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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 22, 1999
REGISTRATION NO. 333-88599
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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FEDDERS NORTH AMERICA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3585 22-2103510
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
505 MARTINSVILLE ROAD
LIBERTY CORNER, NEW JERSEY 07938
(908) 604-8686
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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NAME, ADDRESS AND TELEPHONE NUMBER OF JURISDICTION OF PRIMARY STANDARD INDUSTRY I.R.S. EMPLOYER
ADDITIONAL REGISTRANT ORGANIZATION CLASSIFICATION CODE NUMBER IDENTIFICATION NO.
FEDDERS CORPORATION DELAWARE 3585 22-2572390
505 MARTINSVILLE ROAD
LIBERTY CORNER, NEW JERSEY 07938
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ROBERT N. EDWARDS, ESQ.
VICE PRESIDENT AND GENERAL COUNSEL
FEDDERS CORPORATION
505 MARTINSVILLE ROAD
LIBERTY CORNER, NJ 07938
(908) 604-8686
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPIES TO:
MARK C. SMITH, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK CITY, NEW YORK 10022
(212) 735-3330
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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 of 1933, 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(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE PROPOSED MAXIMUM AMOUNT OF
TO BE REGISTERED REGISTERED PER SECURITY(1) AGGREGATE OFFERING PRICE(1) REGISTRATION FEE(1)
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9 3/8% Senior Subordinated
Notes due 2007 of Fedders
North America, Inc. $50,000,000 100% $50,000,000 $13,900(2)
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Guarantee of 9 3/8% Senior
Subordinated Notes due 2007
of Fedders North America,
Inc. -- -- -- None(3)
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(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f) promulgated under the Securities Act of 1933, as
amended.
(2) Fee previously paid.
(3) Pursuant to Rule 457(n) under the Securities Act, no separate fee is being
paid with respect to the Guarantee.
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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 COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED DECEMBER 22, 1999.
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PROSPECTUS
[FEDDERS NORTH AMERICA LOGO]
OFFER TO EXCHANGE ALL 9 3/8% SENIOR SUBORDINATED NOTES DUE 2007
FOR 9 3/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2007
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THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME ON , 1999, UNLESS WE EXTEND IT.
We are offering a total of $50,000,000 9 3/8% Series B Senior Subordinated
Notes, which are registered with the Securities and Exchange Commission, to all
holders of our 9 3/8% Senior Subordinated Notes. We refer to this prospectus and
the letter of transmittal that accompanies it as the exchange offer. We refer to
the 9 3/8% Series B Senior Subordinated Notes being offered in the exchange
offer as the new notes. We refer to the 9 3/8% Senior Subordinated Notes that
can be exchanged for new notes as the old notes. We refer to the old notes and
the new notes collectively as the notes.
TERMS OF THE EXCHANGE OFFER:
- We will issue up to $50,000,000 aggregate principal amount of new notes.
- The exchange offer expires at 5:00 p.m., New York City time, on ,
1999, unless extended.
- We will exchange all old notes that are validly tendered and not withdrawn
prior to the expiration of the exchange offer.
- You may withdraw tenders of old notes at any time prior to the expiration
of the exchange offer.
- We believe that the exchange of notes will not be a taxable exchange for
U.S. federal income tax purposes but you should see "Certain Federal Income
Tax Considerations" on page 75 for more information.
- We will not receive any cash proceeds from the exchange offer.
- The terms of the new notes are substantially identical to the old notes,
except that select transfer restrictions and registration rights relating
to the old notes do not apply to the new notes.
- The old notes are, and the new notes will be, unconditionally guaranteed by
Fedders Corporation.
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SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF
CERTAIN RISKS HOLDERS SHOULD CONSIDER BEFORE TENDERING THEIR OLD NOTES.
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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 prospectus. Any representation to the contrary is a
criminal offense.
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The date of this prospectus is , 1999.
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MARKET AND INDUSTRY DATA
Market data and certain industry forecasts used throughout this prospectus
were obtained from internal surveys, market research, publicly available
information and industry publications. Industry publications generally state
that the information contained therein has been obtained from sources believed
to be reliable, but that the accuracy and completeness of such information is
not guaranteed. Similarly, internal surveys, industry forecasts and market
research, while believed to be reliable, have not been independently verified,
and neither we nor the initial purchaser make any representations as to the
accuracy of such information.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements made in this prospectus or the documents
incorporated by reference are forward-looking in nature. The occurrence of the
events described, and the achievement of the intended results, are subject to
the future occurrence of many events, some or all of which are not predictable
or within our control. Therefore, actual results may differ materially from
those anticipated in any forward-looking statements. Many risks and
uncertainties are inherent in the air conditioning industry; others are more
specific to our business. Many of the significant risks are described in this
prospectus, including risks associated with the seasonal and highly competitive
nature of the industry, the fluctuation of the supply and in the cost of raw
materials and stringent environmental regulations.
TABLE OF CONTENTS
PAGE
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Prospectus Summary.................. 1
Risk Factors........................ 14
Summary Organization Chart.......... 21
Use of Proceeds..................... 22
Capitalization...................... 22
Selected Historical Consolidated
Financial Information............. 23
The Exchange Offer.................. 25
Business............................ 32
Description of Certain
Indebtedness...................... 42
PAGE
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Description of Notes................ 44
Certain Federal Income Tax
Considerations.................... 75
Plan of Distribution................ 76
Legal Matters....................... 76
Independent Auditors................ 76
Available Information............... 76
Incorporation of Certain Documents
by Reference...................... 77
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PROSPECTUS SUMMARY
This summary highlights selected information from this prospectus. It does
not contain all of the information that is important to you in order to
understand this offering or the terms of the notes. You should read carefully
the entire document, including our consolidated financial statements and their
related notes which are incorporated by reference in this prospectus. As used in
this prospectus, unless the context otherwise requires, (1) "Fedders", "we",
"our", "ours" and "us" refer to Fedders Corporation and its subsidiaries and (2)
"Fedders North America" refers to Fedders North America, Inc., the issuer of the
notes and a wholly owned subsidiary of Fedders Corporation, and to its
subsidiaries. References in this prospectus to operations outside North America
and operations of Melcor Corporation refer to operations of Fedders Corporation
and not to the operations of Fedders North America. References to our "fiscal
year" refer to our fiscal year ended August 31.
THE COMPANY
We are a leading global manufacturer of products for the treatment of
indoor air with manufacturing bases in the United States, China and Spain. We
manufacture and sell a broad line of ductless air conditioners including window,
portable, through-the-wall, split and multi-split units, as well as a complete
line of dehumidifiers. Through our acquisition of Trion, Inc. described below,
we expanded our air treatment product line to include complementary technologies
used in the manufacture of indoor air quality products including electronic air
cleaners, air filters and humidifiers. We believe our principal subsidiary,
Fedders North America, is the largest manufacturer of room air conditioners in
the United States based on units sold. Fedders North America's products are
marketed under the FEDDERS, EMERSON QUIET KOOL and AIRTEMP brand names as well
as under private labels. In North America, our products are marketed primarily
to national and regional retail chains and home improvement centers, and also to
buying groups and distributors. Private label products are manufactured for
retailers and other original equipment manufacturers (OEMs), including other air
conditioner manufacturers. Outside of North America, Fedders International
markets our products primarily through distributors and under private labels to
other OEMs and air conditioner manufacturers.
We believe that our share of the U.S. market for room air conditioners has
increased from approximately 24% in fiscal 1994 to approximately 28% in 1998.
During this same period, based primarily on Fedders North America's results,
Fedders has achieved significant increases in net sales and Adjusted EBITDA. Our
net sales increased from $316.5 million in fiscal 1995 to $356.0 million in
fiscal 1999. Adjusted EBITDA increased from $44.1 million in fiscal 1995 to
$54.6 million in fiscal 1999. These results reflect a compounded annual growth
rate of 3.0% for net sales and 5.5% for Adjusted EBITDA from fiscal 1995 to
fiscal 1999. Additionally, our operating income went from $37.7 million in 1995
to $40.3 million in 1999.
We have been a leader in heat transfer technology for more than 100 years.
Founded in Buffalo, NY, we originally manufactured automobile radiators and have
been producing room air conditioners for more than 50 years. More recently, we
have been leveraging our expertise to penetrate the much larger and expanding
global market for air conditioners. As part of our recent acceleration of these
efforts, in 1995, we entered into the Fedders Xinle joint venture with the
Ningbo General Air Conditioner Factory of Ningbo, China. Fedders Xinle is 60%
owned by Fedders. In 1998, we entered into a 50-50 manufacturing joint venture
with Bosch-Siemens Hausgerate GmbH of Germany, Europe's second-largest appliance
manufacturer. The joint venture is manufacturing portable room air conditioners
in Estella, Spain. Products manufactured at both joint venture facilities are
marketed by Fedders International to export markets around the world and by
Fedders North America to the North American market. This global expansion
enhances our manufacturing, sales and marketing flexibility in the United States
and abroad.
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COMPETITIVE STRENGTHS AND COMPANY STRATEGY
Our strategy is to continue to capitalize on our competitive strengths,
including the following:
LOW COST PRODUCER. We believe that we are positioned as the low cost
producer in the United States. Significant cost savings achieved since 1993 were
a key factor in increasing gross margins from 17.5% to 23.8% and operating
margins from 1.2% to 11.3% from fiscal 1993 to fiscal 1999. We have achieved
significant cost reductions by:
- emphasizing global sourcing of components and raw materials to reduce
costs and ensure quality;
- continuously improving manufacturing efficiencies and reducing product
cost through design improvements, based in part on our expertise in heat
transfer technology;
- minimizing fixed costs while maximizing production flexibility, through
outsourcing and the elimination of redundant management and operational
and administrative departments; and
- focusing on low labor costs and flexible manufacturing, allowing us to
manage variable costs in response to fluctuations in demand for our
products.
The direct labor cost component of our products is generally lower than the cost
of freight and duty to import air conditioners into the United States from many
offshore locations, resulting in favorable price comparisons with imported
goods.
HIGH QUALITY PRODUCTS WITH STRONG MULTIPLE BRANDS. We manufacture a broad
line of ductless air conditioners that includes window, portable,
through-the-wall, split and multi-split units to meet a broad range of global
consumer preferences. We believe that we have developed a reputation among our
customers and consumers for producing high quality products at competitive
prices. The FEDDERS, EMERSON QUIET KOOL and AIRTEMP brands each has a long
history and is well known in the U.S. marketplace. We also manufacture on a
private label basis, in various sizes, a portion of the room air conditioners
sold by other global OEMs. All of our principal U.S. manufacturing facilities
have received the highest level of quality certification, ISO 9001, from the
International Standards Organization for our quality management systems. Fedders
Xinle has received ISO 9002 certification.
STRONG RELATIONSHIPS WITH LEADING RETAILERS. Beginning in the early 1990s,
we recognized a significant shift in the U.S. market for room air conditioners
as major regional and national retailers began replacing wholesale distributors
as the primary customers for our products. We believe that we have distinguished
Fedders from its competitors by effectively penetrating this rapidly growing
customer base and by working closely with our customers to improve their
marketing of our products. We estimate that leading retailers currently
represent more than 50% of the total room air conditioner market in the United
States.
ACCURATE-RESPONSE MANUFACTURING AND JUST-IN-TIME DELIVERY. During the
1990s, we have reengineered our manufacturing processes and distribution systems
in order to meet the delivery requirements, including "in-season" orders, of our
major retailing customers who increasingly sought to minimize their inventories.
For example, in 1996, we acquired Rotorex, which had been our principal supplier
of compressors for use in our products for 25 years. This captive supply of
compressors is critical to our accurate-response manufacturing and just-in-time
delivery of our seasonal products. We believe that our accurate-response
manufacturing capability, which allows us to adjust both total production
quantities and product mix on a timely basis, has been a key factor in Fedders'
ability to gain market share from its competitors.
PRODUCT FOCUS. We have focused on manufacturing and selling products
utilizing heat transfer technology for over 100 years. During the past 50 years,
our primary product line has been room air conditioners. More recently, we have
begun to accelerate our efforts to complement our core room air conditioner
product line with synergistic offerings while maintaining our core focus on air
treatment products. For example, the Trion acquisition described below provides
an opportunity to expand into the indoor air quality market where we can
capitalize on our extensive air treatment expertise and established
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global marketing and distribution channels. Many of our competitors produce a
broad range of consumer products, and as a result, we believe these competitors
have historically given less attention to the development and expansion of air
treatment technologies. Air treatment has been and continues to be our primary
business focus which we believe enables us to be more responsive to our
customers' needs and changing industry environment.
RECENT DEVELOPMENT
On July 12, 1999, Fedders entered into an agreement to acquire Trion, Inc.
(NASDAQ: TRON), a North Carolina-based designer, manufacturer and distributor of
equipment to improve indoor air quality in cleanroom, residential, commercial
and industrial environments, for aggregate consideration of $48.9 million,
including acquired indebtedness. On August 11, 1999 we successfully completed a
cash tender offer to purchase the outstanding shares of common stock of Trion at
a price of $5.50 per share. Approximately 89% of the issued and outstanding
common stock was tendered. On November 12, 1999, Trion merged into a wholly
owned subsidiary of Fedders Corporation. Since the completion of the Trion
merger, the non-European business of Trion has become a wholly owned subsidiary
of Fedders North America and the European business of Trion has become a wholly
owned subsidiary of Fedders.
Trion markets its products to a broad customer base that includes
microelectronics, semiconductor, and medical products manufacturers, hospitals,
building contractors, heating equipment manufacturers, retailers and the United
States Navy. Trion's extensive product line includes electronic air cleaners,
humidifiers, dust collectors and filters that provide ultra-clean air
environments, remove contaminants and humidify the air. We believe that Trion's
products will benefit from our global sourcing capabilities and marketing
expertise with significant potential for international growth. Certain product
lines will also benefit from our well-established retail distribution channels
in the United States. We will benefit from Trion's residential product line
sales, which are counterseasonal to Fedders' North American air conditioner and
dehumidifier sales. Air cleaner sales peak in winter months, as do humidifier
sales.
INDUSTRY
U.S. ROOM AIR CONDITIONER MARKET
The U.S. room air conditioner market is the third largest in the world with
average annual sales of 3.7 million units for the last 10 calendar years. The
industry has experienced significant consolidation with a reduction from 18
major domestic manufacturing operations in 1975 to five in 1999.
Sales of room air conditioners in the domestic market vary from year to
year according to the weather. This weather also affects shipments in the
following year due to above or below normal pipeline inventory. We believe that
demand is principally driven by the replacement market. Unlike major household
appliances and central air conditioning systems, the sale of room air
conditioners is not dependent on the construction of new homes.
INTERNATIONAL ROOM AIR CONDITIONER MARKET
Fedders believes that in 1998 the international market for room air
conditioners outside the United States was approximately five times the size of
the U.S. market, based on the number of units sold. After accelerating for
several years, demand for air conditioners outside of North America decreased in
1997 due to the international financial crisis, particularly in Asia.
International demand grew slightly in 1998 and is expected to resume its rapid
growth as international economies recover and average disposable income in
populous nations in hot weather climates increases.
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INDOOR AIR QUALITY MARKET
The global indoor air quality industry is estimated to have exceeded $3.0
billion in 1998 and favorable long-term industry growth is expected due to
current industry dynamics. Comparative risk studies performed by the United
States Environmental Protection Agency have consistently ranked air pollution
among the top five environmental risks to the public. EPA studies have
demonstrated that indoor air can be two to five times, and occasionally more
than 100 times, more polluted than outdoor air. Indoor air pollution may
contribute to illness and is a serious concern for people with medical
conditions such as asthma and allergies. In addition to health concerns,
increasing requirements for "pure" components utilized in high-performance end
products (e.g., semiconductors in computers) drive demand for indoor air quality
products to ensure clean manufacturing environments.
RISK FACTORS
Your investment in the notes will involve certain risks. You should
carefully consider the discussion of risks beginning on page 14 and the other
information included in this prospectus prior to making an investment in the
notes.
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THE EXCHANGE OFFER
Old Notes..................... $50,000,000 aggregate principal amount of
9 3/8% Senior Subordinated Notes due 2007,
which were issued on August 24, 1999.
New Notes..................... We are offering up to $50,000,000 aggregate
principal amount of 9 3/8% Series B Senior
Subordinated Notes due 2007 in an offering
which has been registered under the Securities
Act. The terms of the new notes are
substantially identical to those of the old
notes, except that certain transfer
restrictions and registration rights relating
to the old notes do not apply to the new notes.
In addition, old note holders will be entitled
to receive liquidated damages with respect to
the first 90-day period immediately following
the occurrence of a Registration Default (as
defined below) in an amount equal to $.05 per
week per $1,000 principal amount of old notes
held by such holders. The amount of the
liquidated damages will increase by an
additional $.05 per week per $1,000 principal
amount of old notes with respect to each
subsequent 90-day period until all Registration
Defaults have been cured, up to a maximum
amount of liquidated damages of $.40 per week
per $1,000 principal amount of old notes. See
the section of the prospectus entitled
"Description of the Notes--Registration Rights;
Liquidated Damages" for more information.
Exchange Offer................ We are offering to issue the new notes in
exchange for a like principal amount of the old
notes. The old notes were not registered with
the Commission. We are offering to issue the
new notes to satisfy our obligations contained
in the registration rights agreement entered
into when the old notes were sold in
transactions pursuant to Rule 144A under the
Securities Act. You may tender your old notes
by following the procedures stated in the
section of this prospectus entitled "The
Exchange Offer."
Resales....................... Based on interpretations by the staff of the
Commission, as set forth in no-action letters
issued to third parties, we believe that the
new notes you receive in the exchange offer may
be offered for resale, resold or otherwise
transferred without compliance with the
registration and prospectus delivery provisions
of the Securities Act. However, you will not be
able to freely transfer the new notes if:
- you are an "affiliate" (as defined in
Rule 405 under the Securities Act) of
our company;
- you are not acquiring the new notes in
the exchange offer in the ordinary
course of your business;
- you have an arrangement or understanding
with any person to participate in the
distribution (as defined in the
Securities Act) of the new notes you
will receive in the exchange offer; or
- you are a broker-dealer that receives
new notes for its own account in the
exchange offer in exchange for old
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notes that were acquired as a result of
market-making or other trading
activities.
If you fall within one of the exceptions listed
above, you must comply with the registration
and prospectus delivery requirements of the
Securities Act in connection with any resale
transaction involving the new notes.
Tenders; Expiration Date...... The exchange offer will expire at 5:00 p.m.,
New York City time, on , 1999,
unless we extend it. By tendering your old
notes, you represent to us:
- that you are not an "affiliate" (as
defined in Rule 405 under the Securities
Act) of our company;
- that any new notes you receive in the
exchange offer are being acquired by you
in the ordinary course of your business;
- that, at the time of commencement of the
exchange offer, neither you nor, to your
knowledge, anyone receiving new notes
from you, has any arrangement or
understanding with any person to
participate in the distribution (as
defined in the Securities Act) of the
new notes in violation of the Securities
Act;
- if you are not a broker-dealer, that you
are not engaged in, and do not intend to
engage in, the distribution (as defined
in the Securities Act) of the new notes;
and
- if you are a broker-dealer, that you
will receive the new notes for your own
account in exchange for old notes that
were acquired by you as a result of your
market-making or other trading
activities and that you will deliver a
prospectus in connection with any resale
of the new notes you receive. For
further information regarding resales of
the new notes by participating
broker-dealers, see the section of this
prospectus entitled "Plan of
Distribution."
Withdrawal; Non-Acceptance.... You may withdraw any old notes tendered in the
exchange offer at any time prior to 5:00 p.m.,
New York City time, on , 1999. If
we decide for any reason not to accept any old
notes for exchange, the old notes will be
returned to the registered holder at our
expense promptly after the expiration or
termination of the exchange offer. In the case
of old notes tendered by book-entry transfer
into the exchange agent's account at The
Depository Trust Company, any withdrawn or
unaccepted old notes will be credited to the
tendering holder's account at The Depository
Trust Company. See "The Exchange Offer--Terms
of the Exchange Offer; Period for Tendering Old
Notes" and "The Exchange Offer--Withdrawal
Rights."
Conditions to the Exchange
Offer......................... The exchange offer is subject to customary
conditions, which we may waive. Please read the
section of this prospectus entitled "The
Exchange Offer--Conditions to the Exchange
Offer" for more information regarding
conditions to the exchange offer.
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Guaranteed Delivery
Procedures.................... If you are a registered holder of the old notes
and wish to tender your old notes in the
exchange offer, but (1) the old notes are not
immediately available, (2) time will not permit
your old notes or other required documents to
reach the exchange agent before the expiration
of the exchange offer, or (3) the procedure for
book-entry transfer cannot be completed prior
to the expiration of the exchange offer, you
may tender old notes by following the
procedures described below under the section of
this prospectus entitled "The Exchange
Offer--Guaranteed Delivery Procedures."
Special Procedures for
Beneficial Owners............. If you are a beneficial owner whose old notes
are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and you wish to tender your old notes in the
exchange offer, you should promptly contact the
person in whose name the old notes are
registered and instruct that person to tender
on your behalf. If you wish to tender in the
exchange offer on your own behalf, prior to
completing and executing the letter of
transmittal and delivering your old notes, you
must either make appropriate arrangements to
register ownership of the old notes in your
name or obtain a properly completed bond power
from the person in whose name the old notes are
registered.
Certain Federal Income Tax
Considerations.............. Your exchange of old notes for new notes
pursuant to the exchange offer will not result
in any gain or loss to you for federal income
tax purposes. See "Certain Federal Income Tax
Considerations."
Use of Proceeds............... We will receive no proceeds from the exchange
offer.
Exchange Agent................ State Street Bank and Trust Company is the
exchange agent for the exchange offer. The
address and telephone number of the exchange
agent are set forth under the heading "The
Exchange Offer--Exchange Agent" of this
prospectus.
Shelf Registration
Statement..................... Under select circumstances, some holders of old
notes (including holders who are not permitted
to participate in the exchange offer or who may
not freely resell new notes received in the
exchange offer) may require us to file, and
cause to become effective, a shelf registration
statement under the Securities Act which would
cover resales of old notes by these holders.
See the section of the prospectus entitled
"Description of Notes--Registration Rights;
Liquidated Damages."
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CONSEQUENCES OF NOT EXCHANGING OLD NOTES
If you do not exchange your old notes in the exchange offer, your old notes
will continue to be subject to the restrictions on transfer set forth in the
legend on the certificate for your old notes. In general, you may offer or sell
your old notes only if they are registered under, offered or sold pursuant to an
exemption from, or offered or sold in a transaction not subject to, the
Securities Act and applicable state securities laws. We do not currently intend
to register the old notes under the Securities Act. Under certain circumstances,
however, holders of old notes (including holders who are not permitted to
participate in the exchange offer or who may not freely resell new notes
received in the exchange offer) may require us to file and cause to become
effective a shelf registration statement which would cover resales of old notes
by their holders. See the sections of the prospectus entitled "The Exchange
Offer--Consequences of Exchanging or Failing to Exchange Old Notes" and
"Description of Notes--Registration Rights; Liquidated Damages."
SUMMARY DESCRIPTION OF THE NEW NOTES
The terms of the new notes and the old notes are identical in all material
respects, except that certain transfer restrictions and registration rights
relating to the old notes do not apply to the new notes. In addition, old note
holders will be entitled to receive liquidated damages with respect to the first
90-day period immediately following the occurrence of a Registration Default (as
defined below) in an amount equal to $.05 per week per $1,000 principal amount
of old notes held by such holders. The amount of the liquidated damages will
increase by an additional $.05 per week per $1,000 principal amount of old notes
with respect to each subsequent 90-day period until all Registration Defaults
have been cured, up to a maximum amount of liquidated damages of $.40 per week
per $1,000 principal amount of old notes. See the section of the prospectus
entitled "Description of Notes--Registration Rights; Liquidated Damages."
Issuer........................ Fedders North America, Inc.
Securities Offered............ $50,000,000 aggregate principal amount of
9 3/8% Senior Subordinated Notes due 2007.
Maturity Date................. August 15, 2007.
Interest Payment Dates........ The notes will bear interest at the rate of
9 3/8% per annum, payable semiannually in cash
in arrears on February 15 and August 15 of each
year, commencing February 15, 2000.
Guarantee..................... Fedders Corporation, of which Fedders North
America is a wholly owned subsidiary, will
fully and unconditionally guarantee the notes
on a senior subordinated basis. See
"Description of Notes--Guarantee."
Optional Redemption........... Fedders North America may redeem the notes, in
whole or in part, on or after August 15, 2002,
at the redemption prices set forth in this
prospectus, plus accrued and unpaid interest.
In addition, before August 15, 2000, Fedders
North America may redeem up to 30% of the notes
at 109.375% of the principal amount thereof,
plus accrued and unpaid interest, with the net
cash proceeds of certain sales of common
equity; provided at least 70% of the original
aggregate principal amount of the notes remains
outstanding immediately after such redemption.
See "Description of Notes--Redemption of
Notes--Optional Redemption."
Change of Control............. Upon the occurrence of certain change of
control events, each holder may require Fedders
North America to repurchase all or a portion of
the notes at 101% of the principal amount
thereof,
8
12
plus accrued and unpaid interest. See
"Description of Notes--Change of Control."
Ranking....................... The notes will be subordinated to all of
Fedders North America, Inc.'s existing and
future senior indebtedness, and equal or senior
to any of Fedders North America, Inc.'s other
existing or future indebtedness. The guarantee
will be subordinated to all of Fedders
Corporation's existing and future senior
indebtedness to the same extent that the notes
are subordinated to Fedders North America,
Inc.'s senior indebtedness, and the guarantee
will be equal or senior to any of Fedders
Corporation's other existing or future
indebtedness. The notes and the guarantee will
also be effectively subordinated to the
existing and future indebtedness of the
subsidiaries of Fedders North America, Inc. and
Fedders Corporation. As of August 31, 1999:
- Fedders North America, Inc. (other than
its subsidiaries) had total debt, other
than the notes, of $103.0 million (net
of $0.4 million discount), $3.4 million
of which was senior indebtedness (in
addition to unused commitments of $100.0
million under its revolving credit
facility);
- Fedders Corporation had total debt,
other than the guarantee, of $99.6
million (net of $0.4 million discount),
representing its guarantee of Fedders
North America's existing senior
subordinated notes, none of which was
senior indebtedness;
- subsidiaries of Fedders Corporation
(other than Fedders North America and
its subsidiaries) had $5.1 million of
outstanding indebtedness; and
- subsidiaries of Fedders North America,
Inc. had $5.6 million of outstanding
indebtedness (in addition to obligations
under Fedders North America's revolving
credit facility, the entire availability
of which was unused).
Certain Covenants............. The indenture governing the notes will contain
covenants that will, among other things, limit
the ability of Fedders North America and the
ability of certain of its subsidiaries to:
- incur additional indebtedness or issue
preferred stock;
- repay certain other indebtedness;
- pay dividends on, redeem or repurchase
their capital stock;
- sell assets;
- engage in certain transactions with
affiliates;
- enter into sale and leaseback
transactions;
- create certain liens; and
- consolidate, merge or sell all or
substantially all of the assets of
Fedders North America.
9
13
All of these limitations are subject to
important exceptions and qualifications
described under "Description of Notes--Certain
Covenants."
The indenture does not contain covenants
restricting Fedders or any of its subsidiaries
other than Fedders North America and its
subsidiaries.
Use of Proceeds............... We will receive no proceeds from the offering
of the new notes upon consummation of the
exchange offer. The net proceeds from the
offering of the old notes were used primarily
to replenish cash used in connection with the
Trion acquisition. See "Use of Proceeds."
Certain Federal Income
Tax Considerations.......... The old notes were issued with "original issue
discount." The amount of the original issue
discount was equal to the excess of the stated
redemption price at maturity of the old notes
(i.e., the principal amount) over their issue
price. A holder must include the original issue
discount in gross income as ordinary interest
income as it accrues on a constant yield
method, in advance of the receipt of the cash
representing that income. See "Certain Federal
Income Tax Considerations."
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SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The following table shows summary historical consolidated financial
information of Fedders. The historical financial information as of August 31,
1999 and for each of the three years in the period then ended has been derived
from the audited consolidated financial statements and related notes
incorporated by reference in this prospectus. You should read this information
together with those financial statements and "Management's Discussion and
Analysis of Results of Operations and Financial Condition of Fedders
Corporation" which is also incorporated by reference in this prospectus.
Summarized historical consolidated financial information of Fedders as of August
31, 1995 and 1996 and for each of the years then ended has been derived from
audited consolidated financial statements which do not appear in the documents
incorporated by reference in this prospectus.
FISCAL YEAR ENDED AUGUST 31,
--------------------------------------------------------
1995 1996 1997 1998 1999
(DOLLARS IN THOUSANDS)
STATEMENTS OF OPERATIONS DATA:
Net sales....................................... $316,494 $371,772 $314,100 $322,121 $355,956
Gross profit.................................. 67,125 83,028 70,076 69,770 84,591
Selling, general and administrative
expenses.................................... 29,472 32,040 38,347 40,210 41,233
Restructuring expense(1)...................... -- -- -- 16,750 3,100
Operating income.............................. 37,653 50,988 31,729 12,810 40,258
Net interest expense.......................... 1,962 952 3,430 8,610 9,684
Income tax.................................... 6,187 19,108 10,103 1,611 10,262
Net income (loss)............................. 29,504 31,158 18,764 2,992 20,724
OTHER DATA:
Adjusted EBITDA(2)............................ $ 44,143 $ 57,796 $ 42,232 $ 41,757 $ 54,613
Net cash provided by (used in) operating
activities.................................... 44,587 40,835 (9,305) 38,824 51,942
Net cash provided by (used in) investing
activities.................................... (8,520) (6,508) (8,808) (9,997) (48,778)
Net cash provided by (used in) financing
activities.................................... (13,229) (1,739) 38,211 (48,234) 23,359
Depreciation and amortization................. 7,519 6,578 9,935 9,263 10,279
Capital expenditures(3)....................... 9,041 7,043 9,236 8,497 9,378
Gross profit margin........................... 21.2% 22.3% 22.3% 21.7% 23.8%
AS OF AUGUST 31,
1999
(DOLLARS IN
THOUSANDS)
----------------
BALANCE SHEET DATA:
Cash and cash equivalents................................... $117,509
Working capital........................................... 112,266
Total assets.............................................. 382,342
Long-term debt (including current portion)................ 161,363
Total stockholders' equity................................ 108,933
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- ------------------------------
(1) In January 1998, Fedders announced a plan to restructure its operations,
which resulted in Fedders recording a one-time expense totaling $16.8
million in the second fiscal quarter ended February 28, 1998. The charge
consisted of machinery and equipment write-downs ($5.6 million); an amount
for machinery and equipment and other lease terminations, primarily related
to outsourcing ($4.9 million); personnel-related costs, primarily related to
outsourcing ($3.8 million); and administrative facility closing costs ($2.5
million). In August 1999, Fedders added to the 1998 restructuring by
arranging to out source to Taiwan and China all of the pumps used in the
manufacture of its Rotorex compressors ($3.1 million). See note 2 to the
Fedders audited consolidated financial statements incorporated by reference
in this prospectus.
(2) Adjusted EBITDA represents income before income taxes plus net interest
expense, depreciation and amortization (excluding amortization of debt
discounts and deferred financing costs) and certain one-time charges. While
Adjusted EBITDA should not be construed as a substitute for operating
income, or as an alternative measure of liquidity to cash flow from
operating activities, both of which are determined in accordance with
generally accepted accounting principles, it is included herein to provide
additional information with respect to the ability of Fedders and Fedders
North America to meet future debt service, capital expenditure and working
capital requirements. In addition, Fedders and Fedders North America believe
that certain investors find Adjusted EBITDA to be a useful tool for
measuring the ability of Fedders and Fedders North America to service its
debt. Adjusted EBITDA is not necessarily a measure of Fedders' or Fedders
North America's ability to fund cash needs. Adjusted EBITDA may not be
comparable to similarly titled measures reported by other companies. The
amounts shown for Adjusted EBITDA exclude one-time charges for restructuring
and early retirement as follows:
FISCAL YEAR ENDED
AUGUST 31,
-----------------------
1998 1999
(DOLLARS IN THOUSANDS)
Fedders North America....................................... $17,381 $3,100
Other Fedders companies..................................... 2,260 --
------- ------
Fedders..................................................... $19,641 $3,100
======= ======
- ------------------------------
(3) Fiscal 1995 amount includes the buyout of $1.8 million of equipment under
lease.
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(4) Fedders North America is a wholly owned subsidiary of Fedders. The following
table shows historical financial information of Fedders North America, which
has been derived from the supplemental condensed consolidating financial
statements appearing in note 13 to the Fedders audited consolidated
financial statements incorporated by reference in this prospectus. You
should read this table together with those financial statements. Note
references in the following table are to the notes preceding this note.
FISCAL YEAR ENDED AUGUST 31,
--------------------------------------------------------
1995 1996 1997 1998 1999
(DOLLARS IN THOUSANDS)
STATEMENTS OF OPERATIONS DATA:
Net sales........................................ $311,363 $356,392 $271,874 $289,412 $326,793
Gross profit................................... 65,770 79,475 65,004 63,232 79,635
Restructuring expense.......................... -- -- -- 15,360 3,100
Operating income............................... 39,225 54,208 38,874 21,479 45,253
OTHER DATA:
Adjusted EBITDA(2)............................. $ 45,316 $ 60,279 $ 46,721 $ 46,000 55,343
Net cash provided by (used in) operating
activities................................... 41,805 36,073 12,694 43,320 $ 56,243
Net cash provided by (used in) investing
activities................................... (4,807) (4,448) (6,750) (5,351) (45,113)
Net cash provided by (used in) financing
activities................................... (36,998) (31,625) (5,944) (31,955) 58,948
Capital expenditures(3)........................ 4,286 4,983 7,131 6,541 5,713
Gross profit margin............................ 21.1% 22.3% 23.9% 21.8% 24.4%
AS OF AUGUST 31,
1999
(DOLLARS IN
THOUSANDS)
----------------
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 76,092
Working capital........................................... 46,868
Total assets.............................................. 279,741
Long-term debt (including current portion)................ 156,302
Total stockholders' equity................................ 27,742
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RISK FACTORS
You should carefully consider the following factors in addition to the
other information in this prospectus before deciding to tender your old notes in
the exchange offer. The risk factors set forth below, other than those which
discuss the consequences of failing to exchange your old notes in the exchange
offer, are generally applicable to both the old notes and the new notes.
THERE ARE CONSEQUENCES SHOULD YOU CHOOSE NOT TO EXCHANGE YOUR OLD NOTES.
If you do not exchange your old notes for the new notes in the exchange
offer, you will continue to be subject to the restrictions on transfer of your
old notes described in the legend on your old notes. The restrictions on
transfer of your old notes arise because we issued the old notes under
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, you may only offer or sell the old notes if they are registered under
the Securities Act and applicable state securities laws, or offered and sold
under an exemption from these requirements. We do not intend to register the old
notes under the Securities Act. In addition, if you exchange your old notes in
the exchange offer for the new notes, you may be deemed to have received
restricted securities and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. To the extent old notes are tendered and
accepted in the exchange offer, the trading market, if any, for the old notes
would be adversely affected. See "The Exchange Offer--Consequences of Exchanging
or Failing to Exchange Old Notes."
SUBORDINATION--YOUR RIGHT TO RECEIVE PAYMENT ON THE NOTES IS JUNIOR TO ALL
OF FEDDERS NORTH AMERICA, INC.'S SENIOR INDEBTEDNESS AND POSSIBLY ALL OF
ITS FUTURE BORROWINGS. THE GUARANTEE BY FEDDERS CORPORATION IS JUNIOR TO
ALL OF ITS SENIOR INDEBTEDNESS AND POSSIBLY ALL OF ITS FUTURE BORROWINGS.
The notes will be general unsecured obligations of Fedders North America,
Inc. Payments on the notes will be subordinated in right of payment to all
existing and future senior indebtedness of Fedders North America, Inc. Payments
under the guarantee of the notes by Fedders Corporation will be subordinated in
right of payment to all existing and future senior indebtedness of Fedders
Corporation. As of August 31, 1999, the aggregate principal amount of senior
indebtedness of Fedders North America, Inc. to which the notes were subordinated
was approximately $3.4 million and there was no senior indebtedness of Fedders
Corporation to which its guarantee was subordinated. The notes and the guarantee
will also rank equal in right of payment to other existing and future senior
subordinated indebtedness of Fedders North America, Inc. and Fedders
Corporation. As of August 31, 1999, Fedders North America, Inc. and Fedders
Corporation had outstanding $99.6 million (net of $0.4 million discount) of
senior subordinated indebtedness, representing Fedders North America, Inc.'s
existing senior subordinated notes and Fedders Corporation's guarantee of those
notes.
The indenture permits, subject to limitations, the incurrence by Fedders
North America and its restricted subsidiaries of additional indebtedness, some
or all of which may be senior indebtedness. The indenture will not limit the
ability of Fedders and its subsidiaries (other than Fedders North America and
its subsidiaries) to incur additional indebtedness, some or all of which may be
senior indebtedness. By reason of the subordination provisions of the indenture,
in the event of the liquidation or insolvency of Fedders North America or
Fedders, other creditors who are holders of senior indebtedness must be paid in
full before payment of amounts due on the notes or the guarantee. Accordingly,
there may be insufficient assets remaining to pay amounts due on the notes or
the guarantee. In addition, the notes will not be secured by any of our assets.
Therefore, lenders under Fedders North America's revolving credit facility which
is secured by substantially all of our assets will be entitled to exercise
remedies available to a secured lender with respect to those assets.
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In addition, the indenture restricts the ability of Fedders North America
and Fedders to make any payments on the notes or the guarantee if they are in
default on specified designated senior indebtedness.
Fedders North America's and Fedders' other subsidiaries have and may in the
future incur indebtedness. Holders of this indebtedness will have a claim
against the assets of these subsidiaries that will rank ahead of any claim of
the holders of the notes and the guarantee. As of August 31, 1999, subsidiaries
of Fedders (other than Fedders North America and its subsidiaries) had $5.1
million of outstanding indebtedness and subsidiaries of Fedders North America
had $5.6 million of outstanding indebtedness (in addition to obligations under
Fedders North America's revolving credit facility, the entire availability of
which was unused).
SEASONALITY--OUR BUSINESS IS SIGNIFICANTLY AFFECTED BY SEASONAL FACTORS AND
IS DEPENDENT ON SUMMER WEATHER CONDITIONS.
Our operating results and financial condition are currently principally
dependent on the manufacture and sale of room air conditioners. The demand for
room air conditioners is highly seasonal in our primary North American markets.
Seasonally low sales volume is insufficient to offset fixed costs, resulting in
operating losses at certain times of the year. In addition, our working capital
needs are seasonal and we draw on our lines of credit to the greatest extent
early in the calendar year.
Fedders North America's business is primarily dependent on the demand for
room air conditioners in North America. As a result, unseasonably cool
temperatures during the summer in principal domestic markets have an adverse
effect on our industry and on our operations. While a cool summer in several
major markets in a given year would likely result in reduced sales and earnings
for a single fiscal year, consecutive cool summers in such major markets could
have a material adverse effect on our business.
DEPENDENCE ON PRINCIPAL CUSTOMERS--OUR BUSINESS DEPENDS ON OUR
RELATIONSHIPS WITH A LIMITED NUMBER OF LARGE CUSTOMERS.
Our two largest customers account for a significant portion of Fedders' net
sales. In 1999, each of these customers accounted for 29% of net sales. In 1998,
one customer accounted for 30% of net sales and a second customer accounted for
27% of net sales. In 1997, one customer accounted for 27% of net sales and a
second customer accounted for 19% of net sales. While we have done business with
most of our principal customers for a number of years, agreements with principal
customers are reached annually and are based on purchase orders. We cannot
assure you that sales to principal customers will continue at current levels.
Further, continuation of the relationships depends on the customers'
satisfaction with the price, quality and delivery of our products. The loss of,
or a reduction in purchase levels by, a significant customer which we are unable
to replace with new orders would have a material adverse effect on our business.
ACQUISITION RISKS--OUR FAILURE TO SUCCESSFULLY INTEGRATE TRION OR FUTURE
ACQUISITIONS INTO OUR OPERATIONS COULD ADVERSELY AFFECT US.
We believe that we can realize significant benefits from the successful
integration of Trion. However, we may not be able to maintain or increase the
profitability of Trion and we may not be able to successfully integrate Trion
into our operations. We continually evaluate potential acquisitions and intend
to actively pursue acquisition opportunities, some of which may be material. We
may finance future acquisitions with internally generated funds, bank
borrowings, issuances of debt or equity securities, or a combination of the
foregoing. If we complete acquisitions, we will encounter various associated
risks. These risks include the possible inability to integrate an acquired
business into our operations, increased goodwill amortization, diversion of
management's attention, and unanticipated problems or liabilities. Some of these
risks could result in a material adverse effect on our financial condition or
operating results.
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19
COMPETITION--OUR BUSINESS IS HIGHLY COMPETITIVE WHICH COULD ADVERSELY
AFFECT FEDDERS.
Our industry is highly competitive and the principal market in which we
participate is mature. Our competitors include a number of domestic and foreign
manufacturers of air conditioners and other appliances. Many of these
competitors are substantially larger and have greater financial resources than
us. Competitive factors could require price reductions or increased spending on
product development, marketing and sales that could adversely affect our profit
margins.
RESTRICTIVE COVENANTS--OUR DEBT INSTRUMENTS CONTAIN VARIOUS COVENANTS WHICH
LIMIT OUR MANAGEMENT'S DISCRETION IN THE OPERATION OF OUR BUSINESS AND
COULD RESULT IN DEFAULTS.
Fedders North America's revolving credit facility and the indentures
governing its existing senior subordinated notes and the notes we are now
offering contain various restrictive covenants that, among other things, limit
our ability to:
- pay dividends or make certain other restricted payments;
- incur additional indebtedness;
- encumber or sell assets;
- enter into transactions with affiliates;
- enter into certain guarantees of indebtedness;
- make restricted investments;
- merge or consolidate with any other entity; and
- transfer or lease all or substantially all of our assets.
The revolving credit facility also requires Fedders to satisfy certain financial
condition tests. Our ability to meet those tests can be affected by events
beyond our control. We cannot assure you that we will be able to meet those
tests. A breach of any of the restrictive covenants could result in a default
under the debt instruments. In the event of a default, the lenders generally
could elect to declare all amounts outstanding to be immediately due and
payable. If we were unable to repay those amounts, the lenders could proceed
against our assets to satisfy these obligations. If the notes were to be
accelerated, we cannot assure you that our assets would be sufficient to repay
the notes in full. In addition, substantially all of our assets are pledged as
security under the revolving credit facility.
LEVERAGE AND DEBT SERVICE--OUR SUBSTANTIAL INDEBTEDNESS AND DEBT SERVICE
OBLIGATIONS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND PREVENT US
FROM FULFILLING OUR OBLIGATIONS UNDER THE NOTES.
As of August 31, 1999, Fedders North America's total consolidated
indebtedness was approximately $156.3 million, representing 84.9% of its total
capitalization. This leverage could have important consequences for us. For
example:
- our ability to obtain additional financing for acquisitions, working
capital, capital expenditures or other purposes may be impaired or such
financing may not be on favorable terms;
- a portion of our cash flow will be used to pay interest expense and under
certain conditions to repay indebtedness, which will reduce the funds
that would otherwise be available for operations and future business
opportunities;
- a substantial decrease in net operating cash flows or an increase in
expenses could make it difficult for us to meet our debt service
requirements and force us to modify our operations;
- we may be more highly leveraged than our competitors, placing us at a
competitive disadvantage; and
- our leverage may make us more vulnerable to a downturn in our business or
the economy generally.
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Fedders North America's ability to pay interest and principal on the notes
and to satisfy its other debt obligations will depend upon its future operating
performance. This performance will be affected by prevailing economic conditions
and financial, business and other factors, many of which are beyond our control.
We cannot assure you that we will have adequate cash available to make required
principal and interest payments.
WORKING CAPITAL REQUIREMENTS--OUR WORKING CAPITAL REQUIREMENTS FLUCTUATE
BECAUSE OF THE SEASONAL NATURE OF OUR BUSINESS. UNAVAILABILITY OF NEEDED
WORKING CAPITAL COULD ADVERSELY AFFECT US.
Because of the seasonal nature of our business, working capital
requirements are significantly higher at certain times of the year. If amounts
required to fund Fedders North America's working capital requirements are not
available from Fedders or under Fedders North America's revolving credit
facility, Fedders North America would need to seek an increase in the borrowing
limit under its revolving credit facility or an alternative source of working
capital. Additional working capital may not be available on satisfactory terms.
Unavailability of needed working capital could have a material adverse effect on
our business and operating results.
CHANGE OF CONTROL PROVISIONS--WE MAY NOT BE ABLE TO MAKE A CHANGE OF
CONTROL OFFER TO REPURCHASE THE NOTES AS REQUIRED BY THE INDENTURE.
In the event of a change of control as defined in the indenture, Fedders
North America will be required to offer to repurchase all of the outstanding
notes at a price equal to 101% of their principal amount plus any accrued and
unpaid interest. Similar repurchase obligations exist under our other debt
instruments. The exercise by the holders of the notes of their right to require
Fedders North America to repurchase the notes on a change of control could also
cause a default under other indebtedness because of the financial effect of such
repurchase, even if the change of control itself does not cause a default. The
ability to pay cash to the holders of the notes on a repurchase may be limited
by Fedders North America's then existing financial resources. We cannot assure
you that in the event of a change of control Fedders North America will have
access to sufficient funds or will be permitted under the terms of its existing
and future debt instruments to pay the required purchase price for all the notes
tendered by holders. In addition, certain important corporate events, such as a
leveraged recapitalization that could substantially increase the levels of our
indebtedness, would not constitute a change of control under the indenture.
CONTROL BY PRINCIPAL STOCKHOLDERS--FEDDERS IS CONTROLLED BY THE GIORDANO
FAMILY WHICH MAY HAVE DIFFERENT INTERESTS THAN THOSE OF THE HOLDERS OF THE
NOTES.
Fedders North America is a wholly owned subsidiary of Fedders. Salvatore
Giordano, Sal Giordano, Jr., Joseph Giordano and members of their families
beneficially own approximately 99.8% of the class B stock of Fedders. Through
their holdings of class B stock, these stockholders, under certain
circumstances, will have the power to:
- elect a majority of the board of directors of Fedders and Fedders North
America;
- designate the management of Fedders and Fedders North America;
- determine the policies of Fedders and Fedders North America; and
- decide the outcome of significant corporate actions requiring stockholder
approval.
The interests of these stockholders may differ from those of the holders of
the notes and they may cause us to act in a manner that is not in your best
interests.
DEPENDENCE ON KEY EXECUTIVES--OUR LOSS OF CERTAIN KEY MEMBERS OF MANAGEMENT
OR INABILITY TO ATTRACT OTHER QUALIFIED PERSONNEL COULD NEGATIVELY IMPACT
OUR BUSINESS PROSPECTS.
We believe that our performance has been and will continue to be dependent
upon the efforts of our principal executive officers. Although we have designed
incentive and compensation programs to retain key
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21
employees, including options to purchase stock of Fedders, we cannot assure you
that our principal executive officers will continue to be available. The loss of
some or all of these principal executive officers could have a material adverse
effect on us. We believe that our future success will depend in large part on
our continued ability to attract and retain highly skilled and qualified
personnel.
INTERNATIONAL OPERATIONS--OUR INTERNATIONAL OPERATIONS ARE SUBJECT TO RISKS
INCLUDING OUR COMPLIANCE WITH THE FOREIGN CORRUPT PRACTICES ACT.
Fedders has dedicated resources to participating in the international
market by establishing operations in China through Fedders Xinle, a joint
venture with Ningbo General Air Conditioner Factory, and in Spain through BSH
and Fedders International Air Conditioning, S.A., a joint venture with an
indirect subsidiary of Bosch-Siemens Hausgerate GmbH. We intend to continue such
involvement through other production and joint venture agreements. International
manufacturing and sales are subject to inherent risks, including:
- labor unrest;
- political instability;
- restrictions on transfer of funds;
- export duties and quotas;
- domestic and foreign customs and tariffs;
- current and changing regulatory environments;
- difficulty in obtaining distribution and support; and
- potentially adverse tax consequences.
We cannot assure you that these factors will not have a material adverse effect
on Fedders' international operations or sales or upon its financial condition
and operating results.
To the extent that we conduct operations and sell products outside the
United States, we are subject to the Foreign Corrupt Practices Act. This act
generally prohibits U.S. companies and their intermediaries from bribing foreign
officials for the purpose of obtaining or keeping business or licenses or
otherwise obtaining favorable treatment. We may also be liable under the act for
actions which may in the past have been taken or which may be taken in the
future by agents and other intermediaries or by our strategic or local partners
whom we do not control. Although we have taken precautions to comply with the
act, we cannot assure you that these precautions will protect us against
liability under the act. Any determination that we have violated the act could
have a material adverse effect on us.
RAW MATERIALS--THE UNAVAILABILITY OF AND FLUCTUATION IN THE COST OF RAW
MATERIALS COULD ADVERSELY AFFECT OUR FUTURE RESULTS.
Our operations are dependent on the supply of various raw materials,
including steel, copper and aluminum, from domestic and foreign suppliers. We
obtain substantially all of our supply of steel, copper and aluminum under
purchase orders rather than long-term supply contracts. Although to date we have
been able to obtain sufficient quantities of steel, copper and aluminum for our
manufacturing processes, supply interruptions or cost increases which we are
unable to pass on to our customers could adversely affect our future operating
results.
LABOR RELATIONS--OUR OPERATIONS COULD BE ADVERSELY AFFECTED BY LABOR
DISPUTES.
Approximately 46% of our employees in the United States are represented by
unions. In the past some of our operations have been the subject of labor
strikes. Our collective bargaining agreements with the unions representing
substantially all of the production employees in our Effingham, Illinois plant
are scheduled to expire in October 2001. Our collective bargaining agreement
with the union representing
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approximately 50 Rotorex employees is scheduled to expire in August 2005. We
cannot assure you as to the results of negotiations of future collective
bargaining agreements, whether future collective bargaining agreements will be
negotiated without production interruptions, and as to the possible impact of
future collective bargaining agreements on our financial condition and operating
results.
GOVERNMENT REGULATION--WE ARE SUBJECT TO VARIOUS REGULATORY LAWS THAT
AFFECT OUR BUSINESS AND PRODUCTS.
We are subject to various federal, state and local laws affecting our
business. Room air conditioners are subject to federal regulations providing for
minimum energy efficiency rating (EER) requirements. A combination of an
efficient compressor and the design of the air conditioning system using the
compressor is needed to achieve the required ratings. On September 24, 1997, the
Office of Energy Efficiency and Renewable Energy of the United States Department
of Energy issued a final rule under the National Appliance Energy Conservation
Act. This rule revised the minimum required EERs for most classes of room air
conditioners to higher levels. The new EER levels apply to covered units
manufactured on or after October 1, 2000. This will require increasing the
efficiency levels of certain air conditioner models to achieve the revised
minimum EER levels. Future changes in government regulations which adversely
affect the industry and our business could be enacted in the future.
ENVIRONMENTAL REGULATION--A REFRIGERANT USED IN OUR PRODUCTS IS SCHEDULED
TO BE PHASED OUT UNDER CURRENT ENVIRONMENTAL REGULATIONS. THE AVAILABILITY
OF A COST EFFECTIVE ALTERNATIVE IS NOT ASSURED.
The products manufactured by Fedders currently use hydrochlorofluorocarbons
(HCFCs) as the refrigerant. The production of HCFCs for use in new equipment is
currently scheduled to be phased out as of the year 2010 in the United States.
In addition, the production of HCFCs for the servicing of existing equipment is
currently scheduled to be phased out as of the year 2020 in the United States.
Chemical producers are currently developing environmentally acceptable
alternative refrigerants for use in room air conditioners. These alternative
refrigerants are expected to be available in advance of the currently proposed
phase-out deadlines for the current refrigerant. We cannot assure you that we
will be able to develop cost effective products that utilize alternative
refrigerants.
FRAUDULENT TRANSFER CONSIDERATIONS--FEDERAL AND STATE STATUTES COULD UNDER
CERTAIN CIRCUMSTANCES VOID GUARANTEES.
Although laws differ among various jurisdictions, in general, under
fraudulent conveyance laws, a court could subordinate or avoid any guarantee and
require noteholders to return payments received from a guarantor if it found
that the guarantee was incurred with actual intent to hinder, delay or defraud
creditors or the guarantor did not receive fair consideration or reasonably
equivalent value for the guarantee and the guarantor was any of the following:
- insolvent or was rendered insolvent because of the guarantee;
- engaged or about to engage in a business or transaction for which its
remaining assets constituted unreasonably small capital; or
- intended to incur, or believed or reasonably should have believed that it
would incur, debts beyond its ability to pay at maturity.
If a court avoided the guarantee of the notes by Fedders as a result of a
fraudulent conveyance, or held it unenforceable for any other reason,
noteholders would no longer have a claim against the guarantor and would be
solely creditors of Fedders North America.
ORIGINAL ISSUE DISCOUNT--THE ORIGINAL ISSUE DISCOUNT MAY PRESENT
UNFAVORABLE TAX AND OTHER LEGAL CONSEQUENCES TO YOU.
The notes will be deemed to have been issued to you at a discount for
federal income tax purposes. Original issue discount, which is the difference
between the stated redemption price of the notes at
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maturity and the issue price of the notes, will accrue from the issue date of
the notes and be includable in a holder's gross income as it accrues. See
"Certain Federal Income Tax Considerations."
If a bankruptcy case under the U.S. Bankruptcy Code were commenced by or
against us after the issuance of the notes, the claim of a holder of notes could
be limited to exclude the amount of unamortized original issue discount, as of
the relevant date, if the bankruptcy court determined that it was "unmatured
interest."
ABSENCE OF A PUBLIC MARKET--THERE IS NO CURRENT TRADING MARKET FOR THE
NOTES AND THEIR RESALE MAY BE RESTRICTED.
The new notes are new securities for which there currently is no market.
Although the initial purchaser has advised us that it currently intends to make
a market in the new notes, it is not obligated to do so and may discontinue the
market making at any time without notice. While the old notes are eligible for
trading in the PORTAL market, we do not intend to list any of the notes on any
national securities exchange or to seek their admission on any other automated
quotation system. Accordingly, we cannot assure you that an active market will
develop for any of the notes or that any trading market for the notes will be
liquid. If a liquid trading market does not develop or is not maintained,
holders of the notes may be unable to sell their notes. Future trading prices of
the notes will depend on many factors, including prevailing interest rates, our
results of operations and the market for similar securities. Depending on
prevailing interest rates, the market for similar securities and other factors,
including our financial condition, the notes may trade at a discount from their
principal amount.
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SUMMARY ORGANIZATION CHART
[FLOW CHART]
- ------------------------------
(1) Fedders North America and several of its subsidiaries manufacture and market
room air conditioners and dehumidifiers primarily for sale to the North
American marketplace, which includes Canada and Mexico.
(2) On November 12, 1999, Trion merged into a wholly owned subsidiary of Fedders
Corporation. Since the completion of the Trion merger, the non-European
business of Trion has become a wholly owned subsidiary of Fedders North
America and the European business of Trion has become a wholly owned
subsidiary of Fedders.
(3) Fedders International, headquartered in Singapore, markets room air
conditioners, including split-type air conditioners, in the international
marketplace, which includes all areas of the world other than North America.
In addition, BSH and Fedders International Air Conditioning, S.A., a joint
venture between Fedders International and an indirect subsidiary of
Bosch-Siemens Hausgerate GmbH, manufactures portable room air conditioners
for sale to North America through Fedders North America, and to all other
areas of the world through Fedders International. Fedders International also
operates a research and development center for developing new products for
the international marketplace.
(4) Fedders Investment Corporation, through Fedders Xinle, manufactures room air
conditioners for sale in China, in North America through Fedders North
America, and in all other areas of the world through Fedders International.
(5) Melcor manufactures solid state heat pump modules that perform electrically
the same cooling and heating functions as refrigerant-based compressors and
absorption refrigerators. Melcor's customers are OEMs that primarily use the
modules for cooling purposes in applications such as refrigerators,
laboratory, scientific, medical and restaurant equipment, as well as
telecommunications and computer equipment.
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USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the new notes in
the exchange offer. We will receive old notes in like principal amount in
exchange for the issuance of the new notes in the exchange offer. We will cancel
all old notes surrendered in exchange for new notes in the exchange offer.
The net proceeds that we received from the sale of the notes, after
deducting fees and expenses and the initial purchaser's discount, were
approximately $45.7 million. We used the proceeds of the offering to replenish:
- approximately $39.4 million of the cash utilized in the Trion
acquisition, and
- the cash utilized to retire certain acquired company debt of
approximately $6.3 million.
CAPITALIZATION
The following table shows the cash and cash equivalents, short-term
borrowing and capitalization of Fedders as of August 31, 1999. You should read
this together with the consolidated financial statements and the related notes
incorporated by reference in this prospectus.
AS OF AUGUST 31,
1999
---------------------
ACTUAL
(DOLLARS IN
THOUSANDS)
Cash and cash equivalents................................... $117,509
========
Revolving credit facility(1)................................ --
========
Long-term debt (including current portion):
9 3/8% senior subordinated notes due 2007 offered hereby,
net of $2.3 million discount(2)........................ $ 47,652
9 3/8% senior subordinated notes due 2007, net of $0.4
million discount(2).................................... 99,619
1% promissory note payable to the State of Illinois(2).... 3,389
Capital lease obligations(2).............................. 2,442
5% industrial revenue bond due 2011(2)(3)................. 3,200
Fedders Xinle promissory notes(4)......................... 5,061
--------
Total long-term debt.............................. 161,363
Stockholders' equity........................................ 108,933
--------
Total capitalization.............................. $270,296
========
- ------------------------------
(1) On July 28, 1999, Fedders North America increased its maximum borrowing
availability under its revolving credit facility from $50.0 million to
$100.0 million. Actual availability under the revolving credit facility is
subject to a borrowing base calculation. Borrowings under this revolving
credit facility are used for working capital and other general corporate
purposes. See "Description of Certain Indebtedness."
(2) These items of indebtedness represent obligations of Fedders North America.
(3) This obligation was acquired in connection with the Trion acquisition.
(4) The average annual interest rate is approximately 8%.
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SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The following table shows selected historical consolidated financial
information of Fedders as of August 31, 1999 and for each of the three years in
the period then ended which has been derived from and should be read together
with the audited consolidated financial statements and related notes thereto
incorporated by reference in this prospectus and "Management's Discussion and
Analysis of Results of Operations and Financial Condition of Fedders
Corporation" which is also incorporated by reference in this prospectus.
Selected historical consolidated financial information of Fedders as of August
31, 1995 and 1996 and for each of the years then ended has been derived from
audited consolidated financial statements which do not appear in the documents
incorporated by reference in this prospectus.
FISCAL YEAR ENDED AUGUST 31,
----------------------------------------------------
1995 1996 1997 1998 1999
(DOLLARS IN THOUSANDS)
STATEMENTS OF OPERATIONS DATA:
Net sales............................................. $316,494 $371,772 $314,100 $322,121 $355,956
Gross profit........................................ 67,125 83,028 70,076 69,770 84,591
Selling, general and administrative expenses........ 29,472 32,040 38,347 40,210 41,233
Restructuring expense(1)............................ -- -- -- 16,750 3,100
Operating income.................................... 37,653 50,988 31,729 12,810 40,258
Net interest expense................................ 1,962 952 3,430 8,610 9,684
Income tax (benefit)................................ 6,187 19,108 10,103 1,611 10,262
Net income (loss)................................... 29,504 31,158 18,764 2,992 20,724
Net income (loss) attributable to common
stockholders...................................... 29,504 31,007 16,344 2,992 20,724
Net income (loss) per share......................... 0.72 0.77 0.42 0.07 0.56
EARNINGS PER SHARE:
Basic............................................... $ 0.74 $ 0.77 $ 0.42 $ 0.07 $ 0.56
Diluted............................................. 0.74 0.74 0.39 0.07 0.56
DIVIDENDS DECLARED PER SHARE:
Preferred........................................... -- $ 0.050 $ 0.318 -- --
Common.............................................. $ 0.020 0.080 0.080 $ 0.085 $ 0.105
Class A............................................. 0.020 0.080 0.080 0.085 0.105
Class B............................................. 0.018 0.072 0.072 0.077 0.095
OTHER DATA:
Adjusted EBITDA(2).................................. $ 44,143 $ 57,796 $ 42,232 $ 41,757 $ 54,613
Net cash provided by (used in) operating
activities........................................ 44,587 40,835 (9,305) 38,824 51,942
Net cash provided by (used in) investing
activities........................................ (8,520) (6,508) (8,808) (9,997) (48,778)
Net cash provided by (used in) financing
activities........................................ (13,229) (1,739) 38,211 (48,234) 23,359
Depreciation and amortization....................... 7,519 6,578 9,935 9,263 10,279
Capital expenditures(3)............................. 9,041 7,043 9,236 8,497 9,378
Ratio of earnings to fixed charges(4)............... 11.5x 17.6x 9.4x 1.5x 4.2x
Gross profit margin................................. 21.2% 22.3% 22.3% 21.7% 23.8%
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AS OF AUGUST 31,
----------------------------------------------------
1995 1996 1997 1998 1999
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents................... $ 57,707 $ 90,295 $110,393 $ 90,986 $117,509
Working capital............................. 56,123 86,817 141,736 93,636 112,266
Total assets................................ 136,775 290,220 329,014 304,629 382,342
Long-term debt (including current
portion).................................. 5,106 40,406 115,380 111,013 161,363
Total stockholder's equity(5)............... 82,542 159,751 145,687 104,792 108,933
- ------------------------------
(1) In January 1998, Fedders announced a plan to restructure its operations,
which resulted in Fedders recording a one-time expense totaling $16.8
million in the second fiscal quarter ended February 28, 1998. The charge
consisted of machinery and equipment write-downs ($5.6 million); an amount
for machinery and equipment and other lease terminations, primarily related
to outsourcing ($4.9 million); personnel-related costs, primarily related to
outsourcing ($3.8 million); and administrative facility closing costs ($2.5
million). In August 1999, Fedders added to the 1998 restructuring by
arranging to outsource to Taiwan and China all of the pumps used in the
manufacture of its Rotorex compressors ($3.1 million). See note 2 to the
Fedders audited consolidated financial statements incorporated by reference
in this prospectus.
(2) Adjusted EBITDA represents income before income taxes plus net interest
expense, depreciation and amortization (excluding amortization of debt
discounts and deferred financing costs) and certain one-time charges. While
Adjusted EBITDA should not be construed as a substitute for operating
income, or as an alternative measure of liquidity to cash flow from
operating activities, both of which are determined in accordance with
generally accepted accounting principles, it is included herein to provide
additional information with respect to the ability of Fedders and Fedders
North America to meet future debt service, capital expenditure and working
capital requirements. In addition, Fedders and Fedders North America believe
that certain investors find Adjusted EBITDA to be a useful tool for
measuring the ability of Fedders and Fedders North America to service its
debt. Adjusted EBITDA is not necessarily a measure of Fedders' or Fedders
North America's ability to fund cash needs. Adjusted EBITDA may not be
comparable to similarly titled measures reported by other companies. The
amounts shown for Adjusted EBITDA exclude one-time charges for restructuring
and early retirement as follows:
FISCAL YEAR ENDED
AUGUST 31,
-----------------------
1998 1999
(DOLLARS IN THOUSANDS)
Fedders North America....................................... $17,381 $3,100
Other Fedders companies..................................... 2,260 --
------- ------
Fedders..................................................... $19,641 $3,100
======= ======
- ------------------------------
(3) Fiscal 1995 amount includes the buyout of $1.8 million of equipment under
lease.
(4) The ratio of earnings to fixed charges is determined by dividing the sum of
net income, income taxes and fixed charges (consisting of interest expense,
the estimated interest component of rent expense and amortization of fees
related to debt financing) by fixed charges.
(5) Three stock repurchase plans have been announced totaling $105.0 million
($25.0 million in September 1996, $50.0 million in July 1997 and $30.0
million in August 1998). Under these plans, approximately $88.5 million of
capital stock has been repurchased to date, totaling 15.4 million shares at
an average price of $5.75 per share.
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THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Subject to the terms and conditions set forth in this prospectus and the
letter of transmittal, we will accept for exchange old notes which are properly
tendered on or prior to the expiration date and not withdrawn as permitted
below. As used in this prospectus, the term "expiration date" means 5:00 p.m.,
New York City time, on , 1999; provided, however, that if we, in our
sole discretion, have extended the period of time during which the exchange
offer is open, "expiration date" means the latest time and date to which we
extend the exchange offer.
As of the date of this prospectus, $50,000,000 aggregate principal amount
of the old notes are outstanding. This prospectus and the letter of transmittal
are first being sent on or about , 1999, to all holders of old notes
known to us. Our obligation to accept old notes for exchange pursuant to the
exchange offer is subject to certain conditions as set forth below under
"--Conditions to the Exchange Offer."
We expressly reserve the right, at any time or from time to time, to extend
the period of time during which the exchange offer is open, and thereby delay
acceptance for exchange of any old notes, by giving oral or written notice of
such extension to the old note holders as described below. During any extension,
all old notes previously tendered will remain subject to the exchange offer and
may be accepted for exchange by us. We will return at no expense to the holder
any old notes not accepted for exchange as promptly as practicable after the
expiration or termination of the exchange offer.
Old notes tendered in the exchange offer must be in denominations of $1,000
and any integral multiples of $1,000.
If any of the events specified in "--Conditions to the Exchange Offer"
should occur, we expressly reserve the right to amend or terminate the exchange
offer, and not to accept for exchange any old notes not already accepted for
exchange. We will give oral or written notice of any extension, amendment, non-
acceptance or termination to old note holders as promptly as practicable. In the
case of an extension we will issue a press release or other public announcement
no later than 9:00 a.m., New York City time, on the next business day after the
previously scheduled expiration date.
Following consummation of the exchange offer, we may, in our sole
discretion, commence one or more additional exchange offers to those old note
holders who did not exchange their old notes for new notes in the exchange offer
on terms which may differ from those contained in the registration agreement. We
may use this prospectus, as it may be amended or supplemented from time to time,
in connection with additional exchange offers. These additional exchange offers
will take place from time to time until all outstanding old notes have been
exchanged for new notes pursuant to the terms and conditions contained in this
prospectus.
PROCEDURES FOR TENDERING OLD NOTES
When an old note holder tenders, and we accept, the old notes, this will
constitute a binding agreement between us and that holder subject to the terms
and conditions set forth in this prospectus and the letter of transmittal.
Except as set forth below, to tender in the exchange offer, a holder must
transmit either:
- a properly completed and duly executed letter of transmittal, and all
other documents required by the letter of transmittal, to State Street
Bank and Trust Company, the exchange agent, at the address set forth
under "--Exchange Agent" on or prior to the expiration date; or
- if the old notes are tendered pursuant to the book-entry procedures set
forth below, the tendering old note holder may transmit an agent's
message to the exchange agent instead of the letter of transmittal on or
prior to the expiration date.
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In addition, either:
- the exchange agent must receive the certificates for the old notes and
the letter of transmittal; or
- the exchange agent must receive, prior to , 1999, a timely
confirmation of a book-entry transfer of the old notes into the exchange
agent's account at The Depository Trust Company according to the
procedure for book-entry transfer described below, along with the letter
of transmittal and agent's message; or
- the holder must comply with the guaranteed delivery procedures described
below.
The term "agent's message" means a message, transmitted to The Depository Trust
Company and received by the exchange agent and forming a part of the book-entry
confirmation, which states that The Depository Trust Company has received an
express acknowledgment from the tendering participant (as defined here) that the
participant has received and agrees to be bound by the letter of transmittal and
we may enforce the letter of transmittal against that participant. The method of
delivery of old notes, letters of transmittal or agent's messages and all other
required documents is at the election and risk of the holders. If delivery is by
mail, we recommend registered mail, properly insured, with return receipt
requested. In all cases, you should allow sufficient time to assure timely
delivery. Do not send letters of transmittal or old notes to us.
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the old notes surrendered for exchange
are tendered either by a registered holder of the old notes who has not
completed the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the letter of transmittal or for the account of an eligible
institution. An eligible institution is a firm which is a member of a registered
national securities exchange or a member of the National Association of
Securities Dealers, Inc. or a commercial bank or trust company having an office
or correspondent in the United States. If signatures on a letter of transmittal
or a notice of withdrawal are required to be guaranteed, the guarantor must be
an eligible institution. If old notes are registered in the name of a person
other than a signer of the letter of transmittal, the old notes surrendered for
exchange must be endorsed by, or be accompanied by a written instrument or
instruments of transfer or exchange, in satisfactory form as we may determine in
our sole discretion, duly executed by the registered holder with the signature
guaranteed by an eligible institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of old notes tendered for exchange will be determined by
us in our sole discretion. Our determination will be final and binding. We
reserve the absolute right to reject any and all tenders of any particular old
notes not properly tendered or to not accept any particular old notes which
acceptance might, in our judgment or that of our counsel, be unlawful. We also
reserve the absolute right to waive any defects or irregularities or conditions
of the exchange offer as to any particular old notes either before or after the
expiration date (including the right to waive the ineligibility of any holder
who seeks to tender old notes in the exchange offer). Our interpretation of the
terms and conditions of the exchange offer as to any particular old notes either
before or after the expiration date (including the letter of transmittal and the
instructions thereto) will be final and binding on all parties. Unless waived,
any defects or irregularities in connection with tenders of old notes for
exchange must be cured within such reasonable period of time as we will
determine. Neither we, the exchange agent nor any other person shall be under
any duty to give notification of any defect or irregularity with respect to any
tender of old notes for exchange, nor shall any of us incur any liability for
failure to give such notification.
If a person or persons other than the registered holder or holders of old
notes signs the letter of transmittal, those old notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly as
the name or names of the registered holder or holders that appear on the old
notes.
If trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity sign the letter of transmittal or any old notes, those persons should
so indicate when signing, and must submit proper evidence satisfactory to us of
such persons' authority to so act unless we waive this requirement.
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By tendering, each holder represents to us that, among other things, the
new notes acquired in the exchange offer are being obtained in the ordinary
course of business of the person receiving the new notes, whether or not that
person is the holder, and that neither the holder nor the other person has any
arrangement or understanding with any person to participate in the distribution
of the new notes. In the case of a holder that is not a broker-dealer, each such
holder, by tendering, will also represent to us that he is not engaged in, and
does not intend to engage in, a distribution of the new notes. If any holder or
any other person is an "affiliate" of ours, as that term is defined under Rule
405 under the Securities Act, or is engaged in or intends to engage in or has an
arrangement or understanding with any person to participate in a distribution of
the new notes to be acquired in the exchange offer, that holder or any other
person cannot rely on the applicable interpretations of the staff of the
Commission and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives new notes for its own account in exchange for
old notes, where those old notes were acquired by the broker-dealer as a result
of market-making activities or other trading activities, must acknowledge that
it will deliver a prospectus in connection with any resale of those new notes.
See "Plan of Distribution." The letter of transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the exchange offer,
we will accept, promptly after the expiration date, all old notes properly
tendered and will issue the new notes promptly after acceptance of the old
notes. See "--Conditions to the Exchange Offer." For purposes of the exchange
offer, we shall be deemed to have accepted properly tendered old notes for
exchange when, as and if we have given oral or written notice of the acceptance
to the exchange agent, with written confirmation of any oral notice to be given
promptly thereafter.
For each old note accepted for exchange, the old note holder will receive a
new note having a principal amount at maturity equal to that of the surrendered
old note. Interest on the new notes will accrue from (A) the later of (i) the
last interest payment date on which interest was paid on the old notes
surrendered therefor, or (ii) if the old notes are surrendered for exchange on a
date in a period which includes the record date for an interest payment date to
occur on or after the date of such exchange and as to which interest will be
paid, the date of such interest payment date or (B) if no interest has been paid
on the old notes, from February 15, 2000. In addition, old note holders will be
entitled to receive liquidated damages with respect to the first 90-day period
immediately following the occurrence of a Registration Default (as defined
below) in an amount equal to $.05 per week per $1,000 principal amount of old
notes held by such holders. The amount of the liquidated damages will increase
by an additional $.05 per week per $1,000 principal amount of old notes with
respect to each subsequent 90-day period until all Registration Defaults have
been cured, up to a maximum amount of liquidated damages of $.40 per week per
$1,000 principal amount of old notes. Holders of notes will be required to make
certain representations to Fedders North America (as described in the
registration rights agreement) in order to participate in the exchange offer and
will be required to deliver information to be used in connection with the shelf
registration statement and to provide comments on the shelf registration
statement within the time periods set forth in the registration rights agreement
in order to have their notes included in the shelf registration statement and
benefit from the provisions regarding liquidated damages, if any, set forth
above.
Payment of liquidated damages and specific performance are the sole
remedies available to the holders of notes in the event that Fedders North
America does not comply with the deadlines set forth in the registration rights
agreement with respect to the conduct of the exchange offer or the registration
of the notes for resale under a shelf registration statement. Payments of
interest, if any, on old notes in exchange for which new notes were issued will
be made to the persons who, at the close of business on February 15 or August 15
next preceding the interest payment date, are registered holders of the old
notes if the record date occurs prior to the exchange, or are registered holders
of the new notes if the record
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date occurs on or after the date of the exchange, even if notes are cancelled
after the record date and on or before the interest payment date.
In all cases, issuance of new notes for old notes that are accepted for
exchange pursuant to the exchange offer will be made only after the exchange
agent timely receives either certificates for such old notes or book-entry
confirmation of those old notes into the exchange agent's account at The
Depository Trust Company, a properly completed and duly executed letter of
transmittal and all other required documents or, in the case of a book-entry
confirmation, an agent's message. If for any reason set forth in the terms and
conditions of the exchange offer we do not accept any tendered old notes or if
old notes are submitted for a greater principal amount than the holder desired
to exchange, we will return those unaccepted or non-exchanged old notes without
expense to the tendering holder (or, in the case of old notes tendered by
book-entry transfer into the exchange agent's account at The Depository Trust
Company pursuant to the book-entry procedures described below, non-exchanged old
notes will be credited to an account maintained with The Depository Trust
Company) as promptly as practicable after the expiration or termination of the
exchange offer.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account for the old
notes at The Depository Trust Company for purposes of the exchange offer within
two business days after the date of this prospectus, and any financial
institution that is a participant in The Depository Trust Company's systems may
make book-entry delivery of old notes by causing The Depository Trust Company to
transfer old notes into the exchange agent's account at The Depository Trust
Company in accordance with The Depository Trust Company's procedures for
transfer. However, although delivery of old notes may be effected through
book-entry transfer at The Depository Trust Company, the letter of transmittal
or facsimile thereof, with any required signature guarantees, or an agent's
message in lieu of a letter of transmittal and any other required documents
must, in any case, be transmitted to and received by the exchange agent at one
of the addresses set forth below under "--Exchange Agent" on or prior to the
expiration date or the guaranteed delivery procedures described below must be
complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the old notes desires to tender his old notes and
the old notes are not immediately available, or time will not permit that
holder's old notes or other required documents to reach the exchange agent
before the expiration date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if:
- the tender is made through an eligible institution;
- prior to the expiration date, the exchange agent receives from the
eligible institution a properly completed and duly executed letter of
transmittal (or a facsimile thereof) and notice of guaranteed delivery,
substantially in the form provided by us (by telegram, telex, facsimile
transmission, mail or hand delivery), setting forth the name and address
of the holder of old notes and the amount of old notes tendered, stating
that the tender is being made and guaranteeing that within three New York
Stock Exchange (NYSE) trading days after the date of execution of the
notice of guaranteed delivery, the certificates for all physically
tendered old notes, in proper form for transfer, or a book-entry
confirmation, as the case may be, and any other documents required by the
letter of transmittal will be deposited by the eligible institution with
the exchange agent; and
- the certificates for all physically tendered old notes, in proper form
for transfer, or a book-entry confirmation, as the case may be, and all
other documents required by the letter of transmittal, are received by
the exchange agent within three NYSE trading days after the date of
execution of the notice of guaranteed delivery.
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WITHDRAWAL RIGHTS
Tenders of old notes may be withdrawn at any time prior to the expiration
date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the exchange agent at one of the addresses set forth below under
"--Exchange Agent." Any notice of withdrawal must specify the name of the person
having tendered the old notes to be withdrawn, identify the old notes to be
withdrawn (including the principal amount of the old notes), and (where
certificates for old notes have been transmitted) specify the name in which the
old notes are registered, if different from that of the withdrawing holder. If
certificates for old notes have been delivered or otherwise identified to the
exchange agent, then, prior to the release of the certificates the withdrawing
holder must also submit the serial numbers of the particular certificates to be
withdrawn and signed notice of withdrawal with signatures guaranteed by an
eligible institution unless the holder is an eligible institution. If old notes
have been tendered pursuant to the procedure for book-entry transfer described
above, any notice of withdrawal must specify the name and number of the account
at The Depository Trust Company to be credited with the withdrawn old notes and
otherwise comply with The Depository Trust Company's procedures. We will
determine all questions as to the validity, form and eligibility (including time
of receipt) of the notices, and our determination shall be final and binding on
all parties. Any old notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the exchange offer. Any old notes which
have been tendered for exchange but which are not exchanged for any reason will
be returned to their holder without cost to the holder (or, in the case of old
notes tendered by book-entry transfer into the exchange agent's account at The
Depository Trust Company pursuant to the book-entry transfer procedures
described above, those old notes will be credited to an account maintained with
The Depository Trust Company for the old notes) as soon as practicable after
withdrawal, rejection of tender or termination of the exchange offer. Properly
withdrawn old notes may be retendered by following one of the procedures
described under "--Procedures for Tendering Old Notes" above at any time on or
prior to the expiration date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the exchange offer, we shall not be
required to accept for exchange, or to issue new notes in exchange for, any old
notes. We may terminate or amend the exchange offer, if at any time before the
acceptance of such old notes for exchange or the exchange of the new notes for
old notes, any of the following events shall occur, which in our reasonable
judgment in any case, and regardless of the circumstances (including any action
by us) giving rise to any event described below, makes it inadvisable to proceed
with the exchange offer and/or with any acceptance for exchange or with any
exchange:
- if any court, governmental agency or other governmental regulatory or
administrative agency or commission, threatens, institutes or issues any
action, injunction, or order of decree seeking to restrain or prohibit
the making or consummation of the exchange offer or any other transaction
contemplated by the exchange offer, or assessing or seeking any damages
as a result of the exchange offer, which results in a material delay in
our ability to accept or exchange some or all of the old notes pursuant
to the exchange offer;
- if any government or governmental authority, agency or court, domestic or
foreign, takes, proposes to take or threatens to take any action, or
seeks, proposes, introduces, enacts, promulgates or deems applicable to
the exchange offer or any of the transactions contemplated by the
exchange offer any statute, rule, regulation, order or injunction that in
our reasonable judgment might directly or indirectly result in any of the
consequences referred to above, or which in our reasonable judgment might
result in new note holders having obligations with respect to resales and
transfers of new notes greater than those described in the Commission's
interpretation referred to on the cover page of this prospectus, or would
otherwise make it inadvisable to proceed with the exchange offer;
- if any general suspension of or general limitation on prices for, or
trading in, securities on any national securities exchange or in the
over-the-counter market occurs;
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- if any limitation by any governmental agency or authority which may
adversely affect our ability to complete the transactions contemplated by
the exchange offer occurs;
- if a declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States or any limitation by any
governmental agency or authority which adversely affects the extension of
credit occurs;
- if a commencement of war, armed hostilities or other similar
international calamity directly or indirectly involving the United
States, or, in the case of any of the foregoing existing at the time of
the commencement of the exchange offer, a material acceleration or
worsening thereof occurs; or
- if any change (or any development involving a prospective change) occurs
or is threatened in our and our subsidiaries' businesses, properties,
assets, liabilities, financial condition, operations, results of
operations or prospects taken as a whole that, in our reasonable
judgment, is or may be adverse to us, or we become aware of facts that,
in our reasonable judgment, have or may have adverse significance with
respect to the value of the old notes or the new notes.
The above conditions are for our sole benefit and we may assert them
regardless of the circumstances giving rise to any of these conditions or we may
waive them in whole or in part at any time and from time to time in our sole
discretion. Our failure at any time to exercise any of the above rights shall
not be deemed a waiver of any of these rights and each of these rights shall be
deemed an ongoing right which may be asserted at any time and from time to time.
In addition, we will not accept for exchange any old notes tendered, and no
new notes will be issued in exchange for any old notes, if any stop order shall
be threatened or in effect with respect to the registration statement of which
this prospectus constitutes a part or the qualification of the Indenture under
the Trust Indenture Act of 1939 (the "TIA").
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as the exchange
agent for the exchange offer. All executed letters of transmittal and agent's
messages should be directed to the exchange agent at one of the addresses set
forth below. Questions and requests for assistance, requests for additional
copies of this prospectus or of the letter of transmittal or agent's message and
requests for notices of guaranteed delivery should be directed to the exchange
agent addressed as follows:
DELIVERY TO: STATE STREET BANK AND TRUST COMPANY, EXCHANGE AGENT
BY MAIL: BY OVERNIGHT COURIER OR HAND:
State Street Bank and Trust Company State Street Bank and Trust Company
2 Avenue de Lafayette 2 Avenue de Lafayette
Corporate Trust Department, 5th Floor Corporate Trust Department, 5th Floor
Boston, MA 02111 Boston, MA 02111
Attn: Elijah MacKenzie Attn: Elijah MacKenzie
BY FACSIMILE (FOR ELIGIBLE INSTITUTIONS ONLY):
(617)-662-1452
CONFIRM BY TELEPHONE:
(617)-662-1525
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF THE LETTER OF TRANSMITTAL.
FEES AND EXPENSES
We will not make any payment to brokers, dealers, or others soliciting
acceptances of the exchange offer.
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We will pay the estimated cash expenses to be incurred in connection with
the exchange offer, which are estimated in the aggregate to be $0.5 million.
TRANSFER TAXES
Holders who tender their old notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who instruct
us to register new notes in the name of, or request that old notes not tendered
or not accepted in the exchange offer be returned to, a person other than the
registered tendering holder, will be responsible for the payment of any
applicable transfer tax thereon.
CONSEQUENCES OF EXCHANGING OR FAILING TO EXCHANGE OLD NOTES
Holders of old notes who do not exchange their old notes for new notes in
the exchange offer will continue to be subject to the provisions in the
Indenture regarding transfer and exchange of the old notes and the restrictions
on transfer of old notes as set forth in the legend on the old notes because the
old notes were issued under exemptions from, or in transactions not subject to,
the registration requirements of the Securities Act and applicable state
securities laws. In general, the old notes may not be offered or sold, unless
registered under the Securities Act, except under an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws. We do not currently anticipate that we will register the old notes under
the Securities Act. See "Description of the Notes--Registration Rights;
Liquidated Damages." Based on interpretations by the staff of the Commission, as
set forth in no-action letters issued to third parties, we believe that new
notes issued in the exchange offer in exchange for old notes may be offered for
resale, resold or otherwise transferred by holders thereof (other than any
holder which is an "affiliate" of ours within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that the new notes are acquired in
the ordinary course of the holders' business and the holders have no arrangement
or understanding with any person to participate in the distribution of new
notes. However, we do not intend to request the Commission to consider, and the
Commission has not considered, the exchange offer in the context of a no-action
letter and there can be no assurance that the staff of the Commission would make
a similar determination with respect to the exchange offer as in such other
circumstances. Each holder, other than a broker-dealer, must acknowledge that it
is not engaged in, and does not intend to engage in, a distribution of new notes
and has no arrangement or understanding to participate in a distribution of new
notes. If any holder is an affiliate of ours, is engaged in or intends to engage
in or has any arrangement or understanding with respect to the distribution of
the new notes to be acquired pursuant to the exchange offer, that holder could
not rely on the applicable interpretations of the staff of the Commission and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. Each broker-dealer
that receives new notes for its own account in exchange for old notes, where the
old notes were acquired by the broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of new notes. See "Plan of
Distribution." In addition, to comply with state securities laws, the new notes
may not be offered or sold in any state unless they have been registered or
qualified for sale in that state or an exemption from registration or
qualification is available and is complied with. The offer and sale of the new
notes to "qualified institutional buyers" (as such term is defined under Rule
144A of the Securities Act) is generally exempt from registration or
qualification under the state securities laws. We currently do not intend to
register or qualify the sale of the new notes in any state where an exemption
from registration or qualification is required and not available.
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BUSINESS
GENERAL
We are a leading global manufacturer of products for the treatment of
indoor air with manufacturing bases in the United States, China and Spain. We
manufacture and sell a broad line of ductless air conditioners including window,
portable, through-the-wall, split and multi-split units, as well as a complete
line of dehumidifiers. Through our acquisition of Trion, Inc. described below,
we are expanding our air treatment product line to include complementary
technologies used in the manufacture of indoor air quality products including
electronic air cleaners, air filters and humidifiers. We believe our principal
subsidiary, Fedders North America, is the largest manufacturer of room air
conditioners in the United States based on units sold. Fedders North America's
products are marketed under the FEDDERS, EMERSON QUIET KOOL and AIRTEMP brand
names as well as under private labels. In North America, our products are
marketed primarily to national and regional retail chains and home improvement
centers, and also to buying groups and distributors. Private label products are
manufactured for retailers and other original equipment manufacturers (OEMs),
including other air conditioner manufacturers. Outside of North America, Fedders
International markets our products primarily through distributors and under
private labels to other OEMs and air conditioner manufacturers.
We believe that our share of the U.S. market for room air conditioners has
increased from approximately 24% in fiscal 1994 to approximately 28% in 1998.
During this same period, based primarily on Fedders North America's results,
Fedders has achieved significant increases in net sales and Adjusted EBITDA. Our
net sales increased from $316.5 million in fiscal 1995 to $356.0 million in
fiscal 1999. Adjusted EBITDA increased from $44.1 million in fiscal 1995 to
$54.6 million in fiscal 1999. These results reflect a compounded annual growth
rate of 3.0% for net sales and 5.5% for Adjusted EBITDA from fiscal 1995 to
fiscal 1999. Additionally, our operating income went from $37.7 million in 1995
to $40.3 million in 1999.
We have been a leader in heat transfer technology for more than 100 years.
Founded in Buffalo, NY, we originally manufactured automobile radiators and have
been producing room air conditioners for more than 50 years. More recently, we
have been leveraging our expertise to penetrate the much larger and expanding
global market for air conditioners. As part of our recent acceleration of these
efforts, in 1995, we entered into the Fedders Xinle joint venture with the
Ningbo General Air Conditioner Factory of Ningbo, China. Fedders Xinle is 60%
owned by Fedders. In 1998, we entered into a 50-50 manufacturing joint venture
with Bosch-Siemens Hausgerate GmbH of Germany, Europe's second-largest appliance
manufacturer. The joint venture is manufacturing portable room air conditioners
in Estella, Spain. Products manufactured at both joint venture facilities are
marketed by Fedders International to export markets around the world and by
Fedders North America to the North American market. This global expansion
enhances our manufacturing, sales and marketing flexibility in the United States
and abroad.
COMPETITIVE STRENGTHS AND COMPANY STRATEGY
Our strategy is to continue to capitalize on our competitive strengths,
including the following:
LOW COST PRODUCER. We believe that we are positioned as the low cost
producer in the United States. Significant cost savings achieved since 1993 were
a key factor in increasing gross margins from 17.5% to 23.8% and operating
margins from 1.2% to 11.3% from fiscal 1993 to fiscal 1999. We have achieved
significant cost reductions by:
- emphasizing global sourcing of components and raw materials to reduce
costs and ensure quality;
- continuously improving manufacturing efficiencies and reducing product
cost through design improvements, based in part on our expertise in heat
transfer technology;
- minimizing fixed costs while maximizing production flexibility, through
outsourcing and the elimination of redundant management and operational
and administrative departments; and
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- focusing on low labor costs and flexible manufacturing, allowing us to
manage variable costs in response to fluctuations in demand for our
products.
The direct labor cost component of our products is generally lower than the cost
of freight and duty to import air conditioners into the United States from many
offshore locations, resulting in favorable price comparisons with imported
goods.
HIGH QUALITY PRODUCTS WITH STRONG MULTIPLE BRANDS. We manufacture a broad
line of ductless air conditioners that includes window, portable,
through-the-wall, split and multi-split units to meet a broad range of global
consumer preferences. We believe that we have developed a reputation among our
customers and consumers for producing high quality products at competitive
prices. The FEDDERS, EMERSON QUIET KOOL and AIRTEMP brands each has a long
history and is well known in the U.S. marketplace. We also manufacture on a
private label basis, in various sizes, a portion of the room air conditioners
sold by other global OEMs. All of our principal U.S. manufacturing facilities
have received the highest level of quality certification, ISO 9001, from the
International Standards Organization for our quality management systems. Fedders
Xinle has received ISO 9002 certification.
STRONG RELATIONSHIPS WITH LEADING RETAILERS. Beginning in the early 1990s,
we recognized a significant shift in the U.S. market for room air conditioners
as major regional and national retailers began replacing wholesale distributors
as the primary customers for our products. We believe that we have distinguished
Fedders from its competitors by effectively penetrating this rapidly growing
customer base and by working closely with our customers to improve their
marketing of our products. We estimate that leading retailers currently
represent more than 50% of the total room air conditioner market in the United
States.
ACCURATE-RESPONSE MANUFACTURING AND JUST-IN-TIME DELIVERY. During the
1990s, we have reengineered our manufacturing processes and distribution systems
in order to meet the delivery requirements, including "in-season" orders, of our
major retailing customers who increasingly sought to minimize their inventories.
For example, in 1996, we acquired Rotorex, which had been our principal supplier
of compressors for use in our products for 25 years. This captive supply of
compressors is critical to our accurate-response manufacturing and just-in-time
delivery of our seasonal products. We believe that our accurate-response
manufacturing capability, which allows us to adjust both total production
quantities and product mix on a timely basis, has been a key factor in Fedders'
ability to gain market share from its competitors.
PRODUCT FOCUS. We have focused on manufacturing and selling products
utilizing heat transfer technology for over 100 years. During the past 50 years,
our primary product line has been room air conditioners. More recently, we have
begun to accelerate our efforts to complement our core room air conditioner
product line with synergistic offerings while maintaining our core focus on air
treatment products. For example, the Trion acquisition provides an opportunity
to expand into the indoor air quality market where we can capitalize on our
extensive air treatment expertise and established global marketing and
distribution channels. Many of our competitors produce a broad range of consumer
products, and as a result, we believe these competitors have historically given
less attention to the development and expansion of air treatment technologies.
Air treatment has been and continues to be our primary business focus which we
believe enables us to be more responsive to our customers' needs and changing
industry environment.
THE TRION ACQUISITION
On July 12, 1999, Fedders entered into an agreement to acquire Trion, Inc.,
a North Carolina-based designer, manufacturer and distributor of equipment to
improve indoor air quality in cleanroom, residential, commercial and industrial
environments, for aggregate consideration of $48.9 million, including acquired
indebtedness. On August 11, 1999 we successfully completed a cash tender offer
to purchase the outstanding shares of common stock of Trion at a price of $5.50
per share. Approximately 89% of the issued and outstanding common stock was
tendered. On November 12, 1999, Trion merged into a wholly owned subsidiary of
Fedders Corporation. Since the completion of the Trion merger, the non-European
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business of Trion has become a wholly owned subsidiary of Fedders North America
and the European business of Trion has become a wholly owned subsidiary of
Fedders.
The Trion indoor air quality product line consists of the following three
segments:
- Cleanroom product segment--This segment consists of HEPA/ULPA filters,
fan filter units and lab and medical equipment that provide ultra-clean
air environments for applications such as cleanroom manufacturing and
medical and laboratory processes. These products are marketed to
microelectronics manufacturers, semiconductor manufacturers, medical
products manufacturers and hospitals. Manufacturing in cleanrooms is
becoming increasingly prevalent and has become a standard requirement of
manufacturing in many large and growing industries in order to ensure
product purity.
- Commercial/Industrial product segment--This segment consists of media
filters, electronic filters, humidifiers, dust collectors and packaged
solutions to remove contaminants and provide humidification for
industrial work environments and commercial settings. These products are
marketed to manufacturers, contractors and end users, including office
and apartment buildings, restaurants, educational facilities, sports
arenas, correctional facilities and the United States Navy.
- Residential product segment--This segment includes media filters,
electronic filters, humidifiers and appliances that remove contaminants
and provide humidification for entire homes and specific rooms within a
house. These products are marketed to heating, ventilation and air
conditioning OEMs, building contractors and retailers.
Trion markets its products primarily through an extensive network of
manufacturers' representative organizations and distributors in domestic and
international markets. In addition, Trion sells directly to end users and OEMs.
Trion's three principal facilities include a 263,000 square foot facility
in Sanford, North Carolina, a 63,000 square foot facility in Albuquerque, New
Mexico, and a 53,000 square foot facility in Andover, England.
We believe that Trion's products will benefit from our global sourcing
capabilities and marketing expertise with significant potential for
international growth. Certain product lines will also benefit from our
well-established retail distribution channels in the United States. We will
benefit from Trion's residential product line sales, which are counterseasonal
to Fedders' air conditioner and dehumidifier sales. Air cleaner sales peak in
winter months, as do humidifier sales.
INDUSTRY
U.S. ROOM AIR CONDITIONER MARKET
The U.S. room air conditioner market is the third largest in the world with
average annual sales of 3.7 million units for the last 10 calendar years.
Domestically, room air conditioners are marketed in two basic styles: the window
unit which is installed directly into a window and the through-the-wall unit
which is installed through an outside wall of the consumer's residence. In 1999,
we added to our product offering a portable air conditioner, manufactured at our
joint venture facility in Spain, that can be rolled from room to room.
Sales of room air conditioners in the domestic market vary from year to
year according to the weather, especially in the major markets of the Northeast
and the upper Midwest. Unusual summer weather affects manufacturers' shipments
primarily in the following year. A cool summer reduces consumer demand and
unsold inventory is carried over to the following year. An unusually hot summer
depletes industry inventories, and the distribution system must be refilled to
meet the following year's demand. We believe that demand is principally driven
by the replacement market. Unlike major household appliances and central air
conditioning systems, the sale of room air conditioners is not dependent on the
construction of new homes.
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The distribution of air conditioners in North America changed significantly
in the early 1990s. Sales are now made primarily directly to retailers, in
contrast to the 1980s, when wholesale distributors accounted for the majority of
the industry's business. We estimate that leading retailers currently represent
more than 50% of the total room air conditioner market in the United States.
Additionally, in recent years our customers, now primarily retailers, changed
their purchasing patterns to minimize inventories. In response to these changes,
we developed accurate-response manufacturing and just-in-time delivery to
accommodate customers' requirements in this highly seasonal business. We have
simultaneously minimized our need to carry large inventories of finished goods.
The room air conditioning industry grew rapidly in the 1950s and 1960s and
then experienced substantial consolidation in the 1970s and 1980s. In the early
1990s, other domestic competitors withdrew from the business following two cold
summers. In 1975 there were 18 major domestic manufacturing operations competing
in the industry compared to five in 1999.
INTERNATIONAL ROOM AIR CONDITIONER MARKET
Fedders believes that in 1998 the international market for room air
conditioners outside the United States was approximately five times the size of
the U.S. market, based on the number of units sold. After accelerating for
several years, demand for air conditioners outside of North America decreased in
1997 as a result of the international financial crisis, particularly in Asia.
International demand grew slightly in 1998 and is expected to resume its rapid
growth as international economies recover and average disposable income in
populous nations in hot weather climates increases. Because freight costs to
ship room air conditioners are high relative to the product cost, international
markets are often most efficiently served by local production. The dollar volume
of the U.S. market in 1998 was approximately $1.3 billion. While we estimate
international unit sales to be approximately five times U.S. unit sales, we
estimate the international dollar volume to be in excess of 10 times that of the
U.S. market, as a result of a preference abroad for more expensive split-type
units.
ESTIMATED ROOM AIR CONDITIONER DEMAND
(MILLIONS OF UNITS)
ASIA EUROPE,
UNITED (EXCLUDING MIDDLE EAST,
STATES(1) JAPAN(2) JAPAN)(2) AFRICA(2) OTHER(2)
1990.................................. 3.8 6.3 2.9 2.4 1.0
1991.................................. 2.5 7.2 4.1 2.4 0.9
1992.................................. 2.6 5.9 5.5 2.9 0.9
1993.................................. 2.8 5.1 5.8 2.6 0.9
1994.................................. 3.9 7.1 6.8 2.6 1.1
1995.................................. 4.4 7.7 7.3 2.6 1.3
1996.................................. 4.5 8.0 8.9 2.8 1.2
1997.................................. 3.8 6.9 8.7 2.9 1.3
1998.................................. 4.4 6.6 9.1 3.1 1.6
- ------------------------------
(1) Source: U.S. shipments as reported by the Association of Home Appliance
Manufacturers, Chicago, Illinois.
(2) Source: Japan Refrigeration & Air Conditioning Industry Association as
reported by Japan Air Conditioning, Heating and Refrigeration News.
INDOOR AIR QUALITY MARKET
The global indoor air quality industry is estimated to have exceeded $3.0
billion in 1998 and favorable long-term industry growth is expected due to
current industry dynamics. Comparative risk studies performed by the United
States Environmental Protection Agency have consistently ranked air pollution
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among the top five environmental risks to the public. EPA studies have
demonstrated that indoor air can be two to five times, and occasionally more
than 100 times, more polluted than outdoor air. Indoor air pollution may
contribute to illness and is a serious concern for people with medical
conditions such as asthma and allergies. In addition to health concerns,
increasing requirements for "pure" components utilized in high-performance end
products (e.g., semiconductors in computers) drive demand for indoor air quality
products to ensure clean manufacturing environments.
PRODUCTS
Fedders North America manufactures and sells a complete line of window and
through-the-wall room air conditioners in North America, principally for the
residential market. Our air conditioners are manufactured in capacities ranging
from 5,000 BTU (British Thermal Units) to 32,000 BTU. These models comprise
distinct product lines marketed under the brands FEDDERS, EMERSON QUIET KOOL and
AIRTEMP. We also manufacture products under various private labels. We have
positioned these different brands across most price levels, emphasizing quality
and value for retailers and consumers.
We also manufacture and market a complete line of household dehumidifiers,
ranging in capacity from 20 to 50 pints per 24 hours. Fedders North America's
Rotorex subsidiary manufactures a broad line of rotary compressors for use in
our room air conditioners.
Fedders Xinle manufactures window air conditioners and split-type room air
conditioners, in which the condensing unit is installed separately outdoors, in
capacities from 5,000 to 40,000 BTU. These products are sold for both
residential and commercial use in international markets and to Fedders North
America. Our Spanish joint venture manufactures portable air conditioners for
sale in global markets, including to Fedders North America.
Fedders, through Melcor, manufactures solid state heat pump modules that
utilize electricity to perform the same cooling and heating functions as
refrigerant-based compressors and absorption refrigerators. Melcor's modules are
typically used in applications with special requirements, such as limited space,
lightweight cooling requirements or a space existing under special environmental
conditions. They are also used for precise temperature control by reversing the
electric current to cycle from cooling to heating. Melcor's customers are OEMs
that primarily use the modules for cooling purposes in applications such as
refrigerators, laboratory, scientific, medical and restaurant equipment, and
telecommunications and computer equipment. Melcor's products are sold under the
trademarks MELCOR and FRIGICHIPS.
MARKETS AND DISTRIBUTION
In North America, we market room air conditioners and dehumidifiers
principally to national and regional retail chains, home improvement centers and
retail buying groups. These retail chains and retail buying groups (comprised of
retailers that negotiate as groups the prices at which they will purchase our
products) represent approximately 10,000 retail outlets marketing room air
conditioners throughout the United States. We also market our air conditioners
under private label to both retailers and OEMs.
Fedders North America's sales, marketing and service departments are
headquartered in Effingham, Illinois. Our 25 salespersons and marketing
employees are proactive in working with customers to assist them in maximizing
their profitability and market share through responsive changes in product mix
and marketing. We have nine regional distribution centers which help us to
provide next-day delivery to all major U.S. markets. This geographic coverage is
critical during heat waves that stimulate increased retail sales. Additionally,
we have instituted computerized systems, including electronic data interchange
(EDI), to accommodate major high-volume retailers that require suppliers to
replenish inventories frequently and on short notice.
To support and service our customers and the ultimate consumer, we have
established a network of more than 3,000 independent servicers throughout the
United States. These independent servicers are local tradespeople who are
screened and monitored by us.
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We promote our FEDDERS and EMERSON QUIET KOOL brands of air conditioners
through advertising, primarily in trade publications. In addition, many of our
customers advertise and promote our products at their own expense.
Fedders expects to increase its participation in overseas markets through
strategic alliances, primarily under production and joint venture agreements,
based on our expertise, technological capability and well-established global
sourcing program. For example, the establishment of Fedders Xinle has
strategically positioned Fedders to:
- sell FEDDERS brand products to low-import-duty markets outside of China,
including the U.S., and within China;
- provide private label products for OEMs with established sales and
service organizations worldwide, including China; and
- establish assembly operations within each major trading block that has
protective duties in order to import subassemblies or semi-finished goods
from the China facility.
The establishment of our Spanish joint venture has strategically positioned
us to sell products in the growing European market, and has enabled us to add
the portable air conditioner to our U.S. product offerings.
Melcor's products are currently sold by salaried salespeople and a network
of sales representative firms located around the world. Melcor advertises its
products in a variety of national and international technical and trade
publications, principally in the electronics and electro-optical industries, and
participates in international trade exhibitions.
PRODUCTION AND PROPERTIES
Fedders North America currently manufactures its air conditioners in two
owned facilities in the United States:
- a 650,000 square foot facility in Effingham, Illinois; and
- a 232,000 square foot facility in Columbia, Tennessee.
These two facilities have a combined annual capacity of approximately
2,000,000 units.
Fedders also manufactures air conditioners, through Fedders Xinle, in a
facility owned by the joint venture in Ningbo, China. This facility's capacity
is approximately 500,000 units.
Rotorex currently assembles all of its compressors in a 200,000 square foot
facility in Walkersville, Maryland. The current capacity is approximately
1,500,000 compressors.
Fedders also manufactures thermoelectric modules, through Melcor, in two
facilities comprising 37,400 square feet near Lawrence Township, New Jersey.
Trion manufactures air treatment products in its 263,000 square foot
facility in Sanford, North Carolina and in its 63,000 square foot facility in
Albuquerque, New Mexico. Trion Limited conducts its sales and service operations
out of its 53,000 square foot facility in Andover, England.
We believe our production capacity at our major manufacturing facilities is
adequate to meet our needs for the foreseeable future.
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Fedders owns or leases the following principal facilities:
APPROXIMATE SQUARE
LOCATION PRINCIPAL FUNCTION FEET OF FLOOR AREA
Liberty Corner, New Jersey
(Leased)........................... Corporate headquarters 25,000
Effingham, Illinois (Owned)(1)....... Manufacturing of air conditioners 650,000
Columbia, Tennessee (Owned)(2)....... Manufacturing of air conditioners and 232,000
dehumidifiers
Walkersville, Maryland (Owned)(3).... Assembly of rotary compressors 200,000
Singapore (Leased)................... International headquarters and 14,600
research and design center
Lawrence Township, NJ (Owned)........ Manufacturing 15,000
Lawrence Township, NJ (Leased)(4).... Headquarters of Melcor and 22,400
manufacturing
Sanford, NC
(Owned)(5)......................... Manufacturing 263,000
Albuquerque, NM
(Leased)(6)........................ Manufacturing 63,000
Andover, England
(Leased)(6)........................ Sales and Service 53,000
- ------------------------------
(1) The Effingham, Illinois facility is subject to a mortgage securing a $3.5
million, 1% promissory note payable over the next 9 years to the State of
Illinois.
(2) Owned by Columbia Specialities, Inc., a wholly owned subsidiary of Fedders
North America.
(3) Owned by Rotorex.
(4) Melcor has contracted to purchase this facility.
(5) Owned by Trion, Inc.
(6) Leased by Trion, Inc.
RAW MATERIALS
The principal raw materials used in the production of air conditioners are
steel, copper and aluminum. We obtain these raw materials from domestic and
foreign suppliers. We also purchase certain components used in our products from
other domestic and foreign manufacturers, including thermostats, compressors,
motors and electrical controls. We attempt to obtain the lowest possible cost in
our purchases of raw materials and components, which must meet specified quality
standards, through an active global sourcing program.
QUALITY ASSURANCE
One of the key elements of our strategy is a commitment to a single
worldwide standard of quality. Each of Fedders North America's principal
manufacturing facilities has earned the highest level of certification, ISO
9001, for its quality management system under the International Standards
Organization. Fedders Xinle has also earned the ISO 9002 certification for its
facility. The ISO 9000 program is an internationally recognized benchmark of
quality management systems within a production facility.
Fedders North America's products are backed by a warranty policy that
generally provides five-year coverage for sealed systems including compressors,
two-year coverage on motors and one-year coverage on all other parts and labor
related to air conditioners sold in North America.
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SEASONALITY OF BUSINESS, WORKING CAPITAL PRACTICES AND BACKLOG
Fedders North America's results of operations and financial condition are
principally dependent on the manufacture and sale of room air conditioners, the
demand for which is highly seasonal in North American markets. Seasonally low
sales volume is insufficient to offset fixed costs, resulting in operating
losses at certain times of the year. Our working capital needs are also
seasonal, with the greatest utilization of lines of credit occurring early in
the calendar year. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition of Fedders Corporation." Fedders regularly
reviews working capital components with a view to maintaining the lowest level
consistent with requirements of anticipated levels of operations. Fedders North
America's sales are predominantly made directly to retailers, who typically
require just-in-time delivery, primarily in April through July. Production is
weighted towards the retail selling season to minimize borrowing earlier in the
fiscal year, although room air conditioners may be produced throughout much of
the rest of the year at a lower rate of production. Our fiscal year end, August
31, coincides with the end of the seasonal room air conditioner sales cycle.
Accordingly, backlog at that time of the year is insignificant.
COMPETITION
Domestically, our competitors include a number of domestic and foreign
manufacturers of air conditioners and appliances, including Whirlpool
Corporation, Frigidaire Company, Matsushita Electric Industrial Co., Ltd., Sharp
Corporation and LG Corporation. Many of these competitors are substantially
larger and have greater resources than we do. We compete principally on the
basis of price, quality and our ability to deliver products and services to our
customers on an accurate-response basis. We believe that we compete effectively
by using a multiple brand strategy of providing competitively priced, high
quality products.
Internationally, competitors vary depending on the market. Some markets,
such as China, are served by many local manufacturers. Other markets are
dominated by foreign manufacturers of air conditioners and electronics products
including Matsushita Electric Industrial Co., Ltd., Carrier-Toshiba Corporation,
Hitachi, Ltd., Mitsubishi Electric Corporation and Sanyo Electric Trading Co.,
Ltd., all of which also manufacture compressors. We believe that we can compete
effectively by using a strategy of manufacturing low cost air conditioners
locally, controlling our supply of compressors and utilizing our global sourcing
network.
Trion's key competitors vary in each of its markets. The principal
competitors in the cleanroom product segment are all located outside of the
United States. The commercial/industrial product segment is highly fragmented
and no competitor controls a major share of the market. The residential product
segment includes several large, U.S.-based companies as principal competitors.
While each market segment is different, the purchase criteria for indoor air
quality products are relatively consistent, primarily technology, quality,
customer service or price. Trion competes on the basis of offering a broad range
of high quality products that typically rate at the top of their class in
performance and durability.
GOVERNMENT REGULATION
Fedders North America and Fedders are subject to various federal, state and
local laws affecting their businesses. Room air conditioners are subject to
federal regulations providing for minimum energy efficiency rating (EER)
requirements. A combination of an efficient compressor and the design of the air
conditioning system using the compressor is needed to achieve the required
ratings. On September 24, 1997, the Office of Energy Efficiency and Renewable
Energy of the United States Department of Energy issued a final rule under the
National Appliance Energy Conservation Act. This rule revised the minimum
required EERs for most classes of room air conditioners to higher levels. The
new EER levels apply to covered units manufactured on or after October 1, 2000.
This will require increasing the efficiency levels of certain air conditioner
models to achieve the revised minimum EER levels. We do not believe that these
EER regulations will adversely affect our operating results.
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EMPLOYEES
At August 31, 1999, Fedders had more than 3,100 employees, including
approximately 500 employees at Fedders Xinle. The current contract with the
union representing substantially all of the production employees at the
Effingham, Illinois plant is scheduled to expire in October 2001. The current
contract with the union representing approximately 50 employees of Rotorex is
scheduled to expire in August 2005. We consider our relations with our employees
to be generally satisfactory.
RESEARCH AND DEVELOPMENT
We conduct our research and development of room air conditioner technology
and design at our Effingham facility, and our research and development of
compressors at our Walkersville, Maryland facility. In fiscal 1999, we spent
approximately $6.7 million on research and development, including activities at
our Singapore facility focusing on products for the international market.
INTELLECTUAL PROPERTY
Fedders owns a number of trademarks, including:
- FEDDERS;
- EMERSON QUIET KOOL;
- AIRTEMP;
- ROTOREX;
- MELCOR; and
- FRIGICHIPS.
We attempt to register and aggressively protect our material trademarks,
trade names and other intellectual property rights both domestically and in key
foreign markets. While we believe that our trademarks are well known and enhance
the marketing of our products, we do not consider the successful conduct of our
business to be dependent on such trademarks.
ENVIRONMENTAL MATTERS
Fedders North America's and Fedders' operations are subject to various
foreign and United States federal, state and local environmental statutes and
regulations, including:
- laws and regulations dealing with storage, treatment, discharge and
disposal of hazardous materials, substances and wastes, remediation of
soil, surface and groundwater contamination and damage to natural
resources; and
- laws that affect the production of chemical refrigerants.
The products manufactured by Fedders currently use hydrochlorofluorocarbons
(HCFCs) as the refrigerant. The production of HCFCs for use in new equipment is
currently scheduled to be phased out as of the year 2010 in the United States.
In addition, the production of HCFCs for the servicing of existing equipment is
currently scheduled to be phased out as of the year 2020 in the United States.
Chemical producers are currently developing environmentally acceptable
alternative refrigerants for use in room air conditioners. These alternative
refrigerants are expected to be available in advance of the currently proposed
phase-out deadlines for the current refrigerant.
We believe we are currently in material compliance with applicable
environmental laws and regulations. We did not make capital expenditures on
environmental matters during fiscal 1998 or fiscal 1999 that are material to our
total capital expenditures, earnings and competitive position and do not
anticipate making material capital expenditures on such items in fiscal 2000.
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Fedders North America has been identified as a potentially responsible
party (PRP) by the United States Environmental Protection Agency under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended (CERCLA), at the PCB Treatment Inc. site located in Kansas City, Kansas
and in Kansas City, Missouri, based on the delivery there of certain materials
from our Effingham, Illinois facility. The act imposes strict and, in certain
circumstances, joint and several liability on PRPs for response costs at waste
sites and imposes liability for related damages to natural resources. In view of
the substantial number of other PRPs at this site and the relatively small
volume of material sent by us to the site, Fedders North America does not
believe it will incur any material liability for this matter.
Fedders North America has identified a groundwater problem at its
Walkersville, Maryland facility. It is preparing a response to the Maryland
Department of Environment's request to delineate the full extent of the
contaminant plume and evaluate remedial options. Based on available information,
Fedders North America does not expect the cost of investigation or any required
remediation relating to this matter to have a material adverse effect on its
operating results.
LITIGATION
We are a party to various litigation matters incidental to the conduct of
our business. We do not believe that the outcome of any of these current
litigation matters will have a material adverse effect on our financial
condition or our operating results.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
Fedders North America amended its revolving credit facility on July 28,
1999. Fedders North America and all of its direct and indirect subsidiaries are
parties to the revolving credit facility as borrowers or guarantors of the
borrowers' obligations. The revolving credit facility provides for loans to
Fedders North America of up to $100.0 million based on certain customary
percentages of accounts receivable and inventory. The obligations of Fedders
North America under the revolving credit facility are also guaranteed by Fedders
Corporation and certain of its other subsidiaries (other than Fedders North
America and its subsidiaries). Substantially all of the assets of Fedders
Corporation and its subsidiaries are pledged as collateral under the revolving
credit facility. While the revolving credit facility is intended principally to
provide financing for our working capital requirements, we may use up to $15.0
million of the amount available under the revolving credit facility for general
corporate purposes.
At our option, borrowings under the revolving credit facility bear interest
at a rate per annum
- based upon the London interbank offered rate (LIBOR) 2.25% (provided that
not more than 80% of loans outstanding at any time may be based upon
LIBOR); or
- equal to the prime rate of First Union National Bank.
In addition, we must pay
- an unused line fee of 0.5% per month on the amount by which $70.0 million
exceeds the average outstanding daily principal balance of loans
outstanding;
- an early termination fee equal to 0.5% of the maximum availability if the
revolving credit facility is terminated prior to February 1, 2003, the
expiration date of the revolving credit facility;
- an amendment fee of $300,000;
- an agency fee of $50,000; and
- a service fee of $60,000 annually.
Borrowings under the revolving credit facility are secured by collateral
assignments or other security interests in substantially all of the assets of
Fedders Corporation and its subsidiaries including:
- all material contracts;
- substantially all property, plant, equipment, inventory and other
tangible assets;
- all receivables of Fedders North America;
- all intellectual property and other intangible assets; and
- all capital stock of the direct and indirect subsidiaries of Fedders.
The revolving credit facility contains negative covenants that limit the
ability of Fedders Corporation and its direct and indirect subsidiaries to do
the following:
- create liens and other encumbrances;
- incur indebtedness;
- enter into transactions with affiliates;
- make loans, investments or guarantees; and
- pay dividends.
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In addition, the revolving credit facility requires that Fedders
Corporation meet certain financial tests including:
- consolidated net worth of not less than $70.0 million; and
- consolidated working capital of not less than $25.0 million.
The revolving credit facility contains customary events of default
including:
- non-payment of principal or interest;
- breach of any term, covenant, condition or provision of the revolving
credit facility;
- material breach of representations and warranties;
- bankruptcy, insolvency or assignment for the benefit of creditors;
- cross-defaults on other indebtedness;
- material adverse change in the business, assets or financial condition;
and
- a change in control.
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DESCRIPTION OF NOTES
The old notes were, and the new notes will be, issued by us under the
Indenture dated as of August 24, 1999 (the "Indenture") among Fedders North
America, Fedders Corporation and State Street Bank and Trust Company, as trustee
(the "Trustee"). The terms of the notes include those terms stated in the
Indenture and those terms made part of the Indenture by reference to the Trust
Indenture Act of 1939 (the "TIA") as in effect on the date of the Indenture. The
new notes are identical in all material respects to the terms of the old notes,
except for certain transfer restrictions and registration rights relating to the
old notes. In addition, the old note holders will receive liquidated damages
with respect to the first 90-day period immediately following the occurrence of
a Registration Default (as defined below) in an amount equal to $.05 per week
per $1,000 principal amount of old notes held by such holders. The amount of the
liquidated damages will increase by an additional $.05 per week per $1,000
principal amount of old notes with respect to each subsequent 90-day period
until all Registration Defaults have been cured, up to a maximum amount of
liquidated damages of $.40 per week per $1,000 principal amount of old notes.
See "--Registration Rights; Liquidated Damages."
The following description is a summary of the material provisions of the
Indenture. It does not include all of the provisions of the Indenture. We urge
you to read the Indenture because it defines your rights as holders of these
notes. We have filed copies of this Indenture as an exhibit to the registration
statement which includes this prospectus. A copy of the Indenture may be
obtained from us or the initial purchaser. You can find definitions of certain
capitalized terms used in the following summary under "--Definitions" and
throughout this description. Capitalized terms that are used but not otherwise
defined herein have the meanings assigned to them in the Indenture and such
definitions are incorporated by reference.
GENERAL
Fedders North America will issue the notes pursuant to an indenture among
Fedders North America, Fedders Corporation, as guarantor, and State Street Bank
and Trust Company, as trustee, the terms of which will be substantially the same
as those in the indenture dated as of August 18, 1997 governing the existing
senior subordinated notes of Fedders North America (the "1997 notes"). The terms
of the notes include those stated in the indenture and those made part of the
indenture by reference to the Trust Indenture Act of 1939, as amended, as in
effect on the date of original issuance of the notes. The notes are subject to
all such terms, and holders of the notes are referred to the indenture and the
Trust Indenture Act for a statement thereof. The following is a summary of the
provisions of the indenture. It is not complete and is qualified in its entirety
by reference to the indenture, including the definitions in the indenture of
certain terms used below.
As of the date of the indenture, all of the Subsidiaries of Fedders North
America will be Restricted Subsidiaries. However, under certain circumstances,
Fedders North America will be able to designate each of its existing
Subsidiaries, Subsidiaries formed by Fedders North America or Subsidiaries
acquired by Fedders North America after the original issuance of the notes as
Non-Restricted Subsidiaries. Non-Restricted Subsidiaries will not be subject to
any of the restrictive covenants set forth in the indenture.
The notes will be limited to $100,000,000 in aggregate principal amount, of
which $50,000,000 will be issued in this offering, and will mature on August 15,
2007. Additional notes may be issued from time to time subject to the
limitations set forth under the "Limitation on Incurrence of Indebtedness"
covenant. References to the "notes" in this Description of Notes will include
any such additional notes. The notes will bear interest at the rate of 9 3/8%
per annum. Interest on the notes is payable semi-annually in cash in arrears on
February 15 and August 15 in each year, commencing February 15, 2000, to holders
of record of notes at the close of business on the February 1 or August 1
immediately preceding such interest payment date. Interest on the notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of original issuance. Interest will be
computed on the basis of a 360-day year of twelve 30-day months. The notes will
be issued in denominations of $1,000 and integral multiples thereof.
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Principal of, premium, if any, and interest on the notes will be payable,
and the notes may be presented for registration of transfer or exchange, at the
office of the paying agent and registrar in New York, New York. Holders of notes
must surrender their notes to the paying agent to collect principal payments,
and Fedders North America may pay principal and interest by check and may mail
checks to a holder's registered address; provided that all payments with respect
to global notes and certificated notes, the holders of which have given wire
transfer instructions to Fedders North America, will be required to be made by
wire transfer of immediately available funds to the accounts specified by the
holders thereof. The registrar may require payment of a sum sufficient to cover
any transfer tax or similar governmental charge payable in connection with
certain transfers or exchanges. See "--Transfer and Exchange." The trustee will
initially act as paying agent and registrar. Fedders North America may change
the paying agent or registrar without prior notice to holders of notes, and
Fedders North America or any of its Subsidiaries may act as paying agent or
registrar.
SUBORDINATION
The payment of principal of, and premium, interest and liquidated damages,
if any, on the notes will be subordinated in right of payment, as set forth in
the indenture, to the prior payment in full of all Senior Indebtedness, whether
outstanding on the date of the indenture or thereafter incurred. The indenture
will permit the incurrence of additional Senior Indebtedness in the future.
Upon any distribution to creditors of Fedders North America in a
liquidation or dissolution of Fedders North America or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to
Fedders North America or its property, an assignment for the benefit of
creditors or any marshaling of the assets and liabilities of Fedders North
America, the holders of Senior Indebtedness will be entitled to receive payment
in full of all Obligations due in respect of such Senior Indebtedness (including
interest after the commencement of any such proceeding at the rate specified in
the applicable Senior Indebtedness) before the holders of notes will be entitled
to receive any payment with respect to the notes, and until all Obligations with
respect to Senior Indebtedness are paid in full, any distribution to which the
holders of notes would be entitled shall be made to the holders of Senior
Indebtedness (except that holders of notes may receive payments made from the
trust described under "--Satisfaction and Discharge of the Indenture") if:
- a default in the payment of the principal of or premium, if any, or
interest on Senior Indebtedness occurs and is continuing beyond any
applicable period of grace; or
- any other default occurs and is continuing with respect to Designated
Senior Indebtedness that permits holders of the Designated Senior
Indebtedness as to which such default relates to accelerate its maturity
and the trustee receives a written notice (with a copy to Fedders North
America) of such other default (a "Payment Blockage Notice") from Fedders
North America or the holders of any Designated Senior Indebtedness.
Payments on the notes shall be resumed
- in the case of a payment default, upon the date on which such default is
cured or waived; and
- in case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived or 179 days after the date on which
the applicable Payment Blockage Notice is received by the trustee, unless
the maturity of any Designated Senior Indebtedness has been accelerated.
No new period of payment blockage may be commenced unless and until 360
days have elapsed since the date of receipt by the trustee of the
immediately prior Payment Blockage Notice.
No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the trustee shall be, or be made, the
basis for a subsequent Payment Blockage Notice (it being understood that any
subsequent action, or any breach of any covenant for a period commencing after
the date of receipt by the trustee of such Payment Blockage Notice, that, in
either case, would give rise to such a default pursuant to any provisions under
which a default previously existed or was continuing shall constitute a new
default for this purpose).
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The indenture will further require that Fedders North America promptly
notify holders of Senior Indebtedness if payment of the notes is accelerated
because of an Event of Default.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, holders of notes may recover less ratably than
creditors of Fedders North America who are holders of Senior Indebtedness. At
August 31, 1999, the aggregate principal amount of Senior Indebtedness
outstanding was approximately $3.4 million and the aggregate principal amount of
pari passu Indebtedness of Fedders North America outstanding was approximately
$99.6 million (net of $0.4 million discount). The indenture will limit, subject
to certain financial tests, the amount of additional Indebtedness, including
Senior Indebtedness, that Fedders North America and its Subsidiaries can incur.
See "--Certain Covenants--Limitation on Incurrence of Indebtedness."
GUARANTEE
Fedders Corporation will irrevocably and unconditionally guarantee on a
senior subordinated basis the performance and punctual payment when due, whether
at stated maturity, by acceleration or otherwise, of all obligations of Fedders
North America under the indenture and the notes, whether for principal of, or
interest or liquidated damages, if any, on the notes, expenses, indemnification
or otherwise (all such obligations guaranteed by Fedders Corporation being
herein called the "Guaranteed Obligations"). Fedders Corporation's assets
consist primarily of the common stock of Fedders North America and of the common
stock of its Subsidiaries which conduct the international operations of Fedders
Corporation and the operations of Melcor and, accordingly, its ability to
perform under its guarantee will be dependent on the financial condition and net
worth of its Subsidiaries, including Fedders North America.
The guarantee is a continuing guarantee and shall:
- remain in full force and effect until payment in full of all the
guaranteed Obligations;
- be binding upon Fedders Corporation and its successors, transferees and
assigns; and
- inure to the benefit of and be enforceable by the trustee, the holders of
the notes and their successors, transferees and assigns.
SUBORDINATION OF GUARANTEE
Payments on the guarantee will be subordinated, as set forth in the
indenture, in right of payment to the prior payment in full of all Guarantor
Senior Indebtedness. The terms of such subordination will be substantially
similar to the subordination terms applicable to the notes.
REDEMPTION OF NOTES
Optional Redemption. The notes will be redeemable, at the option of
Fedders North America, on or after August 5, 2002. During the 12-month period
beginning on August 15 of the years indicated below, the notes will be
redeemable, at the option of Fedders North America, in whole or in part, on at
least 30 but not more than 60 days' notice to each holder of notes to be
redeemed, at the redemption prices (expressed as percentages of the principal
amount) set forth below, plus any accrued and unpaid interest and liquidated
damages, if any, to the redemption date:
YEAR PERCENTAGE
2002...................................................... 104.688%
2003...................................................... 103.125%
2004...................................................... 101.563%
2005 and thereafter....................................... 100.000%
Notwithstanding the foregoing, at any time on or before August 15, 2000,
Fedders North America may (but will not have the obligation to) redeem for cash
up to 30% of the original aggregate principal
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amount of the notes (including the original aggregate principal amount of any
additional notes issued under the indenture) at a redemption price of 109.375%
of the principal amount thereof, in each case plus any accrued and unpaid
interest and liquidated damages, if any, thereon to the redemption date, with
the net proceeds of an Equity Offering; provided that at least 70% of the
original principal amount of the notes (including the original aggregate
principal amount of any additional notes issued under the indenture) remains
outstanding immediately after the occurrence of such redemption; and provided,
further, that such redemption will occur within 60 days of the date of the
closing of such Equity Offering.
Mandatory Redemption. Except as set forth below under "--Mandatory Offers
to Purchase Notes--Change of Control" and "--Asset Sales," Fedders North America
is not required to make any mandatory redemption, purchase or sinking fund
payments with respect to the notes.
MANDATORY OFFERS TO PURCHASE NOTES
Change of Control. Upon the occurrence of a Change of Control (such date
being the "Change of Control Trigger Date"), each holder of notes shall have the
right to require Fedders North America to purchase all or any part (equal to
$1,000 or an integral multiple thereof) of such holder's notes pursuant to an
Offer (as defined below) at a purchase price in cash equal to 101% of the
aggregate principal amount thereof, plus any accrued and unpaid interest and
liquidated damages, if any, to the date of purchase. Fedders North America shall
furnish to the trustee, at least two Business Days before notice of an Offer is
mailed to all holders of notes pursuant to the procedures described below under
"--Procedures for Offers," notice that the Offer is being made. Transactions
constituting a Change of Control are not limited to hostile takeover
transactions not approved by the current management of Fedders North America.
Except as described, the indenture does not permit the holders of notes to
require Fedders North America to purchase or redeem the notes in the event of a
takeover, recapitalization or similar restructuring, including an issuer
recapitalization or similar transaction with management. Consequently, these
Change of Control provisions will not afford any protection in a highly
leveraged transaction, including such a transaction initiated by Fedders North
America, management of Fedders North America or an affiliate of Fedders North
America, if such transaction does not result in a Change of Control. In
addition, because the obligations of Fedders North America with respect to the
notes are subordinated to all Senior Indebtedness of Fedders North America and
all obligations of the Subsidiaries of Fedders North America, existing or future
Senior Indebtedness of Fedders North America or obligations of the Subsidiaries
of Fedders North America may prohibit Fedders North America from repurchasing
the notes upon a Change of Control. Moreover, the ability of Fedders North
America to repurchase notes following a Change of Control will be limited by
Fedders North America's then-available resources. These Change of Control
provisions may not be waived by the Board of Directors of Fedders North America
or the trustee without the consent of holders of at least a majority in
principal amount of the notes. See "--Amendment, Supplement and Waiver."
Fedders North America expects that prepayment of the notes following a
Change of Control would, and the exercise by holders of notes of the right to
require Fedders North America to purchase notes may, constitute a default under
the Credit Agreement or under Senior Indebtedness of Fedders North America. In
the event a Change of Control occurs, Fedders North America will likely be
required to refinance the Senior Indebtedness outstanding under the Credit
Agreement, the 1997 notes and the notes. If there is a Change of Control, any
Senior Indebtedness under the Credit Agreement could be accelerated. Moreover,
there can be no assurance that sufficient funds will be available at the time of
any Change of Control to make any required repurchases of the notes. The
financing of the purchases of notes could additionally result in a default under
the Credit Agreement or other indebtedness of Fedders North America. The
occurrence of a Change of Control may also have an adverse impact on the ability
of Fedders North America to obtain additional financing in the future.
Asset Sales. The indenture provides that Fedders North America may not,
and may not permit any Restricted Subsidiary to, directly or indirectly,
consummate an Asset Sale (including the sale of any of the Capital Stock of any
Restricted Subsidiary) providing for Net Proceeds in excess of $5,000,000 unless
the
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Net Proceeds from such Asset Sale are applied (in any manner otherwise permitted
by the indenture) to one or more of the following purposes in such combination
as Fedders North America shall elect:
(a) an investment in another asset or business in the same line of
business as, or a line of business similar to that of, the line of business
of Fedders North America and its Restricted Subsidiaries at the time of the
Asset Sale; provided that such investment occurs on or prior to the 365th
day following the date of such Asset Sale (the "Asset Sale Disposition
Date");
(b) to reimburse Fedders North America or its Subsidiaries for
expenditures made, and costs incurred, to repair, rebuild, replace or
restore property lost, damaged or taken to the extent that the Net Proceeds
consist of insurance proceeds received on account of such loss, damage or
taking;
(c) the purchase, redemption or other prepayment or repayment of
outstanding Senior Indebtedness or Indebtedness of Fedders North America's
Restricted Subsidiaries or the 1997 notes on or prior to the 365th day
following the Asset Sale Disposition Date; or
(d) an Offer expiring on or prior to the Purchase Date (as defined
below).
The indenture also provides that Fedders North America may not, and may not
permit any Restricted Subsidiary to, directly or indirectly, consummate an Asset
Sale unless at least 70% of the consideration therefor received by Fedders North
America or such Restricted Subsidiary is in the form of cash, cash equivalents
or marketable securities; provided that, solely for purposes of calculating such
70% of the consideration, the amount of
(x) any liabilities (as shown on Fedders North America's or such
Restricted Subsidiary's most recent balance sheet or in the notes thereto,
excluding contingent liabilities and trade payables) of Fedders North
America or any Restricted Subsidiary (other than liabilities that are by
their terms subordinated to the notes) that are assumed by the transferee
of any such assets, and
(y) any notes or other obligations received by Fedders North America
or any such Restricted Subsidiary from such transferee that are promptly,
but in no event more than 30 days after receipt, converted by Fedders North
America or such Restricted Subsidiary into cash (to the extent of the cash
received),
shall be deemed to be cash and cash equivalents for purposes of this provision.
Any Net Proceeds from any Asset Sale that are not applied or invested as
provided in clauses (a), (b), (c) or (d) above shall constitute "Excess
Proceeds."
When the aggregate amount of Excess Proceeds exceeds $6,500,000 (such date
being an "Asset Sale Trigger Date"), Fedders North America shall make an Offer
(an "Asset Sale Offer") to all holders of notes to purchase the maximum
principal amount of the notes then outstanding that may be purchased out of
Excess Proceeds, at an offer price in cash in an amount equal to 100% of
principal amount thereof plus any accrued and unpaid interest and liquidated
damages, if any, to the Purchase Date in accordance with the procedures set
forth in the indenture governing the notes. Notwithstanding the foregoing, to
the extent that any or all of the Net Proceeds of an Asset Sale are prohibited
or delayed by applicable local law from being repatriated to the United States,
the portion of such Net Proceeds so affected will not be required to be applied
as described in this or the next preceding paragraph, but may be retained for so
long, but only for so long, as the applicable local law prohibits repatriation
to the United States.
To the extent that any Excess Proceeds remain after completion of an Asset
Sale Offer, Fedders North America may use such remaining amount for general
corporate purposes. Upon completion of an Asset Sale Offer, the amount of Excess
Proceeds shall be reset at zero.
Although the Credit Agreement will permit Fedders North America to pay
interest on the notes, dividends for other purposes, such as repurchases of
notes by Fedders North America upon an Asset Sale, will not be permitted under
the terms of the Credit Agreement. Accordingly, Fedders North America would need
to seek the consent of its lenders under the Credit Agreement in order to
repurchase notes with the Net Proceeds of an Asset Sale.
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Procedures for Offers. Within 30 days following any Change of Control
Trigger Date or Asset Sale Trigger Date, subject to the provisions of the
indenture, Fedders North America shall mail a notice to each holder of notes at
such holder's registered address stating:
(a) that an offer (an "Offer") is being made pursuant to a Change of
Control or an Asset Sale Trigger Date, as the case may be, the length of
time the Offer shall remain open and the maximum principal amount of notes
that will be accepted for payment pursuant to such Offer;
(b) the purchase price, the amount of accrued and unpaid interest as
of the purchase date, and the purchase date (which shall be no earlier than
30 days and no later than 60 days from the date such notice is mailed (the
"Purchase Date")); and
(c) such other information required by the indenture and applicable
law and regulations.
On the Purchase Date for any Offer, Fedders North America will, to the
extent required by the indenture and such Offer:
(1) in the case of an Offer resulting from a Change of Control, accept
for payment all notes or portions thereof tendered pursuant to such Offer
and, in the case of an Offer resulting from an Asset Sale Trigger Date,
accept for payment the maximum principal amount of notes or portions
thereof tendered pursuant to such Offer that can be purchased out of Excess
Proceeds;
(2) deposit with the paying agent the aggregate purchase price of all
notes or portions thereof accepted for payment and any accrued and unpaid
interest and liquidated damages, if any, on such notes as of the Purchase
Date; and
(3) deliver or cause to be delivered to the trustee all notes tendered
pursuant to the Offer.
The paying agent shall promptly mail to each holder of notes or portions
thereof accepted for payment an amount equal to the purchase price for such
notes plus any accrued and unpaid interest and liquidated damages, if any,
thereon, and the trustee shall promptly authenticate and mail (or cause to be
transferred by book-entry) to such holder of notes accepted for payment in part
a new note equal in principal amount to any unpurchased portion of the notes and
any note not accepted for payment in whole or in part shall be promptly returned
to the holder thereof. Fedders North America will publicly announce the results
of the Offer on or as soon as practicable after the Purchase Date.
Fedders North America will comply with any tender offer rules under the
Securities Exchange Act of 1934 which may then be applicable, including Rule
14e-1, in connection with an offer required to be made by Fedders North America
to repurchase the notes as a result of a Change of Control or an Asset Sale
Trigger Date. To the extent that the provisions of any securities laws or
regulations conflict with provisions of the indenture, Fedders North America
shall comply with the applicable securities laws and regulations and shall not
be deemed to have breached its obligations under the indenture by virtue
thereof.
Selection and Notice. In the event of a redemption or purchase of less
than all of the notes, the notes to be redeemed or purchased will be chosen by
the trustee pro rata, by lot or by any other method that the trustee considers
fair and appropriate and, if the notes are listed on any securities exchange, by
a method that complies with the requirements of such exchange; provided that, if
less than all of a holder's notes and are to be redeemed or accepted for
payment, only principal amounts of $1,000 or multiples thereof may be selected
for redemption or accepted for payment. On and after any redemption or purchase
date, interest shall cease to accrue on the notes or portions thereof called for
redemption or accepted for payment. Notice of any redemption or offer to
purchase will be mailed at least 30 days but not more than 60 days before the
redemption or purchase date to each holder of notes to be redeemed or purchased
at such holder's registered address.
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CERTAIN COVENANTS
The indenture contains, among other things, the following covenants:
Limitation on Restricted Payments. The indenture provides that Fedders
North America will not, and will not permit any Restricted Subsidiary to,
directly or indirectly,
(i) declare or pay any dividend or make any distribution on account of
Fedders North America's or such Restricted Subsidiary's Capital Stock or
other Equity Interests (other than dividends or distributions payable in
Capital Stock or other Equity Interests (other than Disqualified Stock) of
Fedders North America and dividends or distributions payable by a
Restricted Subsidiary to a Restricted Subsidiary or to Fedders North
America);
(ii) purchase, redeem or otherwise acquire or retire for value any
Capital Stock or other Equity Interests of Fedders North America or any of
its Restricted Subsidiaries;
(iii) make any principal payment on, purchase, defease, redeem,
prepay, decrease or otherwise acquire or retire for value, prior to any
scheduled final maturity, scheduled repayment or scheduled sinking fund
payment, any Indebtedness of Fedders North America that is subordinate or
junior in right of payment to the notes; or
(iv) make any Restricted Investment (all such dividends,
distributions, purchases, redemptions, acquisitions, retirements,
prepayments and Restricted Investments being collectively referred to as
"Restricted Payments"), if, at the time of such Restricted Payment:
(a) a Default or Event of Default shall have occurred and be
continuing or shall occur as a consequence thereof; or
(b) immediately after such Restricted Payment and after giving pro
forma effect thereto, Fedders North America shall not be able to issue
$1.00 of additional Indebtedness pursuant to the first sentence of the
"Limitation on Incurrence of Indebtedness" covenant; or
(c) such Restricted Payment, together with the aggregate of all
other Restricted Payments made after August 18, 1997, without
duplication, exceeds the sum of
(1) 50% of the aggregate Consolidated Net Income (including, for
this purpose, gains or losses from Asset Sales) of Fedders North
America (or, in case such aggregate is a loss, 100% of such loss) for
the period (taken as one accounting period) from the beginning of the
fiscal quarter commencing March 1, 1997 and ended as of Fedders North
America's most recently ended fiscal quarter at the time of such
Restricted Payment; plus
(2) 100% of the aggregate net cash proceeds and the fair market
value of any property or securities (as determined by the Board of
Directors in good faith) received by Fedders North America from the
issue or sale of Capital Stock or other Equity Interests of Fedders
North America subsequent to August 18, 1997 (other than (x) Capital
Stock or other Equity Interests issued or sold to a Restricted
Subsidiary and (y) the issuance or sale of Disqualified Stock); plus
(3) the amount by which the principal amount of and any accrued
interest on either (A) Indebtedness of Fedders North America or (B)
any Indebtedness of any Restricted Subsidiary is reduced on Fedders
North America's consolidated balance sheet upon the conversion or
exchange other than by a Restricted Subsidiary subsequent to August
18, 1997 of any Indebtedness of Fedders North America or any
Restricted Subsidiary (not held by Fedders North America or any
Restricted Subsidiary) for Capital Stock or other Equity Interests
(other than Disqualified Stock) of Fedders North America (less the
amount of any cash, or the fair market value of any other property or
securities (as determined by the Board of Directors in good faith),
distributed by Fedders North America or any Restricted Subsidiary (to
persons other than Fedders North America or any other Restricted
Subsidiary) upon such conversion or exchange); plus
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(4) if any Non-Restricted Subsidiary is redesignated as a
Restricted Subsidiary, the value of the Restricted Payment that would
result if such Subsidiary were redesignated as a Non-Restricted
Subsidiary at such time, as determined in accordance with the second
paragraph of the "Designation of Restricted and Non-Restricted
Subsidiaries" covenant.
Notwithstanding the foregoing, clauses (b) and (c) shall not prohibit as
Restricted Payments:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration, such payment would
comply with all covenants of the indenture (including, but not limited to,
the "Limitation on Restricted Payments" covenant); provided that payments
made pursuant to this paragraph shall count as a Restricted Payment for
purposes of the calculation in clause (c) of this covenant;
(ii) payments to Fedders Corporation in an amount equal to the amount
of income tax that Fedders North America would have paid had it filed
consolidated tax returns on a separate company basis in any given tax year;
provided that payments made pursuant to this paragraph (ii) shall not count
as a Restricted Payment for purposes of the calculation in paragraph (c) of
this covenant;
(iii) cash dividends or loans from Fedders North America to Fedders
Corporation pursuant to the Services Agreement but in no event exceeding 4%
of the revenues of Fedders North America and its Restricted Subsidiaries
for the immediately preceding four fiscal quarters; provided, that payments
made pursuant to this paragraph (iii) shall not count as a Restricted
Payment for purposes of the calculation in paragraph (c) of this covenant;
(iv) the redemption, repurchase, retirement or other acquisition of
any Capital Stock or other Equity Interests of Fedders North America or any
Restricted Subsidiary in exchange for, or out of the proceeds of, the
substantially concurrent sale (other than to a Subsidiary of Fedders North
America) of other Capital Stock or other Equity Interests of Fedders North
America (other than any Disqualified Stock) or the redemption, repurchase,
retirement or other acquisition of any Capital Stock or other Equity
Interests of any Restricted Subsidiary in exchange for, or out of the
proceeds of, the substantially concurrent sale (other than to Fedders North
America or a Subsidiary of Fedders North America) of other Capital Stock or
other Equity Interests of such Restricted Subsidiary; provided that, in
each case, any net cash proceeds that are utilized for any such redemption,
repurchase, retirement or other acquisition, and any Net Income resulting
therefrom, shall be excluded from clause (c) of this covenant;
(v) Restricted Investments made or received in connection with the
sale, transfer or disposition of any business, properties or assets of
Fedders North America or any Restricted Subsidiary; provided that, if such
sale, transfer or disposition constitutes an Asset Sale, Fedders North
America complies with the "Asset Sale" provisions of the indenture, and
such Restricted Investments shall not count as a Restricted Payment for
purposes of the calculation in paragraph (c) of this covenant;
(vi) the payment of a dividend to Fedders Corporation in order to
allow Fedders Corporation to pay its regular quarterly dividend in respect
of Fedders Corporation's Convertible Preferred Stock, Common Stock, Class A
Common Stock and Class B Common Stock; provided that payments made pursuant
to this paragraph (vi) shall count as a Restricted Payment for purposes of
the calculation in paragraph (c) of this covenant; and
(vii) $3,000,000; provided that payments made pursuant to this
paragraph (vii) shall count as a Restricted Payment for purposes of the
calculation in paragraph (c) of this covenant.
Limitation on Incurrence of Indebtedness. The indenture provides that
Fedders North America will not, and will not permit any Restricted Subsidiary
to, issue any Indebtedness (other than the Indebtedness represented by the notes
in an aggregate principal amount not to exceed $50,000,000) unless Fedders North
America's Cash Flow Coverage Ratio for its four full fiscal quarters next
preceding the date such additional Indebtedness is issued would have been at
least 2.0 to 1 on or prior to August 31, 1999 and at least 2.25 to 1 thereafter
determined on a Pro Forma Basis (including, for this purpose, any other
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Indebtedness incurred since the end of the applicable four quarter period) as if
such additional Indebtedness and any other Indebtedness issued since the end of
such four-quarter period had been issued at the beginning of such four-quarter
period.
The foregoing limitations will not apply to the issuance of:
(i) Indebtedness of Fedders North America and/or its Restricted
Subsidiaries under the Credit Agreement as measured on such date of
issuance in an aggregate principal amount outstanding on any such date of
issuance not exceeding the greater of (x) the sum of (A) 75% of the book
value of the accounts receivable of Fedders North America and its
Restricted Subsidiaries on a consolidated basis and (B) 60% of the book
value of the inventory of Fedders North America and its Restricted
Subsidiaries on a consolidated basis or (y) $50,000,000;
(ii) Indebtedness of Fedders North America and its Restricted
Subsidiaries in connection with capital leases, purchase money obligations,
capital expenditures or similar financing transactions relating to their
properties, assets and rights up to $10,000,000 in aggregate principal
amount;
(iii) additional Indebtedness of Fedders North America and its
Restricted Subsidiaries in an aggregate principal amount of up to
$10,000,000; and
(iv) Other Permitted Indebtedness.
Notwithstanding the foregoing, no Restricted Subsidiary shall under any
circumstances issue a guarantee of any Indebtedness of Fedders North America
except for guarantees issued by Restricted Subsidiaries pursuant to the
"Limitation on Guarantees of Company Indebtedness by Restricted Subsidiaries"
covenant; provided, however, that the foregoing will not limit or restrict
guarantees issued by Restricted Subsidiaries in respect of Indebtedness of other
Restricted Subsidiaries.
Sale and Leaseback Transactions. The indenture provides that Fedders North
America will not, and will not cause or permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction; provided that
Fedders North America may enter into a sale and leaseback transaction if:
(i) Fedders North America could have incurred Indebtedness in an
amount equal to the Attributable Debt relating to such sale and leaseback
transaction pursuant to Fedders North America's Cash Flow Coverage Ratio
test set forth in the first sentence of the "Limitation on Incurrence of
Indebtedness" covenant; and
(ii) the net cash proceeds of such sale and leaseback transaction are
at least equal to the fair market value (as determined in good faith by the
Board of Directors and set forth in an officers' certificate delivered to
the trustee) of the property that is the subject of such sale and leaseback
transaction; and
(iii) the transfer of assets in such sale and leaseback transaction is
permitted by, and the proceeds of such transaction are applied in
compliance with, the "Asset Sales" covenant.
Limitation on Liens. The indenture provides that Fedders North America
will not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume or suffer to exist any Lien (other than
Permitted Liens) upon any property or asset now owned or hereafter acquired by
them, or any income or profits therefrom, or assign or convey any right to
receive income therefrom; provided, however, that in addition to creating
Permitted Liens on its properties or assets, Fedders North America and any of
its Restricted Subsidiaries may create any Lien upon any of their properties or
assets (including, but not limited to, any Capital Stock of its Subsidiaries) if
the notes are equally and ratably secured.
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The indenture provides that Fedders North America will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
create or otherwise cause or suffer to exist or become effective, any
encumbrance or restriction on the ability of any Restricted Subsidiary to: (a)
pay dividends or make any other distributions on its Capital Stock or any other
interest or participation in, or measured by, its profits,
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owned by Fedders North America or any Restricted Subsidiary, or pay any
Indebtedness owed to, Fedders North America or any Restricted Subsidiary, (b)
make loans or advances to Fedders North America, or (c) transfer any of its
properties or assets to Fedders North America, except for such encumbrances or
restrictions existing under or by reason of:
(i) applicable law;
(ii) Indebtedness permitted (A) under the first sentence of the first
paragraph of the "Limitation on Incurrence of Indebtedness" covenant, (B)
under clauses (i) or (iii) of the second paragraph of the "Limitation on
Incurrence of Indebtedness" covenant or clauses (i), (v), (vi) or (viii) of
the definition of "Other Permitted Indebtedness", or (C) by agreements and
transactions permitted under the "Limitation on Restricted Payments"
covenant;
(iii) customary provisions restricting subletting or assignment of any
lease or license of Fedders North America or any Restricted Subsidiary;
(iv) any instrument governing Indebtedness or any other encumbrance or
restriction of a person acquired by Fedders North America or any Restricted
Subsidiary at the time of such acquisition, which encumbrance or
restriction is not applicable to any person, or the properties or assets of
any person, other than the person, or the property or assets of the person,
so acquired;
(v) the Credit Agreement and the 1997 notes;
(vi) any Refinancing Indebtedness permitted under the "Limitation on
Incurrence of Indebtedness" covenant or clauses (i), (v) or (viii) of the
definition of Other Permitted Indebtedness; provided that the encumbrances
and restrictions created in connection with such Refinancing Indebtedness
are no more restrictive in any material respect with regard to the
interests of the holders of notes than the encumbrances and restrictions in
the refinanced Indebtedness; or
(vii) the terms of purchase money obligations, but only to the extent
such purchase money obligations restrict or prohibit the transfer of the
property so acquired.
Nothing contained in this covenant shall prevent Fedders North America from
entering into any agreement or instrument providing for the incurrence of
Permitted Liens or restricting the sale or other disposition of property or
assets of Fedders North America or any of its Restricted Subsidiaries that are
subject to Permitted Liens.
Limitation on Transactions With Affiliates. The indenture provides that
neither Fedders North America nor any of its Restricted Subsidiaries may make
any loan, advance, guarantee or capital contribution to, or for the benefit of,
or sell, lease, transfer or dispose of any properties or assets to, or for the
benefit of, or purchase or lease any property or assets from, or enter into or
amend any contract, agreement or understanding with, or for the benefit of, an
Affiliate (each such transaction or series of related transactions that are part
of a common plan are referred to as an "Affiliate Transaction"), except in good
faith and on terms that are no less favorable to Fedders North America or the
relevant Restricted Subsidiary than those that would have been obtained in a
comparable transaction on an arm's length basis from an unrelated person.
The indenture further provides that Fedders North America will not, and
will not permit any Restricted Subsidiary to, engage in any Affiliate
Transaction involving aggregate payments or other transfers by Fedders North
America and its Restricted Subsidiaries in excess of $3,500,000 (including cash
and non-cash payments and benefits valued at their fair market value by the
Board of Directors of Fedders North America in good faith) unless Fedders North
America delivers to the trustee:
(i) a resolution of the Board of Directors of Fedders North America
stating that the Board of Directors (including a majority of the
disinterested directors, if any) has, in good faith, determined that such
Affiliate Transaction complies with the provisions of the indenture; and
(ii) (A) with respect to any Affiliate Transaction involving the
incurrence of Indebtedness, a written opinion of a nationally recognized
investment banking or accounting firm experienced in the
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review of similar types of transactions, (B) with respect to any Affiliate
Transaction involving the transfer of real property, fixed assets or
equipment, either directly or by a transfer of 50% or more of the Capital
Stock of a Restricted Subsidiary which holds any such real property, fixed
assets or equipment, a written appraisal from a nationally recognized
appraiser, experienced in the review of similar types of transactions, or
(C) with respect to any Affiliate Transaction not otherwise described in
(A) and (B) above, a written certification from a nationally recognized
professional or firm experienced in evaluating similar types of
transactions, in each case, stating that the terms of such transaction are
fair to Fedders North America or such Restricted Subsidiary, as the case
may be, from a financial point of view.
Notwithstanding the foregoing, this Affiliate Transactions covenant will
not apply to:
(i) transactions between Fedders North America and any wholly owned
Restricted Subsidiary or between wholly owned Restricted Subsidiaries;
(ii) transactions permitted by the "Limitation on Restricted Payments"
covenant;
(iii) compensation paid to officers, employees or consultants of
Fedders North America or any subsidiary as determined in good faith by
Fedders North America's Board of Directors or executives; or
(iv) transactions between Fedders North America and Fedders
Corporation or between Fedders North America and a Subsidiary of Fedders
Corporation in the ordinary course of business on terms substantially
consistent with past practice.
Limitation on Senior Subordinated Indebtedness. Fedders North America will
not, directly or indirectly, incur any Indebtedness that by its terms would
expressly rank senior in right of payment to the notes and expressly rank
subordinate in right of payment to any Senior Indebtedness.
Limitation on Guarantees of Company Indebtedness by Restricted
Subsidiaries. The indenture provides that Fedders North America will not permit
any Restricted Subsidiary, directly or indirectly, to guarantee any Indebtedness
of Fedders North America other than the notes (the "Other Company Indebtedness")
unless
(A) such Restricted Subsidiary contemporaneously executes and delivers
a supplemental indenture to the indenture providing for a guarantee of
payment of the notes then outstanding by such Restricted Subsidiary to the
same extent as the guarantee of payment (the "Other Company Indebtedness
Guarantee") of the Other Company Indebtedness (including waiver of
subrogation, if any); and
(B) if the Other Company Indebtedness guaranteed by such Restricted
Subsidiary is Senior Indebtedness, the guarantee for the notes shall be
subordinated in right of payment with the Other Company Indebtedness
Guarantee; provided, however, that the provisions of this section do not
apply to guarantees by any Restricted Subsidiary of the Company's
Indebtedness under the Credit Agreement as in effect on August 18, 1997.
Each guarantee of the notes created by a Restricted Subsidiary pursuant to
the provisions described in the foregoing paragraph shall be in form and
substance satisfactory to the trustee and shall provide, among other things,
that it will be automatically and unconditionally released and discharged upon
(i) any sale, exchange or transfer permitted by the indenture of (a)
all of Fedders North America's Capital Stock in such Restricted Subsidiary
or (b) the sale of all or substantially all of the assets of the Restricted
Subsidiary and upon the application of the Net Proceeds from such sale in
accordance with the requirements of the "Asset Sales" provisions described
herein; or
(ii) the release or discharge of the Other Company Indebtedness
Guarantee that resulted in the creation of such guarantee of the notes.
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Designation of Restricted and Non-Restricted Subsidiaries. The indenture
provides that, subject to the exceptions described below, from and after August
18, 1997, Fedders North America may designate any existing or newly formed or
acquired Subsidiary as a Non-Restricted Subsidiary; provided that either
(A) the Subsidiary to be so designated has total assets of $1,000,000
or less; or
(B) immediately before and after giving effect to such designation:
(1) Fedders North America could incur $1.00 of additional
Indebtedness pursuant to the first sentence of the "Limitation on
Incurrence of Indebtedness" covenant determined on a Pro Forma Basis;
(2) no Default or Event of Default shall have occurred and be
continuing;
(3) all Investments made by Fedders North America or by a
Restricted Subsidiary of Fedders North America in such Restricted
Subsidiary which is being designated a Non-Restricted Subsidiary prior
to or on the date such Restricted Subsidiary is being designated a
Non-Restricted Subsidiary shall have been permitted pursuant to the
"Limitation on Restricted Payments" covenant as if all of such
Restricted Payments had been made on the day such Restricted Subsidiary
is designated a Non-Restricted Subsidiary (to the extent not previously
included as a Restricted Payment) in the amount of the greater of (i)
the fair market value (as determined by the Board of Directors of
Fedders North America in good faith) of the Equity Interests of such
Subsidiary held by Fedders North America and its Restricted Subsidiaries
on such date or (ii) the amount of the Investments determined in
accordance with GAAP made by Fedders North America and any of its
Restricted Subsidiaries in such Restricted Subsidiary; and
(4) all transactions between the Subsidiary to be so designated and
its Affiliates remaining in effect are permitted pursuant to the
"Limitation on Transactions with Affiliates" covenant.
A Non-Restricted Subsidiary may be redesignated as a Restricted Subsidiary.
Fedders North America may not, and may not permit any Restricted Subsidiary to,
take any action or enter into any transaction or series of transactions that
would result in a person becoming a Restricted Subsidiary (whether through an
acquisition, the redesignation of a Non-Restricted Subsidiary or otherwise, but
not including through the creation of a new Restricted Subsidiary) unless,
immediately before and after giving effect to such action, transaction or series
of transactions,
(a) Fedders North America could incur at least $1.00 of additional
Indebtedness pursuant to the first sentence of "Limitation on Incurrence of
Indebtedness" on a Pro Forma Basis; and
(b) no Default or Event of Default shall have occurred and be
continuing.
The designation of a Subsidiary as a Restricted Subsidiary or the removal
of such designation is required to be made by a resolution adopted by a majority
of the Board of Directors of Fedders North America stating that the Board of
Directors has made such designation in accordance with the indenture, and
Fedders North America is required to deliver to the trustee such resolution
together with an officers' certificate certifying that the designation complies
with the indenture. Such designation will be effective as of the date specified
in the applicable resolution which may not be before the date the applicable
officers' certificate is delivered to the trustee.
MERGER OR CONSOLIDATION
The indenture provides that each of Fedders North America and Fedders
Corporation shall not consolidate or merge with or into, or sell, lease, convey
or otherwise dispose of all or substantially all of its assets to, any person
(any such consolidation, merger or sale being a "Disposition") unless:
(a) the successor corporation of such Disposition or the corporation
to which such Disposition shall have been made is a corporation organized
or existing under the laws of the United States, any state thereof or the
District of Columbia;
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(b) the successor corporation of such Disposition or the corporation
to which such Disposition shall have been made expressly assumes the
Obligations of Fedders North America or Fedders Corporation, as the case
may be, pursuant to a supplemental indenture in a form reasonably
satisfactory to the trustee, under the indenture and the notes;
(c) immediately after such Disposition, no Default or Event of Default
shall exist; and
(d) the corporation formed by or surviving any such Disposition, or
the corporation to which such Disposition shall have been made, shall (i)
have Consolidated Net Worth (immediately after the Disposition but prior to
giving any pro forma effect to purchase accounting adjustments resulting
from the Disposition) equal to or greater than the Consolidated Net Worth
of Fedders North America or Fedders Corporation, as the case may be,
immediately preceding the Disposition, and (ii) be permitted immediately
after the Disposition by the terms of the indenture to issue at least $1.00
of additional Indebtedness pursuant to the first sentence of the
"Limitation on Incurrence of Indebtedness" covenant determined on a Pro
Forma Basis.
The limitations in the indenture on Fedders North America's ability to make
a Disposition described in the preceding paragraph do not restrict Fedders North
America's ability to sell less than all or substantially all of its assets, such
sales being governed by the "Asset Sales" provisions of the indenture as
described herein. Prior to the consummation of any proposed Disposition, Fedders
North America shall deliver to the trustee an officers' certificate to the
foregoing effect and an opinion of counsel stating that the proposed Disposition
and such supplemental indenture comply with the indenture.
PROVISION OF FINANCIAL INFORMATION TO HOLDERS OF NOTES
So long as the notes are outstanding, whether or not Fedders Corporation is
subject to the reporting requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Fedders Corporation shall submit for filing with the SEC
the annual reports, quarterly reports and other documents relating to Fedders
Corporation and its Subsidiaries that Fedders Corporation would have been
required to file with the SEC pursuant to Section 13 or 15(d) if Fedders
Corporation were subject to such reporting requirements. Fedders Corporation
will also provide to all holders of notes and file with the trustee copies of
such annual reports, quarterly reports and other documents required to be
furnished to stockholders generally under the Securities Exchange Act of 1934.
In addition, following the consummation of the exchange offer, whether or
not required by the SEC, we will file a copy of all information and reports
referred to above with the SEC for public availability within the time periods
specified in the SEC's rules and regulations (unless the SEC will not accept
such a filing) and make such information available to securities analysts and
prospective investors upon request.
EVENTS OF DEFAULT AND REMEDIES
The indenture provides that an Event of Default is:
(a) a default for 30 days in payment of interest on the notes;
(b) a default in payment when due of principal or premium, if any,
with respect to the notes;
(c) failure by Fedders North America to comply with the provisions
described under the captions "--Mandatory Offers to Purchase Notes--Change
of Control," "--Certain Covenants--Limitation on Restricted Payments,"
"--Certain Covenants--Limitation on Incurrence of Indebtedness" or
"--Merger or Consolidation";
(d) the failure of Fedders North America to comply with any of its
other agreements or covenants in, or provisions of, the indenture or the
notes and the Default continues for the period, if applicable, and after
the notice specified in the next paragraph;
(e) a default by Fedders North America, Fedders Corporation or any
Restricted Subsidiary under any mortgage, indenture or instrument under
which there may be issued or by which there may
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be secured or evidenced any Indebtedness for money borrowed by Fedders
North America or any Restricted Subsidiary (or the payment of which is
guaranteed by Fedders North America or any Restricted Subsidiary), whether
such Indebtedness or guarantee now exists or shall be created hereafter, if
(1) either (A) such default results from the failure to pay principal of or
interest on any such Indebtedness (after giving effect to any extensions
thereof) or (B) as a result of such default the maturity of such
Indebtedness has been accelerated prior to its expressed maturity, and (2)
the principal amount of such Indebtedness, together with the principal
amount of any other such Indebtedness in default for failure to pay
principal or interest thereon, or, because of the acceleration of the
maturity thereof, aggregates in excess of $2,500,000;
(f) a failure by Fedders North America or any Restricted Subsidiary to
pay final judgments (not covered by insurance) aggregating in excess of
$2,500,000 which judgments a court of competent jurisdiction does not
rescind, annul or stay within 45 days after their entry; and
(g) certain events of bankruptcy or insolvency involving Fedders North
America, Fedders Corporation or any Significant Subsidiary.
In the case of any Event of Default pursuant to clause (a) or (b) above
occurring by reason of any willful action (or inactions) taken (or not taken) by
or on behalf of Fedders North America with the intention of avoiding payment of
the premium that Fedders North America would have to pay pursuant to a
redemption of notes as described under "--Redemption of Notes--Optional
Redemption," an equivalent premium shall also become and be immediately due and
payable to the extent permitted by law.
A Default or Event of Default under clause (d) is not an Event of Default
under the indenture until the trustee or the holders of at least 25% in
principal amount of the notes then outstanding notify Fedders North America of
the Default and Fedders North America does not cure the Default within 30 days
after receipt of the notice. A Default or Event of Default under clause (g) of
the next preceding paragraph will result in the notes automatically becoming due
and payable without further action or notice.
Upon the occurrence of an Event of Default, the trustee or the holders of
at least 25% in principal amount of the then outstanding notes may declare all
notes to be due and payable by notice in writing to Fedders North America and
the trustee specifying the respective Event of Default and that it is a "notice
of acceleration" (the "Acceleration Notice") and the same shall become
immediately due and payable. The holders of a majority in principal amount of
the notes then outstanding under the indenture, by notice to the trustee, may
rescind any declaration of acceleration of such notes and its consequences (if
the rescission would not conflict with any judgment or decree) if all existing
Events of Default (other than the nonpayment of principal of or interest on such
notes that shall have become due by such declaration) shall have been cured or
waived. Subject to certain limitations, holders of a majority in principal
amount of the notes then outstanding may direct the trustee in its exercise of
any trust or power. Holders of the notes may not enforce the indenture, except
as provided therein. The trustee may withhold from holders of notes notice of
any continuing Default or Event of Default (except a Default or an Event of
Default in payment of principal, premium, if any, or interest) if the trustee
determines that withholding notice is in their interest.
The holders of a majority in aggregate principal amount of the notes then
outstanding may on behalf of all holders of such notes waive any existing
Default or Event of Default under the indenture and its consequences, except a
continuing Default in the payment of the principal of, or premium, if any, or
interest on, such notes, which may only be waived with the consent of each
holder of the notes affected.
Upon any payment or distribution of assets of Fedders North America and its
subsidiaries in a total or partial liquidation, dissolution, reorganization or
similar proceeding, including a Default under clause (g) above involving certain
events of bankruptcy or insolvency of Fedders North America or a Significant
Subsidiary, there may not be sufficient assets remaining to satisfy the claims
of any holders of notes given the effective structural subordination of the
notes to the obligations of the Subsidiaries of Fedders North America.
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Fedders North America is required to deliver to the trustee annually a
statement regarding compliance with the indenture, and upon an executive officer
of Fedders North America becoming aware of any Default or Event of Default, a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF OFFICERS, DIRECTORS, EMPLOYEES AND STOCKHOLDERS
No officer, employee, director or stockholder of Fedders North America
shall have any liability for any Obligations of Fedders North America under the
notes or the indenture, or for any claim based on, in respect of, or by reason
of, such Obligations or the creation of any such Obligation. Each holder of the
notes by accepting a Note waives and releases all such liability, and such
waiver and release is part of the consideration for issuance of the notes. The
foregoing waiver may not be effective to waive liabilities under the federal
securities laws and the SEC is of the view that such a waiver is against public
policy.
SATISFACTION AND DISCHARGE OF THE INDENTURE
Fedders North America at any time may terminate all its obligations under
the notes, Fedders Corporation's Guaranteed Obligations and the indenture
("legal defeasance option"), except for certain obligations (including those
with respect to the defeasance trust (as defined herein) and obligations to
register the transfer or exchange of the notes, to replace mutilated, destroyed,
lost or stolen notes and to maintain a registrar and paying agent in respect of
the notes).
Fedders North America at any time may terminate:
(1) its obligations under the "Change of Control" and "Asset Sales"
provisions described herein and the covenants described under "--Certain
Covenants" and certain other covenants in the indenture;
(2) the operation of clauses (c), (d), (e), and (f) contained in the
first paragraph of the "Events of Default and Remedies" provisions
described herein; and
(3) the limitations contained in clauses (c) and (d) under the "Merger
or Consolidation" provisions described herein (collectively, a "covenant
defeasance option").
Fedders North America may exercise its legal defeasance option
notwithstanding its prior exercise of its covenant defeasance option. If Fedders
North America exercises its legal defeasance option, payment of the notes may
not be accelerated because of an Event of Default with respect thereto. If
Fedders North America exercises its covenant defeasance option, payment of the
notes shall not be accelerated because of an Event of Default specified in
clauses (c), (d), (e) or (f) in the first paragraph under the "Events of Default
and Remedies" provisions described herein or because of Fedders North America's
failure to comply with clauses (c) and (d) under the "Merger or Consolidation"
provisions described herein.
To exercise either defeasance option with respect to the notes outstanding,
Fedders North America must irrevocably deposit in trust (the "defeasance trust")
with the trustee money or U.S. Government Obligations (as defined in the
indenture) for the payment of principal of, premium, if any, and unpaid interest
on the notes then outstanding to redemption or maturity, as the case may be, and
must comply with certain other conditions, including the passage of 91 days and
the delivery to the trustee of an opinion of counsel to the effect that holders
of such notes will not recognize income, gain or loss for federal income tax
purposes as a result of such deposit and defeasance and will be subject to
federal income tax on the same amount and in the same manner and at the same
times as would have been the case if such deposit and defeasance had not
occurred (and, in the case of legal defeasance only, such opinion of counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable federal income tax law).
TRANSFER AND EXCHANGE
Holders of notes may transfer or exchange their notes in accordance with
the indenture, but the registrar may require a holder, among other things, to
furnish appropriate endorsements and transfer
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documents, and to pay any taxes and fees required by law or permitted by the
indenture, in connection with any such transfer or exchange. Neither Fedders
North America nor the registrar is required to issue, register the transfer of,
or exchange (i) any note selected for redemption or tendered pursuant to an
offer, or (ii) any note during the period between (a) the date the trustee
receives notice of a redemption from Fedders North America and the date the
notes to be redeemed are selected by the trustee or (b) a record date and the
next succeeding interest payment date. The registered holder of a note will be
treated as its owner for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, the indenture may be amended or supplemented
with the consent of the holders of at least a majority in principal amount of
the notes then outstanding under the indenture, and any existing Default or
Event of Default (other than a payment default) or compliance with any provision
may be waived with the consent of the holders of a majority in principal amount
of the notes then outstanding under the indenture. Without the consent of any
holder of notes, Fedders North America and the trustee may amend or supplement
the indenture or the notes to cure any ambiguity, defect or inconsistency, to
provide for uncertificated notes in addition to or in place of certificated
notes, to provide for the assumption by a successor corporation of Fedders North
America's or Fedders Corporation's obligations to the holders of notes in the
case of a Disposition, to comply with the Trust Indenture Act, or to make any
change that does not materially adversely affect the legal rights of any holder
of notes.
Without the consent of each holder of notes affected, Fedders North America
may not:
(i) reduce the principal amount of notes whose holders must consent to
an amendment to the indenture or a waiver under the indenture;
(ii) reduce the rate on or change the interest payment time of the
notes, or alter the redemption provisions with respect thereto (other than
the provisions relating to the covenants described above under the caption
"--Mandatory Offers to Purchase Notes--Change of Control" and "--Asset
Sales") or the price at which Fedders North America is required to offer to
purchase the notes;
(iii) reduce the principal of or change the fixed maturity of the
notes;
(iv) make the notes payable in money other than stated in the notes;
(v) make any change in the provisions concerning waiver of Defaults or
Events of Default by holders of the notes, or rights of holders of the
notes to receive payment of principal or interest; or
(vi) waive any default in the payment of principal of, premium, if
any, or unpaid interest on, and liquidated damages, if any, with respect to
the notes.
CONCERNING THE TRUSTEE
The indenture contains certain limitations on the rights of the trustee, if
it becomes a creditor of Fedders North America, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest (as defined in
the Trust Indenture Act) it must eliminate such conflict or resign.
The holders of a majority in principal amount of the notes then outstanding
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. The indenture provides that if an Event of Default occurs
(and has not been cured), the trustee will be required, in the exercise of its
power, to use the degree of care and skill of a prudent person in similar
circumstances in the conduct of its own affairs. Subject to the provisions of
the indenture, the trustee will be under no obligation to exercise any of its
rights or powers under the indenture at the request of any of the holders of the
notes, unless such holders shall have offered to the trustee security and
indemnity satisfactory to it.
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CERTAIN DEFINITIONS
Set forth below are certain of the defined terms used in the indenture.
Reference is made to the indenture for the definition of all other terms used in
the indenture.
"Affiliate" means any of the following: (i) any person directly or
indirectly controlling or controlled by or under direct or indirect common
control with Fedders North America, (ii) any spouse, immediate family member or
other relative who has the same principal residence as any person described in
clause (i) above, (iii) any trust in which any such persons described in clause
(i) or (ii) above has a beneficial interest, and (iv) any corporation or other
organization of which any such persons described above collectively owns 10% or
more of the equity of such entity.
"Asset Sale" means the sale, lease, conveyance or other disposition by
Fedders North America or a Restricted Subsidiary of assets or property whether
owned on August 18, 1997 or thereafter acquired, in a single transaction or in a
series of related transactions; provided that Asset Sales will not include such
sales, leases, conveyances or dispositions in connection with
(i) the surrender or waiver of contract rights or the settlement,
release or surrender of contract, tort or other claims of any kind;
(ii) the sale of inventory in the ordinary course of business;
(iii) a sale-leaseback of assets within one year following the
acquisition of such assets;
(iv) the grant of any license of patents, trademarks, registration
therefor and other similar intellectual property;
(v) a transfer of assets by Fedders North America or a Restricted
Subsidiary to Fedders North America or a Restricted Subsidiary;
(vi) the designation of a Restricted Subsidiary as a Non-Restricted
Subsidiary pursuant to the "Designation of Restricted and Non-Restricted
Subsidiaries" covenant;
(vii) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of Fedders North America as permitted under
"--Merger or Consolidation";
(viii) the sale or disposition of obsolete equipment or other obsolete
assets;
(ix) Restricted Payments permitted by the "Limitations on Restricted
Payments" covenant; or
(x) the exchange of assets for other non-cash assets that (a) are
useful in the business of Fedders North America and its Restricted
Subsidiaries and (b) have a fair market value at least equal to the fair
market value of the assets being exchanged (as determined in good faith by
the Board of Directors or the board of directors of the Restricted
Subsidiary which owns such assets).
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Board of Directors" means Fedders North America's board of directors or
any authorized committee of such board of directors.
"Capital Stock" means any and all shares, interests, participations or
other equivalents (however designated) of corporate stock, including any
Preferred Stock.
"Cash Flow" means, for any given period and person, the sum of, without
duplication, Consolidated Net Income, plus
(a) any provision for taxes based on income or profits to the extent
such income or profits were included in computing Consolidated Net Income,
plus
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(b) Consolidated Interest Expense, to the extent deducted in computing
Consolidated Net Income, plus
(c) the amortization of all intangible assets, to the extent such
amortization was deducted in computing Consolidated Net Income (including,
but not limited to, inventory write-ups, goodwill, debt and financing
costs), plus
(d) all depreciation and all other non-cash charges (including,
without limitation, those charges relating to purchase accounting
adjustments and LIFO adjustments), to the extent deducted in computing
Consolidated Net Income, plus
(e) any interest income, to the extent such income was not included in
computing Consolidated Net Income, plus
(f) all dividend payments on Preferred Stock (whether or not paid in
cash) to the extent deducted in computing Consolidated Net Income;
provided, however, that, if any such calculation includes any period during
which an acquisition or sale of a person or the incurrence or repayment of
Indebtedness occurred, then such calculation for such period shall be made on a
Pro Forma Basis.
"Cash Flow Coverage Ratio" means, for any given period and person, the
ratio of (i) Cash Flow, divided by (ii) the sum of Consolidated Interest Expense
(except dividends paid or payable in additional shares of Capital Stock (other
than Disqualified Stock)) in each case, without duplication; provided, however,
that if any such calculation includes any period during which an acquisition or
sale of a person or the incurrence or repayment of Indebtedness occurred, then
such calculation for such period shall be made on a Pro Forma Basis.
"Change of Control" means the occurrence of any of the following:
(i) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934), excluding the Existing
Stockholders, is or becomes the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a
person shall be deemed to have "beneficial ownership" of all securities
that such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total Voting Stock of Fedders North
America or of Fedders Corporation; or
(ii) Fedders North America or Fedders Corporation consolidates with,
or merges with or into, another person or sells, assigns, conveys,
transfers, leases or otherwise disposes of all or substantially all of its
assets to any person, or any person consolidates with, or merges with or
into, Fedders North America or Fedders Corporation, in any such event
pursuant to a transaction in which the outstanding Voting Stock of Fedders
North America or of Fedders Corporation is converted into or exchanged for
cash, securities or other property, other than any such transaction where
(A) the outstanding Voting Stock of Fedders North America or of Fedders
Corporation is converted into or exchanged for (1) Voting Stock (other than
Disqualified Stock) of the surviving or transferee corporation or (2) cash,
securities and other property in an amount which could be paid by Fedders
North America as a Restricted Payment under the indenture and
(B)immediately after such transaction no "person" or "group" (as such terms
are used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934), excluding the Existing Stockholders, is the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934,
except that a person shall be deemed to have "beneficial ownership" of all
securities that such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total Voting Stock of the surviving or
transferee corporation; or
(iii) during any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors of Fedders
North America or of Fedders Corporation (together with any new directors
whose election by such Board of Directors or whose nomination for election
by
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the stockholders of Fedders North America was approved by a vote of a
majority of the directors then still in office who are entitled to vote to
elect such new director and were either directors at the beginning of such
period or persons whose election as directors or nomination for election
was previously so approved) cease for any reason to constitute a majority
of the Board of Directors of Fedders North America or of Fedders
Corporation then in office.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of Fedders North America's assets. Although there is a developing body of case
law interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
holder of notes to require Fedders North America to repurchase such notes as a
result of a sale, lease, transfer, conveyance or other disposition of less than
all of the assets of Fedders North America and its Subsidiaries to another
person may be uncertain.
"Consolidated Interest Expense" means, for any given period and person, the
aggregate of
(i) the interest expense in respect of all Indebtedness of such person
and its Restricted Subsidiaries for such period, on a consolidated basis,
determined in accordance with GAAP (including amortization of original
issue discount on any such Indebtedness, all non-cash interest payments,
the interest portion of any deferred payment obligation and the interest
component of capital lease obligations, but excluding amortization of
deferred financing fees if such amortization would otherwise be included in
interest expense); and
(ii) the product of (a) all cash dividend payments (and non-cash
dividend payments in the case of a person that is a Restricted Subsidiary)
on any series of Preferred Stock of such person and its Restricted
Subsidiaries payable to a party other than Fedders North America or a
wholly owned Subsidiary, times (b) a fraction, the numerator of which is
one and the denominator of which is one minus the then current combined
federal, state and local statutory tax rate of such person, expressed as a
decimal, on a consolidated basis and in accordance with GAAP; provided,
however, that for the purpose of the Cash Flow Coverage Ratio, Consolidated
Interest Expense shall be calculated on a Pro Forma Basis.
"Consolidated Net Income" means, for any given period and person, the
aggregate of the Net Income of such person and its Restricted Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided, however, that
(i) the Net Income of any person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded;
(ii) the Net Income (but not loss) of any person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends
or distributions paid in cash to the referent Person;
(iii) the Net Income of any Restricted Subsidiary shall be excluded to
the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental approval
(which has not been obtained) or, directly or indirectly, by operation of
the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary or its stockholders;
(iv) the cumulative effect of a change in accounting principles shall
be excluded;
(v) income or loss attributable to discontinued operations shall be
excluded; and
(vi) all other extraordinary, unusual or nonrecurring gains or losses
shall be excluded; provided, however, that for purposes of determining the
Cash Flow Coverage Ratio, Consolidated Net Income shall be calculated on a
Pro Forma Basis.
"Consolidated Net Worth" means, with respect to any person at any date, the
sum of
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(i) the consolidated stockholders' equity of such person less the
amount of such stockholders' equity attributable to Disqualified Stock of
such person and its Subsidiaries (Restricted Subsidiaries, in the case of
Fedders North America), as determined on a consolidated basis in accordance
with GAAP consistently applied and
(ii) the amount of any Preferred Stock of such person not included in
the stockholders' equity of such person in accordance with GAAP, which
Preferred Stock does not constitute Disqualified Stock.
"Credit Agreement" means collectively, the Accounts Financing Agreement
between Columbia Specialties, Inc. and Congress Financial Corporation dated
December 23, 1992, and the Accounts Financing Agreement by and among Fedders
North America, Inc., Emerson Quiet Kool Corporation and Congress Financial
Corporation dated December 23, 1992, together with all loan documents and
instruments thereunder (including, without limitation, any guarantee agreements,
covenant supplements and security documents), in each case as such agreements
have been or may be amended (including any amendment and restatement thereof),
supplemented or otherwise modified from time to time, including any agreement
extending the maturity of, refinancing, replacing or otherwise restructuring
(including, without limitation, increasing the amount of available borrowings
thereunder, and all Obligations with respect thereto, in each case, to the
extent permitted by the "Limitation on Incurrence of Indebtedness" covenant or
adding Subsidiaries of Fedders North America as additional borrowers or
guarantors thereunder) all or any portion of the Indebtedness under such
agreement or any successor or replacement agreement and whether by the same or
any other agent, lender or group of lenders.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) any Indebtedness outstanding
under the Credit Agreement and (ii) any other Senior Indebtedness permitted
under the indenture the principal amount of which is $20,000,000 or more and
that has been designated by Fedders North America as Senior Indebtedness.
"Disqualified Stock" with respect to any person means any Capital Stock or
Equity Interests that by its terms (or by the terms of any security into which
it is convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof,
in whole or in part on, or prior to, the maturity date of the notes, or any
Capital Stock or Equity Interests in any Restricted Subsidiary of such person.
"Equity Interests" means Capital Stock or partnership interests or
warrants, options or other rights to acquire Capital Stock or partnership
interests (but excluding (i) any debt security that is convertible into, or
exchangeable for, Capital Stock or partnership interests, and (ii) any other
Indebtedness or Obligation).
"Equity Offering" means a public or private offering by Fedders North
America or Fedders Corporation for cash of Capital Stock or other Equity
Interests and all warrants, options or other rights to acquire Capital Stock,
other than an offering of Disqualified Stock.
"Existing Stockholders" means the officers and directors of each of Fedders
North America and Fedders Corporation on August 18, 1997 and their respective
Affiliates and family members and trusts for the benefit of any of the
foregoing.
"GAAP" means generally accepted accounting principles, consistently
applied, as in effect in the United States from time to time. All financial and
accounting determinations and calculations under the indenture will be made in
accordance with GAAP.
"Guarantor Senior Indebtedness" means, with respect to Fedders Corporation,
Fedders Corporation's guarantee of Fedders North America's obligations under the
Credit Agreement and any other Indebtedness of Fedders Corporation (other than
as otherwise provided in this definition), whether outstanding on August 18,
1997 or thereafter created, incurred or assumed, unless, in the case of any
particular Indebtedness, the instrument creating or evidencing the same or
pursuant to which the same is outstanding
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expressly provides that such Indebtedness shall not be senior in right of
payment to the guarantee. Notwithstanding the foregoing, "Guarantor Senior
Indebtedness" will not include
(i) Indebtedness evidenced by the guarantee;
(ii) Indebtedness of Fedders Corporation that is subordinate or junior
in right of payment to any other Indebtedness of Fedders Corporation;
(iii) Indebtedness of Fedders Corporation which, when incurred and
without respect to any other election under Section 1111(b) of Title 11,
United States Code, is without recourse to Fedders Corporation;
(iv) Indebtedness which is represented by Disqualified Stock of
Fedders Corporation;
(v) any liability for foreign, federal, state, local or other taxes
owed or owing by Fedders Corporation;
(vi) Indebtedness of Fedders Corporation to a Subsidiary or any other
Affiliate of Fedders Corporation or any of such Affiliate's subsidiaries;
(vii) that portion of any Indebtedness which, when incurred, is issued
in violation of the indenture; and
(viii) trade payables owed or owing by Fedders Corporation.
"Hedging Obligations" means, with respect to any person, the Obligations of
such persons under
(i) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements,
(ii) foreign exchange contracts, currency swap agreements or similar
agreements, and
(iii) other agreements or arrangements designed to protect such person
against fluctuations, or otherwise to establish financial hedges in respect
of, exchange rates, currency rates or interest rates.
"Indebtedness" means, with respect to any person,
(i) any indebtedness, whether or not contingent, in respect of
borrowed money or evidenced by bonds, notes, debentures or similar
instruments or letters of credit (or reimbursement agreements in respect
thereof) or representing the deferred and unpaid balance of the purchase
price of any property (including pursuant to capital leases), except any
such balance that constitutes an accrued expense or a trade payable, and
any Hedging Obligations, if and to the extent such indebtedness (other than
a Hedging Obligation) would appear as a liability upon a balance sheet of
such person prepared on a consolidated basis in accordance with GAAP, and
also includes, to the extent not otherwise included, the guarantee of items
that would be included within this definition;
(ii) Disqualified Stock of such person; or
(iii) Preferred Stock issued by a Restricted Subsidiary of such
person.
"Investment" means any capital contribution to, or other debt or equity
investment in, any Person. For the purposes of the "Limitation on Restricted
Payments" covenant, the amount of any Investment shall be the original cost of
such Investment plus the cost of all additional Investments by Fedders North
America or any of its Restricted Subsidiaries, without any adjustments for
increases or decreases in value, or write-ups, write-downs or write-offs with
respect to such Investment, reduced by the payment of dividends or distributions
in connection with such Investment or any other amounts received by Fedders
North America or any Restricted Subsidiary in respect of such Investment to the
extent not included in Consolidated Net Income.
"issue" means create, issue, assume, guarantee, incur or otherwise become
directly or indirectly liable for any Indebtedness or Capital Stock, as
applicable; provided, however, that any Indebtedness or Capital Stock of a
person existing at the time such person becomes a Restricted Subsidiary (whether
by merger,
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consolidation, acquisition or otherwise) shall be deemed to be issued by such
Restricted Subsidiary at the time it becomes a Restricted Subsidiary. For this
definition, the terms "issuing," "issuer," "issuance" and "issued" have meanings
correlative to the foregoing.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell and any filing of or
agreement to give any financing statement under the Uniform Commercial Code (or
equivalent statutes) of any jurisdiction).
"Net Income" means, with respect to any person, the net income (loss) of
such person, determined in accordance with GAAP, excluding, however, any gain or
loss, together with any related provision for taxes, realized in connection with
any Asset Sale (including, without limitation, dispositions pursuant to sale and
leaseback transactions).
"Net Proceeds" means, with respect to any Asset Sale, the aggregate amount
of cash proceeds (including any cash received by way of deferred payment
pursuant to a note receivable issued in connection with such Asset Sale, other
than the portion of such deferred payment constituting interest, and including
any amounts received as disbursements or withdrawals from any escrow or similar
account established in connection with any such Asset Sale, but, in either such
case, only as and when so received) received by Fedders North America or any of
its Restricted Subsidiaries in respect of such Asset Sale, net of
(i) the cash expenses of such Asset Sale (including, without
limitation, the payment of principal of, and premium, if any, and interest
on, Indebtedness required to be paid as a result of such Asset Sale (other
than the notes) and legal, accounting, management and advisory and
investment banking fees and sales commissions);
(ii) taxes paid or payable as a result thereof; and
(iii) any portion of cash proceeds that Fedders North America
determines in good faith should be reserved for post-closing adjustments,
it being understood and agreed that on the day that all such post-closing
adjustments have been determined, the amount (if any) by which the reserved
amount in respect of such Asset Sale exceeds the actual post-closing
adjustments payable by Fedders North America or any of its Restricted
Subsidiaries shall constitute Net Proceeds on such date.
"Non-Restricted Subsidiary" means any Subsidiary of Fedders North America
other than a Restricted Subsidiary.
"Obligations" means, with respect to any Indebtedness, all principal,
interest, premiums, penalties, fees, indemnities, expenses (including legal fees
and expenses), reimbursement obligations and other liabilities payable to the
holder of such Indebtedness under the documentation governing such Indebtedness,
and any other claims of such holder arising in respect of such Indebtedness.
"Other Permitted Indebtedness" means:
(i) Indebtedness of Fedders North America and its Restricted
Subsidiaries existing as of August 18, 1997 and all related Obligations as
in effect on such date;
(ii) Indebtedness of Fedders North America and its Restricted
Subsidiaries in respect of bankers' acceptances and letters of credit
(including, without limitation, letters of credit in respect of workers'
compensation claims) issued in the ordinary course of business, or other
Indebtedness in respect of reimbursement-type obligations regarding
workers' compensation claims;
(iii) Refinancing Indebtedness; provided that: (A) the principal
amount of such Refinancing Indebtedness shall not exceed the outstanding
principal amount of Indebtedness (including unused commitments) extended,
refinanced, renewed, replaced, substituted or refunded plus any amounts
incurred to pay premiums, fees and expenses in connection therewith, and
(B) the Refinancing Indebtedness shall have a Weighted Average Life to
Maturity equal to or greater than the Weighted
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Average Life to Maturity of the Indebtedness being extended, refinanced,
renewed, replaced, substituted or refunded;
(iv) intercompany Indebtedness of and among Fedders North America and
its wholly owned Restricted Subsidiaries (excluding guarantees by
Restricted Subsidiaries of Indebtedness of Fedders North America not issued
in compliance with the "Limitation on Guarantees of Company Indebtedness by
Restricted Subsidiaries" covenant);
(v) Indebtedness of any Non-Restricted Subsidiary created after August
18, 1997; provided that such Indebtedness is nonrecourse to Fedders North
America and its Restricted Subsidiaries and Fedders North America and its
Restricted Subsidiaries have no Obligations with respect to such
Indebtedness;
(vi) Indebtedness of Fedders North America and its Restricted
Subsidiaries under Hedging Obligations;
(vii) Indebtedness of Fedders North America and its Restricted
Subsidiaries arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently (except
in the case of daylight overdrafts, which will not be, and will not be
deemed to be, inadvertent) drawn against insufficient funds in the ordinary
course of business;
(viii) guarantees by a Restricted Subsidiary of Indebtedness of
Fedders North America if the Indebtedness so guaranteed is permitted under
the indenture and the notes are guaranteed by such Restricted Subsidiary to
the extent required by the "Limitation on Guarantees of Company
Indebtedness by Restricted Subsidiaries" covenant;
(ix) Indebtedness of Fedders North America and its Restricted
Subsidiaries in connection with performance, surety, statutory, appeal or
similar bonds in the ordinary course of business;
(x) intercompany Indebtedness of Fedders North America to Fedders
Corporation; provided such Indebtedness does not bear interest; and
(xi) the 1997 notes.
"Permitted Liens" means, with respect to Fedders North America and its
Restricted Subsidiaries,
(i) Liens for taxes, assessments, governmental charges or claims which
are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted and if a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have
been made therefor;
(ii) statutory Liens of landlords and carriers', warehousemen's,
mechanics', suppliers', materialmen's, repairmen's or other like Liens
arising in the ordinary course of business and with respect to amounts not
yet delinquent or being contested in good faith by appropriate proceedings,
if a reserve or other appropriate provision, if any, as shall be required
in conformity with GAAP shall have been made therefor;
(iii) Liens incurred on deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security;
(iv) Liens incurred on deposits made to secure the performance of
tenders, bids, leases, statutory obligations, surety and appeal bonds,
government contracts, performance and return of money bonds and other
obligations of a like nature incurred in the ordinary course of business
(exclusive of obligations for the payment of borrowed money);
(v) easements, rights-of-way, zoning or other restrictions, minor
defects or irregularities in title and other similar charges or
encumbrances not interfering in any material respect with the business of
Fedders North America or any of its Restricted Subsidiaries incurred in the
ordinary course of business;
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(vi) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;
(vii) judgment and attachment Liens not giving rise to an Event of
Default;
(viii) leases or subleases granted to others not interfering in any
material respect with the business of Fedders North America or any of its
Restricted Subsidiaries;
(ix) Liens securing Indebtedness under Hedging Obligations;
(x) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual or warranty requirements;
(xi) Liens arising out of consignment or similar arrangements for the
sale of goods entered into by Fedders North America or its Restricted
Subsidiaries in the ordinary course of business;
(xii) Liens arising from filing Uniform Commercial Code financing
statements regarding leases;
(xiii) Liens existing on August 18, 1997 and any extensions,
refinancings, renewals, replacements, substitutions or refundings thereof;
(xiv) any Lien granted to the trustee and any substantially equivalent
Lien granted to any trustee or similar institution under any indenture for
the 1997 notes or any Senior Indebtedness permitted by the terms of the
indenture;
(xv) Liens securing Senior Indebtedness or Indebtedness of a
Restricted Subsidiary if such Indebtedness is incurred pursuant to the
Credit Agreement or is permitted to be incurred pursuant to the first
sentence of the covenant "Limitation on Incurrence of Indebtedness;"
(xvi) Liens securing Indebtedness of Fedders North America and its
Restricted Subsidiaries in connection with capital leases, sale and
leaseback transactions, purchase money obligations, capital expenditures or
similar financing transactions, which Indebtedness is permitted under the
"Limitation on Incurrence of Indebtedness" or "Sale and Leaseback
Transactions" covenants;
(xvii) Liens on property existing at the time of acquisition thereof
by Fedders North America or a Restricted Subsidiary of Fedders North
America; provided that such Liens were in existence prior to the
contemplation of such acquisition; and
(xviii) additional Liens at any one time outstanding in respect of
properties or assets where aggregate fair market value does not exceed
$2,000,000 (the fair market value to be determined on the date such Lien is
granted on such properties or assets).
"Preferred Stock" of any person means Capital Stock of such Person of any
class or classes (however designated) that ranks prior, as to the payment of
dividends or as to the distribution of assets upon any voluntary or involuntary
liquidation, dissolution or winding up of such Person, to shares of Capital
Stock of any other class of such person.
"Pro Forma Basis" means, for purposes of determining Consolidated Net
Income in connection with the Cash Flow Coverage Ratio (including in connection
with the "Limitation on Restricted Payments" covenant, the "Designation of
Restricted and Non-Restricted Subsidiaries" covenant, the "Merger or
Consolidation" covenant, the incurrence of Indebtedness pursuant to the first
sentence of the "Limitation on Incurrence of Indebtedness" covenant and
Consolidated Net Worth for purposes of the "Merger or Consolidation" covenant),
giving pro forma effect to
(x) any acquisition or sale of a person, business or asset, related
incurrence, repayment or refinancing of Indebtedness or other related
transactions, including any Restructuring Charges which would otherwise be
accounted for as an adjustment permitted by Regulation S-X under the
Securities Act or on a pro forma basis under GAAP, or
(y) any incurrence, repayment or refinancing of any Indebtedness and
the application of the proceeds therefrom, in each case, as if such
acquisition or sale and related transactions, restructurings,
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consolidations, cost savings, reductions, incurrence, repayment or
refinancing were realized on the first day of the relevant period permitted
by Regulation S-X under the Securities Act or on a pro forma basis under
GAAP.
Furthermore, in calculating the Cash Flow Coverage Ratio,
(1) interest on outstanding Indebtedness determined on a fluctuating
basis as of the determination date and which will continue to be so
determined thereafter shall be deemed to have accrued at a fixed rate per
annum equal to the rate of interest on such Indebtedness in effect on the
determination date;
(2) if interest on any Indebtedness actually incurred on the
determination date may optionally be determined at an interest rate based
upon a factor of a prime or similar rate, a eurocurrency interbank offered
rate, or other rates, then the interest rate in effect on the determination
date will be deemed to have been in effect during the relevant period; and
(3) notwithstanding clause (1) above, interest on Indebtedness
determined on a fluctuating basis, to the extent such interest is covered
by agreements relating to interest rate swaps or similar interest rate
protection Hedging Obligations, shall be deemed to accrue at the rate per
annum resulting after giving effect to the operation of such agreements.
"Refinancing Indebtedness" means Indebtedness of Fedders North America and
its Restricted Subsidiaries issued or given in exchange for, or the proceeds of
which are used to, extend, refinance, renew, replace, substitute or refund the
notes or Indebtedness contemplated by clause (i) of the definition of Other
Permitted Indebtedness or any Indebtedness issued to so extend, refinance,
renew, replace, substitute for or refund such Indebtedness.
"Restricted Investment" means any Investment in any person; provided that
Restricted Investments will not include:
(i) Investments in marketable securities and other negotiable
instruments permitted by the indenture;
(ii) Investments in Fedders North America; or
(iii) Investments in any Restricted Subsidiary or in a person that
becomes a Restricted Subsidiary as a result of such investment (provided
that any Investment in a Restricted Subsidiary or in a Person that becomes
a Restricted Subsidiary is made for fair market value (as determined by the
Board of Directors in good faith)); or
(iv) Investments which existed on August 18, 1997.
The amount of any Restricted Investment shall be the amount of cash and the fair
market value at the time of transfer of all other property (as determined by the
Board of Directors in good faith) initially invested or paid for such Restricted
Investment, plus all additions thereto, without any adjustments for increases or
decreases in value of or write-ups, write-downs or write-offs with respect to,
such Restricted Investment.
"Restricted Subsidiary" means
(i) any Subsidiary of Fedders North America existing on August 18,
1997; and
(ii) any other Subsidiary of Fedders North America formed, acquired or
existing after August 18, 1997 that is designated as a "Restricted
Subsidiary" by Fedders North America pursuant to a resolution approved by a
majority of the Board of Directors; provided, however, that the term
Restricted Subsidiary shall not include any Subsidiary of Fedders North
America that has been redesignated by Fedders North America pursuant to a
resolution approved by a majority of the Board of Directors as a
Non-Restricted Subsidiary in accordance with the "Designation of Restricted
and Non-Restricted Subsidiaries" covenant unless such Subsidiary shall have
subsequently been redesignated a Restricted Subsidiary in accordance with
clause (ii) of this definition.
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"Restructuring Charges" means any charges or expenses in respect of
restructuring or consolidating any business, operations or facilities, any
compensation or headcount reduction, or any other cost savings, of any persons
or businesses either alone or together with Fedders North America or any
Restricted Subsidiary, as permitted by GAAP or Regulation S-X under the
Securities Act.
"Senior Indebtedness" means the principal of, premium, if any, and interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on any
Indebtedness of Fedders North America, whether outstanding on August 18, 1997 or
thereafter created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the notes. Without limiting the generality
of the foregoing, "Senior Indebtedness" shall also include the principal of,
premium, if any, interest (including any interest accruing subsequent to the
filing of a petition of bankruptcy at the rate provided for in the documentation
with respect thereto, whether or not such interest is an allowed claim under
applicable law) on, and all other amounts owing in respect of, all monetary
obligations (including guarantees thereof) of every nature of Fedders North
America under the Credit Agreement, including, without limitation, obligations
to pay principal and interest, reimbursement obligations under letters of
credit, fees, expenses and indemnities. "Senior Indebtedness" shall not include
(i) any Indebtedness of Fedders North America to a Subsidiary of
Fedders North America;
(ii) Indebtedness to, or guaranteed on behalf of, any shareholder,
director, officer or employee of Fedders North America or any Subsidiary of
Fedders North America (including, without limitation, amounts owed for
compensation);
(iii) Indebtedness to trade creditors and other amounts incurred in
connection with obtaining goods, materials or services;
(iv) Indebtedness represented by Disqualified Stock;
(v) any liability for federal, state, local or other taxes owed or
owing by Fedders North America;
(vi) that portion of any Indebtedness incurred in violation of the
indenture provisions set forth under "Limitation on Incurrence of
Indebtedness"; and
(vii) any Indebtedness which is, by its express terms, subordinated in
right of payment to any other Indebtedness of Fedders North America.
"Services Agreement" means the Services Agreement dated as of July 31, 1997
between Fedders North America and Fedders Corporation.
"Significant Subsidiary" means any Restricted Subsidiary of Fedders North
America that would be a "significant subsidiary" as defined in clause (2) of the
definition of such term in Rule 1-02 of Regulation S-X under the Securities Act
and the Securities Exchange Act of 1934.
"Subsidiary" of any person means any entity of which the Equity Interests
entitled to cast at least a majority of the votes that may be cast by all Equity
Interests having ordinary voting power for the election of directors or other
governing body of such entity are owned by such person (regardless of whether
such Equity Interests are owned directly by such person or through one or more
Subsidiaries).
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect the board of directors.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing
(i) the then outstanding principal amount of such Indebtedness into
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(ii) the sum of the product(s) obtained by multiplying (a) the amount
of each then remaining installment, sinking fund, serial maturity or other
required payment of principal, including payment at final maturity, in
respect thereof, by (b) the number of years (calculated to the nearest
one-twelfth) which will elapse between such date and the making of such
payment.
BOOK-ENTRY, DELIVERY AND FORM
The new notes initially will be in the form of one or more registered
global notes without interest coupons (collectively, the "Global Notes"). Upon
issuance, the Global Notes will be deposited with the trustee, as custodian for
DTC, in New York, New York, and registered in the name of DTC or its nominee, in
each case for credit to the accounts of DTC's Direct and Indirect Participants
(as defined below). Transfer of beneficial interests in any Global Notes will be
subject to the applicable rules and procedures of DTC and its Direct or Indirect
Participants, which may change from time to time.
The Global Notes may be transferred, in whole and not in part, only to
another nominee of DTC or to a successor of DTC or its nominee in certain
limited circumstances. Beneficial interests in the Global Notes may be exchanged
for notes in certificated form in certain limited circumstances. See
"--Transfers of Interests in Global Notes for Certificated Notes."
Initially, the trustee will act as paying agent and registrar. The new
notes may be presented for registration of transfer and exchange at the offices
of the registrar.
DEPOSITARY PROCEDURES
DTC has advised Fedders North America that DTC is a limited-purpose trust
company created to hold securities for its participating organizations
(collectively, the "Direct Participants") and to facilitate the clearance and
settlement of transactions in those securities between Direct Participants
through electronic book-entry changes in accounts of Participants. The Direct
Participants include securities brokers and dealers (including the initial
purchaser), banks, trust companies, clearing corporations and certain other
organizations. Access to DTC's system is also available to other entities that
clear through or maintain a direct or indirect, custodial relationship with a
Direct Participant (collectively, the "Indirect Participants"). DTC may hold
securities beneficially owned by other persons only through the Direct
Participants or Indirect Participants and such other persons' ownership interest
and transfer of ownership interest will be recorded only on the records of the
Direct Participants and/or Indirect Participants, and not on the records
maintained by DTC.
DTC has also advised Fedders North America that, pursuant to DTC's
procedures,
- upon deposit of the Global Notes, DTC will credit the accounts of the
Direct Participants designated by the initial purchaser with portions of
the principal amount of the Global Notes allocated by the initial
purchaser to such Direct Participants, and
- DTC will maintain records of the ownership interests of such Direct
Participants in the Global Notes and the transfer of ownership interests
by and between Direct Participants.
DTC will not maintain records of the ownership interests of, or the transfer of
ownership interests by and between, Indirect Participants or other owners of
beneficial interests in the Global Notes. Direct Participants and Indirect
Participants must maintain their own records of the ownership interests of, and
the transfer of ownership interests by and between, Indirect Participants and
other owners of beneficial interests in the Global Notes.
Investors in the Global Notes may hold their interests therein directly
through DTC if they are Direct Participants in DTC or indirectly through
organizations that are Direct Participants in DTC.
The laws of some states require that certain persons take physical delivery
in definitive, certificated form, of securities that they own. This may limit or
curtail the ability to transfer beneficial interests in a Global Note to such
persons. Because DTC can act only on behalf of Direct Participants, which in
turn act on behalf of Indirect Participants and others, the ability of a person
having a beneficial interest in a
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Global Note to pledge such interest to persons or entities that are not Direct
Participants in DTC, or otherwise to take actions in respect of such interests,
may be affected by the lack of physical certificates evidencing such interests.
For certain other restrictions on the transferability of the notes see
"--Transfers of Interests in Global Notes for Certificated Notes."
Except as described in "--Transfers of Interests in Global Notes for
Certificated Notes," owners of beneficial interests in the Global Notes will not
have notes registered in their names, will not receive physical delivery of
notes in certificated form and will not be considered the registered owners or
holders thereof under the indenture for any purpose.
Under the terms of the indenture, Fedders North America, Fedders
Corporation and the trustee will treat the persons in whose names the notes are
registered (including notes represented by Global Notes) as the owners thereof
for the purpose of receiving payments and for any and all other purposes
whatsoever. Payments in respect of the principal, premium, liquidated damages,
if any, and interest on Global Notes registered in the name of DTC or its
nominee will be payable by the trustee to DTC or its nominee as the registered
holder under the indenture. Consequently, neither Fedders North America, the
trustee nor any agent of Fedders North America or the trustee has or will have
any responsibility or liability for
- any aspect of DTC's records or any Direct Participant's or Indirect
Participant's records relating to or payments made on account of
beneficial ownership interests in the Global Notes or for maintaining,
supervising or reviewing any of DTC's records or any Direct Participant's
or Indirect Participant's records relating to the beneficial ownership
interests in any Global Notes or
- any other matter relating to the actions and practices of DTC or any of
its Direct Participants or Indirect Participants.
DTC has advised Fedders North America that its current payment practice
(for payments of principal, interest and the like) with respect to securities
such as the notes is to credit the accounts of the relevant Direct Participants
with such payment on the payment date in amounts proportionate to such Direct
Participant's respective ownership interests in the Global Notes as shown on
DTC's records. Payments by Direct Participants and Indirect Participants to the
beneficial owners of the notes will be governed by standing instructions and
customary practices between them and will not be the responsibility of DTC, the
trustee, Fedders North America or Fedders Corporation. Neither Fedders North
America, Fedders Corporation nor the trustee will be liable for any delay by DTC
or its Direct Participants or Indirect Participants in identifying the
beneficial owners of the notes, and Fedders North America and the trustee may
conclusively rely on and will be protected in relying on instructions from DTC
or its nominee as the registered owner of the notes for all purposes.
The Global Notes will trade in DTC's Same-Day Funds Settlement System and,
therefore, transfers between Direct Participants in DTC will be effected in
accordance with DTC's procedures and will be settled in immediately available
funds. Transfers between Indirect Participants who hold an interest through a
Direct Participant will be effected in accordance with the procedures of such
Direct Participant but generally will settle in immediately available funds.
DTC has advised Fedders North America that it will take any action
permitted to be taken by a holder of notes only at the direction of one or more
Direct Participants to whose account interests in the Global Notes are credited
and only in respect of such portion of the aggregate principal amount of the
notes as to which such Direct Participant or Direct Participants has or have
given direction. However, if there is an Event of Default under the notes, DTC
reserves the right to exchange Global Notes (without the direction of one or
more of its Direct Participants) for legended notes in certificated form, and to
distribute such certificated forms of notes to its Direct Participants. See
"--Transfers of Interests in Global Notes for Certificated Notes."
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the Global Notes among Direct Participants, they are under no
obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. None of Fedders North America,
Fedders Corporation, the initial purchaser or the trustee will have any
responsibility for the performance by
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DTC or their respective Direct Participants and Indirect Participants of their
respective obligations under the rules and procedures governing any of their
operations.
The information in this section concerning DTC and their book-entry systems
has been obtained from sources that Fedders North America believes to be
reliable, but Fedders North America takes no responsibility for the accuracy
thereof.
TRANSFERS OF INTERESTS IN GLOBAL NOTES FOR CERTIFICATED NOTES
An entire Global Note may be exchanged for definitive notes in registered,
certificated form without interest coupons ("Certificated Notes") if
- DTC (x) notifies Fedders North America that it is unwilling or unable to
continue as depositary for the Global Notes and Fedders North America
thereupon fails to appoint a successor depositary within 90 days or (y)
has ceased to be a clearing agency registered under the Securities
Exchange Act of 1934;
- Fedders North America, at its option, notifies the trustee in writing
that it elects to cause the issuance of Certificated Notes; or
- there shall have occurred and be continuing a Default or an Event of
Default with respect to the notes. In any such case, Fedders North
America will notify the trustee in writing that, upon surrender by the
Direct Participants and Indirect Participants of their interest in such
Global Note, Certificated Notes will be issued to each person that such
Direct Participants and Indirect Participants and the DTC identify as
being the beneficial owner of the related notes.
Beneficial interests in Global Notes held by any Direct Participant or
Indirect Participant may be exchanged for Certificated Notes upon request to
DTC, by such Direct Participant (for itself or on behalf of an Indirect
Participant), to the trustee in accordance with customary DTC procedures.
Certificated Notes delivered in exchange for any beneficial interest in any
Global Note will be registered in the names, and issued in any approved
denominations, requested by DTC on behalf of such Direct Participants or
Indirect Participants (in accordance with DTC's customary procedures).
Neither Fedders North America, Fedders Corporation nor the trustee will be
liable for any delay by the holder of the Global Notes or DTC in identifying the
beneficial owners of notes, and Fedders North America, Fedders Corporation and
the trustee may conclusively rely on, and will be protected in relying on,
instructions from the holder of the Global Notes or DTC for all purposes.
SAME DAY SETTLEMENT AND PAYMENT
The indenture will require that payments in respect of the notes
represented by the Global Notes (including principal, premium, if any, interest
and liquidated damages, if any) be made by wire transfer of immediately
available same day funds to the accounts specified by the holder of interests in
such Global Note. With respect to Certificated Notes, Fedders North America will
make all payments of principal, premium, if any, interest and liquidated
damages, if any, by wire transfer of immediately available same day funds to the
accounts specified by the holders thereof or, if no such account is specified,
by mailing a check to each such holder's registered address. Fedders North
America expects that secondary trading in the Certificated Notes will also be
settled in immediately available funds.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
In connection with the sale of the old notes to the initial purchaser,
pursuant to the purchase agreement, dated August 19, 1999, among Fedders North
America, Fedders Corporation and the initial purchaser, the holders of the old
notes became entitled to the benefits of the registration rights agreement,
dated as of August 24, 1999, among Fedders North America, Fedders Corporation
and the initial purchaser. Pursuant to the registration rights agreement,
Fedders North America agreed to file with the SEC an exchange offer registration
statement on the appropriate form under the Securities Act with
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respect to the new notes. Upon the effectiveness of this exchange offer
registration statement, Fedders North America will offer to the holders of
Transfer Restricted Securities (as defined below), pursuant to the exchange
offer, who are able to make certain representations the opportunity to exchange
their Transfer Restricted Securities for new notes. If
- Fedders North America and Fedders Corporation are not required to file
the exchange offer registration statement or not permitted to consummate
the exchange offer because the exchange offer is not permitted by
applicable law or SEC policy; or
- any holder of Transfer Restricted Securities notifies Fedders North
America within 10 business days following consummation of the exchange
offer that
(A) it is prohibited by law or SEC policy from participating in the
exchange offer, or
(B) it may not resell the new notes acquired by it in the exchange
offer to the public without delivering a prospectus and the prospectus
contained in the exchange offer registration statement is not appropriate
or available for such resales, or
(C) it is a broker-dealer and owns notes acquired directly from
Fedders North America or an Affiliate thereof,
Fedders North America and Fedders Corporation will file with the SEC a shelf
registration statement to cover resales of the notes by the holders thereof who
satisfy certain conditions relating to the provision of information in
connection with the shelf registration statement. Fedders North America and
Fedders Corporation will use their best efforts to cause the applicable
registration statement to be declared effective as promptly as possible by the
SEC. For purposes of the foregoing, "Transfer Restricted Securities" means each
note until
- the date on which such note has been exchanged by a person other than a
broker-dealer for a new note in the exchange offer;
- following the exchange by a broker-dealer in the exchange offer of an old
note for a new note, the date on which such new note is sold to a
purchaser who receives from such broker-dealer on or prior to the date of
such sale a copy of the prospectus contained in the exchange offer
registration statement;
- the date on which such new note has been effectively registered under the
Securities Act and disposed of in accordance with the shelf registration
statement; or
- the date on which such new note is distributed to the public pursuant to
Rule 144 under the Securities Act.
Under the registration rights agreement we have agreed:
(i) to file the exchange offer registration statement with the SEC on
or prior to 45 days after the closing date of the issuance of the old
notes;
(ii) to use our best efforts to have the exchange offer registration
statement declared effective by the SEC on or prior to 150 days after the
closing date of the issuance of the old notes;
(iii) unless the exchange offer would not be permitted by applicable
law or SEC policy, to commence the exchange offer and use our best efforts
to issue on or prior to 30 business days after the effective date of the
exchange offer registration statement, new notes (and the related
guarantee) in exchange for all notes tendered prior thereto in the exchange
offer; and
(iv) if obligated to file the shelf registration statement, we will
use our best efforts to file the shelf registration statement with the SEC
on or prior to 45 days after such filing obligation arises and to cause the
shelf registration to be declared effective by the SEC on or prior to 150
days after such obligation arises.
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If
(a) Fedders North America and Fedders Corporation fail to file any of
the registration statements required by the registration rights agreement
on or before the date specified for such filing; or
(b) any of such registration statements is not declared effective by
the SEC on or prior to the date specified for such effectiveness (the
"Effectiveness Target Date"); or
(c) Fedders North America and Fedders Corporation fail to consummate
the exchange offer within 30 business days of the effective date of the
exchange offer registration statement; or
(d) the shelf registration statement or the exchange offer
registration statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of Transfer Restricted
Securities during the period specified in the registration rights
agreement;
(each such event referred to in clauses (a) through (d) above being a
"Registration Default"), then Fedders North America will pay liquidated damages
to each holder of notes, with respect to the first 90-day period immediately
following the occurrence of such Registration Default in an amount equal to $.05
per week per $1,000 principal amount of old notes held by such holders. The
amount of the liquidated damages will increase by an additional $.05 per week
per $1,000 principal amount of old notes with respect to each subsequent 90-day
period until all Registration Defaults have been cured, up to a maximum amount
of liquidated damages of $.40 per week per $1,000 principal amount of old notes.
All accrued liquidated damages will be paid by Fedders North America on each
damages payment date to the Global Note holder by wire transfer of immediately
available funds or by federal funds check and to holders of Certificated
Securities by wire transfer to the accounts specified by them or by mailing
checks to their registered addresses if no such accounts have been specified.
Following the cure of all Registration Defaults, the accrual of liquidated
damages will cease.
Holders of notes will be required to make certain representations to
Fedders North America (as described in the registration rights agreement) in
order to participate in the exchange offer and will be required to deliver
information to be used in connection with the shelf registration statement and
to provide comments on the shelf registration statement within the time periods
set forth in the registration rights agreement in order to have their notes
included in the shelf registration statement and benefit from the provisions
regarding liquidated damages, if any, set forth above.
Payment of liquidated damages and specific performance are the sole
remedies available to the holders of notes in the event that Fedders North
America does not comply with the deadlines set forth in the registration rights
agreement with respect to the conduct of the exchange offer or the registration
of the notes for resale under a shelf registration statement.
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78
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain United States federal
income tax consequences associated with the exchange of the old notes for the
new notes pursuant to the exchange offer and the ownership and disposition of
the new notes. This summary applies only to a holder of a new note which
acquired an old note at the initial offering from the initial purchaser for the
original offering price thereof and which acquires the new note pursuant to the
exchange offer. This discussion is based on provisions of the Internal Revenue
Code of 1986, as amended, Treasury regulations promulgated thereunder, and
administrative and judicial interpretations thereof, all as in effect on the
date hereof and all of which are subject to change, possibly with retroactive
effect. This discussion does not address the tax consequences to subsequent
purchasers of the new notes. In addition, the discussion does not address any
aspect of state, local or foreign taxation.
The exchange of an old note for a new note pursuant to the exchange offer
will not be treated as an "exchange" for United States federal income tax
purposes because the new notes will not be considered to differ materially in
kind or extent from the old notes. Rather, the new notes issued in the exchange
offer received by a holder will be treated as a continuation of the old notes in
the hands of such holder. As a result, there will be no United States federal
income tax consequences to holders exchanging the old notes for the new notes
issued in the exchange offer, and any exchanging holder of old notes will have
the same tax basis and holding period in, and original issue discount income in
respect of, the new notes issued in the exchange offer as such holder had in the
old notes immediately prior to such exchange.
PROSPECTIVE HOLDERS OF THE NOTES ISSUED IN THE EXCHANGE OFFER ARE URGED TO
CONSULT THEIR TAX ADVISORS CONCERNING THE PARTICULAR TAX CONSEQUENCES OF
EXCHANGING OLD NOTES FOR NEW NOTES ISSUED IN THE EXCHANGE OFFER, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN INCOME AND OTHER TAX
LAWS.
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79
PLAN OF DISTRIBUTION
Each broker-dealer that receives new notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of such new notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of new notes received in exchange for old notes where such old
notes were acquired as a result of market-making activities or other trading
activities. We have agreed that, for a period of one year after the expiration
date of the exchange offer, we will make this prospectus available to any
broker-dealer for use in connection with any resale.
We will receive no proceeds in connection with the exchange offer. New
notes received by broker-dealers for their own account pursuant to the exchange
offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the new notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer or the
purchasers of any such new notes. Any broker-dealer that resells new notes that
were received by it for its own account pursuant to the exchange offer and any
broker or dealer that participates in a distribution of such new notes may be
deemed to be an "underwriter" within the meaning of the Act and any profit on
any such resale or new notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Act.
For a period of one year after the expiration date of the exchange offer,
we will promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests these documents
in the letter of transmittal. We have agreed to pay all expenses incident to
this exchange offer, other than commissions or concessions of any brokers or
dealers and will indemnify the holders of the new notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Act.
LEGAL MATTERS
Certain legal matters with respect to the validity and enforceability of
the new notes will be passed upon for Fedders by Robert N. Edwards, Esq., Vice
President and General Counsel of Fedders.
EXPERTS
The financial statements incorporated by reference in this registration
statement 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.
AVAILABLE INFORMATION
Fedders is subject to the information requirements of the Securities
Exchange Act and files reports and other information with the SEC. You can
inspect and copy reports, proxy and information statements and other information
filed by Fedders at the public reference facilities maintained by the SEC at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's
regional offices at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and 7 World Trade Center, 13th Floor, New York, New York 10048. You can obtain
copies of this material from the public reference section of the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. You can review
this material through the SEC's Electronic Data Gathering, Analysis, and
Retrieval System (EDGAR), which is publicly available through the SEC's Web site
(http://www.sec.gov). In addition, certain classes of securities of Fedders are
listed on the New York Stock Exchange. You can inspect reports, proxy
76
80
statements and other information concerning these securities at the public
reference facilities of the NYSE.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed with the SEC are incorporated
in this prospectus by reference:
1. Fedders' annual report on Form 10-K for the fiscal year ended August 31,
1999.
2. Fedders' notice of annual meeting of stockholders and proxy statement
dated November 26, 1999.
All reports and other documents filed by Fedders with the SEC pursuant to
Section 13(a), 13(c), 14 or 15 (d) of the Securities Exchange Act after the date
of this prospectus will be deemed to be incorporated herein by reference and to
be a part of this prospectus on and from the filing of these documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference in this prospectus will be deemed to be modified or superseded for
purposes of this prospectus or incorporated herein by reference or in any other
subsequently filed document that also is or is deemed to be incorporated by
reference modifies or supersedes this statement. Any statement so modified or
superseded will not be deemed, except as so modified or superseded, to
constitute a part of this prospectus.
We will provide without charge to each person to whom this prospectus is
delivered, upon written or oral request, a copy of the documents incorporated by
reference in this prospectus (other than exhibits to these documents unless such
exhibits are specifically incorporated by reference into the documents). You
should direct written or telephone request to the secretary of Fedders at its
principal executive offices, which are located at 505 Martinsville Road, P.O.
Box 813, Liberty Corner, New Jersey 07938; telephone number: (908) 604-8686;
facsimile number: (908) 604-0715.
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81
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[FEDDERS NORTH AMERICA LOGO]
$50,000,000
9 3/8% SENIOR SUBORDINATED NOTES DUE 2007
--------------------
PROSPECTUS
--------------------
, 1999
- --------------------------------------------------------------------------------
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE YOU
WRITTEN INFORMATION OTHER THAN THIS PROSPECTUS OR TO MAKE REPRESENTATIONS AS TO
MATTERS NOT STATED IN THIS PROSPECTUS. YOU MUST NOT RELY ON UNAUTHORIZED
INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES OR OUR
SOLICITATION OF YOUR OFFER TO BUY THE SECURITIES IN ANY JURISDICTION WHERE THAT
WOULD NOT BE PERMITTED OR LEGAL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALES MADE HEREUNDER AFTER THE DATE OF THIS PROSPECTUS SHALL CREATE AN
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN OR OUR AFFAIRS HAVE NOT
CHANGED SINCE THE DATE HEREOF.
- --------------------------------------------------------------------------------
82
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 (the
"DGCL") empowers a Delaware corporation to indemnify any person who was or is a
party or witness or is threatened to be made a party to any threatened, pending
or completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than action by or in the right of such
corporation), by reason of the fact that he or she is or was an officer,
director, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise. Depending on
the character of the proceeding, a corporation may indemnify against expenses,
costs and fees (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred in connection with such action, suit
or proceeding if the person indemnified 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 unlawful. If the person indemnified is not wholly successful
in such action, suit or proceeding, but is successful, on the merits or
otherwise, in one or more but less than all claims, issues or matters in such
proceeding, he or she may be indemnified against expenses actually and
reasonably incurred in connection with each successfully resolved claim, issue
or matter. In the case of an action or suit by or in the right of the
corporation, no indemnification may be made with respect to any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery, or the
court in which such action or suit is brought, shall determine that despite the
adjudication of liability, such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper. Section 145
provides that, to the extent a director, officer, employee or agent of a
corporation has been successful in the defense of any action, suit or proceeding
referred to above or in the defense of any claim, issue or manner therein, he or
she shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him or her in connection therewith.
Article V of the By-laws of the Guarantor provides for indemnification by
the Guarantor of its directors and officers to the fullest extent permitted by
the DGCL. The Guarantor has purchased insurance on behalf of the present and
former directors and officers of the Guarantor and its subsidiaries against
liabilities asserted against or incurred by them in such capacity or arising out
of their status as such.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
EXHIBIT NO. DESCRIPTION
3.1 Restated Certificate of Incorporation of the Company dated
November 18, 1997 filed as Exhibit (3)(i) to the Company's
Annual Report on Form 10-K for 1997 and incorporated herein
by reference.
3.2 By-Laws, amended through January 16, 1998, filed as Exhibit
(3)(vii) to the Company's Annual Report on Form 10-K for
1997 and incorporated herein by reference.
4.1* Indenture, dated August 24, 1999, between Fedders North
America, Inc., Fedders Corporation and State Street Bank and
Trust Company, as Trustee.
4.2* Form of Certificate of Senior Subordinated Note (included as
Exhibit A to Exhibit 4.1)
4.3* Registration Rights Agreement, dated August 24, 1999, by and
among Fedders North America, Inc., Fedders Corporation and
Donaldson, Lufkin & Jenrette Securities Corporation.
5.1* Opinion of Robert N. Edwards, Esq., Vice President and
General Counsel of Fedders.
10.1 Stock Option Plan II, filed as Exhibit 10.4 to the Company's
Annual Report on Form 10-K for 1984 and incorporated herein
by reference.
II-1
83
EXHIBIT NO. DESCRIPTION
10.2 Stock Option Plan III, filed as Exhibit 10(iv) to the
Company's Annual Report on Form 10-K for 1985 and
incorporated herein by reference.
10.3 Stock Option Plan IV, filed as Exhibit 10(iv) to the
Company's Annual Report on Form 10-K for 1987 and
incorporated herein by reference.
10.4 Stock Option Plan V, filed as Exhibit 10(v) to the Company's
Annual Report on Form 10-K for 1988 and incorporated herein
by reference.
10.5 Stock Option Plan VI, filed as Exhibit 10(vi) to the
Company's Annual Report on Form 10-K for 1989 and
incorporated herein by reference.
10.6 Stock Option Plan VII, filed as Exhibit 10(vi) to the
Company's Annual Report on Form 10-K for 1990 and
incorporated herein by reference.
10.7 Stock Option Plan VIII, filed as Annex F to the Company's
Proxy Statement--Prospectus dated May 10, 1996 and
incorporated herein by reference.
10.8 Employment Contract between the Company and Salvatore
Giordano dated March 23, 1993 filed as Exhibit 10(viii) to
the Company's Annual Report on Form 10-K 1993 and
incorporated herein by reference.
10.9 Joint Venture Contract between Ningbo General Air
Conditioner Factory and Fedders Investment Corporation for
the establishment of Fedders Xinle Co. Ltd., dated July 31,
1995 filed as Exhibit 10(viii) on the Form 10-K 1996 and
incorporated herein by reference.
10.10 Employment Agreement between the Company and Sal Giordano,
Jr. effective October 1, 1997, filed as Exhibit 10 to the
Company's Quarterly Report on From 10-Q for the quarter
ended November 30, 1997 and incorporated herein by
reference.
21.1* Subsidiaries of Fedders
23.1+ Consent of BDO Seidman, LLP.
24.1+ Powers of attorney (included on signature pages to the
Registration Statement).
25.1* Statement of Eligibility and Qualification on Form T-1 of
State Street Bank and Trust Company as Trustee under the
Indenture relating to the Company's 9 3/8% Senior
Subordinated Notes due 2007.
99.1* Form of Letter of Transmittal.
99.2* Form of Notice of Guaranteed Delivery.
99.3* Form of Letter to Brokers, Dealers, Commercial Bankers,
Trust Companies and Other Nominees.
99.4* Form of Letter to Clients.
99.5* Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9
- ------------------------------
* Incorporated by reference from the Registration Statement (File No. 333-88599)
filed on October 7, 1999.
+ Filed with this Amendment No. 1 to the Registration Statement.
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1993;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represents a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b)
II-2
84
if, in the aggregate, the changes in volume and price represent no more
that 20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that the undertakings set forth in paragraphs (a)(1)(i)
and (a)(1)(ii) above do not apply if the information required to be
included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the Guarantor pursuant to Section 13 or Section
15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes:
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer 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 and will be governed by the final
adjudication of such issue.
(c) 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 to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(d) The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report, to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus in sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
(e) The undersigned Registrant hereby undertakes as follows:
(1) 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
II-3
85
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;
(2) that every prospectus: (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act 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 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
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(f) For purposes of determining any liability under the Securities Act of
1933:
(1) the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective;
(2) each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at the time
shall be deemed to be the initial bona fide offering thereof.
II-4
86
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the town of Liberty Corner, State of
New Jersey, on December 22, 1999.
FEDDERS NORTH AMERICA, INC.
By /s/ ROBERT N. EDWARDS
------------------------------------
Robert N. Edwards
Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1993, this
Registration Statement has been signed by the following persons in the
capacities shown on December 22, 1999.
/s/ SALVATORE GIORDANO Chairman of the Board
- -----------------------------------------------------
Salvatore Giordano
/s/ SAL GIORDANO, JR. Vice Chairman and a Director
- ----------------------------------------------------- (Principal Executive Officer)
Sal Giordano, Jr.
/s/ WILLIAM J. BRENNAN Director
- -----------------------------------------------------
William J. Brennan
/s/ DAVID C. CHANG Director
- -----------------------------------------------------
David C. Chang
/s/ JOSEPH GIORDANO Director
- -----------------------------------------------------
Joseph Giordano
/s/ C. A. KEEN Director
- -----------------------------------------------------
C. A. Keen
/s/ HOWARD S. MODLIN Director
- -----------------------------------------------------
Howard S. Modlin
/s/ CLARENCE RUSSEL MOLL Director
- -----------------------------------------------------
Clarence Russel Moll
/s/ S. A. MUSCARNERA Director
- -----------------------------------------------------
S. A. Muscarnera
/s/ ANTHONY E. PULEO Director
- -----------------------------------------------------
Anthony E. Puleo
/s/ MICHAEL GIORDANO Chief Financial Officer
- -----------------------------------------------------
Michael Giordano
/s/ THOMAS A. KROLL Controller
- -----------------------------------------------------
Thomas A. Kroll
By /s/ ROBERT N. EDWARDS
------------------------------------
Robert N. Edwards
Attorney-in-fact
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87
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the town of Liberty Corner, State of
New Jersey, on December 22, 1999.
FEDDERS CORPORATION
By /s/ ROBERT N. EDWARDS
------------------------------------
Robert N. Edwards
Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1993, this
Registration Statement has been signed by the following persons in the
capacities shown on December 22, 1999.
/s/ SALVATORE GIORDANO Chairman of the Board
- -----------------------------------------------------
Salvatore Giordano
/s/ SAL GIORDANO, JR. Vice Chairman and a Director
- ----------------------------------------------------- (Principal Executive Officer)
Sal Giordano, Jr.
/s/ WILLIAM J. BRENNAN Director
- -----------------------------------------------------
William J. Brennan
/s/ DAVID C. CHANG Director
- -----------------------------------------------------
David C. Chang
/s/ JOSEPH GIORDANO Director
- -----------------------------------------------------
Joseph Giordano
/s/ C. A. KEEN Director
- -----------------------------------------------------
C. A. Keen
/s/ HOWARD S. MODLIN Director
- -----------------------------------------------------
Howard S. Modlin
/s/ CLARENCE RUSSEL MOLL Director
- -----------------------------------------------------
Clarence Russel Moll
/s/ S. A. MUSCARNERA Director
- -----------------------------------------------------
S. A. Muscarnera
/s/ ANTHONY E. PULEO Director
- -----------------------------------------------------
Anthony E. Puleo
/s/ MICHAEL GIORDANO Chief Financial Officer
- -----------------------------------------------------
Michael Giordano
/s/ THOMAS A. KROLL Controller
- -----------------------------------------------------
Thomas A. Kroll
By /s/ ROBERT N. EDWARDS
------------------------------------
Robert N. Edwards
Attorney-in-fact
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88
EXHIBIT INDEX
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGES
3.1 Restated Certificate of Incorporation of the Company dated
November 18, 1997 filed as Exhibit (3)(i) to the Company's
Annual Report on Form 10-K for 1997 and incorporated herein
by reference.
3.2 By-Laws, amended through January 16, 1998, filed as Exhibit
(3)(vii) to the Company's Annual Report on Form 10-K for
1997 and incorporated herein by reference.
4.1* Indenture, dated August 24, 1999, between Fedders North
America, Inc., Fedders Corporation and State Street Bank and
Trust Company, as Trustee.
4.2* Form of Certificate of Senior Subordinated Note (included as
Exhibit A to Exhibit 4.1)
4.3* Registration Rights Agreement, dated August 24, 1999, by and
among Fedders North America, Inc., Fedders Corporation and
Donaldson, Lufkin & Jenrette Securities Corporation.
5.1* Opinion of Robert N. Edwards, Esq., Vice President and
General Counsel of Fedders.
10.1 Stock Option Plan II, filed as Exhibit 10.4 to the Company's
Annual Report on Form 10-K for 1984 and incorporated herein
by reference.
10.2 Stock Option Plan III, filed as Exhibit 10(iv) to the
Company's Annual Report on Form 10-K for 1985 and
incorporated herein by reference.
10.3 Stock Option Plan IV, filed as Exhibit 10(iv) to the
Company's Annual Report on Form 10-K for 1987 and
incorporated herein by reference.
10.4 Stock Option Plan V, filed as Exhibit 10(v) to the Company's
Annual Report on Form 10-K for 1988 and incorporated herein
by reference.
10.5 Stock Option Plan VI, filed as Exhibit 10(vi) to the
Company's Annual Report on Form 10-K for 1989 and
incorporated herein by reference.
10.6 Stock Option Plan VII, filed as Exhibit 10(vi) to the
Company's Annual Report on Form 10-K for 1990 and
incorporated herein by reference.
10.7 Stock Option Plan VIII, filed as Annex F to the Company's
Proxy Statement--Prospectus dated May 10, 1996 and
incorporated herein by reference.
10.8 Employment Contract between the Company and Salvatore
Giordano dated March 23, 1993 filed as Exhibit 10(viii) to
the Company's Annual Report on Form 10-K 1993 and
incorporated herein by reference.
10.9 Joint Venture Contract between Ningbo General Air
Conditioner Factory and Fedders Investment Corporation for
the establishment of Fedders Xinle Co. Ltd., dated July 31,
1995 filed as Exhibit 10(viii) on the Form 10-K 1996 and
incorporated herein by reference.
10.10 Employment Agreement between the Company and Sal Giordano,
Jr. effective October 1, 1997, filed as Exhibit 10 to the
Company's Quarterly Report on From 10-Q for the quarter
ended November 30, 1997 and incorporated herein by
reference.
21.1* Subsidiaries of Fedders
23.1+ Consent of BDO Seidman, LLP.
24.1+ Powers of attorney (included on signature pages to the
Registration Statement).
25.1* Statement of Eligibility and Qualification on Form T-1 of
State Street Bank and Trust Company as Trustee under the
Indenture relating to the Company's 9 3/8% Senior
Subordinated Notes due 2007.
99.1* Form of Letter of Transmittal.
II-7
89
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGES
99.2* Form of Notice of Guaranteed Delivery.
99.3* Form of Letter to Brokers, Dealers, Commercial Bankers,
Trust Companies and Other Nominees.
99.4* Form of Letter to Clients.
99.5* Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9
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* Incorporated by reference from the Registration Statement (File No. 333-88599)
filed on October 7, 1999.
+ Filed with this Amendment No. 1 to the Registration Statement.
II-8