------------------------- ----------------
FISCAL YEAR COMMON CLASS A COMMON CLASS A COMMON CLASS A
- ----------- -------- ---------- ---------------- ------------------ ------ -------
1999
First Quarter...... 206,400 727,600 $3.94 to $5.00 $3.94 to $4.94 $4.96 $4.84
Second Quarter..... 419,300 674,000 4.75 to 4.94 4.50 to 4.94 4.89 4.62
Third Quarter...... 91,200 285,700 5.56 to 6.00 4.79 to 5.75 5.88 5.00
Fourth Quarter..... 186,500 75,300 5.31 to 6.24 5.25 to 5.94 5.86 5.88
2000
First Quarter...... -- 456,300 -- $4.62 to $4.9375 -- $4.77
Second Quarter..... -- 526,100 -- 4.68 to 4.93 -- 4.85
Third Quarter...... -- 40,900 -- 4.9314 to 4.9375 -- 4.93
Fourth Quarter..... 567,900 1,176,800 $4.93 to 5.00 4.50 to 4.93 $4.97 4.80
2001
First Quarter...... 742,800 579,600 $3.50 to $4.9375 $3.4375 to $4.9375 $4.17 $3.62
Second Quarter..... 293,000 235,500 4.6755 to 4.9657 4.05 to 4.625 4.84 4.41
Third Quarter...... 521,200 69,100 4.4902 to 4.9900 4.08 to 4.790 4.98 4.52
Fourth Quarter..... 375,800 181,400 4.500 to 4.990 4.0231 to 4.600 4.97 4.40
2002
First Quarter......
</Table>
50
FINANCIAL STATEMENTS
Fedders' Annual Report on Form 10-K for the fiscal year ended August 31,
2001 contains the Consolidated Balance Sheets of Fedders and its subsidiaries at
August 31, 2001 and 2000, and the Consolidated Statements of Operations and
Comprehensive Income, Consolidated Statements of Stockholders' Equity, and
Consolidated Statements of Cash Flows of Fedders and its subsidiaries for the
fiscal years ended August 31, 2001, 2000 and 1999, the financial statement
schedule, and the related notes thereto. These financial statements, the
financial statement schedule, and the related notes thereto, are incorporated in
this document by reference.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL DATA
The unaudited pro forma consolidated condensed financial data is derived
from the application of pro forma adjustments to major categories of Fedders'
consolidated financial statements for the fiscal year ended August 31, 2001 to
illustrate the effect of the transaction related to the recapitalization of all
of Fedders' outstanding shares of capital stock. The pro forma adjustments are
described in the accompanying notes and are based upon available information
that Fedders believes is reasonable. These tables do not present all of Fedders'
financial information.
The unaudited pro forma consolidated condensed financial data do not
purport to be indicative of what Fedders' operations would have been had the
recapitalization taken place on the dates indicated. This information should be
read together with Fedders' consolidated financial statements and the notes
thereto which are incorporated by reference in this document, and the
information under "Selected Consolidated Financial Data" beginning on page 14.
The unaudited pro forma consolidated recapitalization table represents the
effect on stockholders' equity due to the recapitalization of capital stock as
if the recapitalization had been completed on August 31, 2001. The unaudited
recapitalization data is derived from the Consolidated Balance Sheet of Fedders
for the fiscal year ended August 31, 2001. Information is presented to reflect
pro forma adjustments for the recapitalization of Fedders Common and Class A
Stock into a single class of new Common Stock and the exchange of Class B Stock
for new Class B Stock.
The pro forma earnings per share calculations reflect the effect of the
recapitalization. The information is derived from the audited Consolidated
Statements of Operations and Comprehensive Income for the fiscal year ended
August 31, 2001. The information is presented to reflect the pro forma effect on
earnings per share as a result of the change in the weighted average number of
shares outstanding due to the recapitalization.
51
PRO FORMA CONSOLIDATED CONDENSED UNAUDITED RECAPITALIZATION TABLE
(AS OF AUGUST 31, 2001)
<Table>
<Caption>
AS OF PRO FORMA
AUGUST 31, 2001 ADJUSTMENTS AS ADJUSTED
---------------- ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Stockholders' Equity:
Preferred Stock, $1.00 par value,
15,000,000 shares authorized; no shares issued
and
outstanding, actual; no shares issued and
outstanding, as adjusted......................... -- -- --
Common Stock, $1.00 par value,
80,000,000 shares authorized; 16,135,459 shares
issued and 13,634,759 shares outstanding, actual;
no shares issued and outstanding, as adjusted.... $ 16,135 $(16,135)(a) --
New Common Stock, $0.01 par value,
70,000,000 shares authorized; no shares issued
and
outstanding, actual; 38,046,620 shares issued and
29,888,220 outstanding, as adjusted.............. -- 380(a) $ 380
Class A Stock, $1.00 par value,
60,000,000 shares authorized; 20,297,616 shares
issued and 14,889,986 shares outstanding, actual;
no shares issued and outstanding, as adjusted.... 20,298 (20,298)(a) --
Class B Stock, $1.00 par value,
7,500,000 shares authorized; 2,266,406 shares
issued and outstanding, actual; no shares issued
and
outstanding, as adjusted......................... 2,267 (2,267)(b) --
New Class B Stock, $0.01 par value,
5,000,000 shares authorized; no shares issued and
outstanding, actual; 2,493,047 shares issued and
outstanding, as adjusted......................... -- 25(b) 25
Paid-in capital..................................... 31,146 38,295(c) 69,441
Retained earnings................................... 43,313 -- 43,313
Treasury stock, at cost, 7,908,330 shares of Common
and Class A Stock, actual; 8,158,400 shares of
new Common Stock, as adjusted.................... (37,322) -- (37,322)
Deferred compensation............................... (658) -- (658)
Accumulated other comprehensive loss (2,165) -- (2,165)
-------- -------- --------
Total stockholders' equity............................ $ 73,014 $ -- $ 73,014
======== ======== ========
</Table>
- ---------------
Notes to the Pro Forma Consolidated Condensed Unaudited Recapitalization Table
(a) Pro forma adjustments as of August 31, 2001 assume all outstanding shares
of Fedders' Common and Class A Stock are exchanged for new Common Stock at
an exchange ratio of 1.1 shares of new Common Stock for each share of
Common Stock exchanged and one share of new Common Stock for each share of
Class A Stock exchanged. On a pro forma basis, 38,046,620 shares of the new
Common Stock would be issued after the merger. The Class A Stock ceases to
exist after the merger. The par value of the new Common Stock is $.01 per
share.
(b) Pro forma adjustments reflect the Fedders Class B Stock exchanged for new
Class B Stock on a pro forma basis. 2,493,047 shares of new Class B Stock
are issued at a par value of $.01 per share.
(c) Reflects the net effect of the recapitalization on paid-in capital as a
result of the pro forma adjustments due to the exchange of shares and the
reduction in the par value to $.01 per share of both the new class of
Common and Class B Stock.
52
PRO FORMA UNAUDITED COMPARATIVE CONDENSED CONSOLIDATED EARNINGS PER SHARE
<Table>
<Caption>
FISCAL YEAR ENDED
AUGUST 31,
2001
-----------------
Net income(loss)(a):
As reported............................................... $(22,453)
Pro forma................................................. $(22,453)
Earnings (loss) per share(b):
Basic as reported......................................... $ (0.71)
Basic pro forma........................................... $ (0.67)
Diluted as reported....................................... $ (0.71)
Diluted pro forma......................................... $ (0.67)
Weighted average shares(c):
Basic as reported......................................... 31,808
Basic pro forma........................................... 33,489
Diluted as reported....................................... 31,808
Diluted pro forma......................................... 33,489
Cash dividends per share(d):
As reported:
Common and Class A.......................................... $ 0.120
Class B..................................................... 0.108
Pro forma:
New Common and Class B...................................... 0.120
</Table>
- ---------------
Notes to the Pro Forma Unaudited Comparative Condensed Consolidated Earnings Per
Share
(a) Pro forma net income remains unchanged for the period.
(b) Pro forma earnings per share reflect the recapitalization assuming all
outstanding shares are exchanged at the beginning of the fiscal year for
the years being reported. Basic and diluted earnings per share are computed
by dividing net income by the respective weighted average shares
outstanding for the periods presented. Basic and diluted pro forma earnings
per share are adjusted to reflect the impact of the recapitalization on the
number of weighted average shares outstanding.
(c) Pro forma weighted average shares reflect an increase in the number of
shares outstanding due to the recapitalization and exchange of all Common
and Class A Stock into new Common Stock, and Class B Stock into new Class B
Stock.
(d) Pro forma cash dividends per share reflect the impact of the
recapitalization on the weighted average number of shares outstanding and
the result of both the new Common and new Class B Stock sharing equally in
the payment of dividends.
53
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges for
each of last two fiscal periods.
<Table>
<Caption>
YEAR ENDED YEAR ENDED
AUGUST 31, 2001 AUGUST 31, 2000
--------------- ---------------
Ratio of earnings to fixed charges...................... -- 2.6x
</Table>
The ratio of earnings to fixed charges equals earnings before fixed charges
divided by fixed charges. For purposes of calculating the ratio of earnings to
fixed charges, earnings before fixed charges reduced by capitalized interest
consist of income from continuing operations before income taxes and cumulative
effect of changes in accounting principles plus fixed charges reduced by
capitalized interest. Fixed charges consist of interest expense, capitalized
interest, amortization of debt issue costs and that portion of rental expense
representative of the interest factor. For the year ended August 31, 2001,
earnings were insufficient to cover fixed charges by approximately $33,493.
54
THE RECAPITALIZATION AGREEMENT
The following is a summary of the material terms of the recapitalization
agreement and plan of merger, dated January 8, 2002. This summary does not
purport to describe all the terms of the recapitalization agreement and is
qualified by the complete recapitalization agreement which is attached as Annex
A to this proxy statement/prospectus and incorporated herein by reference. All
stockholders are urged to read carefully the recapitalization agreement in its
entirety.
GENERAL
Under the recapitalization agreement, FC Merger Sub, Inc. will merge with
and into Fedders, with Fedders continuing as the surviving corporation.
EFFECT ON CAPITAL STOCK
Under the terms of the recapitalization agreement, Fedders Common Stock,
par value $1.00 per share, and Class A Stock, par value $1.00 per share, will be
exchanged for new Common Stock, par value $0.01 per share and Fedders Class B
Stock, par value $1.00 per share, will be exchanged for new Class B Stock, par
value $0.01 per share. As a result of the recapitalization, each share of Common
Stock, Class A Stock and Class B Stock will be exchanged as follows:
- each share of Common Stock will be exchanged for 1.1 shares of new Common
Stock;
- each share of Class A Stock will be exchanged for one share of new Common
Stock; and
- each share of Class B Stock will be exchanged for 1.1 shares of new Class
B Stock.
For a more complete description of the effect of the recapitalization on
the capital stock of Fedders, see "Description of Fedders Capital Stock Before
and After the Recapitalization" herein.
FRACTIONAL SHARES
No fractional shares will be issued in the recapitalization to any
stockholder who would in the aggregate hold less than one share of new Common
Stock or new Class B Stock. In lieu of any such fractional shares, each holder
of Common Stock or Class B Stock who would otherwise have been entitled to a
fraction of a share of new Common Stock or new Class B Stock, as the case may
be, upon surrender of their Common Stock or Class B Stock will be paid cash upon
such surrender in an amount equal to the product of such fraction multiplied by
the closing sale price of the new Common Stock on the New York Stock Exchange on
the date upon which the merger becomes effective, or, if the new Common Stock is
not so traded on such day, the closing sale price on the next day on which such
stock is traded on the New York Stock Exchange.
CLOSING
Subject to the satisfaction or waiver of the conditions set forth in the
recapitalization agreement, the closing of the recapitalization will take place
at such place as Fedders shall determine, at such time as is, in the judgment of
Fedders, as soon as reasonably practicable following the annual meeting of
stockholders; unless another time or place is established by Fedders.
RESTATED CERTIFICATE OF INCORPORATION
If the recapitalization and each of the changes to Fedders' certificate of
incorporation that will be made as a result of the recapitalization are
approved, the restated certificate of incorporation, in substantially the form
attached as Exhibit A to the recapitalization agreement attached hereto as Annex
A, will govern Fedders.
BY-LAWS
If the recapitalization is approved, at the effective time of the
recapitalization, the by-laws of Fedders will be the by-laws of the surviving
corporation.
55
DIRECTORS AND OFFICERS
The directors and officers of Fedders at the effective time of the
recapitalization will continue to be the directors and officers of Fedders after
the effective time of the recapitalization.
TERMINATION
To the extent permitted by law, the board of directors may decide to
terminate the recapitalization agreement and abandon the recapitalization at any
time before the effective time in its sole discretion, including by reason of
the number of shares seeking appraisal rights. If the recapitalization agreement
is terminated, it shall become void and of no effect without any liability on
the part of any party to the agreement.
AMENDMENTS AND WAIVER
The recapitalization agreement may be amended by mutual consent of the
boards of directors of Fedders and FC Merger Sub, Inc. at any time before the
effective time of the recapitalization, even if the recapitalization proposal
has received stockholder approval. To the fullest extent permitted by law, any
provision of the recapitalization agreement may be waived prior to the effective
time of the recapitalization.
56
DESCRIPTION OF FEDDERS CAPITAL STOCK BEFORE AND AFTER THE RECAPITALIZATION
GENERAL
This section contains a description of Fedders' capital stock. This
description includes terms of the Common Stock, Class A Stock and Class B Stock,
and the new Common Stock and new Class B Stock. The express terms of the new
Common Stock and new Class B Stock are set forth in full in the restated
certificate of incorporation attached as Exhibit A to the recapitalization
agreement attached hereto as Annex A and incorporated in this document by
reference, which will be the restated certificate of incorporation of Fedders
following the recapitalization. You should read the following summary in
conjunction with, and it is qualified in its entirety by reference to, Exhibit A
to the recapitalization agreement attached hereto as Annex A .
Fedders' authorized capital stock currently consists of 80,000,000 shares
of Common Stock, 60,000,000 shares of Class A Stock, 7,500,000 shares of Class B
Stock, and 15,000,000 shares of Preferred Stock. Following the recapitalization,
Fedders will have authorized 70,000,000 shares of Common Stock, 5,000,000 shares
of Class B Stock and 15,000,000 shares of Preferred Stock. The Class A Stock
will cease to exist. As of November 30, 2001, Fedders had outstanding 13,634,759
shares of Common Stock, 14,890,386 shares of Class A Stock, 2,266,406 shares of
Class B Stock and no shares of Preferred Stock.
The Common Stock, Class A Stock and Class B Stock each have a par value of
$1.00. The new Common Stock and new Class B Stock will each have a par value of
$0.01.
The restated certificate of incorporation will provide that any action
required or permitted to be taken by the stockholders must be effected at a duly
called annual or special meeting of stockholders, and the ability of the
stockholders to consent in writing to the taking of any action will be
specifically denied. The current certificate of incorporation does not currently
provide for, or prohibit such stockholder action by written consent. Under
current Delaware law, unless otherwise provided in the certificate of
incorporation, any action required or permitted to be taken by the stockholders
may be taken without a meeting, without notice to all stockholders and without a
stockholder vote if a written consent setting forth the action to be taken is
signed by the holders of shares of outstanding stock having the requisite number
of votes that would be necessary to authorize such action if it were taken at a
meeting of stockholders.
FEDDERS COMMON STOCK
DIVIDEND RIGHTS
Prior to the recapitalization, subject to the prior rights of the holders
of the Preferred Stock, holders of Common Stock, Class A Stock and Class B Stock
are entitled to receive such dividends and other distributions in cash, stock or
property of Fedders as may be declared thereon by the board of directors of
Fedders from time to time out of assets or funds of Fedders legally available
therefor, provided that in the case of cash dividends, if at any time a cash
dividend is paid on the Common Stock, a cash dividend of equal amount must be
paid on the Class A Stock and a cash dividend must also be paid on the Class B
Stock in an amount per share of Class B Stock equal to 90% of the amount of the
cash dividend paid on each share of Common Stock. In the case of a dividend or
other distribution payable in stock of Fedders other than Preferred Stock,
unless the dividend or distribution is solely of shares of Class A Stock, in
which case a dividend or distribution payable solely in shares of Class A Stock
may be made with respect to shares of Common Stock, only shares of Common Stock
may be distributed with respect to Common Stock.
After the recapitalization, the dividend rights of the holders of new
Common Stock will generally be similar, except that if at any time a cash
dividend is paid on the new Common Stock, a cash dividend of equal amount will
be paid on the new Class B Stock.
VOTING RIGHTS
Prior to the recapitalization, each share of Common Stock is entitled to
one vote per share on all matters submitted to the stockholders of Fedders,
including election of directors. The holders of the Common Stock
57
generally vote together with the holders of Class B Stock as a single class.
However, any amendment to the certificate of incorporation, any merger or
consolidation of Fedders or any sale or disposition of all or substantially all
of the assets of Fedders (except where the other party to such transaction is a
majority-owned subsidiary of Fedders) or the dissolution of Fedders, requires
the approval of a majority of the shares of Common Stock and Class B Stock
voting as separate classes.
After the recapitalization, the voting rights of the new Common Stock will
be the same as the voting rights of the Common Stock.
LIQUIDATION RIGHTS
Prior to the recapitalization, in the event of any dissolution, liquidation
or winding up of the affairs of Fedders, after payment or provision of payment
of the debts and other liabilities of Fedders and any amounts to which the
holders of the Preferred Stock are entitled, the remaining assets and funds of
Fedders are divided among and paid ratably to the holders of the Common Stock
and Class A Stock (including those persons who become holders of Common Stock by
reason of converting their shares of Class B Stock).
After the recapitalization, in the event of any dissolution, liquidation or
winding up of the affairs of Fedders, after payment or provision of payment of
the debts and other liabilities of Fedders and any amounts to which the holders
of the Preferred Stock are entitled, the remaining assets and funds of Fedders
will be divided among the holders of the new Common Stock and new Class B Stock
as follows:
(i) first, before any payment or distribution of the assets of
Fedders is made to or set apart for the holders of new Class B Stock, the
holders of the shares of new Common Stock (including those persons who will
become holders of new Common Stock by reason of converting their shares of
new Class B Stock) will be entitled to receive $0.25 per share;
(ii) second, before any additional payment or distribution of the
assets of Fedders is made to or set apart for the holders of new Common
Stock following the initial $0.25 per share payment to the new Common
stockholders, the holders of new Class B Stock will be entitled to receive
$0.50 per share;
(iii) third, before any additional payment or distribution of the
assets of Fedders is made to or set apart for the holders of new Class B
Stock following the $0.25 per share payment to the holders of new Common
Stock and the $0.50 per share payment to the holders of new Class B Stock,
the holders of new Common Stock (including those persons who shall become
holders of new Common Stock by reason of converting their shares of new
Class B Stock) will be entitled to receive an additional $0.25 per share;
and
(iv) fourth, following the payment or setting apart for payment of
the amounts in items (i) through (iii) above, the holders of new Common
Stock and new Class B Stock will participate pari passu and be entitled to
receive, on a pro rata basis, the remaining assets of Fedders or proceeds
therefrom available for distribution to the holders of new Common Stock and
new Class B Stock.
LISTING AND TRANSFER AGENT
The Fedders Common Stock is listed on the New York Stock Exchange under the
symbol "FJC."
American Stock Transfer and Trust, is the transfer agent and registrar for
the Fedders Common Stock.
FEDDERS CLASS A STOCK
DIVIDEND RIGHTS
Prior to the recapitalization, subject to the prior rights of the holders
of the Preferred Stock, holders of Common Stock, Class A Stock and Class B Stock
are entitled to receive such dividends and other distributions in cash, stock or
property of Fedders as may be declared thereon by the board of directors of
Fedders from time to time out of assets or funds of Fedders legally available
therefor. In the case of a dividend or other distribution payable in stock of
Fedders other than Preferred Stock, only shares of Class A Stock may be
distributed with respect to Class A Stock.
58
VOTING RIGHTS
Prior to the recapitalization, the holders of Class A Stock have no voting
rights other than as required under the DGCL.
LIQUIDATION RIGHTS
Prior to the recapitalization, in the event of any dissolution, liquidation
or winding up of the affairs of Fedders, after payment or provision of payment
of the debts and other liabilities of Fedders and any amounts to which the
holders of the Preferred Stock are entitled, the remaining assets and funds of
Fedders are divided among and paid ratably to the holders of the Common Stock
and Class A Stock (including those persons who become holders of Common Stock by
reason of converting their shares of Class B Stock).
CONVERSION
Prior to the recapitalization, all outstanding shares of Class A Stock are
convertible into fully paid and nonassessable shares of Common Stock,
immediately and without any action on the part of the holders thereof, in the
event the Class B Stock is converted into Common Stock in accordance with the
provisions of the certificate of incorporation.
CHANGE OF CONTROL
Prior to (i) the proposed deletion of Section VI of clause A of Article
Second of the certificate of incorporation and (ii) the recapitalization, in any
merger or consolidation, the holders of Class A Stock are entitled to receive
the same per share consideration as is received by the holders of the Common
Stock.
LISTING AND TRANSFER AGENT
The Fedders Class A Stock is listed on the New York Stock Exchange under
the symbol "FJA."
American Stock Transfer and Trust, is the transfer agent and registrar for
Fedders Class A Stock.
POST RECAPITALIZATION RIGHTS
After the recapitalization, the Class A Stock will cease to exist and have
no rights, preferences or privileges under the restated certificate of
incorporation. It will no longer be listed on the New York Stock Exchange and
will be eligible for termination of registration under the Securities Exchange
Act of 1934.
FEDDERS CLASS B STOCK
DIVIDEND RIGHTS
Prior to the recapitalization, subject to the prior rights of the holders
of the Preferred Stock, holders of Common Stock, Class A Stock and Class B Stock
are entitled to receive such dividends and other distributions in cash, stock or
property of Fedders as may be declared thereon by the board of directors of
Fedders from time to time out of assets or funds of Fedders legally available
therefor, provided that in the case of cash dividends, if at any time a cash
dividend is paid on the Common Stock, a cash dividend of equal amount must be
paid on the Class A Stock and a cash dividend must also be paid on the Class B
Stock in an amount per share of Class B Stock equal to 90% of the amount of the
cash dividend paid on each share of Common Stock. In the case of a dividend or
other distribution payable in stock of Fedders other than Preferred Stock,
unless the dividend or distribution is solely of shares of Class A Stock, in
which case a dividend or distribution payable solely in shares of Class A Stock
may be made with respect to shares of Class B Stock, only shares of Class B
Stock may be distributed with respect to Class B Stock.
After the recapitalization, the dividend rights of the holders of new Class
B Stock will generally be similar, except that if at any time a cash dividend is
paid on the new Common Stock, a cash dividend of equal amount will be paid on
the new Class B Stock.
59
VOTING RIGHTS
Prior to the recapitalization, each share of Class B Stock is entitled to
one vote on all matters submitted to the stockholders of Fedders, provided that
each share of Class B Stock is entitled to ten votes per share in any election
of directors if either:
- more than 15% of the shares of Common Stock outstanding on the record
date for such meeting are beneficially owned by a person or group of
persons acting in concert (unless such person or group is also the
beneficial owner of a majority of the shares of Class B Stock on such
record date); or
- a nomination for the board of directors is made by a person or group of
persons acting in concert, other than the board of directors (unless such
nomination is made by one or more holders of Class B Stock, acting in
concert, who beneficially own more than 15% of the shares of Class B
Stock outstanding on such record date).
In addition, under the certificate of incorporation, the holders of the
Class B Stock have the right to vote separately as a class on certain matters.
These matters include any amendment to the certificate of incorporation, any
merger or consolidation of Fedders or any sale or disposition of all or
substantially all of the assets of Fedders (except where the other party to such
transaction is a majority-owned subsidiary of Fedders), any dissolution of
Fedders and any additional issuance of Class B Stock (except in connection with
stock splits and stock dividends). The holders of the Class B Stock do not have
the right to vote separately as a class on the recapitalization because the
merger contemplated by the recapitalization is with a wholly-owned subsidiary of
Fedders, FC Merger Sub, Inc.
After the recapitalization, the voting rights of the new Class B Stock
under the restated certificate of incorporation will be the same as the voting
rights of the Class B Stock.
LIQUIDATION RIGHTS
Prior to the recapitalization, in the event of any liquidation or winding
up of Fedders, the holders of Class B Stock are not entitled to receive any
distribution; provided that, if Fedders Class B Stock is converted into Fedders
Common Stock, the holder of Fedders Common Stock so issued would have the rights
described herein under "Fedders Common Stock -- Liquidation Rights."
After the recapitalization, the new Class B Stock will have the liquidation
rights described herein under "Fedders Common Stock -- Liquidation Rights."
RESTRICTIONS ON TRANSFER
Prior to the recapitalization, under the provisions of the certificate of
incorporation, the ability of a holder of Class B Stock to transfer such stock
whether by sale, assignment, gift, bequest, appointment or otherwise, can only
be made to a permitted transferee (as defined in the certificate of
incorporation).
After the recapitalization, the new Class B Stock will be subject to the
same transfer restrictions.
CONVERSION RIGHTS
Prior to the recapitalization, each share of Class B Stock is convertible
at any time by the holder thereof into one share of Common Stock, with no
payment or adjustment on account of dividends accrued or in arrears on Class B
Stock surrendered for conversion or on account of any dividends on the Common
Stock issuable on such conversion. Any conversion of Class B Stock is deemed to
occur on the date the certificate therefor is surrendered, and the person or
persons entitled to receive Common Stock issuable upon conversion of Class B
Stock are treated for all purposes as the record holder or holders of such
Common Stock on such date. In addition, at any time when the number of
outstanding shares of Class B Stock falls below 5% of the aggregate number of
the issued and outstanding shares of Common Stock and Class B Stock, or the
board of directors of Fedders and the holders of a majority of the outstanding
shares of Class B Stock approve the conversion of all of the Class B Stock into
Common Stock, then, immediately upon the occurrence of either
60
such event, the outstanding shares of Fedders Class B Stock are converted into
shares of Fedders Common Stock.
After the recapitalization, the conversion rights of the new Class B Stock
will be the same as the Class B stock, except that the outstanding shares of new
Class B Stock will be converted into shares of new Common Stock if the number of
outstanding shares of new Class B Stock falls below 2.5% of the aggregate number
of the issued and outstanding shares of new Common Stock and new Class B Stock.
LISTING AND TRANSFER AGENT
Fedders Class B Stock is not actively traded. Fedders acts as the transfer
agent and registrar for the Class B Stock.
61
ELECTION OF DIRECTORS
(ITEM 9 ON COMMON STOCK AND CLASS B PROXY)
The nominees for election as directors are Messrs. Sal Giordano, Jr.,
William J. Brennan, David C. Chang, Michael L. Ducker, Joseph Giordano, C. A.
Keen, Howard S. Modlin, S. A. Muscarnera and Anthony E. Puleo. Set forth
opposite the name of each director/nominee is his age, principal occupation for
the past five years, the name and principal business of any corporation or other
organization in which such employment is carried on and other business
directorships held by the nominee or director. The Company is not presently
aware of any circumstance which would prevent any nominee from fulfilling his
duties as a director of the Company.
NOMINEES
<Table>
<Caption>
DIRECTOR
NAME PRINCIPAL OCCUPATION AND AGE SINCE
- ---- ----------------------------------------- --------
Sal Giordano, Jr......................... Chairman and Chief Executive Officer of 1965
the Company(1)(2); 63
William J. Brennan....................... Financial Consultant(3); 73 1980
David C. Chang........................... President, Polytechnic University(4), 60 1998
Michael L. Ducker........................ Executive Vice President, International, 2000
Federal Express Corporation(5); 48
Joseph Giordano.......................... Retired(1)(6); 69 1961
C. A. Keen............................... Retired(7); 76 1996
Howard S. Modlin......................... President, Weisman Celler Spett & Modlin, 1977
P.C.(8); 70
S. A. Muscarnera......................... Retired(1)(9); 60 1982
Anthony E. Puleo......................... President, Puleo Tree Co.(10); 66 1994
</Table>
- ---------------
(1) Mr. Joseph Giordano is the brother, and Mr. Muscarnera is the cousin, of
Mr. Sal Giordano, Jr.
(2) Mr. Giordano, Jr. has been associated with Fedders in an executive capacity
for more than five years. He is also currently the Chairman of the
Nominating Committee and a member of the Executive Committee of Fedders.
(3) Mr. Brennan has been a financial consultant since 1989. He previously
served as a director of Fedders from 1980 to 1987, and was again elected as
a director in 1989. Mr. Brennan is also currently the Chairman of the Audit
Committee of Fedders.
(4) For the past five years, Dr. Chang has been the President of Polytechnic
University located at Six Metrotech Center, Brooklyn, New York 11201. Prior
to that, Dr. Chang was the Dean of the College of Engineering and Applied
Sciences at Arizona State University. Dr. Chang is currently a member of
the Compensation, Finance and Nominating Committees of Fedders.
(5) From 1999 to present, Mr. Ducker has been Executive Vice President,
International of Federal Express Corporation located at 3610 Hacks Cross
Road, Memphis, Tennessee 38125. Previously, he was President and Division
Head, Asia Pacific Region from 1998 and Senior Vice President of that
division from 1995. He has been with Federal Express Corporation since
1975. Mr. Ducker is a member of the Audit and Compensation Committees of
Fedders.
(6) Mr. Giordano has been retired for the past five years. He was a Senior Vice
President of Fedders until his retirement on August 31, 1992, and President
of NYCOR, Inc. until its merger into Fedders on August 13, 1996. Mr.
Giordano is currently a member of the Executive and Finance Committees. Mr.
Giordano was a Senior Vice President of the Company until his retirement on
August 31, 1992, and President of NYCOR, Inc. until its merger into the
Company on August 13, 1996. Mr. Giordano is a member of the Executive and
Finance Committees.
62
(7) Mr. Keen has been retired for the past five years. He was a Vice President
of Fedders for more than 20 years until his retirement in August, 1992. He
was also a director of NYCOR, Inc. until its merger into Fedders on August
13, 1996. Mr. Keen is currently a member of the Finance and Nominating
Committees of Fedders.
(8) For the past five years, Mr. Modlin has been the President of the law firm
of Weisman, Celler Spett & Modlin, P.C. located at 445 Park Avenue, New
York, New York 10022. His law firm renders legal services to Fedders from
time to time. Mr. Modlin is also a director of General DataComm Industries,
Inc. and Trans-Lux Corporation. Mr. Modlin is currently Chairman of the
Compensation Committee and a member of the Executive and Audit Committees
of Fedders.
(9) Mr. Muscarnera has been retired for the past five years. He was Senior Vice
President and Secretary of Fedders prior to his retirement on August 31,
1996. Mr. Muscarnera served in various capacities with Fedders over 39
years, including human resources and legal. Mr. Muscarnera is currently
Chairman of the Finance Committee and a member of the Audit Committee of
Fedders.
(10) For the past two and one-half years Mr. Puleo has been the President of
Puleo Tree Co. located at 3620 Kennedy Road, South Plainfield, New Jersey
07080. Puleo Tree Co. is an importer of Christmas items. Prior to that Mr.
Puleo was President of Boulderwood Corporation. Mr. Puleo is currently a
member of the Compensation and Nominating Committees.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the fiscal year ended August 31, 2001, the Board of Directors of the
Company held six (6) meetings. All of the present directors attended 75% or more
of such meetings and of meetings of committees of which they were members.
Directors who are not employees receive an annual fee of $48,000, payable
one-half in cash and one-half in shares of the Company's Class A Stock. After
the recapitalization, directors who are not employees will receive an annual fee
of $48,000, payable one-half in cash and one-half in shares of the Company's
Common Stock.
The board or directors has five standing committees. Committee memberships
are indicated in the preceding biographical information.
The audit committee consists of four directors, none of whom is an employee
of Fedders. The audit committee reviews significant matters relating to our
audit and internal controls, reviews the results of audits by our independent
auditors, reviews the activities of the internal audit staff, and recommends
selection of our independent auditors for approval by the board, subject to
ratification by the stockholders. The audit committee reviews and transmits to
the board Fedders' audited financial statements after the close of each fiscal
year. The chairman of the board and other members of the audit committee receive
a fee of $1,000 and $500, respectively, for each meeting they attend. During the
fiscal year ended August 31, 2001, the audit committee held four (4) meetings.
There is a written charter for the audit committee which has been adopted by the
board and is attached hereto as Annex D. All of the members of the audit
committee are independent directors.
The compensation committee consists of four directors and develops
compensation plans for Fedders' executive officers, subject to the approval of
the full board of directors. During the fiscal year ended August 31, 2001, the
compensation committee held two (2) meetings.
The executive committee consists of four directors and has the authority to
act on most matters concerning Fedders during intervals between board meetings.
During the fiscal year ended August 31, 2001, the executive committee did not
hold any meetings.
The finance committee consists of four directors. This committee reviews
Fedders' financial policies, keeps informed of its operations and financial
condition, including requirements for funds, advises the board of directors
concerning sources and disposition of Fedders' funds, evaluates investment
programs, and reviews Fedders' continuing financial arrangements and methods of
external financing. During the fiscal year ended August 31, 2001, the finance
committee did not hold any meetings.
63
The nominating committee consists of four directors, three of whom are
non-employee directors. This committee reviews possible director candidates and
makes recommendations to the board of directors concerning nominees to serve on
the board. During the fiscal year ended August 31, 2001, the nominating
committee did not meet.
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS OF FEDDERS
As of November 30, 2001, each director and executive officer of Fedders
named in the summary compensation table under "Election of
Directors -- Executive Compensation" below and all directors and executive
officers of Fedders as a group, owned beneficially the number of shares of the
Company's equity securities set forth in the table on page 37. Shares subject to
acquisition within 60 days pursuant to stock options are shown separately.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Due to an internal administrative oversight, Form 5s for three executive
officers were not filed on a timely basis. No transaction was involved as the
filings related to repricing of options.
PRINCIPAL STOCKHOLDERS OF FEDDERS
The following table sets forth information at December 12, 2001 with
respect to the beneficial ownership of our voting securities by all persons
known by us to own more than 5% of Fedders' outstanding voting securities.
Unless otherwise indicated, the owners listed have sole voting and investment
power.
<Table>
<Caption>
AMOUNT
NAME AND ADDRESS OF BENEFICIALLY PERCENT
TITLE OF CLASS BENEFICIAL OWNER(1) OWNED OF CLASS
- -------------- ------------------------------------- ------------ --------
Class B Stock................ Salvatore Giordano 2,262,566 99.82%
Joseph Giordano and Sal Giordano, Jr.
c/o Fedders Corporation
Liberty Corner, NJ 07938
</Table>
- ---------------
(1) See footnotes 4, 5, 6 and 7 to the table on page 37 for more detailed
information with respect to the security ownership of the named individuals.
64
EXECUTIVE COMPENSATION
The following information is furnished as to all cash compensation paid by
Fedders' and its subsidiaries during the fiscal year ended August 31, 2001 to
each of the five highest paid executive officers of Fedders whose aggregate
direct compensation exceeded $100,000.
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION --------------------
-------------------------- RESTRICTED ALL OTHER
FISCAL SALARY BONUS STOCK OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) (2)($) AWARDS (#) ($)
- --------------------------- ------ ------- ------- ---------- ------- ------------
Salvatore Giordano(1).............. 2001 399,866 178,095 -- 120,000(3) 67,502
Chairman of the Board of
Directors 2000 533,154 577,860 -- 120,000 74,994
1999 522,701 536,130 -- -- 44,010
Sal Giordano, Jr. ................. 2001 591,345 237,460 -- 300,000(3) 690,546
Vice Chairman and Chief Executive 2000 591,345 577,860 -- 120,000 610,027
Officer 1999 579,750 536,130 -- -- 689,770
Michael B. Etter................... 2001 290,000 89,047 -- 140,000(3) 32,355
President and Chief Operating 2000 217,000 127,553 -- 130,000 15,097
Officer 1999 166,667 67,016 -- -- 6,424
Kent E. Hansen..................... 2001 210,000 44,524 -- 100,000(3) 24,185
Executive Vice President 2000 192,676 108,349 -- 80,000 22,994
and Secretary 1999 185,509 100,524 -- -- 18,836
Robert L. Laurent, Jr. ............ 2001 255,000 118,730 -- 150,000(3) 41,415
Executive Vice President, 2000 255,000 288,930 -- 60,000 30,759
Acquisitions and Alliances 1999 250,000 268,065 -- -- 17,010
Michael Giordano................... 2001 200,000 44,524 -- 75,000(3) 19,493
Executive Vice President, Finance 2000 159,833 72,233 -- 70,000 41,387
and Administration and 1999 142,911 26,769 -- -- 6,776
Chief Financial Officer
</Table>
- ---------------
(1) Does not include Mr. Giordano's retirement payments for the 2001 fiscal year
in the amount of $276,882. Mr. Giordano retired effective June 1, 2001.
(2) Bonus payments are for those accrued in the 2001 fiscal year but not paid
until the 2002 fiscal year.
(3) Options represent options previously granted and repriced during fiscal year
2001.
OPTIONS/SAR GRANTS TABLE
During the fiscal year ended August 31, 2001, Fedders did not grant any
stock options nor stock appreciation rights (SARs) to any executive officer.
65
AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR-END OPTION/SAR VALUE TABLE
The following table sets forth the number of shares of Class A Stock
exercised during the fiscal year ended August 31, 2001, the value realized upon
exercise, the number of unexercised Class A Stock options at the end of this
period and the value of unexercised in-the-money options at the end of this
period.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<Table>
<Caption>
VALUE OF
UNEXERCISED
NUMBER OF IN-THE-
UNEXERCISED MONEY
OPTIONS AT OPTIONS AT
FY-END (#) FY-END ($)
SHARES VALUE ------------- -------------
ACQUIRED ON REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE
- ---- ------------ -------- ------------- -------------
Salvatore Giordano............................. -- -- E -- E --
U120,000 U44,400
Sal Giordano, Jr............................... 60,000 56,250 E120,000 E44,400
U120,000 U44,400
Michael Etter.................................. -- -- E 10,000 E 3,700
U130,000 U48,100
Kent E. Hansen................................. 20,000 18,400 E -- E --
U 80,000 U29,600
Robert L. Laurent, Jr.......................... 30,000 19,686 E 60,000 E22,200
U 60,000 U22,200
Michael Giordano............................... -- -- E 5,000 E 1,850
U 70,000 U25,900
</Table>
TEN YEAR OPTION/SAR REPRICINGS
The following table sets forth information concerning repricing during the
last ten fiscal years of stock options held by any person who was an executive
officer of the Company at the time of repricing:
<Table>
<Caption>
LENGTH OF
NUMBER OF ORIGINAL OPTION
SECURITIES TERM REMAINING
UNDERLYING MARKET PRICE OF EXERCISE PRICE AT DATE OF
OPTIONS/SAR'S STOCK AT TIME AT TIME OF NEW REPRICING OR
REPRICED OR OF REPRICING OR REPRICING OR EXERCISE AMENDMENT
NAME DATE AMENDED (#) AMENDMENT ($) AMENDMENT ($) PRICE ($) (MONTHS)
- ---- -------- ------------- --------------- -------------- --------- ---------------
SALVATORE GIORDANO... 10/24/00 120,000 3.625 4.50 3.625 2
7/28/92 60,000 4.375 4.75 4.375 14
7/28/92 60,000 4.375 4.94 4.375 60
7/28/92 30,000 4.375 8.125 4.375 44
1/2/92 60,000 8.125 13.00 8.125 24
1/2/92 60,000 8.125 15.125 8.125 39
1/2/92 30,000 8.125 8.75 8.125 51
</Table>
66
<Table>
<Caption>
LENGTH OF
NUMBER OF ORIGINAL OPTION
SECURITIES TERM REMAINING
UNDERLYING MARKET PRICE OF EXERCISE PRICE AT DATE OF
OPTIONS/SAR'S STOCK AT TIME AT TIME OF NEW REPRICING OR
REPRICED OR OF REPRICING OR REPRICING OR EXERCISE AMENDMENT
NAME DATE AMENDED (#) AMENDMENT ($) AMENDMENT ($) PRICE ($) (MONTHS)
- ---- -------- ------------- --------------- -------------- --------- ---------------
SAL GIORDANO, JR. ... 10/24/00 60,000 3.625 4.75 3.625 14
10/24/00 120,000 3.625 4.94 3.625 50
10/24/00 120,000 3.625 4.81 3.625 56
7/28/92 60,000 4.375 8.125 4.375 17
7/28/92 60,000 4.375 8.125 4.375 32
7/28/92 30,000 4.375 8.125 4.375 44
1/2/92 60,000 8.125 13.00 8.125 24
1/2/92 60,000 8.125 15.125 8.125 39
1/2/92 30,000 8.125 8.75 8.125 51
RICHARD BRERETON..... 7/28/92 10,000 4.375 8.125 4.375 38
7/28/92 5,000 4.375 8.125 4.375 45
1/2/92 10,000 8.125 15.125 8.125 45
1/2/92 5,000 8.125 8.75 8.125 52
JORDAN BRUNO......... 10/24/00 5,000 3.625 4.75 3.625 14
10/24/00 20,000 3.625 4.94 3.625 50
MILTON L. DAVIES..... 7/28/92 7,500 4.375 8.125 4.375 45
1/2/92 7,500 8.125 8.75 52
NANCY DIGIOVANNI..... 10/24/00 4,000 3.625 4.75 3.625 14
10/24/00 20,000 3.625 4.94 3.625 50
ROBERT N. EDWARDS.... 10/24/00 15,000 3.625 4.88 3.625 10
10/24/00 10,000 3.625 4.94 3.625 50
10/24/00 10,000 3.625 4.81 3.625 56
DARYL G. ERBS........ 10/24/00 30,769 3.625 4.88 3.625 30
MICHAEL B. ETTER..... 10/24/00 10,000 3.625 4.75 3.625 14
10/24/00 80,000 3.625 4.94 3.625 50
10/24/00 50,000 3.625 4.81 3.625 56
JOSEPH GIORDANO...... 7/28/92 30,000 4.375 8.125 4.375 17
7/28/92 30,000 4.375 8.125 4.375 32
7/28/92 15,000 4.375 8.125 4.375 44
1/2/92 30,000 8.125 13.00 8.125 24
1/2/92 30,000 8.125 15.125 8.125 39
1/2/92 15,000 8.125 8.75 8.125 51
MICHAEL GIORDANO..... 10/24/00 5,000 3.625 4.75 3.625 14
10/24/00 45,000 3.625 4.94 3.625 50
10/24/00 25,000 3.625 4.81 3.625 56
SAL GIORDANO, III.... 10/24/00 50,000 3.625 4.94 3.625 50
KENT E. HANSEN....... 10/24/00 20,000 3.625 4.75 3.625 14
10/24/00 55,000 3.625 4.94 3.625 50
10/24/00 25,000 3.625 4.81 3.625 56
JUDY A. KATZ......... 10/24/00 4,000 3.625 4.75 3.625 14
10/24/00 15,000 3.625 4.94 3.625 50
10/24/00 10,000 3.625 4.81 3.625 56
</Table>
67
<Table>
<Caption>
LENGTH OF
NUMBER OF ORIGINAL OPTION
SECURITIES TERM REMAINING
UNDERLYING MARKET PRICE OF EXERCISE PRICE AT DATE OF
OPTIONS/SAR'S STOCK AT TIME AT TIME OF NEW REPRICING OR
REPRICED OR OF REPRICING OR REPRICING OR EXERCISE AMENDMENT
NAME DATE AMENDED (#) AMENDMENT ($) AMENDMENT ($) PRICE ($) (MONTHS)
- ---- -------- ------------- --------------- -------------- --------- ---------------
ROBERT L. LAURENT,
JR. ............... 10/24/00 30,000 3.625 4.75 3.625 2
10/24/00 60,000 3.625 4.94 3.625 14
10/24/00 60,000 3.625 4.81 3.625 50
7/28/00 20,000 4.375 8.125 4.375 6
7/28/00 10,000 4.375 8.125 4.375 11
7/28/00 30,000 4.375 8.125 4.375 20
7/28/00 30,000 4.375 8.125 4.375 33
7/28/00 15,000 4.375 8.125 4.375 45
1/2/92 20,000 8.125 12.75 8.125 13
1/2/92 10,000 8.125 10.25 8.125 18
1/2/92 30,000 8.125 13.00 8.125 27
1/2/92 30,000 8.125 15.125 8.125 40
1/2/92 15,000 8.125 8.75 8.125 52
S. A. MUSCARNERA..... 7/28/92 30,000 4.375 8.125 4.375 17
7/28/92 30,000 4.375 8.125 4.375 32
7/28/92 15,000 4.375 8.125 4.375 44
1/2/92 30,000 8.125 13.00 8.125 24
1/2/92 30,000 8.125 15.125 8.125 39
1/2/92 15,000 8.125 8.75 8.125 51
JOSEPH B. NOSELLI.... 10/24/00 25,000 3.625 4.81 3.625 56
NORMAN W. SWARTZ..... 7/28/92 5,000 4.375 8.125 4.375 15
7/28/92 3,500 4.375 8.125 4.375 18
7/28/92 5,000 4.375 8.125 4.375 33
7/28/92 5,000 4.375 8.125 4.375 45
1/2/92 5,000 8.125 10.625 8.125 22
1/2/92 3,500 8.125 13.00 8.125 25
1/2/92 5,000 8.125 15.125 8.125 40
1/2/92 5,000 8.125 8.75 9.125 52
MARLENE M. VOLPE..... 10/24/00 10,000 3.625 4.75 3.625 14
10/24/00 10,000 3.625 4.94 3.625 50
10/24/00 10,000 3.625 4.81 3.625 56
</Table>
The grant of stock options is considered an important element of total
compensation in order to attract and retain highly qualified employees and to
provide an incentive to increase the value of Fedders' stock. Fedders has
granted stock options to many employees as part of their compensation package.
Outstanding options held by all employees were repriced during the fiscal year
to reflect the market price of Fedders' stock on the date of the repricing so
that such options would continue to be considered by employees as an important
element of their overall compensation package and provide the intended
incentive.
COMPENSATION COMMITTEE:
Howard S. Modlin, Chair
Michael L. Ducker
C. A. Keen
Anthony E. Puleo
68
REPORT OF AUDIT COMMITTEE
The Audit Committee is comprised of four directors who are not officers or
employees of the Company (William J. Brennan, Michael L. Ducker, Howard S.
Modlin and S.A. Muscarnera). The Audit Committee has reviewed and discussed the
audited financial statements for the Fiscal Year with management of the Company.
The Audit Committee has discussed with the Company's independent auditors,
Deloitte & Touche LLP, the matters required to be discussed by SAS 61 (the
Codification of Statements on Auditing Standards, AU 380), as may be modified or
supplemented from time-to-time. The Audit Committee has reviewed the written
disclosures and the letter from the Company's independent auditors required by
Independence Standards Board Standard No. 1 (Independence Standards Board
Standard No. 1, Independence Discussions with Audit Committees), as may be
modified or supplemented from time-to-time, and has discussed with the
independent auditors of the Company the independent auditor's independence and
based upon the review and discussions referred to above, the Audit Committee
recommended to the Board of Directors that the audited financial statements for
the Fiscal Year be included in the Company's Annual Report on Form 10-K for the
Fiscal Year for filing with the Securities and Exchange Commission.
Respectfully submitted,
Audit Committee
William J. Brennan -- Chairman
Michael L. Ducker
Howard S. Modlin
S. A. Muscarnera
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee is comprised of four directors who are not
officers or employees of Fedders (Howard S. Modlin, Michael L. Ducker, C.A. Keen
and Anthony E. Puleo). The committee submitted a plan to the board of directors
for the fiscal year ended August 31, 2001 which was approved by the Board on
December 19, 2000. Mr. Keen was formerly an officer of the Company.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
In determining the total compensation package for the chief executive
officer and all other executive officers for the fiscal year ended August 31,
2001, the Committee considered several factors including: the performance of the
Company; the individual contribution of each executive officer; the need to
attract and retain highly qualified executives necessary to build long-term
stockholder value; and the need to link a portion of each executive officer's
long-term capital accumulation to the growth in the market value of the
Company's stock. Executive compensation was broken down into three major
components (i) cash compensation, (ii) incentive bonuses, and (iii) stock
options. Sal Giordano, Jr. has an employment contract with the Company.
Cash compensation for the fiscal year ended August 31, 2001 is shown on the
Summary Compensation Table. For the fiscal year ended August 31, 2001, the
Committee recommended and the Board adopted the same plan as the last fiscal
year which applied percentages against the EBITDA of the Company minus
$1,000,000 and, with respect to certain officers, against EBITDA of the
operations for which they are responsible and certain additional goals. Mr.
Laurent may also receive incentive compensation based upon successful completion
of acquisitions during the fiscal year ended August 31, 2001. The awards under
the plan are based heavily upon the performance of the Company. The amount of
the awards for the fiscal year ended August 31, 2001 range from 0.19% to 1.00%
of EBITDA. With respect to the individuals named in the Summary Compensation
Table, the following percentages of EBITDA or potential bonus amount were
designated: Mr. Salvatore Giordano 1.00%; Mr. Sal Giordano, Jr. 1.00%; Mr.
Robert L. Laurent, Jr. 0.5%, Mr. Michael B. Etter, 0.375%, Mr. Kent E. Hansen,
0.1875% and Mr. Michael Giordano, 0.1875%.
69
Respectfully submitted,
COMPENSATION COMMITTEE
HOWARD S. MODLIN -- Chairman
MICHAEL L. DUCKER
C. A. KEEN
ANTHONY E. PULEO
EMPLOYMENT CONTRACTS
Salvatore Giordano. Mr. Salvatore Giordano had an agreement with Fedders,
which became effective on March 23, 1993. The agreement has a stated expiration
date of March 23, 2003, but the term of the agreement automatically extends and
has a remaining term of ten years from any point in time, until the term is
finally fixed at a period of ten years from an intervening event, as provided in
the agreement, such as retirement, permanent disability or death. Mr. Giordano
retired effective June 1, 2001. Annual payments under the agreement total
$1,107,530.
Sal Giordano, Jr. Mr. Giordano has an employment agreement with Fedders
which expires on September 30, 2006. The material provisions of the agreement
include: (1) an annual base salary of at least $591,345, which is reviewable
annually and subject to increase and (2) eligibility to receive an annual bonus
of not less than 1% of Fedders' earnings before income taxes, plus net interest
expense and depreciation and amortization (EBITDA) in excess of $1 million.
PERFORMANCE GRAPH
The following graph provides a comparison of the cumulative total
stockholder return on Fedders Common Stock with returns on the New York Stock
Exchange Composite Index, and stocks included in the "Home Appliance" category
by The Value Line Investment Survey.
70
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG FEDDERS CORPORATION,
NYSE MARKET INDEX AND PEER GROUP
[Line graph comparing the five-year total return between Fedders
Corporation, the Peer Group Index and the NYSE Market Index.]
<Table>
<Caption>
CUSTOMER
FEDDERS SELECTED NYSE MARKET
CORPORATION STOCK LIST INDEX
----------- ---------- -----------
1997.............................................. 112.62 127.85 159.96
1998.............................................. 93.7 144.81 155.22
1999.............................................. 120.97 202.46 215.91
2000.............................................. 98.69 131.15 241.5
2001.............................................. 93.20 137.52 180.96
</Table>
ASSUMES $100 INVESTED ON SEPTEMBER 1, 1996
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDED AUGUST 31, 2001.
<Table>
<Caption>
FISCAL YEAR ENDING
---------------------------------------------------------------------------
AUGUST 30, AUGUST 29, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
COMPANY/INDEX/MARKET 1996 1997 1998 1999 2000 2001
- -------------------- ---------- ---------- ---------- ---------- ---------- ----------
Fedders Corporation............ 100.00 113.36 94.31 121.76 99.34 93.20
Customer Selected Stock List... 100.00 116.32 130.72 182.42 118.42 137.52
NYSE Market Index.............. 100.00 135.83 141.15 183.34 205.07 180.96
</Table>
The Customer Selected Stock List is made up of the following securities:
Black & Decker Corporation, Fedders Corporation, Maytag Corporation, National
Presto Industrial, Toro Co. and Whirlpool Corporation.
71
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
(ITEM 10 ON COMMON STOCK AND CLASS B STOCK PROXY)
Pursuant to the recommendations of its Audit Committee, the Board of
Directors selected the firm of BDO Seidman, LLP ("BDO") independent auditors, to
audit the consolidated financial statements of the Company for the year ended
August 31, 1999. The Company's stockholders ratified that selection at their
Annual Meeting on December 21, 1999. On June 20, 2000, the Company engaged
Deloitte & Touche LLP ("D&T") as its independent auditors, replacing BDO as
independent auditors. The Company's Board of Directors approved the decision to
change independent auditors upon the recommendation of its Audit Committee. The
reports of BDO on the Company's financial statements for the years ended August
31, 1999 and 1998 did not contain an adverse opinion or disclaimer of opinion
and were not qualified or modified as to uncertainty, audit scope or accounting
principle. During the last two fiscal years, the Company has not had any
disagreement with BDO on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure that would require
disclosure in this Proxy Statement. There have been no reportable events (as
defined in Regulation S-K Item 304(a)(1)(v)). At the Company's request, BDO
furnished a letter addressed to the Securities and Exchange Commission as
required by Item 304 (a) of Regulation S-K. A copy of such letter was attached
to the Company's report to the Commission on Form 8-K, dated June 14, 2000 and
is incorporated herein in its entirety by reference.
D&T served as the Company's independent auditors for the fiscal year ended
August 31, 2001. On recommendation of the Audit Committee, the Board of
Directors appointed D&T, independent auditors, to audit the consolidated
financial statements of the Company and its subsidiaries for the fiscal year
ending August 31, 2002, subject to ratification by the Company's stockholders at
the Annual Meeting. D&T does not have any direct financial interest in the
Company.
Representatives of D&T are expected to be at the Annual Meeting and will be
available to respond to any appropriate questions by stockholders and may make a
statement, if they so choose.
AUDIT FEES
The aggregate fees billed by D&T and its respective affiliates for
professional services rendered for the audit of Fedders' annual financial
statements for the fiscal year ended August 31, 2001 and for the reviews of the
financial statements included in Fedders' Quarterly Reports on Form 10-Q for
that fiscal year were $278,748.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
No professional services described in Paragraph (c)(4)(ii) of Rule 20-01 of
Regulation S-X were rendered by D&T for fiscal 2001 and, accordingly, Fedders
was billed no fees for such services.
ALL OTHER FEES
The aggregate fees billed by D&T for services rendered to the Company,
other than services described above under "Audit Fees", for the fiscal year
ended August 31, 2001 were $108,269. These other fees were substantially related
to fees incurred in connection with due diligence for acquisitions, audit of the
401(k) plan and the proposed recapitalization. The Audit Committee has
considered whether the provision of non-audit services is compatible with
maintaining the independence of D&T from Fedders.
LEGAL MATTERS
Robert N. Edwards, the Vice President and General Counsel of Fedders, c/o
Fedders Corporation, 505 Martinsville Road, Liberty Corner New Jersey
07938-0813, will pass upon the validity of the new Fedders Common Stock and the
new Fedders Class B Stock to be issued under this proxy statement/prospectus.
72
EXPERTS
The consolidated financial statements and the related financial statement
schedule as of and for the fiscal years ended August 31, 2001 and 2000
incorporated in this prospectus by reference from the Fedders' Annual Report on
Form 10-K for the fiscal year ended August 31, 2001 have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports, which
are incorporated herein by reference, and have been so incorporated in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing.
The financial statements incorporated by reference in this registration
statement for the fiscal year ended August 31, 1999 have been audited by BDO
Seidman, LLP, independent certified public accountants, to the extent and for
the periods set forth in their reports incorporated herein by reference, and are
incorporated herein in reliance upon such reports given upon the authority of
said firm as experts in auditing and accounting.
ANNUAL REPORT
The annual report of Fedders for the fiscal year ended August 31, 2001, was
mailed to each stockholder on or about January 8, 2002.
STOCKHOLDER PROPOSALS -- NEXT ANNUAL MEETING
If any stockholder desires to submit a proposal for action at the next
regular annual meeting, it must be received by Fedders, P.O. Box 813, Liberty
Corner, NJ 07938 on or before July 25, 2002.
OTHER MATTERS
As of the date of this proxy statement/prospectus, Fedders' board of
directors knows of no matters that will be presented for consideration at the
annual meeting other than as described in this proxy statement/ prospectus.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the Securities
and Exchange Commission. You may read and copy any reports, statements or other
information filed by us at the Commission's Public Reference Room located at 450
Fifth Street, N.W., Washington, D.C. 20549. Please call the Commission at
1-800-SEC-0330 for further information on the public reference rooms. Fedders
Common Stock and Class A Stock is listed on the NYSE under the symbols "FJC" and
"FJA," respectively, and such material relating to Fedders may also be inspected
at the offices of the NYSE, 20 Broad Street, New York, NY 10005. Certain of such
reports, statements and other information filed by Fedders are also available on
the Internet at the SEC's World Wide Web site at http://www.sec.gov.
We have filed a Form S-4 with the SEC to register the new Common Stock and
new Class B Stock to be issued in the recapitalization. This document is part of
the Form S-4 and constitutes part of a prospectus in addition to being a proxy
statement of Fedders for the annual meeting. As allowed by SEC rules, this
document does not contain all the information you can find in the Form S-4 or
the exhibits to the Form S-4.
The SEC allows us to "incorporate by reference" information into this
document, which means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is deemed to be part of this document, except for any
information superseded by information in this document. This document
incorporates by reference the documents set forth below that we have previously
filed with the SEC. These documents contain important information about Fedders
and its finances.
73
<Table>
<Caption>
FEDDERS SEC FILINGS (FILE NO. 1-8831) PERIOD/AS OF DATE
- ------------------------------------- ------------------------------------------
Current Report on Form 8-K January 3, 2002
Annual Report on Form 10-K Year ended August 31, 2001
Current Report on Form 8-K June 20, 2000
</Table>
We are also incorporating by reference additional documents that we file
with the SEC after the date of this document and before the date of the annual
meeting.
If you are a stockholder, we may have sent you some of the documents
incorporated by reference, but you can obtain any of them through us or the SEC.
DOCUMENTS INCORPORATED BY REFERENCE ARE AVAILABLE FROM US WITHOUT CHARGE,
EXCLUDING ALL EXHIBITS UNLESS WE HAVE SPECIFICALLY INCORPORATED BY REFERENCE AN
EXHIBIT IN THE DOCUMENT. Stockholders may obtain documents incorporated by
reference in this document by requesting them in writing or by telephone from
Fedders at the following address:
<Table>
MAIL: TELEPHONE: (908) 604-8686
Fedders Corporation FACSIMILE: (908) 604-8576
505 Martinsville Road E-MAIL: khansen@fedders.com
Liberty Corner, NJ 07938-0813
</Table>
IF YOU WOULD LIKE TO REQUEST DOCUMENTS FROM US, PLEASE DO SO BY FEBRUARY
15, 2002 TO RECEIVE THEM BEFORE THE ANNUAL MEETING.
We have not authorized anyone to give any information or make any
representation about the recapitalization of Fedders that differs from, or adds
to, the information in this document or in Fedders' documents that are publicly
filed with the SEC. Therefore, if anyone does give you different or additional
information, you should not rely on it.
The information contained in this document speaks only as to its date
unless the information specifically indicates that another date applies.
Information in this document about Fedders has been supplied by Fedders.
FORWARD-LOOKING STATEMENTS
Statements included or incorporated by reference herein may constitute
forward-looking statements that are subject to risks and uncertainties that
could cause actual results to differ materially, including the uncertainties
relating to the actual liquidity of Fedders' shares, Fedders' operating
performance and other factors affecting share prices generally. Actual results
may differ materially from those stated depending on a number of factors,
including, without limitation:
- greater price competition resulting from industry overcapacity or other
factors;
- a significant decline in industry sales resulting from slowing economic
growth;
- seasonal fluctuations in sales of air conditioning units and other
climate-related products;
- climatic conditions, particularly cool summer conditions; and
- varying costs of electricity.
Fedders undertakes no obligation to update or revise forward-looking statements
to reflect changes in assumptions, the occurrence of unanticipated events, or
changes in future operating results over time. For more information as to
various risks relevant to Fedders' business and results of operations see
Fedders' other filings with the Securities and Exchange Commission. See "Where
You Can Find More Information."
74
ANNEX A
RECAPITALIZATION AGREEMENT AND PLAN OF MERGER
DATED AS OF JANUARY 8, 2002
BETWEEN
FEDDERS CORPORATION
AND
FC MERGER SUB, INC.
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RECAPITALIZATION AGREEMENT AND PLAN OF MERGER, dated as of January 8, 2002
(this "Agreement"), between Fedders Corporation, a Delaware corporation (the
"Company") and FC Merger Sub, Inc., a Delaware corporation and a wholly-owned
subsidiary of the Company ("Merger Sub").
WHEREAS, the total number of shares of all classes of stock that the
Company has authority to issue is 162,500,000, consisting of 80,000,000 shares
of Common Stock, par value $1.00 per share (the "Common Stock"), of which
13,634,759 are outstanding, 60,000,000 shares of Class A Stock, par value $1.00
per share (the "Class A Stock"), of which 14,890,386 are outstanding, 7,500,000
shares of Class B Stock, par value $1.00 per share (the "Class B Stock"), of
which 2,266,406 are outstanding, and 15,000,000 shares of Preferred Stock, par
value of $1.00 per share (the "Preferred Stock") none of which are outstanding;
and the total number of shares of all classes of stock that Merger Sub has
authority to issue is 100 shares of common stock, par value $.01 per share (the
"Merger Sub Common Stock"), of which 10 are issued and outstanding;
WHEREAS, the Company desires that Merger Sub merge with and into the
Company (hereinafter, in such capacity, sometimes referred to as the "Surviving
Corporation"), upon the terms and subject to the conditions set forth in this
Agreement (the "Merger"), in accordance with the General Corporation Law of the
State of Delaware (the "DGCL");
WHEREAS, pursuant to this Agreement and as a result of the Merger: (i) each
share of Common Stock issued and outstanding immediately prior to the effective
time of the Merger will, upon the terms and subject to the conditions and
limitations set forth herein, be converted into the right to receive 1.1 shares
of a new class of common stock, par value $0.01 per share, of the Surviving
Corporation ("New Common Stock"); (ii) each share of Class A Stock issued and
outstanding immediately prior to the effective time of the Merger, will, upon
the terms and subject to the conditions and limitations set forth herein, be
converted into the right to receive one share of New Common Stock; and (iii)
each share of Class B Stock issued and outstanding immediately prior to the
effective time of the Merger, other than any Dissenting Shares (as such term is
defined in Section 1.5 hereof), will, upon the terms and subject to the
conditions and limitations set forth herein, be converted into the right to
receive 1.1 shares of a new class of Class B Stock, par value $0.01 per share,
of the Surviving Corporation ("New Class B Stock").
WHEREAS, the Boards of Directors of the Company and Merger Sub by
resolutions duly adopted have approved the terms of this Agreement and of the
Merger, have declared the advisability of this Agreement and of the Merger and
determined them to be fair to and in the best interests of the Company and
Merger Sub, and have directed the submission of this Agreement to their
respective stock holders for approval; and
WHEREAS, the Merger is intended to constitute a reorganization of the
Company within the meaning of Section 368(a)(1)(E) of the Internal Revenue Code
of 1986, as amended (the "Code").
NOW, THEREFORE in consideration of the premises and the mutual agreements
and provisions herein contained, the parties hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. (a) Upon the terms and subject to the conditions
of this Agreement, at the Effective Time (as defined below), Merger Sub shall be
merged with and into the Company in accordance with the DGCL, the separate
corporate existence of Merger Sub shall cease, and the Company shall be the
Surviving Corporation of the Merger.
(b) Following satisfaction or waiver of all conditions to the Merger, the
Company and Merger Sub shall file a certificate of merger with the Secretary of
State of the State of Delaware and make all other filings or recordings required
by the DGCL in connection with the Merger. The Merger shall become effective at
such time as the certificate of merger is duly filed with the Secretary of State
of the State of Delaware or at such later time as is specified in the
certificate of merger (the "Effective Time").
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(c) At and after the Effective Time, the Merger shall have the effects set
forth in the DGCL. Without limiting the foregoing and subject thereto, from and
after the Effective Time, the Surviving Corporation shall possess all the
rights, privileges, powers and franchises and be subject to all of the
restrictions, disabilities and duties of the Company and Merger Sub, all as
provided under the DGCL.
Section 1.2 Effect on Capital Stock. At the Effective Time:
(a) Each share of Merger Sub Common Stock outstanding immediately
prior to the Effective Time shall, by virtue of the Merger, be cancelled
and retired and cease to exist, without any conversion thereof.
(b) Except as otherwise provided in this Agreement, each share of
Common Stock, each share of Class A Stock and each share of Class B Stock
issued and outstanding immediately prior to the Effective Time (other than
Dissenting Shares (as defined in Section 1.5(a) hereof)) shall, by virtue
of the Merger, be converted into and become exchangeable for the right to
receive the following (the "Exchange Consideration"):
(i) for each share of Common Stock, 1.1 shares of New Common Stock;
(ii) for each share of Class A Stock, one share of New Common
Stock; and
(iii) for each share of Class B Stock, 1.1 shares of New Class B
Stock.
(c) Each share of Common Stock and Class B Stock, if any, held in the
treasury of the Company or by any wholly owned subsidiary of the Company
shall be converted into and exchanged for 1.1 shares of New Common Stock or
New Class B Stock, as the case may be, by virtue of the Merger.
(d) Each share of Class A Stock, if any, held in the treasury of the
Company or by any wholly owned subsidiary of the Company shall be converted
into and exchanged for one share of New Common Stock by virtue of the
Merger.
(e) All shares of Common Stock, Class A Stock and Class B Stock to be
converted into the Exchange Consideration pursuant to this Section 1.2
shall, by virtue of the Merger and without any action on the part of the
holders thereof, cease to be outstanding, be cancelled and retired and
cease to exist; and each holder of a certificate representing prior to the
Effective Time any such shares of Common Stock, Class A Stock or Class B
Stock shall thereafter cease to have any rights with respect to such
shares, except the right to receive (i) the Exchange Consideration and (ii)
any dividends and other distributions in accordance with Section 1.3(c)
hereof.
Section 1.3 Exchange of Certificates.
(a) As of the Effective Time, the Company shall deposit, or cause to be
deposited with American Stock Transfer and Trust or another bank, trust company,
Person or Persons designated by the Company to act as exchange agent (the
"Exchange Agent") for the benefit of the holders of shares of Common Stock,
Class A Stock and Class B Stock, a certificate or certificates representing the
Exchange Consideration such that the Exchange Agent may issue: (i) shares of New
Common Stock in the form of certificates to holders of Common Stock and Class A
Stock that receive shares of New Common Stock in the Merger; and (ii) shares of
New Class B Stock in the form of certificates to holders of Class B Stock that
receive shares of New Class B Stock in the Merger. For purposes of this
Agreement, "Person" means any natural person, firm, individual, corporation,
limited liability company, partnership, association, joint venture, company,
business trust, trust or any other entity or organization whether incorporated
or unincorporated, including a government or political subdivision or any agency
or instrumentality thereof.
(b) As of or promptly following the Effective Time, the Company shall cause
the Exchange Agent to mail (and to make available for collection by hand) to (A)
each holder of record of a certificate or certificates, which immediately prior
to the Effective Time represented outstanding shares of Common Stock, Class A
Stock or Class B Stock (the "Certificates") (i) a letter of transmittal or
similar transmittal form (which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon proper
delivery of the Certificates to the Exchange Agent and which shall be in the
form and have such other
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provisions as the Company may specify) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for (A) certificates
representing that number of shares of New Common Stock into which the number of
shares of Common Stock or Class A Stock, as the case may be, previously
represented by such Certificate shall have been converted pursuant to this
Agreement, and (B) certificates representing that number of shares of New Class
B Common Stock into which the number of shares of Class B Stock shall have been
converted pursuant to this Agreement. Upon surrender of a Certificate for
cancellation to the Exchange Agent, together with a letter of transmittal or
similar transmittal form duly completed and validly executed in accordance with
the instructions thereto, and such other documents as may be required pursuant
to such instructions, the holder of such Certificate shall, subject to
consummation of the Merger, be entitled to receive in exchange therefor the
Exchange Consideration for each share of Common Stock, Class A Stock or Class B
Stock formerly represented by such Certificate, and the Certificate so
surrendered shall be forthwith cancelled. The Exchange Agent shall accept such
Certificates upon compliance with such reasonable terms and conditions as the
Exchange Agent may impose to effect an orderly exchange therefor in accordance
with normal exchange practices. No interest on the cash payable pursuant to
subsection (c) below upon the surrender of the Certificates shall be paid or
accrued for the benefit of holders of the Certificates.
(c) No dividends or other distributions with respect to shares of New
Common Stock or New Class B Stock with a record date on or after the Effective
Time shall be paid to the holder of any unsurrendered Certificate with respect
to the shares of New Common Stock or New Class B Stock represented thereby by
reason of the conversion of shares of Common Stock, Class A Stock and Class B
Stock pursuant to Sections 1.2(b) and 1.3 hereof until such Certificate is
surrendered in accordance with this Article I. Subject to the effect of
applicable laws, following surrender of any such Certificate, there shall be
paid, without interest, to the Person in whose name the shares of New Common
Stock or New Class B Stock representing such securities are registered (i) at
the time of such surrender, the proportionate amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to shares of New Common Stock or New Class B Stock issued upon
conversion of the Common Stock, Class A Stock and Class B Stock and (ii) at the
appropriate payment date or as promptly as practicable thereafter, the
proportionate amount of dividends or other distributions with a record date
after the Effective Time but prior to such surrender and a payment date
subsequent to such surrender payable with respect to such shares of New Common
Stock and New Class B Stock.
(d) Any portion of the Exchange Consideration deposited with the Exchange
Agent pursuant to this Section 1.3 (the "Exchange Fund") which remains
undistributed to the holders of Certificates for six months after the Effective
Time shall be delivered to the Company, upon demand, and any holders of shares
of Common Stock, Class A Stock or Class B Stock prior to the Merger who have not
theretofore complied with this Article I shall thereafter look for payment of
their claim, as general creditors thereof, only to the Company for their claim
for (1) shares of New Common Stock, if any, (2) shares of New Class B Stock, if
any and (3) any dividends or other distributions with respect to shares of New
Common Stock or New Class B Stock to which such holders may be entitled.
(e) None of the Company, Merger Sub or the Exchange Agent shall be liable
to any Person in respect of any shares of New Common Stock or New Class B Stock
held in the Exchange Fund (and any dividends and other distributions payable in
respect thereof) delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
(f) The Exchange Agent shall invest any cash included in the Exchange Fund,
as directed by the Company on a daily basis. Any interest and other income
resulting from such investments shall be paid to the Company.
(g) No certificate representing fractional shares of New Common Stock or
New Class B stock shall be issued or book entry credit shall be made upon the
surrender for exchange of Certificates pursuant to this Section 1.3 and no
dividend, stock split-up or other change in the capital structure of the Company
shall relate to any fractional security, and such fractional interests shall not
entitle the owner thereof to vote or to any rights of a security holder. In lieu
of any such fractional securities, each holder of Common Stock, Class A Stock or
Class B Stock who would otherwise have been entitled to a fraction of a share of
New Common
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Stock or New Class B Stock, as the case may be, upon surrender of the
Certificates pursuant to this Section 1.3 will be paid cash upon such surrender
in an amount equal to the product of such fraction multiplied by (i) in the case
of New Common Stock, the closing sale price of the New Common Stock on the New
York Stock Exchange on the day of the Effective Time, or, if the New Common
Stock is not so traded on such day, the closing sale price on the next day on
which such stock is traded on the New York Stock Exchange; or (ii) in the case
of the New Class B Stock, the closing sale price of the New Common Stock on the
New York Stock Exchange on the day of the Effective Time, or, if the New Common
Stock is not so traded on such day, the closing sale price on the next day on
which such stock is traded on the New York Stock Exchange.
(h) If between the date hereof and the Effective Time, the outstanding
shares of Common Stock, Class A Stock or Class B Stock shall be changed into a
different number of shares by reason of reclassification, recapitalization,
split-up, combination or exchange of shares, or any dividend payable in stock or
other securities shall be declared thereon with a record date within such
period, the Exchange Consideration shall be adjusted accordingly to provide the
holders of the Common Stock, Class A Stock or Class B Stock, as the case may be,
the same economic effect as contemplated by this Agreement prior to such
reclassification, recapitalization, split-up, combination, exchange or dividend.
Section 1.4 Stock Options; Other Equity Benefit Plans and Awards.
(a) At the Effective Time, each of the then outstanding Options (as defined
below) shall be converted into (i) in the case of an Option to purchase Common
Stock, that number of shares of New Common Stock determined by multiplying the
number of shares of Common Stock subject to such Option at the Effective Time by
1.1; and (ii) in the case of an Option to purchase Class A Stock, that number of
shares of New Common Stock equal to the number of shares of Class A Stock
subject to such Option at the Effective Time.
"Options" means any option granted, and not exercised, expired or
terminated, to a current or former employee, director or independent contractor
of the Company or any of its subsidiaries or any predecessor thereof to purchase
shares of Common Stock or Class A Stock pursuant to the Company's Stock Option
Plans I through VIII or any other stock option, stock bonus, stock award, or
stock purchase plan, program, or arrangement of the Company or any of its
subsidiaries or any predecessor thereof or any other contract or agreement
entered into by the Company or any of its subsidiaries.
(b) Each phantom stock or similar award (whether denominated in shares of
Common Stock, Class A Stock, phantom units in a Company Common Stock fund or a
Company Class A Stock fund or otherwise) which is outstanding immediately prior
to the Effective Time under any deferred compensation, incentive compensation or
similar plan, program or arrangement of the Company or any of its subsidiaries
shall be adjusted by the committee or other entity responsible for the
administration of such plan, program or arrangement so that the number of shares
or units to which such awards relate is treated in a manner consistent with the
treatment of shares of Common Stock and Class A Stock held by a stockholder at
the Effective Time.
Section 1.5 Dissenting Shares.
(a) Notwithstanding anything in this Agreement to the contrary, each share
of Class B Stock issued and outstanding immediately prior to the Effective Time
and held by a person (a "Dissenting Stockholder") who is entitled to seek an
appraisal of such shares under Delaware law and who complies with all the
requirements of Delaware law to exercise and perfect appraisal rights
("Dissenting Shares") shall not be converted into the right to receive the
Exchange Consideration but shall instead become the right to receive such
consideration as may be determined to be due to such Dissenting Stockholder
pursuant to Section 262 of the DGCL. If, after the Effective Time, such
Dissenting Stockholder withdraws his or her demand for appraisal or fails to
perfect or otherwise loses his or her right of appraisal, in any case pursuant
to the DGCL, the shares of such Dissenting Stockholder shall be deemed to be
converted as of the Effective Time into the right to receive the Exchange
Consideration (without any interest thereon).
(b) Nothing contained in this Agreement, including Section 1.5(a) hereof
shall limit the right of the Company to take the position at any time, including
in any litigation or appraisal or other proceeding, and in
A-5
any manner (including in its sole discretion by filing a declaratory judgment
action), that stockholders, or that particular groups of stockholders, are not
entitled to appraisal rights under Section 262 of the DGCL.
Section 1.6 Closing. Subject to the satisfaction or waiver of the
conditions set forth in Article III hereof, the closing of the Merger ("the
Closing") shall take place at such place as the Company shall determine, at such
time as is, in the judgment of the Company, as soon as reasonably practicable
following the Annual Meeting of Stockholders; unless another time, or place is
established by the Company (the actual time and date of the Closing being
referred to herein as the "Closing Date").
ARTICLE II
THE SURVIVING CORPORATION
Section 2.1 Certificate of Incorporation. The Certificate of Incorporation
of the Company will, upon the Effective Time and as a result of the Merger, be
amended and restated in substantially the form attached hereto as Exhibit A (the
"Restated Certificate"). Upon the Effective Time, the Restated Certificate of
the Company will become the certificate of incorporation of the Surviving
Corporation.
Section 2.2 By-Laws. At the Effective Time, the By-Laws of the Company as
in effect immediately prior to the Effective Time will be the By-Laws of the
Surviving Corporation.
Section 2.3 Directors and Officers. From and after the Effective Time, the
directors and officers of the Company at the Effective Time shall be the
directors and officers of the Surviving Corporation, in each case until their
respective successors are duly elected or appointed and qualified in accordance
with applicable law.
ARTICLE III
CONDITIONS TO THE MERGER
Section 3.1 Conditions to the Obligations of the Company and Merger
Sub. The respective obligations of the Company and Merger Sub to consummate the
Merger are subject to the satisfaction of, or to the extent permitted by
applicable law, the waiver by the Company on or prior to the Effective Time of
each of the following conditions:
(a) a proposal to delete Section VI of clause A of Article Second of
the certificate of incorporation of Fedders has been approved by the
holders of the shares of Common Stock, Class A Stock and Class B stock
representing a majority of the votes entitled to be cast thereon, each
voting separately as a class.
(b) a proposal to adopt this Agreement has been approved by the
holders of the shares of Common Stock and Class B Stock representing a
majority of the votes entitled to be cast thereon, voting together as a
single class.
(c) proposals to adopt each of the changes to Fedders' certificate of
incorporation that will be made as a result of the recapitalization have
been approved by the holders of the shares of Common Stock and Class B
Stock representing a majority of the votes entitled to be cast thereon,
voting together as a single class.
(d) no laws shall have been adopted or promulgated, and no temporary
restraining order, preliminary or permanent injunction or other order
issued by a court or other supranational, national, state, municipal, local
or foreign government, any instrumentality, subdivision, administrative
agency or commission or other authority thereof, or any quasi-governmental
or private body exercising any regulatory, taxing, importing or other
governmental or quasi-governmental authority (a "Governmental Entity") of
competent jurisdiction shall be in effect having the effect of making the
Merger illegal or otherwise prohibiting consummation of the Merger and no
proceeding challenging this Agreement or the transactions contemplated
hereby or seeking to prohibit, alter, prevent or materially delay the
Merger shall have been instituted by any or before any court, arbitrator or
governmental body, agency or official
A-6
and be pending which would cause the Board of Directors of the Company to
determine that the consummation of the Merger is no longer advisable;
(e) (i) all waiting periods under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, applicable to the Merger shall have
expired or been terminated and (ii) all actions by or in respect of or
filings with any Governmental Entity required to permit the consummation of
the Merger shall have been obtained, except those that would not reasonably
be expected to have a material adverse affect on the Company or its ability
to consummate the transactions contemplated by this Agreement;
(f) the New Common Stock to be issued pursuant to the Merger and upon
exercise of Options and other equity based awards shall have been approved
for listing on the New York Stock Exchange, subject to official notice of
issuance;
(g) the registration statement on Form S-4 to be filed in connection
with the issuance of shares in the Merger (the "Form S-4") shall have been
declared effective by the Securities and Exchange Commission (the "SEC")
under the Securities Act of 1933. No stop order suspending the
effectiveness of the Form S-4 shall have been issued by the SEC and no
proceedings for that purpose shall have been initiated or threatened by the
SEC; and
(h) the Company shall have received evidence in form and substance
reasonably satisfactory to it, that all material licenses, permits,
consents, approvals, authorizations, qualifications and orders of
governmental authorities and parties to contracts with the Company and its
subsidiaries as are necessary for consummation of the transactions
contemplated by this Agreement have been obtained and are in full force and
effect, other than those which, if not obtained, would not have a material
adverse effect on the Company.
ARTICLE IV
TERMINATION
Section 4.1 Termination. To the fullest extent permitted by Delaware law,
this Agreement may be terminated, and the Merger and other actions herein
provided for may be abandoned, by the Board of Directors of the Company in its
sole discretion at any time prior to the Effective Time, notwithstanding any
approval of this Agreement by the stockholders of either or both of the Company
or Merger Sub.
Section 4.2 Effect of Termination. If this Agreement is terminated
pursuant to Section 4.1, this Agreement shall become void and of no effect with
no liability on the part of any party hereto.
ARTICLE V
MISCELLANEOUS
Section 5.1 Notices. All notices and other communications hereunder shall
be in writing and hand delivered or mailed by registered or certified mail
(return receipt requested) or sent by any means of electronic message
transmission with delivery confirmed (by voice or otherwise) to the parties at
the following addresses (or at such other addresses for a party as shall be
specified by like notice) and will be deemed given on the date on which such
notice is received:
To the Company or Merger Sub:
Fedders Corporation
505 Martinsville Road
Liberty Corner, New Jersey 07938-0813
Telecopy: 908-604-07156
Attn: Kent E. Hansen
Section 5.2 Successors and Assigns. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that no party may
A-7
assign, delegate or otherwise transfer any of its rights or obligations under
this Agreement without the consent of the other party hereto.
Section 5.3 Governing Law. This Agreement shall be construed in accordance
with and governed by the laws of the State of Delaware.
Section 5.4 Amendment and Waiver. To the fullest extent permitted by
Delaware law, this Agreement may be amended by mutual consent of the Boards of
Directors of the Company and Merger Sub, and any provision hereof may be waived,
at any time prior to the Effective Time, notwithstanding any approval of this
Agreement by the stockholders of either or both of the Company and Merger Sub.
Section 5.5 Counterparts; Effectiveness. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when each party hereto shall have received
counterparts hereof signed by the other party hereto.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
FEDDERS CORPORATION
By:
------------------------------------
Name:
Title:
FC MERGER SUB, INC.
By:
--------------------------------------
Name:
Title:
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EXHIBIT A
RESTATED CERTIFICATE OF INCORPORATION
OF FEDDERS CORPORATION
The undersigned, Kent E. Hansen, certifies that he is the Executive Vice
President and Secretary of Fedders Corporation, a corporation organized and
existing under the laws of the State of Delaware (the "Corporation"), and does
hereby further certify as follows:
(1) The name of the Corporation is Fedders Corporation.
(2) The name under which the Corporation was originally incorporated
was Fedders Corporation and the original Certificate of Incorporation of
the Corporation was filed with the Secretary of State of the State of
Delaware on April 4, 1984.
(3) This Restated Certificate of Incorporation was duly adopted by in
accordance with the provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware.
(4) The text of the Restated Certificate of Incorporation of the
Corporation as amended hereby is restated to read in its entirety, as
follows:
FIRST: The name of the corporation shall be FEDDERS CORPORATION.
SECOND: The purposes for which the Corporation is formed are as follows:
(a) To design, manufacture, buy, sell, distribute, at wholesale or
retail, import and export, rent and lease, repair and maintain, dispose of,
and generally deal in all kinds of air-conditioning apparatus, equipment
and appliances; refrigeration apparatus, equipment and appliances; heating
apparatus, equipment and appliances; gas and electric stoves and ranges;
automatic clothes-washing machines and clothes-drying machines of all kinds
and for all purposes; automobile radiators and other components of all
kinds; sheetmetal specialties; and all other devices of any kind or nature
used in conjunction therewith, or incidental or accessory thereto.
(b) To design, create, manufacture, produce, export, import, purchase,
acquire, sell, dispose of, and generally deal in and with materials,
articles, machinery, apparatus, equipment, appliances, supplies, goods and
other personal property of every kind and description, tangible or
intangible, and to engage in any mercantile, commercial manufacturing or
trading business of any character.
(c) To acquire, by purchase or otherwise, own, hold, lease, mortgage,
sell, or otherwise dispose of, and generally deal in and with rights and
interests in real and personal property of every kind and description.
(d) To acquire, sell or otherwise dispose of, deal in and with, and
grant and obtain licenses for all kinds of intangible property, including
patent rights, improvements thereon, inventions, discoveries, formulas and
processes, copyrights, trademarks, trade names and designs.
(e) To the extent permitted by law, to promote, finance, underwrite
and assist, financially or otherwise, and to assume and guarantee the
obligations of any individual, corporation or other entity, and to purchase
or otherwise acquire, hold, own, sell or otherwise dispose of securities
and obligations of every nature and kind of any issuer, whether or not
incorporated.
(f) To do all and everything necessary, suitable or proper for the
accomplishment of any of the purposes or the attainment of any of the
objectives hereinbefore set forth, either alone or in association with
other corporations, firms or individuals, and to do every other act or
acts, thing or things, incidental or appurtenant to or arising out of or
connected with the aforesaid businesses or any part or parts thereof.
(g) To engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware.
THIRD: The aggregate number of shares of stock of all classes which the
Corporation shall have authority to issue is 90,000,000, consisting of
70,000,000 shares of Common Stock having a par value of $0.01
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per share, 5,000,000 shares of Class B Stock having a par value of $0.01 per
share and 15,000,000 shares of Preferred Stock having a par value of $0.01 per
share.
The powers, preferences and the relative, participating, optional and other
rights and the qualifications, limitations and restrictions thereof, of each
class of stock, and the express grant of authority to the Board of Directors to
fix by resolution the designations and the powers, preferences and rights of
each share of Preferred Stock and the qualifications, limitations and
restrictions thereof which are not fixed by this Certificate of Incorporation,
are as follows:
A. COMMON STOCK AND CLASS B STOCK.
I. DIVIDENDS, ETC.
Subject to the rights of the holders of Preferred Stock, and subject to any
other provisions of this Certificate of Incorporation, as amended from time to
time, holders of Common Stock and Class B Stock shall be entitled to receive
such dividends and other distributions in cash, stock or property of the
Corporation as may be declared thereon by the Board of Directors from time to
time out of assets or funds of the Corporation legally available therefor;
provided, that in the case of cash dividends, if at any time a cash dividend is
paid on the Common Stock, a cash dividend of equal amount shall be paid on the
Class B Stock; and provided, further, that in the case of dividends or other
distributions payable in stock of the Corporation other than Preferred Stock,
including distributions pursuant to stock splits or divisions of stock of the
Corporation other than Preferred Stock, which occur after the initial issuance
of shares of Class B Stock by the Corporation, only shares of Common Stock shall
be distributed with respect to Common Stock and only shares of Class B Stock
shall be distributed with respect to Class B Stock, in each case, in an amount
per share equal to the amount per share paid with respect to the Common Stock,
and that, in the case of any combination, reclassification or subdivision of the
Common Stock, the shares of Class B Stock shall also be combined, reclassified
or subdivided so that the number of shares of Class B Stock outstanding
immediately following such combination, reclassification or subdivision shall
bear the same relationship to the number of shares outstanding immediately prior
to such combination, reclassification or subdivision as the number of shares of
Common Stock outstanding immediately following such combination,
reclassification or subdivision bears to the number of shares of Common Stock
outstanding immediately prior to such combination, reclassification or
subdivision.
II. VOTING.
(a) At every meeting of the stockholders, every holder of Common Stock
shall be entitled to one (1) vote in person or by proxy for each share of Common
Stock standing in his name on the transfer books of the Corporation and every
holder of Class B Stock shall be entitled to one (1) vote in person or by proxy
for each share of Class B Stock standing in his name on the transfer books of
the Corporation, except that each holder of Class B Stock shall be entitled to
ten (10) votes per share on the election of any directors at any stockholders'
meeting (i) if more than 15% of the shares of Common Stock outstanding on the
record date for such meeting are beneficially owned by a person or group of
persons acting in concert (unless such person or group is also the beneficial
owner of a majority of the shares of Class B Stock on such record date), or (ii)
if a nomination for the Board of Directors is made by a person or group of
persons acting in concert, other than the Board of Directors (unless such
nomination is made by one or more holders of Class B Stock, acting in concert,
who beneficially own more than 15% of the shares of Class B Stock outstanding on
such record date).
(b) The provisions of this Certificate of Incorporation shall not be
modified, revised, altered or amended, repealed or rescinded in whole or in
part, without the affirmative vote of the holders of a majority of the shares of
the Common Stock and of a majority of the shares of the Class B Stock, each
voting separately as a class.
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(c) The Corporation may not effect or consummate:
(1) any merger or consolidation of the Corporation with or into any
other person;
(2) any sale, lease, exchange or other disposition of all or
substantially all of the assets of the Corporation to or with any other
person; or
(3) any dissolution of the Corporation;
unless and until such transaction is authorized by the vote, if any, required by
Delaware law; and unless and until such transaction is authorized by a majority
of the votes entitled to be cast by the shares of Common Stock and of Class B
Stock entitled to vote, each voting separately as a class, but the foregoing
shall not apply to any merger or other transaction described in the preceding
subparagraphs (1) and (2) if the other party to the merger or other transaction
is a Subsidiary of the Corporation.
For purposes of this paragraph (c) a "Subsidiary" is any corporation more
than 50% of the voting securities of which are owned directly or indirectly by
the Corporation; and a "person" is any individual, partnership, corporation or
entity.
(d) Following the initial issuance of shares of Class B Stock, the
Corporation may not effect the issuance of any additional shares of Class B
Stock (except in connection with stock splits and stock dividends) unless and
until such issuance is authorized by the holders of a majority of the voting
power of the shares of Common Stock and of Class B Stock entitled to vote, each
voting separately as a class.
(e) Every reference in this Certificate of Incorporation to a majority or
other proportion of shares of stock shall refer to such majority or other
proportion of the votes entitled to be cast by such shares.
(f) Except as may be otherwise required by law or by this Article Third,
the holders of Common Stock and Class B Stock shall vote together as a single
class, subject to any voting rights which may be granted to holders of Preferred
Stock.
III. TRANSFER.
(a) No person holding shares of Class B Stock of record (hereinafter called
a "Class B Holder") may transfer, and the Corporation shall not register the
transfer of, such shares of Class B Stock, as Class B Stock, whether by sale,
assignment, gift, bequest, appointment or otherwise, except to a Permitted
Transferee and any purported transfer of shares not permitted hereunder shall
result in the conversion of such shares into Common Stock as provided by
subsection (d) of this Section III. A Permitted Transferee shall mean, with
respect to each person from time to time shown as the record holder of shares of
Class B Stock:
(i) In the case of a Class B Holder who is a natural person:
(A) The spouse of such Class B Holder, any lineal descendant of a
parent of such Class B Holder, and any spouse of such lineal descendant
(which lineal descendants, their spouses, the Class B Holder, and his or
her spouse are herein collectively referred to as "Class B Holder's
Family Members");
(B) The trustee of a trust (including a voting trust) principally
for the benefit of such Class B Holder and/or one or more of his or her
Permitted Transferees described in each subclause of this clause (i)
other than this subclause (B), provided that such trust may also grant a
general or special power of appointment to one or more of such Class B
Holder's Family Members and may permit trust assets to be used to pay
taxes, legacies and other obligations of the trust or of the estates of
one or more of such Class B Holder's Family Members payable by reason of
the death of any of such Class B Holder's Family Members;
(C) Any organization, contributions to which are deductible for
federal income, estate or gift tax purposes or any split-interest trust
described in Section 4947 of the Internal Revenue Code, as it may from
time to time be amended (hereinafter called a "Charitable
Organization");
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(D) A corporation, if a majority of the beneficial ownership of
outstanding capital stock of such corporation which is entitled to vote
for the election of directors is owned by, or a partnership if a
majority of the beneficial ownership of the partnership is held by, the
Class B Holder or his or her Permitted Transferees determined under this
clause (i), provided that if by reason of any change in the ownership of
such stock or partnership interests, such corporation or partnership
would no longer qualify as a Permitted Transferee, all shares of Class B
Stock then held by such corporation or partnership shall, upon the
election of the Corporation given by written notice to such corporation
or partnership, without further act on anyone's part, be converted into
shares of Common Stock effective upon the date of the giving of such
notice, and stock certificates formerly representing such shares of
Class B Stock shall thereupon and thereafter be deemed to represent the
like number of shares of Common Stock; and
(E) The estate of such Class B Holder.
(ii) In the case of a Class B Holder holding the shares of Class B
Stock in question as trustee pursuant to a trust (other than a Charitable
Organization or any trust described in clause (iii) below), "Permitted
Transferee" means (A) any person transferring Class B Stock to such trust
and (B) any Permitted Transferee of any such transferor determined pursuant
to clause (i) above.
(iii) In the case of a Class B Holder holding the shares of Class B
Stock in question as trustee pursuant to a trust (other than a Charitable
Organization) which was irrevocable on the date of initial issuance to such
Class B Holder (hereinafter in this Section III called the "Record Date"),
"Permitted Transferee" means (A) any person to whom or for whose benefit
principal may be distributed either during or at the end of the term of
such trust whether by power of appointment or otherwise and (B) any
Permitted Transferee of any such person determined pursuant to clause (i)
above.
(iv) In the case of a Class B Holder which is a Charitable
Organization holding record and beneficial ownership of the shares of Class
B Stock in question, "Permitted Transferee" means any Class B Holder.
(v) In the case of a Class B Holder which is a corporation or
partnership (other than a Charitable Organization) acquiring record and
beneficial ownership of the shares of Class B Stock in question upon its
initial issuance by the Corporation, "Permitted Transferee" means (A) any
partner of such partnership, or stockholder of such corporation, on the
Record Date, (B) any person transferring such shares of Class B Stock to
such corporation or partnership, and (C) any Permitted Transferee of any
such person, partner, or stockholder referred to in subclauses (A) and (B)
of this clause (v), determined under clause (i) above.
(vi) In the case of a Class B Holder which is a corporation or
partnership (other than a Charitable Organization or a corporation or
partnership described in clause (v) above) holding record and beneficial
ownership of the shares of Class B Stock in question, "Permitted
Transferee" means (A) any person transferring such shares of Class B Stock
to such corporation or partnership and (B) any Permitted Transferee of any
such transferor determined under clause (i) above.
(vii) In the case of a Class B Holder which is the estate of a
deceased Class B Holder, or which is the estate of a bankrupt or insolvent
Class B Holder, which holds record and beneficial ownership of the shares
of Class B Stock in question, "Permitted Transferee" means a Permitted
Transferee of such deceased, bankrupt or insolvent Class B Holder as
determined pursuant to clause (i), (ii), (iii), (iv), (v) or (vi) above, as
the case may be.
(b) Notwithstanding anything to the contrary set forth herein, any Class B
Holder may pledge such Class B Holder's shares of Class B Stock to a pledgee
pursuant to a bona fide pledge of such shares as collateral security for
indebtedness due to the pledgee, provided that such shares shall not be
transferred to or registered in the name of the pledgee and shall remain subject
to the provisions of this Section III. In the event of foreclosure or other
similar action by the pledgee, such pledged shares of Class B Stock may only be
transferred to a Permitted Transferee of the pledgor or converted into shares of
Common Stock, as the pledgee may elect.
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(c) For purposes of this Section III:
(i) The relationship of any person that is derived by or through legal
adoption shall be considered a natural one.
(ii) Each joint owner of shares of Class B Stock shall be considered a
"Class B Holder" of such shares.
(iii) A minor for whom shares of Class B Stock are held pursuant to a
Uniform Gifts to Minors Act or similar law shall be considered a Class B
Holder of such shares.
(iv) Unless otherwise specified, the term "person" means both natural
persons and legal entities.
(v) Without derogating from the election conferred upon the
Corporation pursuant to subclause (D) of clause (i) above, each reference
to a corporation shall include any successor corporation resulting from
merger or consolidation and each reference to a partnership shall include
any successor partnership resulting from the death or withdrawal of a
partner.
(d) Any transfer of shares of Class B Stock not permitted hereunder shall
result in the conversion of the transferee's shares of Class B Stock into shares
of Common Stock, effective the date on which certificates representing such
shares are presented for transfer on the books of the Corporation. The
Corporation may, in connection with preparing a list of stockholders entitled to
vote at any meeting of stockholders, or as a condition to the transfer or the
registration of shares of Class B Stock on the Corporation's books, require the
furnishing of such affidavits or other proof as it deems necessary to establish
that any person is the beneficial owner of shares of Class B Stock or is a
Permitted Transferee.
(e) At any time when the number of outstanding shares of Class B Stock as
reflected on the stock transfer books of the Corporation falls below 2.5% of the
aggregate number of the issued and outstanding shares of the Common Stock and
Class B Stock of the Corporation, or the Board of Directors and the holders of a
majority of the outstanding shares of Class B Stock approve the conversion of
all of the Class B Stock into Common Stock, then, immediately upon the
occurrence of either such event, the outstanding shares of Class B Stock shall
be converted into shares of Common Stock. In the event of such a conversion,
certificates formerly representing outstanding shares of Class B Stock shall
thereupon and thereafter be deemed to represent the like number of shares of
Common Stock.
(f) Shares of Class B Stock shall be registered in the names of the
beneficial owners thereof and not in "street" or "nominee" name. For this
purpose, a "beneficial owner" of any shares of Class B Stock shall mean a person
who, or an entity which, possesses the power, either singly or jointly, to
direct the voting or disposition of such shares. The Corporation shall note on
the certificates for shares of Class B Stock the restrictions on transfer and
registration of transfer imposed by this Section III.
IV. CONVERSION RIGHTS.
(a) Subject to the terms and conditions of this Section IV, each share of
Class B Stock shall be convertible at any time or from time to time, at the
option of the respective holder thereof, at the office of any transfer agent for
Class B Stock, and at such other place or places, if any, as the Board of
Directors may designate, or, if the Board of Directors shall fail so to
designate, at the principal office of the Corporation (attention of the
Secretary of the Corporation), into one (1) fully paid and nonassessable share
of Common Stock. Upon conversion, the Corporation shall make no payment or
adjustment on account of dividends accrued or in arrears on Class B Stock
surrendered for conversion or on account of any dividends on the Common Stock
issuable on such conversion. Before any holder of Class B Stock shall be
entitled to convert the same into Common Stock, he shall surrender the
certificate or certificates for such Class B Stock at the office of said
transfer agent (or other place as provided above), which certificate or
certificates, if the Corporation shall so request, shall be duly endorsed to the
Corporation or in blank or accompanied by proper instruments of transfer to the
Corporation or in blank (such endorsements or instruments of transfer to be in
form satisfactory to the Corporation), and shall give written notice to the
Corporation at said office that he elects so to convert said Class B Stock in
accordance with the terms of this Section IV, and shall state in
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writing therein the name or names in which he wishes the certificate or
certificates for Common Stock to be issued. Every such notice of election to
convert shall constitute a contract between the holder of such Class B Stock and
the Corporation, whereby the holder of such Class B Stock shall be deemed to
subscribe for the amount of Common Stock which he shall be entitled to receive
upon such conversion, and, in satisfaction of such subscription, to deposit the
Class B Stock to be converted and to release the Corporation from all liability
thereunder, and thereby the Corporation shall be deemed to agree that the
surrender of the certificate or certificates therefor and the extinguishment of
liability thereon shall constitute full payment of such subscription for Common
Stock to be issued upon such conversion. The Corporation will as soon as
practicable after such deposit of a certificate or certificates for Class B
Stock, accompanied by the written notice and the statement above prescribed,
issue and deliver at the office of said transfer agent (or other place as
provided above) to the person for whose account such Class B Stock was so
surrendered, or to his nominee or nominees, a certificate or certificates for
the number of full shares of Common Stock to which he shall be entitled as
aforesaid. Subject to the provisions of subsection (d) of this Section IV, such
conversion shall be deemed to have been made as of the date of such surrender of
the Class B Stock to be converted; and the person or persons entitled to receive
the Common Stock issuable upon conversion of such Class B Stock shall be treated
for all purposes as the record holder or holders of such Common Stock on such
date.
(b) The issuance of certificates for shares of Common Stock upon conversion
of shares of Class B Stock shall be made without charge for any stamp or other
similar tax in respect of such issuance. However, if any such certificate is to
be issued in a name other than that of the holder of the share or shares of
Class B Stock converted, the person or persons requesting the issuance thereof
shall pay to the Corporation the amount of any tax which may be payable in
respect of any transfer involved in such issuance or shall establish to the
satisfaction of the Corporation that such tax has been paid.
(c) The Corporation shall not be required to convert Class B Stock, and no
surrender of Class B Stock shall be effective for that purpose, while the stock
transfer books of the Corporation are closed for any purpose; but the surrender
of Class B Stock for conversion during any period while such books are so closed
shall become effective for conversion immediately upon the reopening of such
books, as if the conversion had been made on the date such Class B Stock was
surrendered.
(d) The Corporation covenants that it will at all times reserve and keep
available, solely for the purpose of issue upon conversion of the outstanding
shares of Class B Stock, such number of shares of Common Stock as shall be
issuable upon the conversion of all such outstanding shares, provided that
nothing contained herein shall be construed to preclude the Corporation from
satisfying its obligations in respect of the conversion of the outstanding
shares of Class B Stock by delivery of shares of Common Stock which are held in
the treasury of the Corporation. The Corporation covenants that if any shares of
Common Stock required to be reserved for purposes of conversion hereunder
require registration with or approval of any governmental authority under any
federal or state law before such shares of Common Stock may be issued upon
conversion, the Corporation will use its best efforts to cause such shares to be
duly registered or approved, as the case may be. The Corporation will endeavor
to list the shares of Common Stock required to be delivered upon conversion
prior to such delivery upon each national securities exchange, if any, upon
which the outstanding Common Stock is listed at the time of such delivery. The
Corporation covenants that all shares of Common Stock which shall be issued upon
conversion of the shares of Class B Stock, will, upon issue, be fully paid and
nonassessable and not entitled to any pre-emptive rights.
V. LIQUIDATION RIGHTS
In the event of any dissolution, liquidation or winding up of the affairs
of the Corporation, whether voluntary or involuntary, after payment or provision
for payment of the debts and other liabilities of the Corporation, the holders
of each series of Preferred Stock shall be entitled to receive, out of the net
assets of the Corporation, an amount for each share equal to the amount fixed
and determined by the Board of Directors in any resolution or resolutions
providing for the issuance of any particular series of Preferred Stock, plus an
amount equal to all dividends accrued and unpaid on shares of such series to the
date fixed for distribution, and no more, before any of the assets of the
Corporation shall be distributed or paid over to the holders of Common Stock or
Class B Stock.
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After payment in full of said amounts to the holders of Preferred Stock of
all series, the remaining assets and funds of the Corporation shall be divided
among and paid to the holders of Common Stock and Class B Stock as follows: (i)
before any payment or distribution of the assets of the Corporation (whether
capital or surplus) shall be made to or set apart for the holders of Class B
Stock, the holders of the shares of Common Stock (including those persons who
shall become holders of Common Stock by reason of converting their shares of
Class B Stock) shall be entitled to receive $0.25 per share (the "Common Stock
Initial Liquidation Amount"); (ii) before any additional payment or distribution
of the assets of the Corporation (whether capital or surplus) shall be made to
or set apart for the holders of Common Stock following the payment of the Common
Stock Initial Liquidation Amount, the holders of Class B Stock shall be entitled
to receive $0.50 per share (the "Class B Liquidation Amount"); and (iii) before
any additional payment or distribution of the assets of the Corporation (whether
capital or surplus) shall be made to or set apart for the holders of Class B
Stock following the payment of the Class B Liquidation Amount, the holders of
Common Stock (including those persons who shall become holders of Common Stock
by reason of converting their shares of Class B Stock) shall be entitled to
receive $0.25 per share (the "Common Stock Additional Liquidation Amount" and,
together with the Common Stock Initial Liquidation Amount, the "Common Stock
Liquidation Amount"). Following the payment or setting apart for payment of the
Common Stock Liquidation Amount and the Class B Liquidation Amount, the holders
of Common Stock and Class B Stock shall participate pari passu and be entitled
to receive, on a pro rata basis, the remaining assets of the Corporation or
proceeds therefrom available for distribution to the holders of Common Stock and
Class B Stock. If, upon any liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation or proceeds thereof: (i)
distributable among the holders of the shares of Common Stock shall be
insufficient to pay in full the Common Stock Initial Liquidation Amount and
liquidating payments on any other shares of stock ranking, as to liquidation,
dissolution or winding up, on a parity with the Common Stock, then such assets,
or the proceeds thereof, shall be distributed among the holders of shares of
Common Stock and any such other stock ratably in accordance with the respective
amounts which would be payable on such shares of Common Stock and any such other
stock if all amounts payable thereon were paid in full; (ii) distributable among
the holders of the shares of Class B Stock shall be insufficient to pay in full
the Class B Liquidation Amount and liquidating payments on any other shares of
stock ranking, as to liquidation, dissolution or winding up, on a parity with
the Class B Stock, then such assets, or the proceeds thereof, shall be
distributed among the holders of shares of Class B Stock and any such other
stock ratably in accordance with the respective amounts which would be payable
on such shares of Class B Stock and any such other stock if all amounts payable
thereon were paid in full; (iii) distributable among the holders of the shares
of Common Stock shall be insufficient to pay in full the Common Stock Additional
Liquidation Amount and liquidating payments on any other shares of stock
ranking, as to liquidation, dissolution or winding up, on a parity with the
Common Stock, then such assets, or the proceeds thereof, shall be distributed
among the holders of shares of Common Stock and any such other stock ratably in
accordance with the respective amounts which would be payable on such shares of
Common Stock and any such other stock if all amounts payable thereon were paid
in full. For the purposes of this Section V, (i) a consolidation or merger of
the Corporation with one or more corporations, (ii) a sale or transfer of all or
substantially all of the Corporation's assets or (iii) a statutory share
exchange shall not be deemed to be a liquidation, dissolution or winding up,
voluntary or involuntary.
B. PREFERRED STOCK
The Board of Directors is authorized, subject to limitations prescribed by
law and the provisions of this Article Third, to provide for the issuance of the
preferred shares in series, and by filing a certificate pursuant to the General
Corporation Law of Delaware, to establish the number of shares to be included in
each such series, and to fix the designations, relative rights, preferences and
limitations of the shares of each such series.
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The authority of the Board with respect to each series shall include, but not be
limited to, determination of the following:
(a) The number of shares constituting that series and the distinctive
designations of that series;
(b) The dividend rate on the shares of that series, whether dividends
shall be cumulative and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends of shares of that
series;
(c) Whether that series shall have voting rights, in addition to the
voting rights provided by law and, if so, the terms of such voting rights;
(d) Whether that series shall have conversion privileges and, if so,
the terms and conditions of such conversion, including provision for
adjustment of the conversion rate in such events as the Board of Directors
shall determine;
(e) Whether or not the shares of that series shall be redeemable and,
if so, the terms and conditions of such redemption, including the date or
dates upon or after which they shall be redeemable, and the amount per
share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;
(f) Whether that series shall have a sinking fund for the redemption
or purchase of shares of that series and, if so, the terms and amount of
such sinking fund;
(g) The rights of the shares of that series in the event of voluntary
or involuntary liquidation, dissolution or winding up of the Corporation,
and the relative rights of priority, if any, of payment of shares of that
series;
(h) Any other relative rights, preferences and limitations of that
series. Dividends on outstanding preferred shares shall be declared and
paid, or set apart for payment, before any dividends shall be declared and
paid, or set apart for payment, on the common shares with respect to the
dividend period. Any and all such shares issued, and for which the full
consideration has been paid or delivered shall be deemed fully paid stock
and the holder of such shares shall not be liable for any further call or
assessment or any other payment thereon.
FOURTH: The duration of such Corporation shall be perpetual.
FIFTH: The name and mailing address of the Corporation's Registered Agent
and Office in the State of Delaware are: The Prentice-Hall Corporation System,
Inc., 2711 Centerville Road, Suite 400, City of Wilmington, County of Newcastle.
SIXTH: Each director shall be elected by the stockholders at each annual
meeting and shall hold office until the next annual meeting of stockholders and
until such director's successor shall have been elected and qualified. The term
of office of each director in office at the time this Article SIXTH becomes
effective shall expire at the annual meeting of stockholders next held after the
effectiveness of this Article SIXTH.
SEVENTH: No holder of shares of the Corporation of any class, now or
hereafter authorized, shall have any preferential or preemptive right to
subscribe for, purchase or receive any shares of the Corporation of any class,
now or hereafter authorized, or any options or warrants for such shares, or any
rights to subscribe for or purchase such shares, or any securities convertible
into or exchangeable for such shares, which may at any time be issued, sold or
offered for sale by the Corporation.
EIGHTH: A director of the Corporation shall not personally be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
law, or (iv) for any transaction from which the director derived an improper
personal benefit.
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NINTH: Any action required or permitted to be taken by the stockholders of
the Corporation must be effected at a duly called annual or special meeting of
stockholders of the Corporation, and the ability of the stockholders to consent
in writing to the taking of any action is hereby specifically denied.
TENTH: The Board of Directors of the Corporation shall have the power to
amend the By-Laws of the Corporation.
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IN WITNESS WHEREOF, the Corporation has caused this Restated Certificate of
Incorporation to be executed on its behalf on this day of ,
2001.
FEDDERS CORPORATION
By:
------------------------------------
Kent E. Hansen
Executive Vice President and
Secretary
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ANNEX B
FAIRNESS OPINION OF TM CAPITAL
March 1, 2001
Board of Directors
Fedders Corporation
Westgate Corporate Center
505 Martinsville Road
P.O. Box 813
Liberty Corner, NJ 07938
Gentlemen:
We understand that Fedders Corporation ("Fedders" or the "Company") is
undertaking a transaction whereby the Company intends to combine its Class A
Stock and Common Stock into a single class of Common Stock (the "New Common
Stock") in accordance with the Restated Certificate of Incorporation. We further
understand that each share of Class A Stock would be exchanged for one share of
New Common Stock, each share of Common Stock would be exchanged for 1.1 shares
of New Common Stock and each share of Class B Stock would be exchanged for 1.1
shares of New Class B Stock (the "Proposed Recapitalization"). We understand
that the Proposed Recapitalization will be submitted to the shareholders of the
Class A Stock and the shareholders of the Common Stock (collectively, the
"Shareholders") for approval at a special meeting of the Shareholders.
You have asked our written opinion as to the fairness, from a financial
point of view, of the Proposed Recapitalization to the Shareholders of Fedders
(our "Opinion").
In arriving at our Opinion set forth below, we have, among other things:
(1) Reviewed the Company's Forms 10-K and related financial
information for the years ended August 31, 1996 to 2000 and the Company's
Form 10-Q and the related unaudited financial information for the three
months ended November 30, 2000;
(2) Reviewed the Company's Schedule 14A filed in connection with its
Annual Meeting held December 19, 2000 and subsequent Forms 4 and Forms
13-F;
(3) Reviewed the historical market prices and trading activity for
the Class A Stock and the Common Stock for the period from January 2, 1998
to February 22, 2001;
(4) Reviewed the historical market prices for the Class A Stock and
the Common Stock and compared them with that of certain publicly traded
companies which we deemed to be relevant;
(5) Compared the financial position and results of operations of the
Company with that of certain companies which we deemed to be relevant;
(6) Reviewed and analyzed the terms of transactions in which public
companies with two classes of publicly traded common stock were combined
into a single class of stock;
(7) Reviewed and analyzed the terms of transactions in which public
companies with two classes of common stock were acquired;
(8) Reviewed and analyzed premiums paid in relevant transactions in
which the purchaser acquired a controlling share of the target company; and
(9) Conducted other financial analyses and investigations as we
deemed necessary or appropriate in arriving at our Opinion.
In preparing our Opinion, we have relied on the accuracy and completeness
of all information that was available to us from public sources, that was
supplied or otherwise made available to us by the Company or was otherwise
reviewed by us and we have not assumed any responsibility to independently
verify such information. We have also relied upon assurances of the management
of the Company that they are unaware
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of any facts that would make the information provided to us incomplete or
misleading. We have not made any independent evaluation or appraisal of the
assets or liabilities (contingent or otherwise) of the Company nor have we been
furnished with any such evaluations or appraisals.
This opinion is directed to the Board of Directors of the Company and does
not constitute a recommendation to any shareholder of the Company as to whether
any such shareholder of Fedders should or should not vote to approve the
Proposed Recapitalization. This opinion does not address the relative merits of
the Proposed Recapitalization and any other transactions or business strategies
discussed by the Board of Directors of the Company. Our opinion is based on
economic, monetary and market conditions existing on the date hereof.
TM Capital Corp. is currently acting as financial advisor to the Company in
connection with the Proposed Recapitalization and will be receiving a fee in
connection with the rendering of this opinion. TM Capital Corp. is familiar with
the Company having served as financial advisor to Fedders and received customary
compensation for the rendering of such services.
On the basis of, and subject to the foregoing, we are of the opinion as of
the date hereof the Proposed Recapitalization is fair to the shareholders of the
Class A Stock and the shareholders of the Common Stock from a financial point of
view.
This opinion has been prepared for the information of the Board of
Directors of the Company in connection with the Proposed Recapitalization and
shall not be reproduced, summarized, described or referred to, provided to any
person or otherwise made public or used for any other purpose without the prior
written consent of TM Capital Corp., provided, however, that this letter may be
reproduced in full in the Form S-4 filed by the Company related to the Proposed
Recapitalization.
Very truly yours,
TM CAPITAL CORP.
/s/ Michael S. Goldman
Senior Vice President
B-2
ANNEX C
SECTION 262 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to sec.228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec.251 (other than a merger effected pursuant to
sec.251(g) of this title), sec.252, sec.254, sec.257, sec.258, sec.263 or
sec.264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of sec.251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of any class or
series of stock of a constituent corporation if the holders thereof are
required by the terms of an agreement of merger or consolidation pursuant
to sec.sec.251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or depository
receipts in respect thereof) or depository receipts at the effective
date of the merger or consolidation will be either listed on a national
securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under sec.253 of this title is not
owned by the parent corporation immediately prior to the merger, appraisal
rights shall be available for the shares of the subsidiary Delaware
corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its
C-1
certificate of incorporation, any merger or consolidation in which the
corporation is a constituent corporation or the sale of all or substantially all
of the assets of the corporation. If the certificate of incorporation contains
such a provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to sec.228
or sec.253 of this title, then, either a constituent corporation before the
effective date of the merger or consolidation, or the surviving or
resulting corporation within ten days thereafter, shall notify each of the
holders of any class or series of stock of such constituent corporation who
are entitled to appraisal rights of the approval of the merger or
consolidation and that appraisal rights are available for any or all shares
of such class or series of stock of such constituent corporation, and shall
include in such notice a copy of this section. Such notice may, and, if
given on or after the effective date of the merger or consolidation, shall,
also notify such stockholders of the effective date of the merger or
consolidation. Any stockholder entitled to appraisal rights may, within 20
days after the date of mailing of such notice, demand in writing from the
surviving or resulting corporation the appraisal of such holder's shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
C-2
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
C-3
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
C-4
ANNEX D
FEDDERS CORPORATION
AUD1T COMMITTEE CHARTER
NOVEMBER 1, 1999
I. STATEMENT OF POLICY
The Audit Committee is an arm of the Board of Directors and must diligently
fulfill its objectives for the Board while meeting its responsibilities to the
stockholders by maintaining a close working relationship with the Board of
Directors, executive management, independent auditors and Vice President,
Internal Audit. Its primary function is to assist the Board of Directors in
fulfilling its oversight responsibilities by reviewing the financial information
provided by the Corporation to the public; the Corporation's systems of internal
controls regarding finance, accounting, operational policies, legal compliance
and ethics that management and the Board have established; Corporation's
auditing, accounting and financial reporting processes generally; and fostering
adherence to the Corporation's policies at all levels. The Audit Committee's
primary duties and responsibilities are to:
- Serve as an independent and objective party to monitor the Corporation's
financial reporting process and internal control systems.
- Review and appraise the audit practices of the Corporation's independent
accountants and internal auditing department.
- Provide an open path of communication among the independent auditors,
financial and executive management, the Vice President, Internal Audit,
and the Board of Directors.
II. STRUCTURE
- The Audit Committee shall be comprised of three or more directors
appointed by the Board of Directors, one of whom shall be Chairperson,
each free from any association with the Corporation that, in the opinion
of the Board, would interfere with the exercise of his or her independent
judgment as a member of the Committee. A member of the Committee shall
have no director or indirect management role in corporate operational
policy formulation. A member of the Committee could be a former officer
of the Corporation, a consultant or professional, each of whom may
receive compensation or fees from the Corporation, but who, in the
opinion of the Board, will under all circumstances exercise independent
judgment, and whose expertise will materially assist the function of the
Committee.
- Members shall have broad knowledge of the Corporation, or broad business
or other knowledge or expertise useful to the Corporation. Familiarity
with accounting principles, particularly for the Committee Chair, is
considered an advantage, but is not a requirement.
III. MEETINGS
- The Audit Committee shall meet at least four times per year. One meeting
shall be held prior to the start of the independent audit to review the
audit plan and planned audit scope of the independent auditor. A second
meeting will be held to discuss results of the audit to date and
potential problems affecting the year-end results. A recommendation
should also be made at this time to management and the Board for the
retention of independent public accountants for the ensuing year. A third
meeting will be held upon completion of the year-end audit to discuss the
management letter prepared by the independent auditor. The above and any
other meetings will include review of internal audit activity reports and
approval of an Internal Audit plan. Additional meetings will be called as
required.
- The Chief Executive Officer, Chief Financial Officer, Vice President,
Internal Audit and Corporate Controller will be invited to attend all
meetings of the Audit Committee. As a matter of sound business practice
and to provide a record that the Committee has appropriately discharged
its responsibilities, minutes should be taken of all Audit Committee
meetings.
C-5
IV. RESPONSIBILITIES AND DUTIES
Within the context of the Audit Committee's Statements of Policy, the roles
of the Committee shall be:
- The Audit Committee must distinguish its oversight responsibility form
any involvement in the day-to-day management of the Corporation and the
conduct of the audit. The Committee must not be considered an adversary
of management; rather, it is part of the Corporation's governance and
oversight process.
- The most important key to success for an Audit Committee is effective
communication -- between the Committee, executive management, the Board
of Directors, independent public accountants and the Vice President,
Internal Audit.
- The Committee is an agent for the Board of Directors to help ensure the
integrity of management, the independence of the Company's independent
auditors, internal audit function, and the adequacy of disclosures to
stockholders.
V. INTERNAL AUDIT FUNCTION
- The Committee shall review the Internal Audit function responsible for
reviewing and monitoring administrative controls in the accounting,
financial and operating functions of the Corporation, and shall make
recommendations for improvements to the quality of the overall control
system. The Internal Audit function shall operate with maximum
objectivity and have direct and unrestricted access to the Committee. The
Vice President, Internal Audit shall report directly to the Audit
Committee and have dotted-line reporting responsibility to the Chief
Executive Officer of the Corporation.
VI. REPORTING
- At the Board of Directors meeting next following the Audit Committee
meeting, the Committee Chairman shall make a report to the Board of
Directors.
SPECIFICALLY, THE ROLES OF THE AUDIT COMMITTEE INCLUDE:
1. In conjunction with the Board of Directors and executive
management, review and update this Charter as conditions dictate.
2. Review the Corporation's financial statements submitted to any
governmental body or the public, including any certification, report,
opinion or review, rendered by the independent auditors, including the
management letter and management's response.
3. Review and act upon the regular reports prepared by the internal
audit department and management's response.
4. Review with financial management the financial results of the
Corporation in advance of their release to the public. This may be done by
telephone meeting.
5. Evaluate the Corporation's independent auditors and recommend to
the Board annually, or when otherwise required or deemed by the Committee
appropriate, the retention, selection or removal of the Corporation's
independent auditors, considering independence and effectiveness. On an
annual basis, or when otherwise required or deemed by the Committee
appropriate, the Committee (i) should ensure that the Corporation's
independent auditors submit a written statement to the Committee
delineating all relationships between such auditors and the Corporation,
(ii) actively review and discuss with the independent auditors all
significant relationships they have with the Corporation to determine what
impact any such disclosed relationships or services may have on the
objectivity and independence of such auditors, and (iii) recommend to the
Board any actions the Committee may deem appropriate to ensure the
independence of such auditors.
C-6
6. Periodically consult with the independent auditors about internal
controls and the fullness and accuracy of the Corporation's financial
statements.
7. In consultation with the independent auditors and Vice President,
Internal Audit, review the integrity fo the Corporation's financial
reporting processes, both internal and external.
8. Consider and approve, if appropriate, major changes to the
Corporation's auditing and accounting principles and practices as suggested
by the independent accountants, management or the Vice President, Internal
Audit.
9. Review with the independent auditors, the Vice President, Internal
Audit, and management the extent to which any changes or improvements in
financial or accounting practice have been implemented.
10. Keep minutes of all meetings, appropriately memorialize the
Committee's discharge of its duties, and report the Committee's actions
regularly to the Board of Directors at the meeting following the Committee
meeting.
11. Review with appropriate corporation officials the actions taken
to ensure compliance with the Corporation's policies relating to conduct,
and the results of confirmations or violations of such policies.
12. Consider such other matters in relation to the financial affairs
of the Corporation and its accounts, and in relation to internal and
external auditors of the Corporation as the Audit Committee may deem
advisable.
C-7
DIRECTIONS TO
SOMERSET HILLS HOTEL
200 LIBERTY CORNER ROAD
WARREN, NJ 07060
(908) 647-6700
The Somerset Hills Hotel is located directly north of Interstate 78 at Exit
33. Newark International Airport is less than 35 minutes away, and New York City
is within an hour's commute. The Bernardsville and Lyons railroad stations are
conveniently located approximately seven minutes from the Hotel.
[Map for Somerset Hills Hotel]
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware or DGCL
empowers a Delaware corporation to indemnify any persons who are, or are
threatened to be made, parties to any threatened, pending or completed legal
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation), by
reason of the fact that such person was an officer or director of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided that such officer or
director acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the corporation's best interests, and, for criminal
proceedings, had no reasonable cause to believe his or her conduct was illegal.
A Delaware corporation may indemnify officers and directors against expenses
(including attorneys' fees) in connection with the defense or settlement of an
action by or in the right of the corporation under the same conditions, except
that no indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him or her against the
expenses which such officer or director actually and reasonably incurred.
In accordance with the DGCL, the restated certificate of incorporation of
Fedders contains a provision to limit the personal liability of the directors of
Fedders for violations of their fiduciary duty. This provision eliminates each
director's liability to Fedders or its stockholders for monetary damages except
(i) for any breach of the director's duty of loyalty to Fedders or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the DGCL providing for liability of directors for unlawful payment of dividends
or unlawful stock purchases or redemptions, or (iv) for any transaction from
which a director derived an improper personal benefit. The effect of this
provision is to eliminate the personal liability of directors for monetary
damages for actions involving a breach of their fiduciary duty of care,
including any such actions involving gross negligence.
Fedders is insured for liabilities it may incur pursuant to its restated
certificate of incorporation relating to the indemnification of its directors,
officers and employees. In addition, directors, officers and certain key
employees are insured against certain losses which may arise out of their
employment and which are not recoverable under the indemnification provisions of
Fedders' restated certificate of incorporation.
ITEM 21(A). EXHIBITS
See Exhibit Index
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters in addition to the information called for
by the other items of the applicable form.
(b) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (a) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act of 1933, and is used
in connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and will not be used
until such an amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered
II-1
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933, may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act of 1933, and is, therefore,
unenforceable. In the event that a claim or indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933, and will be governed by the
final adjudication of such issue.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally or more prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(f) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed bo be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-2
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Fedders Corporation, certifies that it has reasonable grounds to believe that it
meets all the requirements for filing on Form S-4 and has duly caused this
Amendment No. 4 to Registration Statement (No. 333-58876) to be signed on its
behalf by the undersigned, thereunto duly authorized, in Liberty Corner, New
Jersey, on the 4th day of January, 2002.
FEDDERS CORPORATION
BY /s/ MICHAEL GIORDANO*
------------------------------------
MICHAEL GIORDANO
Executive Vice President, Finance
and Administration
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ SALVATORE GIORDANO* Chairman Emeritus and a Director January 4, 2002
------------------------------------------------
Salvatore Giordano
/s/ SAL GIORDANO, JR.* Chairman and Chief Executive January 4, 2002
------------------------------------------------ Officer (Principal Executive
Sal Giordano, Jr. Officer)
/s/ WILLIAM J. BRENNAN* Director January 4, 2002
------------------------------------------------
William J. Brennan
/s/ DAVID C. CHANG* Director January 4, 2002
------------------------------------------------
David C. Chang
/s/ MICHAEL L. DUCKER* Director January 4, 2002
------------------------------------------------
Michael L. Ducker
/s/ JOSEPH GIORDANO* Director January 4, 2002
------------------------------------------------
Joseph Giordano
/s/ C.A. KEEN* Director January 4, 2002
------------------------------------------------
C.A. Keen
/s/ HOWARD S. MODLIN* Director January 4, 2002
------------------------------------------------
Howard S. Modlin
/s/ S.A. MUSCARNERA* Director January 4, 2002
------------------------------------------------
S.A. Muscarnera
</Table>
S-1
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ ANTHONY PULEO* Director January 4, 2002
------------------------------------------------
Anthony Puleo
/s/ MICHAEL GIORDANO* Executive Vice President, Finance January 4, 2002
------------------------------------------------ and Administration (Principal
Michael Giordano Financial Officer)
</Table>
- ---------------
* The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 4 to Registration Statement pursuant to the powers of attorney
executed by the above-named officers and directors of the registrant, which
have been previously filed with the Securities and Exchange Commission on
behalf of such officers and directors.
By: /s/ KENT E. HANSEN
------------------------------------
Kent E. Hansen
Executive Vice President and
Secretary
S-2
EXHIBIT INDEX
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.1 Recapitalization Agreement and Plan of Merger, dated as of
January 8, 2002 between Fedders Corporation and FC Merger
Sub, Inc., which is attached as Annex A to the proxy
statement/prospectus contained in this Registration
Statement.
3.1 Restated Certificate of Incorporation of Fedders Corporation
which is attached as Exhibit A to the Recapitalization
Agreement and Plan of Merger attached as Annex A to the
proxy statement/ prospectus contained in this Registration
Statement.
5* Opinion of Robert N. Edwards, Esq. as to the legality of the
securities registered hereunder.
8.1* Opinion of Skadden, Arps, Slate, Meagher & Flom LLP,
regarding tax matters.
12.1* Statement regarding computation of ratios.
23.1+ Consent of Deloitte & Touche LLP.
23.2 Consent of Robert N. Edwards, Esq. (included in Exhibit 5).
23.3+ Consent of BDO Seidman LLP.
24* Powers of Attorney.
99.1* Form of Proxy for Class A stockholders.
99.2* Form of Proxy for Class B and Common stockholders.
99.3* Proposed Recapitalization Analysis prepared by TM Capital
Corp.
</Table>
- ---------------
* Previously filed.
+ Filed herewith.