Filed Pursuant to Rule 424(b)(3)
Registration No. 333-91136
PROSPECTUS
$143,750,000
Lennox International Inc.
6 1/4% Convertible Subordinated Notes Due June 1, 2009
and
Shares of Common Stock Issuable upon Conversion of the Notes
---------------------
This prospectus relates to $143,750,000 in aggregate principal amount of
6 1/4% Convertible Subordinated Notes due June 1, 2009 of Lennox International
Inc. and 7,947,478 shares of common stock of Lennox International Inc., which
are initially issuable upon conversion of the notes, plus an indeterminate
number of shares as may become issuable upon conversion as a result of
adjustments to the conversion rate in connection with a stock split, stock
dividend or similar event. The notes were originally issued and sold by Lennox
International Inc. in a private placement on May 8, 2002. This prospectus will
be used by selling securityholders to resell their notes and the common stock
issuable upon conversion of the notes.
We will not receive any proceeds from the sale of the notes or shares of
common stock issuable upon conversion of the notes by any of the selling
securityholders. Holders of the notes or the shares of our common stock issuable
upon conversion of the notes may offer the notes or the common stock for sale at
any time at market prices prevailing at the time of sale or at privately
negotiated prices. The selling holders may sell the notes or the common stock
directly to purchasers or through underwriters, broker-dealers or agents, who
may receive compensation in the form of discounts, concessions or commissions.
Interest on the notes is payable on June 1 and December 1 of each year,
commencing on December 1, 2002.
Upon the limited circumstances described in this prospectus, including the
closing price of our common stock reaching a specified threshold above the
conversion premium, the notes will be convertible into 55.2868 shares of our
common stock per $1,000 principal amount of notes, subject to adjustment in
certain circumstances. This rate results in an initial conversion price of
approximately $18.09 per share. For a discussion of the limited circumstances
upon which the notes will be convertible, see "Description of
Notes -- Conversion Rights" beginning on page 9.
On or after June 3, 2005, we may at our option redeem the notes, in whole
or in part, at the redemption prices described in this prospectus, plus any
accrued and unpaid interest to the redemption date; provided that the closing
price of our common stock has exceeded 130% of the conversion price then in
effect for at least 20 trading days within a period of 30 consecutive trading
days ending on the trading day prior to the date of mailing of the optional
redemption notice. In the event of a change in control (as defined in this
prospectus) of Lennox International Inc., each holder of notes may require us to
repurchase the notes at 100% of the principal amount of the notes plus accrued
and unpaid interest.
The notes are junior to all of our existing and future senior indebtedness
and will be structurally subordinated to all existing and future liabilities of
our subsidiaries, including trade payables, lease commitments and money
borrowed.
Our common stock is listed on the New York Stock Exchange under the symbol
"LII". The last reported sale price on April 30, 2003 was $14.86 per share.
The notes originally issued in the private placement are eligible for
trading on the PORTAL Market of the National Association of Securities Dealers,
Inc. However, notes sold pursuant to this prospectus will no longer be eligible
for trading on the PORTAL Market. We do not intend to list the notes on any
national securities exchange.
INVESTING IN THE NOTES OR OUR COMMON STOCK INVOLVES RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE 2.
---------------------
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.
---------------------
The date of this Prospectus is May 1, 2003
TABLE OF CONTENTS
PAGE
----
Important Notice to Readers................................. 1
Lennox International Inc. .................................. 1
Risk Factors................................................ 2
Ratio of Earnings to Fixed Charges.......................... 7
Recent Accounting Pronouncements............................ 8
Use of Proceeds............................................. 8
Description of Notes........................................ 9
Description of Capital Stock................................ 22
Certain Relationships and Related Party Transactions........ 29
Material United States Federal Income Tax Considerations.... 30
Selling Securityholders..................................... 37
Plan of Distribution........................................ 42
Legal Matters............................................... 44
Experts..................................................... 44
Where You Can Find More Information......................... 45
Incorporation by Reference.................................. 45
A Warning About Forward-Looking Statements.................. 46
i
IMPORTANT NOTICE TO READERS
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission, or SEC, using a "shelf" registration
process. Under this shelf registration process, the selling securityholders may,
from time to time, offer notes or shares of our common stock owned by them. Each
time the selling securityholders offer notes or common stock under this
prospectus, they will provide a copy of this prospectus and, if applicable, a
copy of a prospectus supplement. You should read both this prospectus and, if
applicable, any prospectus supplement together with the information incorporated
by reference in this prospectus. See "Where You Can Find More Information" and
"Incorporation by Reference" for more information.
We have not authorized anyone else to provide you with information
different from that contained in this prospectus. If anyone provides you with
different information, you should not rely on it. We are not making an offer to
sell these securities in any jurisdiction where the offer or sale is not
permitted. You should assume that the information appearing in this prospectus
or any document incorporated by reference in this prospectus is accurate only as
of the date on the front cover of the applicable document or as specifically
indicated in the document. Our business, financial condition, results of
operations and prospects may have changed since that date.
Unless otherwise indicated, in this prospectus, "Lennox," the "Company,"
"we," "us" and "our" refer to Lennox International Inc. and our subsidiaries.
LENNOX INTERNATIONAL INC.
We are a leading global provider of climate control solutions. We design,
manufacture, market, install, service and repair a broad range of products for
the heating, ventilation, air conditioning and refrigeration, or "HVACR",
markets. Our products are sold under well-established brand names including
"Lennox," "Armstrong Air," "Ducane," "Bohn," "Larkin," "Advanced Distributor
Products," "Heatcraft," "Service Experts" and others. Historically, we have sold
our "Lennox" brand of residential heating and air conditioning products directly
to a network of installing dealers, which currently numbers approximately 6,500,
making us one of the largest wholesale distributors of these products in North
America. In September 1998, we initiated a program to acquire dealers or service
centers in metropolitan areas in the United States and Canada so that we can
provide heating and air conditioning products and services directly to
consumers. We greatly expanded this program with the acquisition of Service
Experts Inc. in January 2000.
Our principal executive offices are located at 2140 Lake Park Boulevard,
Richardson, Texas 75080. Our telephone number at that location is (972)
497-5000.
1
RISK FACTORS
You should carefully consider all of the information contained or
incorporated by reference in this prospectus before deciding whether to invest
in the notes and, in particular, the information set forth below. These and
other risks could materially and adversely affect our business operating results
or financial condition.
RISKS RELATED TO OUR BUSINESS
OUR BUSINESS CAN BE HURT BY AN ECONOMIC DOWNTURN.
Our business is affected by a number of economic factors, including the
level of economic activity in the markets in which we operate. A decline in
economic activity in the United States could materially affect our financial
condition and results of operation. Sales in the residential and commercial new
construction market correlate closely to the number of new homes and buildings
that are built, which in turn is influenced by cyclical factors such as interest
rates, inflation, consumer spending habits, employment rates and other
macroeconomic factors over which we have no control. In the HVACR business, a
decline in economic activity, such as that experienced in 2001, as a result of
these cyclical or other factors typically results in a decline in new
construction and replacement purchases, which would result in a decrease in our
sales volume and profitability.
COOLER THAN NORMAL SUMMERS AND WARMER THAN NORMAL WINTERS MAY DEPRESS OUR
SALES.
Demand for our products and for our services is strongly affected by the
weather. Cooler than normal summers depress our sales of replacement air
conditioning and refrigeration products and warmer than normal winters have the
same effect on our heating products. Because a high percentage of our overhead
and operating expenses is relatively fixed throughout the year, operating
earnings and net earnings tend to be lower in quarters with lower sales.
WE MAY INCUR MATERIAL COSTS AS A RESULT OF WARRANTY AND PRODUCT LIABILITY
CLAIMS WHICH WOULD NEGATIVELY AFFECT OUR PROFITABILITY.
The development, manufacture, sale and use of our products involve a risk
of warranty and product liability claims. In addition, because we own installing
heating and air conditioning dealers in the United States and Canada, we incur
the risk of liability claims for the installation and service of heating and air
conditioning products. Our product liability insurance policies have limits that
if exceeded, may result in material costs that would have an adverse effect on
our future profitability. In addition, warranty claims are not covered by our
product liability insurance and there may be types of product liability claims
that are also not covered by our product liability insurance.
WE MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE THE BUSINESSES THAT WE HAVE
ACQUIRED.
We have completed approximately 110 acquisitions since the beginning of
1998. The success of our business will depend in part on our ability to
integrate and operate the acquired businesses profitably and to identify and
implement opportunities for cost savings.
OUR SUBSTANTIAL INDEBTEDNESS WILL LIMIT CASH FLOW AVAILABLE FOR OUR
OPERATIONS AND COULD ADVERSELY AFFECT OUR ABILITY TO SERVICE DEBT OR OBTAIN
ADDITIONAL FINANCING, IF NECESSARY.
As of December 31, 2002, we had $379.9 million of consolidated indebtedness
outstanding and $452.8 million of consolidated stockholders' equity. In
addition, we had $155 million of additional credit available under our credit
facility.
2
Our significant level of indebtedness will have several important
consequences to our operations and for the holders of the notes, including:
- we will need to use a large portion of our consolidated cash flow to pay
principal and interest on the notes and other indebtedness, which will
reduce the amount of money available to finance our operations and other
business activities;
- we may have difficulty borrowing money in the future for working capital,
capital expenditures, acquisitions or other purposes;
- we may have a much higher level of debt than some of our competitors,
which may put us at a competitive disadvantage;
- our debt level will make us more vulnerable to economic downturns and
adverse developments in our business;
- we are exposed to the risk of increasing interest rates because some of
our debt, including debt under our senior credit facility, has variable
rates of interest;
- our debt level will reduce our flexibility to respond to changing
business and economic conditions, including increased competition in our
industry; and
- our debt level will limit our ability to pursue other business
opportunities, borrow more money for operations or capital in the future
and implement our business strategy.
Our ability to make payments with respect to the notes will depend on our
future operating performance, which will be affected by prevailing economic
conditions and financial, business, competitive and other factors. We will not
be able to control many of these factors, such as the economic conditions in the
markets in which we operate and initiatives taken by our competitors. We cannot
be certain that our cash flow will be sufficient to allow us to pay principal
and interest on our debt, including the notes, and to meet our other
obligations. If we do not have enough money to do so, we may be required to
refinance all or part of our existing debt, including the notes, sell assets or
borrow more money. We may not be able to do so on commercially reasonable terms,
if at all. In addition, the terms of our existing or future debt arrangements,
including our credit facility, may restrict us from adopting any of these
alternatives.
WE AND OUR SUBSIDIARIES MAY INCUR SUBSTANTIALLY MORE DEBT WHICH WOULD INCREASE
OUR LEVERAGE AND THE RISK TO YOU OF HOLDING THE NOTES.
We and our subsidiaries may incur substantial additional debt in the
future. Some or all of any future borrowings could be senior to the notes. If
new debt is added to our and our subsidiaries' current debt levels, the risks to
you of holding the notes may increase. The indenture governing the notes does
not restrict the incurrence of indebtedness ranking senior to the notes or other
debt either by us or our subsidiaries.
OUR DEPENDENCE ON OUR SUBSIDIARIES FOR CASH FLOW MAY NEGATIVELY AFFECT OUR
BUSINESS AND OUR ABILITY TO PAY THE PRINCIPAL, INTEREST AND OTHER AMOUNTS DUE
ON THE NOTES.
Our ability to meet our cash obligations in the future will be dependent
upon the ability of our subsidiaries to make cash distributions to us. The
ability of our subsidiaries to make these distributions is and will continue to
be restricted by, among other limitations, applicable provisions of governing
law and contractual provisions. The indenture governing the notes does not limit
the ability of our subsidiaries to incur such restrictions in the future. Our
right to participate in the assets of any subsidiaries (and thus the ability of
holders of the notes to benefit indirectly from such assets) is generally
subject to the prior claims of creditors, including trade creditors, of that
subsidiary except to the extent that we are recognized as a creditor of such
subsidiary, in which case our claim would still be subject to any security
interest of other creditors of such subsidiary. The notes, therefore, are
structurally subordinated to creditors, including trade creditors, of our
subsidiaries with respect to the assets of the subsidiaries against which such
creditors have a claim.
3
THE CONSOLIDATION OF DISTRIBUTORS AND DEALERS COULD FORCE US TO LOWER OUR
PRICES OR HURT OUR BRAND NAMES WHICH WOULD RESULT IN LOWER SALES.
There is currently an effort underway in the United States by several
companies to purchase independent distributors and dealers and consolidate them
into large enterprises. These large enterprises may be able to exert pressure on
us to reduce prices. Additionally, these new enterprises tend to emphasize their
company name, rather than the brand of the manufacturer, in their promotional
activities, which could lead to dilution of the importance and value of our
brand names. Future price reductions and the brand dilution caused by the
consolidation among HVAC distributors and dealers could have an adverse effect
on our business and results of operation.
WE MAY NOT BE ABLE TO COMPETE FAVORABLY IN THE HIGHLY COMPETITIVE HVACR
BUSINESS.
Competition in our various markets could cause us to reduce our prices or
lose market share, or could negatively affect our cash flow, which could have an
adverse effect on our future financial results. Substantially all of the markets
in which we participate are highly competitive. The most significant competitive
factors we face are product reliability, product performance, service and price,
with the relative importance of these factors varying among our product lines.
Other factors that affect competition in the HVACR market include the
development and application of new technologies and an increasing emphasis on
the development of more efficient HVACR products. Moreover, new product
introductions are an important factor in the market categories in which our
products compete. Several of our competitors have greater financial and other
resources than we have, allowing them to invest in more extensive research and
development. In addition, our company-owned dealers face competition from
independent dealers and dealers owned by consolidators and utility companies,
some of whom may be able to provide their products or services at lower prices
than we can. We may not be able to compete successfully against current and
future competition and current and future competitive pressures faced by us may
materially adversely affect our business and results of operations.
WE MAY NOT BE ABLE TO SUCCESSFULLY DEVELOP AND MARKET NEW PRODUCTS.
Our future success will depend upon our continued investment in research
and new product development and our ability to continue to realize new
technological advances in the HVACR industry. Our inability to continue to
successfully develop and market new products or our inability to achieve
technological advances on a pace consistent with that of our competitors could
lead to a material adverse effect on our business and results of operations.
WE MAY BE ADVERSELY AFFECTED BY PROBLEMS IN THE AVAILABILITY OF OR INCREASES
IN THE PRICES OF COMPONENTS AND RAW MATERIALS.
Increases in the prices of raw materials or components or problems in their
availability could depress our sales or increase the costs of our products. We
are dependent upon components purchased from third parties as well as raw
materials such as copper, aluminum and steel. We enter into contracts each year
for the supply of key components at fixed prices. However, if a key supplier is
unable or unwilling to meet our supply requirements, we could experience supply
interruptions or cost increases, either of which could have an adverse effect on
our gross profit. In addition, we regularly pre-purchase a portion of our raw
materials at a fixed price each year to hedge against price fluctuations, but a
large increase in raw materials prices could significantly increase our cost of
goods sold.
SINCE A SIGNIFICANT PERCENTAGE OF OUR WORKFORCE IS UNIONIZED, WE FACE RISKS OF
WORK STOPPAGES AND OTHER LABOR RELATIONS PROBLEMS.
We are subject to a risk of work stoppage and other labor relations matters
because a significant percentage of our workforce is unionized. As of January
2003, approximately 22% of our workforce was unionized. As we expand our
operations, we are subject to increased unionization of our workforce. The
results of future negotiations with these unions, including the effects of any
production interruptions or labor stoppages, could have an adverse effect on our
future financial results.
4
Moreover, our ability to provide high-quality mechanical and electrical
services on a timely basis requires an adequate supply of skilled technicians.
Many companies in our industry are currently experiencing shortages of qualified
technicians. We may not be able to maintain an adequate skilled labor force or
our labor expenses could increase. A shortage of skilled labor would require us
to curtail our planned internal growth or may require us to use less-skilled
labor which could adversely affect our ability to perform.
EXPOSURE TO ENVIRONMENTAL LIABILITIES COULD ADVERSELY AFFECT OUR RESULTS OF
OPERATIONS.
Our future profitability could be adversely affected by current or future
environmental laws. We are subject to extensive and changing federal, state and
local laws and regulations designed to protect the environment in the United
States and in other parts of the world. These laws and regulations could impose
liability for remediation costs and often result in civil or criminal penalties
in cases of non-compliance. Compliance with environmental laws increases our
costs of doing business. Because these laws are subject to frequent change, we
are unable to predict the future costs resulting from environmental compliance.
The United States and other countries have established programs for
limiting the production, importation and use of certain ozone depleting
chemicals, including refrigerants that we use in most of our air conditioning
and refrigeration products. Some categories of these refrigerants have been
banned completely and others are currently scheduled to be phased out in the
United States by the year 2030. The United States is under pressure from the
international environmental community to accelerate the current 2030 deadline.
In Europe, this phase out may occur even sooner. The industry's failure to find
suitable replacement refrigerants for substances that have been or will be
banned or the acceleration of any phase out schedules for these substances by
governments could have an adverse effect on our future financial results.
THE NORRIS FAMILY WILL BE ABLE TO EXERCISE SIGNIFICANT CONTROL OVER OUR
COMPANY.
We believe that a significant portion of the outstanding shares of our
common stock is broadly distributed among approximately 110 descendants of or
persons otherwise related to D.W. Norris, one of our original owners.
Accordingly, if the Norris family were to act together it would have the ability
to determine the outcome of any action requiring the approval of the holders of
our common stock, including the election of all of our board of directors.
Circumstances may occur in which the interests of the Norris family could
conflict with your interests as a holder of the notes or a holder of our common
stock issued upon conversion of the notes.
OUR STOCKHOLDER RIGHTS PLAN AND SOME PROVISIONS IN OUR CERTIFICATE OF
INCORPORATION AND OUR BYLAWS COULD DELAY OR PREVENT A CHANGE IN CONTROL.
Our stockholder rights plan and our governing documents contain provisions
that make it more difficult to implement corporate actions that may have the
effect of delaying, deterring or preventing a change in control. A stockholder
might consider a change in control in his or her best interest because he or she
might receive a premium for his or her common stock. Examples of these
provisions include:
- a vote of more than 80% of the outstanding voting stock is required for
stockholders to amend specified provisions of the governing documents;
- our board of directors is divided into three classes, each serving
three-year terms;
- members of our board of directors may be removed only for cause and only
upon the affirmative vote of at least 80% of the outstanding voting
stock; and
- a vote of more than 80% of the outstanding voting stock is required to
approve specified transactions between us and any person or group that
owns at least 10% of our voting stock.
Our board of directors has the ability, without stockholder action, to
issue shares of preferred stock that could, depending on their terms, delay,
discourage or prevent a change in control of Lennox. In addition, the Delaware
General Corporation Law, under which we are incorporated, contains provisions
that impose
5
restrictions on business combinations such as mergers between us and a holder of
15% or more of our voting stock. See "Description of Capital Stock" for a more
complete description of these provisions.
OUR FORMER USE OF ARTHUR ANDERSEN LLP AS OUR INDEPENDENT AUDITORS MAY POSE
RISK TO US AND WILL LIMIT YOUR ABILITY TO SEEK POTENTIAL RECOVERIES FROM THEM
RELATED TO THEIR WORK.
On June 15, 2002, Arthur Andersen LLP, our former independent auditor, was
convicted on a federal obstruction of justice charge, and as of August 30, 2002,
Arthur Andersen ceased practicing before the SEC. Some investors, including
institutional investors, may choose not to invest in or hold securities of a
company whose financial statements were audited by Arthur Andersen, which may
serve to, among other things, suppress the price of our securities. On May 20,
2002, our board of directors decided to no longer engage Arthur Andersen and
engaged KPMG LLP to serve as our independent auditors.
SEC rules require us to present our audited financial statements in various
SEC filings, along with Arthur Andersen's consent to our inclusion of its audit
report in those filings. The SEC recently has provided regulatory relief
designed to allow companies that file reports with the SEC to dispense with the
requirement to file a consent of Arthur Andersen in certain circumstances. We
have been unable to obtain, after reasonable efforts, the written consent of
Arthur Andersen to our naming it as an expert and as having audited the
consolidated financial statements incorporated by reference into this
prospectus. Notwithstanding the SEC's regulatory relief, the inability of Arthur
Andersen to provide its consent or to provide assurance services to us could
negatively affect our ability to, among other things, access the public capital
markets. Any delay or inability to access the public markets as a result of this
situation could have a material adverse impact on our business. Also, an
investor's ability to seek potential recoveries from Arthur Andersen related to
any claims that an investor may assert as a result of the work performed by
Arthur Andersen will be limited significantly in the absence of a consent and my
be further limited by the diminished amount of assets of Arthur Andersen that
are or may in the future be available for claims.
ANY FUTURE DETERMINATION THAT A SIGNIFICANT IMPAIRMENT OF THE VALUE OF OUR
INTANGIBLE ASSETS HAS OCCURRED COULD HAVE A MATERIAL ADVERSE AFFECT ON OUR
RESULTS OF OPERATIONS.
We had intangible assets, net of accumulated amortization, of approximately
$436.5 million on our balance sheet as of December 31, 2002. Any future
determination that a significant impairment of the value of intangible assets
has occurred would require a write-down of the impaired portion of unamortized
goodwill to fair value, which would reduce our assets and shareholders' equity
and could have a material adverse affect on our results of operations.
RISKS RELATED TO THE NOTES
THE NOTES WILL BE SUBORDINATED TO OUR SENIOR INDEBTEDNESS AND WILL BE
STRUCTURALLY SUBORDINATED TO ALL LIABILITIES OF OUR SUBSIDIARIES.
The notes are junior in right of payment to all of our existing and future
senior indebtedness, and are structurally subordinated to all liabilities of our
subsidiaries, including trade payables, lease commitments and money borrowed. As
of December 31, 2002, we and our subsidiaries had approximately $236.1 million
of consolidated obligations effectively ranking senior to the notes. The
indenture governing the notes does not restrict the incurrence of senior
indebtedness or other debt by us or our subsidiaries. Substantially all of our
operations are conducted through subsidiaries. None of our subsidiaries has
guaranteed or otherwise become obligated with respect to the notes and, as a
result, the notes will be structurally subordinated to all indebtedness and
other obligations of our subsidiaries with respect to our subsidiaries' assets.
By reason of such subordination, in the event of the insolvency, bankruptcy,
liquidation, reorganization, dissolution or winding up of our business, our
assets will be available to pay the amounts due on the notes only after all of
our senior indebtedness has been paid in full, and, therefore, there may not be
sufficient assets remaining to pay amounts due on any or all of the notes then
outstanding. See "Description of Notes -- Subordination of Notes."
6
WE MAY NOT PERMITTED TO PAY PRINCIPAL OR INTEREST ON THE NOTES IF AN EVENT OF
DEFAULT OCCURS UNDER OUR SENIOR INDEBTEDNESS.
Under the indenture, we are generally not permitted to pay any amount due
on the notes if an event of default with respect to the payment of principal,
premium or interest on senior indebtedness exists. If a default, other than a
default in payment of principal, premium or interest, has occurred with respect
to our senior indebtedness, then we generally cannot pay any amount due on the
notes until the earlier of (1) the date on which the event of default has been
cured or waived or (2) 180 days after the notice of default is received. In
addition, we generally may not pay any amount due on the notes if the maturity
of senior indebtedness has been accelerated until the senior indebtedness has
been paid or the acceleration has been cured or waived.
WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO FINANCE THE CHANGE
IN CONTROL OFFER REQUIRED BY THE INDENTURE.
If we undergo a change in control (as defined in the indenture), each
holder of the notes may require us to repurchase all or a portion of the
holder's notes. There may not be sufficient funds available for any required
repurchases of the notes if a change in control occurs. In addition, the terms
of any agreements related to borrowing which we may enter from time to time may
prohibit or limit or make our repurchase of notes an event of default under
those agreements. If we fail to repurchase the notes in that circumstance, we
will be in default under the indenture governing the notes. See "Description of
Notes-Change In Control Permits Purchase of Notes by Us at the Option of the
Holder."
ABSENCE OF A PUBLIC MARKET FOR THE NOTES COULD CAUSE PURCHASERS OF THE NOTES
TO BE UNABLE TO RESELL THEM FOR AN EXTENDED PERIOD OF TIME.
There is no established trading market for the notes. The notes originally
issued in the private placement are eligible for trading on the PORTAL Market.
However, notes sold pursuant to this prospectus will no longer be eligible for
trading on the PORTAL Market. The notes will not be listed on any securities
exchange or included in any automated quotation system. An active trading market
for the notes may not develop or, if such market develops, it may not be very
liquid.
If a trading market does not develop or is not maintained, holders of the
notes may experience difficulty in reselling, or an inability to sell, the
notes. If a market for the notes develops, any such market may be discontinued
at any time. If a public trading market develops for the notes, future trading
prices of the notes will depend on many factors, including, among other things,
the price of our common stock into which the notes are convertible, prevailing
interest rates, our operating results and the market for similar securities.
Depending on the price of our common stock into which the notes are convertible,
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.
RATIO OF EARNINGS TO FIXED CHARGES
YEAR ENDED DECEMBER 31,
-------------------------------------
1998 1999 2000 2001 2002
----- ----- ----- ----- -----
3.94x 3.53x 2.23x -- 2.55x
Earnings consist of income (loss) before income taxes and fixed charges,
excluding minority interest. Fixed charges consist of the total of interest
expense, amortization of loan origination costs and that portion of rental
expense considered to represent interest cost. Due to restructuring charges in
2001 of $73.2 million of which $7.8 million was included in costs of goods sold,
additional earnings of $44.3 million would have been necessary to cover fixed
charges. Due to product inspection charges in 1997 of $140.0 million, additional
earnings of $45.7 million would have been necessary to cover fixed charges.
7
RECENT ACCOUNTING PRONOUNCEMENTS
On January 1, 2002, we adopted Statement of Financial Accounting Standards
No. 142 "Goodwill and Other Intangible Assets" ("SFAS No. 142"), and recorded a
$285.7 million impairment of goodwill ($249.2 million, net of taxes). The
adoption of SFAS No. 142 requires that goodwill and other intangible assets with
an indefinite useful life no longer be amortized as expenses of operations but
rather tested for impairment at least annually using a fair-value-based test.
The impairment charge relates primarily to the 1998 to 2000 acquisitions of our
retail and hearth products operations, where lower than expected operating
results occurred. Our estimates of fair value for our reporting units were
determined based on a combination of the future earnings forecasts using
discounted values of projected cash flows and market values of comparable
businesses.
As a result of the adoption of SFAS No. 142 on January 1, 2002, we have
discontinued the amortization of our goodwill and trademark intangible assets.
The following table reconciles reported net (loss) income and (loss) earnings
per share amounts to adjusted net (loss) income and (loss) earnings per share
amounts as if SFAS No. 142 had been in effect for each of the three years ended
December 31, 2002 (in thousands, except per share amounts):
FOR THE TWELVE MONTHS ENDED
DECEMBER 31,
----------------------------
2002 2001 2000
------- -------- -------
Reported net (loss) income.................................. $58,801 $(42,398) $59,058
Add back: goodwill amortization............................. -- 18,473 16,335
Add back: trademark amortization............................ -- 165 165
Income tax effect of discontinued amortization.............. -- (2,111) (2,021)
------- -------- -------
Adjusted net (loss) income.................................. $58,801 $(25,871) $73,537
======= ======== =======
BASIC (LOSS) EARNINGS PER SHARE:
Reported net (loss) income.................................. $ 1.03 $ (0.75) $ 1.06
Add back: goodwill amortization............................. -- 0.33 0.29
Add back: trademark amortization............................ -- -- --
Income tax effect of discontinued amortization.............. -- (0.04) (0.04)
------- -------- -------
Adjusted net (loss) income.................................. $ 1.03 $ (0.46) $ 1.31
======= ======== =======
DILUTED (LOSS) EARNINGS PER SHARE:
Reported net (loss) income.................................. $ 1.00 $ (0.75) $ 1.05
Add back: goodwill amortization............................. -- 0.33 0.29
Add back: trademark amortization............................ -- -- --
Income tax effect of discontinued amortization.............. -- (0.04) (0.04)
------- -------- -------
Adjusted net (loss) income.................................. $ 1.00 $ (0.46) $ 1.30
======= ======== =======
USE OF PROCEEDS
All of the notes and the shares of our common stock issuable upon
conversion of the notes are being sold by the selling securityholders or by
their pledgees, donees, transferees or other successors in interest. We will not
receive any proceeds from the sale of the notes or the shares of our common
stock issuable upon conversion of the notes.
8
DESCRIPTION OF NOTES
We issued $143,750,000 aggregate principal amount of notes in a private
placement on May 8, 2002. The notes were issued under an indenture entered into
between us and The Bank of New York, as trustee. The following is a summary of
the material provisions of the indenture but it does not purport to be complete
and is subject to the detailed provisions of the indenture and is qualified in
its entirety by reference to the indenture. We will provide copies of the
indenture to prospective investors upon request, and it is also available for
inspection at the office of the trustee. Particular provisions of the indenture
which are referred to in this prospectus are incorporated by reference as a part
of the statements made, and the statements are qualified in their entirety by
the reference. For purposes of this summary, the terms "Lennox," the "Company,"
"we," "us" and "our" refer only to Lennox International Inc. and not to any of
our subsidiaries. References to "interest" shall be deemed to include
"liquidated damages" unless the context otherwise requires.
GENERAL
The notes represent our unsecured general obligations, subordinate in right
of payment to certain of our obligations as described under "Subordination of
Notes," and convertible into our common stock as described under "Conversion
rights." The notes are limited to $143,750,000 aggregate principal amount.
Interest on the notes is payable semi-annually on June 1 and December 1 of each
year, with the first interest payment made on December 1, 2002, at the rate of
6 1/4% per annum, to the persons who are registered holders of the notes at the
close of business on the preceding May 15 and November 15, respectively. Unless
previously redeemed, repurchased or converted, the notes will mature on June 1,
2009. The notes are payable at the office of the paying agent, which initially
is an office or agency of the trustee, or an office or agency maintained by us
for such purpose, in the Borough of Manhattan, the City of New York. Payments in
respect of the notes may, at our option, be made by check and mailed to the
holders of record as shown on the register for the notes.
The notes are issued without coupons in denominations of $1,000 and
integral multiples thereof.
Holders may present for conversion any notes that have become eligible for
conversion at the office of the conversion agent, and may present notes for
registration of transfer at the office of the trustee.
The indenture does not contain any financial covenants or any restrictions
on the payment of dividends or on the repurchase of our securities. The
indenture does not require us to maintain any sinking fund or other reserves for
repayment of the notes.
The notes are not subject to defeasance or covenant defeasance.
CONVERSION RIGHTS
GENERAL
Holders may convert any outstanding notes (or portions of outstanding
notes) under the circumstances summarized below into 55.2868 shares of our
common stock, par value $0.01 per share, per $1,000 principal amount of notes,
subject to adjustment in certain circumstances as described below. This rate
results in an initial conversion price of approximately $18.09 per share. We
will not issue fractional shares of common stock upon conversion of notes.
Instead, we will pay a cash adjustment based upon the closing sale price of our
common stock on the business day immediately preceding the conversion date. You
may convert notes only in denominations of $1,000 and whole multiples of $1,000.
Holders may surrender notes for conversion into our common stock only under
the following circumstances:
- during any conversion period, as described below, if the closing price of
our common stock for at least 20 consecutive trading days in the 30
consecutive trading-day period ending on the first day of the conversion
period was more than 110% of the conversion price in effect on that
thirtieth trading day;
- during the five business-day period following any 10 consecutive
trading-day period in which the daily average of the trading prices (as
described below under "Conversion Rights -- Conversion upon
9
satisfaction of market price conditions") for the notes for that 10
trading-day period was less than 95% of the average conversion value, as
described below, for the notes during that period;
- if we have called the notes for redemption; or
- upon the occurrence of the corporate transactions summarized below.
CONVERSION UPON SATISFACTION OF MARKET PRICE CONDITIONS
A holder may convert its notes into our common stock during any quarterly
conversion period if the closing price of our common stock for at least 20
consecutive trading days during the 30 consecutive trading-day period ending on
the first day of the conversion period exceeds 110% of the conversion price in
effect on that thirtieth trading day. A "conversion period" will be the period
from and including the thirtieth trading day in a fiscal quarter to, but not
including, the thirtieth trading day in the immediately following fiscal
quarter.
A holder also may convert its notes into our common stock during the five
business-day period following any 10 consecutive trading-day period in which the
daily average of the trading prices for the notes for that 10 trading-day period
was less than 95% of the average conversion value for the notes during that
period.
The indenture does not require us to notify holders upon satisfaction of
the conditions in the prior two paragraphs.
"Conversion value" is equal to the product of the closing price for our
common stock on a given day multiplied by the then current conversion rate,
which is the number of shares of common stock into which each note is then
convertible.
The "trading price" of the notes on any date of determination means the
average of the secondary market bid quotations per note obtained by us or the
calculation agent for $10,000,000 principal amount of notes at approximately
3:30 p.m., New York City time, on such determination date from three independent
nationally recognized securities dealers we select, provided that if at least
three such bids cannot reasonably be obtained by us or the calculation agent,
but two such bids are obtained, then the average of the two bids shall be used,
and if only one such bid can reasonably be obtained by us or the calculation
agent, this one bid shall be used. If either we or the calculation agent cannot
reasonably obtain at least one bid for $10,000,000 principal amount of notes
from a nationally recognized securities dealer or, in our reasonable judgment,
the bid quotations are not indicative of the secondary market value of the
notes, then the trading price of the notes will equal (a) the then-applicable
conversion rate of the notes multiplied by (b) the closing price of our common
stock on such determination date.
CONVERSION UPON NOTICE OF REDEMPTION
A holder may surrender for conversion any notes we call for redemption at
any time prior to the close of business on the day that is one business day
prior to the redemption date, even if the notes are not otherwise convertible at
that time. If a holder already has delivered a change in control purchase notice
with respect to a note, however, the holder may not surrender that note for
conversion until the holder has withdrawn the notice in accordance with the
indenture. See "-- Redemption of Notes at Our Option" for a description of the
notice of redemption.
CONVERSION UPON SPECIFIED CORPORATE TRANSACTIONS
If:
- we distribute to all holders of our common stock certain rights entitling
them to purchase, for a period expiring within 60 days of the date of
distribution, common stock at less than the current market price of the
common stock at the time of the announcement of such distribution;
- we elect to distribute to all holders of our common stock cash or other
assets, debt securities or certain rights to purchase our securities,
which distribution has a per share value exceeding 10% of the closing
price of the common stock on the trading day preceding the declaration
date for the distribution; or
10
- a change in control, as described below under "Change in Control Permits
Purchase of Notes by Us at the Option of the Holder," occurs other than
pursuant to a transaction described in the following paragraph, then we
must notify the holders of notes at least 20 days prior to the
ex-dividend date for the distribution or within 30 days of the occurrence
of the change in control, as the case may be. Once we have given that
notice, holders may convert their notes at any time until either (a) the
earlier of close of business on the business day immediately prior to the
ex-dividend date and our announcement that the distribution will not take
place, in the case of a distribution, or (b) within 30 days of the change
in control notice, in the case of a change in control. In the case of a
distribution, no adjustment to the ability of a holder of notes to
convert will be made if the holder participates or will participate in
the distribution without conversion.
In addition, if we are party to a consolidation, merger or binding share
exchange or transfer of all or substantially all our assets pursuant to which
our common stock will be converted into or the right to receive cash, securities
or other property, a holder may convert notes at any time from and after the
date which is 15 days prior to the anticipated effective date of the transaction
until 15 days after the effective date of the transaction. If we are a party to
a consolidation, merger or binding share exchange or transfer of all or
substantially all our assets pursuant to which our common stock is converted
into or the right to receive cash, securities or other property, then at the
effective time of the transaction, the right to convert a note into common stock
will be changed into a right to convert the note into or the right to receive
the kind and amount of cash, securities or other property which the holder would
have received if the holder had converted such note immediately prior to the
transaction. If the transaction also constitutes a "change in control," as
defined below, the holder can require us to repurchase all or a portion of its
notes as described below under "Change in Control Permits Purchase of Notes by
Us at the Option of the Holder."
CONVERSION PROCEDURES
We are not obligated to pay accrued interest on notes submitted for
conversion. Accordingly, if a note is converted after the close of business of a
record date for the payment of interest and before the opening of business on
the next succeeding interest payment date, notes submitted for conversion must
be accompanied by funds equal to the interest payable to the registered holder
on the interest payment date on the principal amount of such notes submitted for
conversion. We will then make the interest payment due on the interest payment
date to the registered holder of the note on the record date. Notwithstanding
anything to the contrary in this paragraph, any note submitted for conversion
need not be accompanied by any funds if such notes have been called for
redemption on a redemption date that is after a record date for the payment of
interest and on or before the date that is one business day immediately
following the corresponding interest payment date.
As soon as practicable following the conversion date, we will deliver
through the conversion agent a certificate for the full number of full shares of
common stock into which any note is converted, together with any cash payment
for fractional shares. For a discussion of the tax treatment of a holder
receiving common shares upon surrendering notes for conversion, see "Material
United States Federal Income Tax Considerations -- Tax Consequences to United
States Holders -- Conversion of the Notes."
CONVERSION PRICE ADJUSTMENTS
We will adjust the conversion rate for:
- dividends or distributions on shares of our common stock payable in
common stock or other capital stock of ours;
- subdivisions, combinations or certain reclassifications of our common
stock;
- distributions to all holders of common stock of certain rights or
warrants entitling them for a period of 60 days or less to purchase
common stock at less than the current market price at the time; provided
that the conversion rate will be readjusted to the extent the rights or
warrants are not exercised prior to their expiration;
11
- distributions to all holders of our common stock of our assets or debt
securities or certain rights to purchase our securities, but excluding
cash dividends or other cash distributions from current or retained
earnings referred to in the next paragraph;
- all-cash distributions to all or substantially all holders of our common
stock in an aggregate amount that, together with
(1) any cash and the fair market value of any other consideration
payable in respect of any tender offer or exchange offer by us or any of
our subsidiaries for our common stock consummated within the preceding 12
months not triggering a conversion rate adjustment and
(2) all other all-cash distributions to all or substantially all
stockholders made within the preceding 12 months not triggering a
conversion rate adjustment,
exceeds an amount equal to 10% of the market capitalization of our
common stock on the business day immediately preceding the day on which
we declare the distribution; and
- payment in respect of a tender offer or exchange offer by us or any of
our subsidiaries for our common stock to the extent that the offer
involves aggregate consideration that, together with
(1) any cash and the fair market value of any other consideration
payable in respect of any tender offer or exchange offer by us or any of
our subsidiaries for our common stock consummated within the preceding 12
months not triggering a conversion rate adjustment and
(2) all-cash distributions to all or substantially all stockholders
made within the preceding 12 months not triggering a conversion rate
adjustment,
exceeds an amount equal to 10% of the market capitalization of our
common stock on the expiration date of the tender offer or exchange
offer.
Each adjustment referred to above will be made upon conclusion of the
applicable event. We will not adjust the conversion rate, however, if holders of
notes are to participate in the transaction without conversion, or in certain
other cases.
No adjustment in the conversion rate will be required unless the adjustment
would require a change of at least 1% in the conversion rate then in effect;
provided that any adjustment that would otherwise be required to be made will be
carried forward and taken into account in any subsequent adjustment.
We may at any time increase the conversion rate by any amount for any
period of time, provided that the conversion price is not less than the par
value of a share of our common stock, the period during which the increased rate
is in effect is at least 20 days or such longer period as may be required by law
and the increased rate is irrevocable during such period.
If we are party to a consolidation, merger or binding share exchange
pursuant to which our common stock is converted into cash, securities or other
property, at the effective time of the transaction, the right to convert a note
into common stock will be changed into a right to convert it into the kind and
amount of cash, securities or other property which the holder would have
received if the holder had converted its note immediately prior to the
transaction.
In the event of:
- a taxable distribution to holders of shares of common stock which results
in an adjustment of the conversion rate; or
- an increase in the conversion rate at our discretion,
the holders of the notes may, in certain circumstances, be deemed to have
received a distribution subject to Federal income tax as a dividend. See
"Material United States Federal Income Tax Considerations -- Tax Consequences to
United States Holders -- Conversion of the Notes."
12
REDEMPTION OF NOTES AT OUR OPTION
No sinking fund is provided for the notes. Prior to June 3, 2005, we cannot
redeem the notes. The notes will be redeemable at our option, in whole or in
part, at any time on or after June 3, 2005, on any date not less than 30 nor
more than 60 days after the mailing of a redemption notice to each holder of
notes to be redeemed at the address of the holder appearing in the security
register; provided that the closing price of our common stock has exceeded 130%
of the conversion price then in effect for at least 20 trading days within a
period of 30 consecutive trading days ending on the trading day prior to the
date of mailing of the optional redemption notice. The redemption price for the
notes, expressed as a percentage of principal amount, if redeemed during the
twelve-month period beginning on the date set forth below, is as follows:
PERIOD BEGINNING REDEMPTION PRICE
---------------- ----------------
June 3, 2005................................................ 103.571%
June 1, 2006................................................ 102.679%
June 1, 2007................................................ 101.786%
June 1, 2008 and thereafter................................. 100.893%
Accrued and unpaid interest will also be paid to the redemption date.
If we will redeem less than all of the outstanding notes, the trustee will
select the notes to be redeemed on a pro rata basis in principal amounts of
$1,000 or integral multiples of $1,000. If a portion of a holder's notes is
selected for partial redemption and the holder converts a portion of the notes,
the converted portion shall be deemed to be the portion selected for redemption.
CHANGE IN CONTROL PERMITS PURCHASE OF NOTES BY US AT THE OPTION OF THE HOLDER
In the event of a change in control (as defined below) with respect to us,
each holder will have the right, at its option, subject to the terms and
conditions of the indenture, to require us to purchase for cash all or any
portion of the holder's notes in integral multiples of $1,000 principal amount,
at a price for each $1,000 principal amount of such notes equal to 100% of the
principal amount of such notes tendered, plus any accrued and unpaid interest to
the purchase date. We will be required to purchase the notes no later than 30
business days after notice of a change in control has been mailed as described
below. We refer to this date in this prospectus as the "change in control
purchase date."
Within 30 business days after the occurrence of a change in control, we
must mail to the trustee and to all holders of notes at their addresses shown in
the register of the registrar and to beneficial owners as required by applicable
law a notice regarding the change in control, which notice must state, among
other things:
- the events causing a change in control;
- the date of such change in control;
- the last date on which a holder may exercise the purchase right;
- the change in control purchase price;
- the change in control purchase date;
- the name and address of the paying agent and the conversion agent;
- the conversion rate and any adjustments to the conversion rate;
- that notes with respect to which a change in control purchase notice is
given by the holder may be converted, if otherwise convertible, only if
the change in control purchase notice has been withdrawn in accordance
with the terms of the indenture; and
- the procedures that holders must follow to exercise these rights.
13
To exercise this right, the holder must deliver a written notice so as to
be received by the paying agent no later than the close of business on the third
business day prior to the change in control purchase date. The required purchase
notice upon a change in control must state:
- the certificate numbers of the notes to be delivered by the holder, if
applicable;
- the portion of the principal amount of notes to be purchased, which
portion must be $1,000 or an integral multiple of $1,000; and
- that we are to purchase such notes pursuant to the applicable provisions
of the indenture.
A holder may withdraw any change in control purchase notice by delivering
to the paying agent a written notice of withdrawal prior to the close of
business on the business day prior to the change in control purchase date. The
notice of withdrawal must state:
- the principal amount of the notes being withdrawn;
- the certificate numbers of the notes being withdrawn, if applicable; and
- the principal amount, if any, of the notes that remain subject to a
change in control purchase notice.
Our obligation to pay the change in control purchase price for a note for
which a change in control purchase notice has been delivered and not validly
withdrawn is conditioned upon delivery of the note, together with necessary
endorsements, to the paying agent at any time after the delivery of such change
in control purchase notice. We will cause the change in control purchase price
for such note to be paid promptly following the later of the change in control
purchase date or the time of delivery of such note.
If the paying agent holds money sufficient to pay the change in control
purchase price of the note on the change in control purchase date in accordance
with the terms of the indenture, then, immediately after the change in control
purchase date, interest on such note will cease to accrue, whether or not the
note is delivered to the paying agent. Thereafter, all other rights of the
holder shall terminate, other than the right to receive the change in control
purchase price upon delivery of the note.
Under the indenture, a "change in control" is deemed to have occurred at
such time as:
- any "person" or "group" (as such terms are used for purposes of Sections
13(d) and 14(d) of the Securities Exchange Act of 1934), other than an
"exempt person" (as defined below), is or becomes the "beneficial owner"
(as such term is used in Rule 13d-3 under the Exchange Act), directly or
indirectly, of 50% or more of the voting power of our common stock or
other capital stock into which our common stock is reclassified or
changed;
- at any time the following persons cease for any reason to constitute a
majority of our board of directors:
(1) individuals who on the issue date of the notes constituted our
board of directors and
(2) any new directors whose election by our board of directors or
whose nomination for election by our stockholders was approved by at least
a majority of the directors then still in office who were either directors
on the issue date of the notes or whose election or nomination for election
was previously so approved; or
- the sale, lease or transfer of all or substantially all of our assets and
property to any "person" or "group" (as such terms are used in Sections
13(d) and 14(d) of the Exchange Act), including any group acting for the
purpose of acquiring, holding or disposing of securities within the
meaning of Rule 13d-5(b)(1) under the Exchange Act. Our grant of a
security interest in our properties or assets in connection with a
financing arrangement is not a conveyance, transfer or lease for the
foregoing purposes.
"Exempt person" means any member of the Norris family; provided that such
member does not participate in an extraordinary corporate transaction, such as a
merger or a going private transaction, which results in our common stock (or
that of our successor) no longer being traded on a U.S. securities exchange or
quoted on The Nasdaq National Market. "Norris family" means all persons who are
lineal descendants of D.W. Norris (by birth or adoption), all spouses of such
descendants, all estates of such descendants or spouses
14
which are in the course of administration, all trusts for the benefit of such
descendants or spouses, and all corporations or other entities in which,
directly or indirectly, such descendants or spouses (either alone or in
conjunction with other such descendants or spouses) have the right, whether by
ownership of stock or other equity interests or otherwise, to direct the
management and policies of such corporations or other entities (each such
person, spouse, estate, trust, corporation or entity being referred to herein as
a "member" of the Norris family). In addition, members of the Norris family will
not be counted as affiliates or associates of any other person in determining
beneficial ownership of a "group" (as such term is used for purposes of Sections
13(d) and 14(d) of the Exchange Act); provided that such member does not
participate in an extraordinary corporate transaction, such as a merger or a
going private transaction, which results in our common stock (or that of our
successor) no longer being traded on a U.S. securities exchange or quoted on The
Nasdaq National Market.
However, a change in control will not be deemed to have occurred if either:
- the last sale price of our common stock for any five trading days during
the ten trading days immediately preceding the change in control is at
least equal to 105% of the conversion price in effect on such trading
day; or
- in the case of a merger or consolidation, all of the consideration
(excluding cash payments for fractional shares and cash payments pursuant
to dissenters' appraisal rights) in the merger or consolidation
constituting the change of control consists of common stock traded on a
U.S. securities exchange or quoted on the Nasdaq National Market (or
which will be so traded or quoted when issued or exchanged in connection
with such change in control) and as a result of such transaction or
transactions the notes become convertible solely into such common stock.
In connection with any purchase offer in the event of a change in control,
we will to the extent applicable:
- comply with the provisions of Rule 13e-4, Rule 14e-1 and any other tender
offer rules under the Exchange Act which may then be applicable; and
- file Schedule TO or any other required schedule under the Exchange Act.
The phrase "all or substantially all" of our assets will likely be
interpreted under applicable law and will be dependent upon particular facts and
circumstances. As a result, there may be a degree of uncertainty in ascertaining
whether a sale, lease or transfer of "all or substantially all" of our assets
has occurred, in which case a holder's ability to require us to purchase their
notes upon a change in control may be impaired. In addition, we can give no
assurance that we will be able to acquire the notes tendered upon a change in
control.
The change in control purchase feature of the notes may in certain
circumstances make more difficult or discourage a takeover of our company.
We could, in the future, enter into certain transactions, including certain
capitalizations, that would not constitute a change in control with respect to
the change in control purchase feature of the notes but that would increase the
amount of our, or our subsidiaries', indebtedness.
We may not purchase notes at the option of holders upon a change in control
if there has occurred and is continuing an event of default with respect to the
notes, other than a default in the payment of the change in control purchase
price with respect to the notes.
SUBORDINATION OF NOTES
Upon any distribution to our creditors in our liquidation or dissolution or
in a bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to us or our property, the payment of all amounts due on the notes
(other than cash payments due upon conversion in lieu of fractional shares) will
be subordinated, to the extent provided in the indenture, in right of payment to
the prior payment in full of all senior indebtedness and all indebtedness of our
subsidiaries.
15
We will not pay, directly or indirectly, any amount due on the notes
(including any repurchase price pursuant to the exercise of the repurchase
right), or acquire any of the notes, in the following circumstances:
- if any default in payment of principal, premium, if any, or interest on
senior indebtedness (as defined below) exists, unless and until the
default has been cured or waived or has ceased to exist;
- if any default, other than a default in payment of principal, premium, if
any, or interest, has occurred with respect to senior indebtedness, and
that default permits the holders of the senior indebtedness to accelerate
its maturity, until the expiration of the "payment blockage period"
described below unless and until the default has been cured or waived or
has ceased to exist; or
- if the maturity of senior indebtedness has been accelerated, until the
senior indebtedness has been paid or the acceleration has been cured or
waived.
A "payment blockage period" is a period that begins on the date that we
receive a written notice from any holder of senior indebtedness or a holder's
representative, or from a trustee under an indenture under which senior
indebtedness has been issued, that an event of default with respect to and as
defined under any senior indebtedness (other than default in payment of the
principal of, or premium, if any, or interest on any senior indebtedness), which
event of default permits the holders of senior indebtedness to accelerate its
maturity, has occurred and is continuing and ends on the earlier of (1) the date
on which such event of default has been cured or waived and (2) 180 days from
the date notice is received. Notwithstanding the foregoing, only one payment
blockage notice with respect to the same event of default may be given during
any period of 360 consecutive days unless such event of default has been cured
or waived for a period of not less than 90 consecutive days; provided that in no
event shall more than one interest payment be blocked during any such 360-day
period. No new payment blockage notice may be commenced by the holders of senior
indebtedness during any period of 360 consecutive days unless all events of
default which trigger the preceding payment blockage period have been cured or
waived. However, if the maturity of such senior indebtedness is accelerated, no
payment may be made on the notes until such senior indebtedness that has matured
has been paid or such acceleration has been cured or waived.
Senior indebtedness is defined in the indenture as all indebtedness (as
defined below) of ours outstanding at any time that is senior in right of
payment to the notes except indebtedness that by its terms is pari passu or
subordinate in right of payment to the notes. Senior indebtedness does not
include our indebtedness to any of our subsidiaries.
Indebtedness is defined with respect to any person as the principal of, and
premium, if any, and interest on (a) all indebtedness of such person for
borrowed money (including all indebtedness evidenced by notes, bonds, debentures
or other securities sold by such person for money), (b) all obligations incurred
by such person in the acquisition (whether by way of purchase, merger,
consolidation or otherwise and whether by such person or another person) of any
business, real property or other assets (except inventory and related items
acquired in the ordinary course of the conduct of the acquiror's usual
business), (c) guarantees by such person of indebtedness described in clause (a)
or (b) of another person, (d) all renewals, extensions, refundings, deferrals,
restructurings, amendments and modifications of any indebtedness, obligation or
guarantee, (e) all reimbursement obligations of such person with respect to
letters of credit, bankers' acceptances or similar facilities issued for the
account of such person, (f) all capital lease obligations of such person and (g)
all net obligations of such person under interest rate swaps, currency exchanges
or similar agreements of such person.
By reason of the subordination provisions described above, in the event of
insolvency, funds which would otherwise be payable to noteholders will be paid
to the holders of senior indebtedness to the extent necessary to pay senior
indebtedness in full. As a result of these payments, our general creditors may
recover less, ratably, than holders of senior indebtedness and such general
creditors may recover more, ratably, than holders of notes or other subordinated
indebtedness of ours.
Substantially all of our operations are currently and are expected in the
future to be conducted through subsidiaries, which are separate and distinct
legal entities and have no obligation, contingent or otherwise, to pay any
amounts due on the notes or to make any funds available therefor, whether by
dividends, loans or
16
other payments. The payment of dividends and loans and advances to us by our
subsidiaries may be subject to statutory or contractual restrictions, are
contingent upon the earnings of our subsidiaries and are subject to various
business considerations.
The notes are effectively subordinated to all indebtedness and other
liabilities and commitments (including trade payables) of our subsidiaries. Any
right that we have to receive assets of any of our subsidiaries upon its
liquidation or reorganization (and the consequent right of the holders of the
notes to participate in those assets) will be effectively subordinated to the
claims of that subsidiary's creditors (including trade creditors), except to the
extent that we ourselves are recognized as a creditor of that subsidiary, in
which case our claims would still be subordinate to any security interests in
the assets of that subsidiary and any indebtedness of that subsidiary senior to
that held by us.
There are no restrictions in the indenture upon the creation of additional
senior indebtedness by us, or on the creation of any indebtedness by us or any
of our subsidiaries. As of December 31, 2002, we had approximately $236.1
million of consolidated indebtedness and other obligations effectively ranking
senior to the notes.
MERGER OR CONSOLIDATION, OR CONVEYANCE, TRANSFER OR LEASE OF PROPERTIES AND
ASSETS
The indenture provides that we may not consolidate with or merge with or
into any other person or convey, transfer or lease our properties and assets
substantially as an entirety to another person, unless, among other things:
- the resulting, surviving or transferee person is a corporation organized
and existing under the laws of the United States, any state thereof or
the District of Columbia;
- such person assumes all our obligations under the notes and the
indenture; and
- we or such successor person shall not immediately thereafter be in
default under the indenture.
Upon the assumption of our obligations by such a person in such
circumstances, subject to certain exceptions, we shall be discharged from all
obligations under the notes and the indenture.
Although such transactions are permitted under the indenture, certain of
the foregoing transactions could constitute a change in control permitting each
holder to require us to purchase the notes of such holder as described in
"-- Change in Control Permits Purchase of Notes by Us at the Option of the
Holder."
EVENTS OF DEFAULT
The following are events of default for the notes:
- default in the payment of the principal amount, redemption price or
change in control purchase price with respect to any note when such
amount becomes due and payable;
- default in the payment of accrued and unpaid interest, if any (including
liquidated damages), on the notes for 30 days;
- failure by us to comply with any of our other covenants in the notes or
the indenture upon receipt by us of notice of such default by the trustee
or by holders of not less than 25% in aggregate principal amount of the
notes then outstanding and our failure to cure (or obtain a waiver of)
such default within 60 days after receipt of such notice;
- default by us in the payment at the final maturity thereof, after the
expiration of any applicable grace period, of principal of, or premium,
if any, on indebtedness for money borrowed, other than non-recourse
indebtedness, in the principal amount then outstanding of $25 million or
more, or acceleration of any indebtedness in such principal amount so
that it becomes due and payable prior to the date on which it would
otherwise have become due and payable and such acceleration is not
rescinded within 30 business days after notice to us in accordance with
the indenture; or
- certain events of bankruptcy, insolvency or reorganization affecting us.
17
If an event of default shall have occurred and be continuing, either the
trustee or the holders of not less than 25% in aggregate principal amount of
notes then outstanding may declare the principal amount of the notes plus
accrued and unpaid interest, if any, on the notes accrued through the date of
such declaration to be immediately due and payable. In the case of certain
events of our bankruptcy, insolvency or reorganization, the principal amount of
the notes plus accrued and unpaid interest, if any, accrued thereon through the
occurrence of such event shall automatically become and be immediately due and
payable.
MODIFICATIONS OF THE INDENTURE
We and the trustee may enter into supplemental indentures that add, change
or eliminate provisions of the indenture or modify the rights of the holders of
the notes with the consent of the holders of at least a majority in principal
amount of the notes then outstanding. However, without the consent of each
holder, no supplemental indenture may:
- reduce the rate or change the time of payment of interest (including any
liquidated damages) on any note;
- make any note payable in money or securities other than that stated in
the note;
- change the stated maturity of any note;
- reduce the principal amount, redemption price or change in control
purchase price with respect to any note;
- make any change that adversely affects the right of a holder to require
us to purchase a note;
- adversely affect the right to convert, or receive payment with respect
to, a note, or the right to institute suit for the enforcement of any
payment with respect to, or conversion of, the notes; or
- change the provisions in the indenture that relate to modifying or
amending the indenture.
Without the consent of any holder of notes, we and the trustee may enter
into supplemental indentures for any of the following purposes:
- to evidence a successor to us and the assumption by that successor of our
obligations under the indenture and the notes;
- to add to our covenants for the benefit of the holders of the notes or to
surrender any right or power conferred upon us;
- to secure our obligations in respect of the notes;
- to make any changes or modifications to the indenture necessary in
connection with the registration of the notes under the Securities Act of
1933 and the qualification of the indenture under the Trust Indenture Act
of 1939;
- to cure any ambiguity or inconsistency in the indenture; or
- to make any changes that do not adversely affect the rights of any
holder.
No supplemental indenture entered into pursuant to the second, third,
fourth or fifth bullets of the preceding paragraph may be entered into without
the consent of the holders of a majority in principal amount of the notes,
however, if such supplemental indenture may materially and adversely affect the
interests of the holders of the notes.
The holders of a majority in principal amount of the outstanding notes may,
on behalf of the holders of all notes:
- waive compliance by us with restrictive provisions of the indenture, as
detailed in the indenture; and
- waive any past default under the indenture and its consequences, except a
default in the payment of the principal amount, accrued and unpaid
interest, if any (including liquidated damages), redemption
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price or change in control purchase price or obligation to deliver common
shares upon conversion with respect to any note or in respect of any
provision which under the indenture cannot be modified or amended without
the consent of the holder of each outstanding note affected.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATORS AND
SHAREHOLDERS
No director, officer, employee, incorporator or shareholder of ours, as
such, shall have any liability for any of our obligations under the notes or the
indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each holder of notes by accepting a note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the notes. The waiver may not be effective to
waive liabilities under the federal securities laws, and it is the view of the
Securities and Exchange Commission that a waiver of such liabilities is against
public policy.
UNCLAIMED MONEY; PRESCRIPTION
If money deposited with the trustee or paying agent for the payment of
principal or interest remains unclaimed for two years, the trustee and paying
agent shall notify us and shall pay the money back to us at our written request.
Thereafter, holders of notes entitled to the money must look to us for payment,
subject to applicable law, and all liability of trustee and the paying agent
shall cease. Other than as described in this paragraph, the indenture does not
provide for any prescription period for the payment of interest and principal on
the notes.
REPORTS TO TRUSTEE
We will regularly furnish to the trustee copies of our annual report to
stockholders, containing audited financial statements, and any other financial
reports which we furnish to our stockholders.
TRUSTEE AND TRANSFER AGENT
The trustee for the notes is The Bank of New York. The transfer agent for
our common stock is Mellon Investor Services LLC.
LISTING AND TRADING
The notes originally issued in the private placement are eligible for
trading on the PORTAL Market. However, notes sold pursuant to this prospectus
will no longer be eligible for trading on the PORTAL Market. We do not intend to
list the notes on any national securities exchange. Our common stock is listed
on the New York Stock Exchange under the symbol "LII."
FORM, DENOMINATION AND REGISTRATION OF NOTES
The notes were issued in registered form, without interest coupons, in
denominations of $1,000 and integral multiples thereof, in the form of both
global securities and certificated securities, as further provided below.
The trustee is not required:
- to issue, register the transfer of or exchange any note for a period of
15 days before a selection of notes to be redeemed or repurchased,
- to register the transfer of or exchange any note so selected for
redemption or repurchase in whole or in part, except, in the case of a
partial redemption or repurchase, that portion of any of the notes not
being redeemed or repurchased, or
- if a redemption or a repurchase is to occur after a regular record date
but on or before the corresponding interest payment date, to register the
transfer or exchange of any note on or after the regular record date and
before the date of redemption or repurchase.
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See "-- Global Securities" and "-- Certificated Securities" for a
description of additional transfer restrictions applicable to the notes.
No service charge will be imposed in connection with any transfer or
exchange of any note, but we may in general require payment of a sum sufficient
to cover any transfer tax or similar governmental charge payable in connection
therewith.
GLOBAL SECURITIES
Global securities representing the notes have been deposited with a
custodian for The Depository Trust Company ("DTC"), and registered in the name
of DTC or a nominee for DTC.
Except in the limited circumstances described below and in "-- Certificated
Securities," holders of notes represented by interests in a global security will
not be entitled to receive notes in certificated form. Unless and until it is
exchanged in whole or in part for certificated securities, each global security
may not be transferred except as a whole by DTC to a nominee of DTC or by a
nominee of DTC to DTC or another nominee of DTC.
Any beneficial interest in one global security that is transferred to a
person who takes delivery in the form of an interest in another global security
will, upon transfer, cease to be an interest in such global security and become
an interest in the other global security and, accordingly, will thereafter be
subject to all transfer restrictions applicable to beneficial interests in such
other global security for as long as it remains such an interest.
The custodian and DTC will electronically record the principal amount of
notes represented by global securities held within DTC. Beneficial interests in
the global securities will be shown on records maintained by DTC and its direct
and indirect participants, including Euroclear Bank, S.A./N.V., as operator of
the Euroclear System ("Euroclear") and Clearstream Banking, societe anonyme
("Clearstream"). So long as DTC or its nominee is the registered owner or holder
of a global security, DTC or such nominee will be considered the sole owner or
holder of the notes represented by such global security for all purposes under
the indenture and the notes. No owner of a beneficial interest in a global
security will be able to transfer such interest except in accordance with DTC's
applicable procedures and the applicable procedures of its direct and indirect
participants.
Payments of principal and interest under each global security will be made
to DTC's nominee as the registered owner of such global security. We expect that
the nominee, upon receipt of any such payment, will immediately credit DTC
participants' accounts with payments proportional to their respective beneficial
interests in the principal amount of the relevant global security as shown on
the records of DTC. We also expect that payments by DTC participants to owners
of beneficial interests will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of customers
registered in the names of nominees for such customers. Such payments will be
the responsibility of such participants, and none of us, the trustee, the
custodian or any paying agent or registrar will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial interests in any global security or for maintaining or reviewing
any records relating to such beneficial interests.
DTC has advised us that it is a limited-purpose trust company organized
under the laws of the State of New York, a member of the Federal Reserve System,
a "clearing corporation" within the meaning of the New York Uniform Commercial
Code, and a "clearing agency" registered under the Exchange Act. DTC was created
to hold the securities of its participants and to facilitate the clearance and
settlement of securities transactions among its participants in such securities
through electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. DTC's
participants include securities brokers and dealers (including the initial
purchasers), banks, trust companies, clearing corporations and certain other
organizations, some of whom (and/or their representatives) own the depository.
Access to DTC's book-entry system is also available to others, such as banks,
brokers, dealers and trust companies, that clear through or maintain a custodial
relationship with a participant, either directly or
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indirectly. The ownership interest and transfer of ownership interest of each
actual purchaser of each security held by or on behalf of DTC are recorded on
the records of the participants and indirect participants.
CERTIFICATED SECURITIES
If DTC notifies us that it is unwilling or unable to continue as depositary
for a global security and a successor depositary is not appointed by us within
90 days of such notice, or an event of default has occurred and the trustee has
received a request from DTC, the trustee will exchange each beneficial interest
in that global security for one or more certificated securities registered in
the name of the owner of such beneficial interest, as identified by DTC.
SAME-DAY SETTLEMENT AND PAYMENT
The indenture requires that payments in respect of the notes represented by
the global securities be made by wire transfer of immediately available funds to
the accounts specified by holders of the global securities. With respect to
notes in certificated form, we will make all payments by wire transfer of
immediately available funds to the accounts specified by the holders thereof or,
if no such account is specified, by mailing a check to each holder's registered
address.
The notes represented by the global securities are eligible for trading in
DTC's Same-Day Funds Settlement System, and any permitted secondary market
trading activity in such notes will, therefore, be required by DTC to be settled
in immediately available funds. We expect that secondary trading in any
certificated securities will also be settled in immediately available funds.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds. Transfers
between participants in Euroclear and Clearstream will be effected in the
ordinary way in accordance with their respective rules and operating procedures.
Cross-market transfers between DTC, on the one hand, and directly or
indirectly through Euroclear or Clearstream participants, on the other, will be
effected in DTC in accordance with DTC rules on behalf of Euroclear or
Clearstream, as the case may be, by its respective depositary; however, such
cross-market transactions will require delivery of instructions to Euroclear or
Clearstream, as the case may be, by the counterparty in such system in
accordance with its rules and procedures and within its established deadlines
(Brussels time). Euroclear or Clearstream, as the case may be, will, if the
transaction meets its settlement requirements, deliver instructions to its
respective depositary to take action to effect final settlement on its behalf by
delivering or receiving interests in the global security in DTC, and making or
receiving payment in accordance with normal procedures for same-day funds
settlement applicable to DTC. Euroclear participants and Clearstream
participants may not deliver instructions directly to the depositaries for
Euroclear or Clearstream.
Because of time zone differences, the securities account of a Euroclear or
Clearstream participant purchasing an interest in a global security from a
participant in DTC will be credited, and any such crediting will be reported to
the relevant Euroclear or Clearstream participant, during the securities
settlement processing day (which must be a business day for Euroclear and
Clearstream) immediately following the settlement date of DTC. DTC has advised
us that cash received in Euroclear or Clearstream as a result of sales of
interests in a global security by or through a Euroclear or Clearstream
participant to a Participant in DTC will be received with value on the
settlement date of DTC but will be available in the relevant Euroclear or
Clearstream cash account only as of the business day for Euroclear or
Clearstream following DTC's settlement date.
The information described above concerning DTC, Euroclear and Clearstream
and their book-entry systems has been obtained from third-party sources that we
believe to be reliable.
Although DTC, Euroclear and Clearstream have agreed to the foregoing
procedures to facilitate transfers of interests in the global securities among
participants in DTC, Euroclear and Clearstream, they are under no obligation to
perform or to continue those procedures, and those procedures may be
discontinued at any time. None of us, the initial purchasers of the notes in the
private placement or the trustee will have any
21
responsibility for the performance by DTC, Euroclear or Clearstream or their
respective participants or indirect participants of their respective obligations
under the rules and procedures governing their operations.
PURCHASE AND CANCELLATION
All notes surrendered for payment, redemption, registration of transfer or
exchange or conversion shall, if surrendered to any person other than the
trustee, be delivered to the trustee. All notes delivered to the trustee shall
be cancelled promptly by the trustee. No notes shall be authenticated in
exchange for any notes cancelled.
We may, to the extent permitted by law, purchase notes in the open market
or by tender offer at any price or by private agreement. Any notes purchased by
us may, to the extent permitted by law, be reissued or resold or may, at our
option, be surrendered to the trustee for cancellation. Any notes surrendered
for cancellation may not be reissued or resold and will be promptly cancelled.
Any notes held by us or one of our subsidiaries shall be disregarded for voting
purposes in connection with any notice, waiver, consent or direction requiring
the vote or concurrence of note holders.
REGISTRATION RIGHTS
In connection with the private placement on May 8, 2002, we entered into a
registration rights agreement with the initial purchasers of the notes. In the
registration rights agreement, we agreed to use our commercially reasonable
efforts to keep the registration statement of which this prospectus is a part
effective for a period of two years after the original issuance of the notes on
May 8, 2002 or such shorter time (1) as permitted by Rule 144(k) under the
Securities Act or any successor provisions thereunder or (2) that will terminate
when each of the registrable securities covered by the registration statement
ceases to be a registrable security. "Registrable securities" means each note
and any underlying share of common stock until the earlier of (x) the date on
which such note or underlying share of common stock has been effectively
registered under the Securities Act and disposed of, whether or not in
accordance with the registration statement of which this prospectus forms a
part, and (y) the date which is two years after the date of original issue of
such note or such shorter period of time as permitted by Rule 144(k) under the
Securities Act or any successor provision thereunder.
We are permitted to prohibit offers and sales of securities pursuant to
this prospectus under certain circumstances and subject to certain conditions
for a period not to exceed 45 days in the aggregate in any three-month period or
90 days in the aggregate in any 12-month period. We also agreed to pay
liquidated damages to certain holders of the notes and shares of common stock
issuable upon conversion of the notes if the prospectus is unavailable for
periods in excess of those permitted.
GOVERNING LAW
The indenture and the notes are governed by and construed in accordance
with the laws of the State of New York, without giving effect to such state's
conflicts of laws principles.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 200,000,000 shares of common stock
and 25,000,000 shares of preferred stock, par value $.01 per share. Of the
200,000,000 shares of common stock authorized, 60,786,815 were outstanding as of
December 31, 2002, 3,009,656 shares were held in treasury and 19,203,534 shares
have been reserved for issuance under our incentive plans and employee stock
purchase program. None of the preferred stock is outstanding.
COMMON STOCK
The holders of our common stock are entitled to one vote per share on all
matters to be voted on by stockholders. Generally, all matters to be voted on by
stockholders must be approved by a majority (or, in the case of election of
directors, by a plurality) of the votes entitled to be cast by all shares of
common stock
22
present in person or represented by proxy, voting together as a single class,
except as may be required by law and subject to any voting rights granted to
holders of any preferred stock. However, the removal of a director from office,
the approval and authorization of specified business combinations and amendments
to specified provisions of our certificate of incorporation each require the
approval of not less than 80% of the combined voting power of our outstanding
shares of stock entitled to vote generally in the election of directors, voting
together as a single class. See "-- Certificate of Incorporation and Bylaw
Provisions." The common stock does not have cumulative voting rights.
Subject to the prior rights of the holders of any shares of our preferred
stock, the holders of our common stock shall be entitled to receive, to the
extent permitted by law, such dividends as may be declared from time to time by
our board of directors. On our liquidation, dissolution or winding up, after
payment in full of the amounts required to be paid to holders of preferred
stock, if any, all holders of common stock are entitled to share ratably in any
assets available for distribution to holders of shares of common stock.
The outstanding shares of our common stock are legally issued, fully paid
and nonassessable. The common stock does not have any preemptive, subscription
or conversion rights. Additional shares of authorized common stock may be
issued, as authorized by our board of directors from time to time, without
stockholder approval, except as may be required by applicable stock exchange
requirements.
PREFERRED STOCK
As of the date of this prospectus, no shares of preferred stock are
outstanding. Our board of directors may authorize the issuance of preferred
stock in one or more series and may determine, for the series, the designations,
powers, preferences and rights of such series, and the qualifications,
limitations and restrictions of the series, including:
- the designation of the series;
- the consideration for which the shares of any such series are to be
issued;
- the rate or amount per annum, if any, at which holders of the shares of
such series shall be entitled to receive dividends, the dates on which
such dividends shall be payable, whether the dividends shall be
cumulative or noncumulative, and if cumulative, the date or dates from
which such dividends shall be cumulative;
- the redemption rights and price or prices, if any, for shares of the
series;
- the amounts payable on and the preferences, if any, of shares of the
series in the event of dissolution or upon distribution of our assets;
- whether the shares of the series will be convertible into or exchangeable
for other of our securities, and the price or prices or rate or rates at
which conversion or exchange shall be exercised;
- the terms and amounts of any sinking fund provided for the purchase or
redemption of shares of the series;
- the voting rights, if any, of the holders of shares of the series; and
- such other preferences and rights, privileges and restrictions applicable
to any such series as may be permitted by law.
We believe that the ability of our board of directors to issue one or more
series of preferred stock will provide us with flexibility in structuring
possible future financings and acquisitions and in meeting other corporate needs
that might arise. The authorized shares of preferred stock will be available for
issuance without further action by our stockholders, unless such action is
required by applicable law or the rules of any stock exchange on which our
securities may be listed or traded.
Although our board of directors has no intention at the present time of
doing so, it could issue a series of preferred stock that could, depending on
the terms of such series, impede the completion of a merger, tender offer or
other takeover attempt. Our board of directors will make any determination to
issue such shares based
23
on its judgment as to our best interests and the best interests of our
stockholders. Our board of directors, in so acting, could issue preferred stock
having terms that could discourage a potential acquiror from making, without
first negotiating with our board of directors, an acquisition attempt through
which such acquiror may be able to change the composition of our board of
directors, including a tender offer or other transaction that some, or a
majority, of our stockholders might believe to be in their best interests or in
which stockholders might receive a premium for their stock over the then current
market price of such stock.
BUSINESS COMBINATION STATUTE
As a corporation organized under the laws of the State of Delaware, we will
be subject to Section 203 of the Delaware General Corporation Law, which
restricts specified business combinations between us and an "interested
stockholder" or its affiliates or associates for a period of three years
following the time that the stockholder becomes an "interested stockholder." In
general, an "interested stockholder" is defined as a stockholder owning 15% or
more of our outstanding voting stock. The restrictions do not apply if:
- prior to an interested stockholder becoming such, our board of directors
approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder;
- upon completion of the transaction which resulted in any person becoming
an interested stockholder, such interested stockholder owns at least 85%
of our voting stock outstanding at the time the transaction commenced,
excluding shares owned by employee stock ownership plans and persons who
are both directors and officers of Lennox; or
- at or subsequent to the time an interested stockholder becomes such, the
business combination is both approved by our board of directors and
authorized at an annual or special meeting of our stockholders, not by
written consent, by the affirmative vote of at least 66 2/3% of the
outstanding voting stock not owned by the interested stockholder.
Under some circumstances, Section 203 makes it more difficult for a person
who would be an "interested stockholder" to effect various business combinations
with a corporation for a three-year period, although the stockholders may elect
to exclude a corporation from the restrictions imposed under Section 203. Our
certificate of incorporation does not exclude us from the restrictions imposed
under Section 203. It is anticipated that the provisions of Section 203 may
encourage companies interested in acquiring us to negotiate in advance with our
board of directors since the stockholder approval requirement would be avoided
if a majority of the directors then in office approves, prior to the date on
which a stockholder becomes an interested stockholder, either the business
combination or the transaction which results in the stockholder becoming an
interested stockholder.
CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS
The summary below describes provisions of our certificate of incorporation
and bylaws. The provisions of our certificate of incorporation and bylaws
discussed below may have the effect, either alone or in combination with the
provisions of Section 203 discussed above, of making more difficult or
discouraging a tender offer, proxy contest or other takeover attempt that is
opposed by our board of directors but that a stockholder might consider to be in
such stockholder's best interest. Those provisions include:
- restrictions on the rights of stockholders to remove directors;
- prohibitions against stockholders calling a special meeting of
stockholders or acting by unanimous written consent in lieu of a meeting;
- requirements for advance notice of actions' proposed by stockholders for
consideration at meetings of the stockholders; and
- restrictions on business combination transactions with any person, entity
or group that beneficially owns at least 10% of our aggregate voting
stock -- such person, entity or group is sometimes referred to as a
"Related Person."
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CLASSIFIED BOARD OF DIRECTORS; REMOVAL; NUMBER OF DIRECTORS, FILLING VACANCIES
Our certificate of incorporation and bylaws provide that our board of
directors shall be divided into three classes, designated Class I, Class II and
Class III, with the classes to be as nearly equal in number as possible. The
term of office of each class shall expire at the third annual meeting of
stockholders for the election of directors following the election of such class.
Each director is to hold office until his or her successor is duly elected and
qualified, or until his or her earlier resignation or removal.
Our bylaws provide that the number of directors will be fixed from time to
time by to a resolution adopted by our board of directors; provided that the
number so fixed shall not be more than 15 nor less than three directors. Our
bylaws also provide that any vacancies will be filled only by the affirmative
vote of a majority of the remaining directors, even if less than a quorum.
Accordingly, absent an amendment to the bylaws, our board of directors could
prevent any stockholder from enlarging our board of directors and filling the
new directorships with such stockholder's own nominees. Moreover, our
certificate of incorporation and bylaws provide that directors may be removed
only for cause and only upon the affirmative vote of holders of at least 80% of
our voting stock at a special meeting of stockholders called expressly for that
purpose.
The classification of directors could have the effect of making it more
difficult for stockholders to change the composition of our board of directors.
At least two annual meetings of stockholders, instead of one, are generally
required to effect a change in a majority of our board of directors. Such a
delay may help ensure that our directors, if confronted by a holder attempting
to force a proxy contest, a tender or exchange offer, or an extraordinary
corporate transaction, would have sufficient time to review the proposal as well
as any available alternatives to the proposal and to act in what they believe to
be the best interest of the stockholders. The classification provisions will
apply to every election of directors, however, regardless of whether a change in
the composition of our board of directors would be beneficial to us and our
stockholders and whether or not a majority of our stockholders believe that such
a change would be desirable.
The classification provisions could also have the effect of discouraging a
third party from initiating a proxy contest, making a tender offer or otherwise
attempting to obtain control of us, even though such an attempt might be
beneficial to us and our stockholders. The classification of our board of
directors could thus increase the likelihood that incumbent directors will
retain their positions. In addition, because the classification provisions may
discourage accumulations of large blocks of our stock by purchasers whose
objective is to take control of us and remove a majority of our board of
directors, the classification of our board of directors could tend to reduce the
likelihood of fluctuations in the market price of the common stock that might
result from accumulations of large blocks. Accordingly, stockholders could be
deprived of opportunities to sell their shares of common stock at a higher
market price than might otherwise be the case.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT, SPECIAL MEETINGS
Our certificate of incorporation and bylaws provide that stockholder action
can be taken only at an annual or special meeting of stockholders and
stockholder action may not be taken by written consent in lieu of a meeting.
Special meetings of stockholders can be called only by our board of directors by
a resolution adopted by a majority of our board of directors, or by the chairman
of the board, vice chairman or the president. Moreover, the business permitted
to be conducted at any special meeting of stockholders is limited to the
business brought before the meeting under the notice of meeting given by us.
The provisions of our certificate of incorporation and bylaws prohibiting
stockholder action by written consent and permitting special meetings to be
called only by the chairman, vice chairman or president, or at the request of a
majority of our board or directors, may have the effect of delaying
consideration of a stockholder proposal until the next annual meeting. The
provisions would also prevent the holders of a majority of our voting stock from
unilaterally using the written consent procedure to take stockholder action.
Moreover, a stockholder could not force stockholder consideration of a proposal
over the opposition of the chairman, vice chairman or president, or a majority
of our board of directors, by calling a special meeting of stockholders prior to
the time such parties believe such consideration to be appropriate.
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ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND STOCKHOLDER
PROPOSALS
Our bylaws establish an advance notice procedure for stockholders to make
nominations of candidates for election as directors or bring other business
before an annual meeting of stockholders.
The stockholder notice procedure provides that only persons who are
nominated by, or at the direction of, our board of directors, or by a
stockholder who has given timely written notice containing specified information
to our secretary prior to the meeting at which directors are to be elected, will
be eligible for election as our directors. The stockholder notice procedure also
provides that at an annual meeting only such business may be conducted as has
been brought before the meeting by, or at the direction of, the chairman of the
board of directors, or in the absence of the chairman of the board, the
president, or by a stockholder who has given timely written notice containing
specified information to our secretary of such stockholder's intention to bring
such business before such meeting. Under the stockholder notice procedure, for
notice of stockholder nominations or proposals to be made at an annual meeting
to be timely, such notice must be received by us not less than 60 days nor more
than 90 days in advance of such meeting. For notice of stockholder nominations
or proposals to be made at a special meeting of stockholders to be timely, such
notice must be received by us not later than the close of business on the tenth
day following the date on which notice of such meeting is first given to
stockholders. However, in the event that less than 70 days notice or prior
public disclosure of the date of the meeting of stockholders is given or made to
the stockholders, to be timely, notice of a nomination or proposal delivered by
the stockholder must be received by our secretary not later than the close of
business on the tenth day following the day on which notice of the date of the
meeting of stockholders was mailed or such public disclosure was made to the
stockholders. If our board of directors or, alternatively, the presiding officer
at a meeting, in the case of a stockholder proposal, or the chairman of the
meeting, in the case of a stockholder nomination to our board of directors,
determines at or prior to the meeting that business was not brought before the
meeting or a person was not nominated in accordance with the stockholder notice
procedure, such business will not be conducted at such meeting, or such person
will not be eligible for election as a director, as the case may be.
By requiring advance notice of nominations by stockholders, the stockholder
notice procedure will afford our board of directors an opportunity to consider
the qualifications of the proposed nominees and, to the extent considered
necessary or desirable by our board of directors, to inform stockholders about
such qualifications. By requiring advance notice of other proposed business, the
stockholder notice procedure will also provide a more orderly procedure for
conducting annual meetings of stockholders and, to the extent considered
necessary or desirable by our board of directors, will provide our board of
directors with an opportunity to inform stockholders, prior to such meetings, of
any business proposed to be conducted at such meetings, together with any
recommendations as to our board of directors' position regarding action to be
taken regarding such business, so that stockholders can better decide whether to
attend such a meeting or to grant a proxy regarding the disposition of any such
business.
Although our bylaws do not give our board of directors any power to approve
or disapprove stockholder nominations for the election of directors or proposals
for action, they may have the effect of precluding a contest for the election of
directors or the consideration of stockholder proposals if the proper procedures
are not followed, and of discouraging or deterring a third party from conducting
a solicitation of proxies to elect its own slate of directors or to approve its
own proposal, without regard to whether consideration of such nominees or
proposals might be harmful or beneficial to us and our stockholders.
FAIR PRICE PROVISION
Our certificate of incorporation contains a "fair price" provision that
applies to specified business combination transactions involving any person,
entity or group that beneficially owns at least 10% of our aggregate voting
stock -- such person, entity or group is sometimes referred to as a "related
person." This
26
provision requires the affirmative vote of the holders of not less than 80% of
our voting stock to approve specified transactions between a related person and
us or our subsidiaries, including:
- any merger, consolidation or share exchange;
- any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of our assets, or the assets of any of our subsidiaries
having a fair market value of more than 10% of our total consolidated
assets, or assets representing more than 10% of our earning power and our
subsidiaries taken as a whole, which is referred to as a "substantial
part";
- any sale, lease, exchange, mortgage, pledge, transfer or other
disposition to or with us or any of our subsidiaries of all or a
substantial part of the assets of a related person;
- the issuance or transfer of any of our securities or any of our
subsidiaries by us or any of our subsidiaries to a related person;
- any reclassification of securities, recapitalization, or any other
transaction involving us or any of our subsidiaries that would have the
effect of increasing the voting power of a related person;
- the adoption of a plan or proposal for our liquidation or dissolution
proposed by or on behalf of a related person;
- the acquisition by or on behalf of a related person of shares
constituting a majority of our voting power; and
- the entering into of any agreement, contract or other arrangement
providing for any of the transactions described above.
This voting requirement will not apply to certain transactions, including:
(a) any transaction approved by a two-thirds vote of the continuing
directors; or
(b) any transaction in which:
(1) the consideration to be received by the holders of common
stock, other than the related person involved in the business
combination, is not less in amount than the highest per share price paid
by the related person in acquiring any of its holdings of common stock;
and
(2) if necessary, a proxy statement complying with the requirements
of the Securities Exchange Act of 1934 shall have been mailed at least
30 days prior to any vote on such business combination to all of our
stockholders for the purpose of soliciting stockholder approval of such
business combination.
This provision could have the effect of delaying or preventing a change in
control of us in a transaction or series of transactions that did not satisfy
the "fair price" criteria.
LIABILITY OF DIRECTORS, INDEMNIFICATION
Our certificate of incorporation provides that a director will not be
personally liable for monetary damages to us or our stockholders for breach of
fiduciary duty as a director, except for liability:
- for any breach of the director's duty of loyalty to us or our
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- for paying a dividend or approving a stock repurchase in violation of
Section 174 of the Delaware General Corporation Law; or
- for any transaction from which the director derived an improper personal
benefit.
Any amendment or repeal of such provision shall not adversely affect any
right or protection of a director existing under such provision for any act or
omission occurring prior to such amendment or repeal.
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Our bylaws provide that each person who at any time serves or served as one
of our directors or officers, or any person who, while one of our directors or
officers, is or was serving at our request as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise, shall be
entitled to indemnification and the advancement of expenses from us, and to the
fullest extent, permitted by Section 145 of the Delaware General Corporation Law
or any successor statutory provision. We will indemnify any person who was or is
a party to any threatened, pending or completed action, suit or proceeding
because he or she is or was one of our directors or officers, or is or was
serving at our request as a director or officer of another corporation,
partnership or other enterprise. However, as provided in Section 145, this
indemnification will only be provided if the indemnitee acted in good faith and
in a manner he or she reasonably believed to be in, or not opposed to, our best
interests.
AMENDMENTS
Our certificate of incorporation provides that we reserve the right to
amend, alter, change, or repeal any provision contained in our certificate of
incorporation, and all rights conferred to stockholders are granted subject to
such reservation. The affirmative vote of holders of not less than 80% of our
voting stock, voting together as a single class, shall be required to alter,
amend, adopt any provision inconsistent with or repeal specified provisions of
our certificate of incorporation, including those provisions discussed in this
section. In addition, the 80% vote described in the prior sentence shall not be
required for any alteration, amendment, adoption of inconsistent provision or
repeal of the "fair price" provision discussed under "-- Fair Price Provision"
above which is recommended to the stockholders by two-thirds of our continuing
directors and such alteration, amendment, adoption of inconsistent provision or
repeal shall require the vote, if any, required under the applicable provisions
of the Delaware General Corporation Law and our certificate of incorporation. In
addition, our certificate of incorporation provides that stockholders may only
adopt, amend or repeal our bylaws by the affirmative vote of holders of not less
than 80% of our voting stock, voting together as a single class. Our bylaws may
be amended by our board of directors.
RIGHTS PLAN
On July 27, 2000, our board of directors declared a dividend of one
preferred stock purchase right (individually, a "right" and collectively, the
"rights") to stockholders of record at the close of business on August 7, 2000
and approved the further issuance of rights with respect to all shares of common
stock that are subsequently issued. The rights expire on July 27, 2010. Each
right entitles the holder, under certain circumstances, to purchase from us one
one-hundredth of a share of our Series A Junior Participating Preferred Stock at
an exercise price of $75.00 per fractional share subject to certain adjustments.
Initially, the rights are attached to outstanding certificates representing
our common stock, and no separate certificates representing the rights are
distributed. The rights will separate from our common stock and will become
exercisable upon the earlier of
- ten days following a public announcement or disclosure that a person or
group (an "acquiring person") becomes the beneficial owner of 15% or more
of our outstanding common stock; or
- ten days following the commencement of a tender offer or exchange offer
which would result in the offeror becoming an acquiring person.
Lineal descendants of D.W. Norris (and their spouses) and trusts
established primarily for the benefit of such lineal descendants (and their
spouses) will not become an acquiring person and will not be counted as
affiliates or associates of any other person in determining whether such person
is an acquiring person, in each case as long as the primary purpose for holding
shares in us is not to effect an extraordinary corporate transaction. In
addition, holders of 1% or more of our common stock which are identified in the
prospectus relating to our initial public offering are also excluded from
becoming an acquiring person.
If the rights become exercisable, each right (other than rights held by the
acquiring person) will entitle the holder to purchase, at a price equal to the
exercise price of the right, a number of shares of our common stock having a
then-current market value of twice the exercise price of the right. If at any
time from and after
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the time an acquiring person becomes such we agree to merge into another entity
or we sell more than 50% of our assets, each right (other than rights held by
the acquiring person) will entitle the holder to purchase, at a price equal to
the exercise price of the right, a number of shares of common stock of such
entity having a then-current market value of twice the exercise price.
We will generally be entitled to redeem the rights at a price of $0.01 per
right at any time prior to the day a person becomes an acquiring person. The
description and terms of the rights are set forth in a Rights Agreement dated as
of July 27, 2000 entered into between us and the rights agent named therein. The
Rights Agreement was filed as an exhibit to our Current Report on Form 8-K dated
July 27, 2000, filed with the SEC.
The Rights Agreement approved by our board of directors is designed to
protect and maximize the value of our outstanding equity interests in the event
of an unsolicited attempt to acquire us in a manner or on terms not approved by
our board of directors and that prevent our stockholders from realizing the full
value of their shares of our common stock. However, the rights may have the
effect of rendering more difficult or discouraging an acquisition of us that is
deemed undesirable by our board of directors. The rights may cause substantial
dilution to a person or group that attempts to acquire us on terms or in a
manner not approved by our board of directors, except pursuant to an offer
conditioned upon the negation, purchase or redemption of the rights.
RIGHTS TO PURCHASE SECURITIES AND OTHER PROPERTY
Our certificate of incorporation authorizes our board of directors to
create and issue rights, warrants and options entitling the holders of them to
purchase from us shares of any class or classes of our capital stock or other
securities or property upon such terms and conditions as our board of directors
may deem advisable.
LISTING
Our common stock is listed on the New York Stock Exchange under the trading
symbol "LII."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is Mellon Investor
Services LLC.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
John W. Norris, Jr., our Chairman of the Board, David H. Anderson, Thomas
W. Booth, Stephen R. Booth, David V. Brown and John W. Norris III, each one of
our directors, as well as other stockholders, who may be immediate family
members of the foregoing persons, are, individually or through trust
arrangements, members of AOC Land Investment, L.L.C. AOC Land Investment, L.L.C.
owns 70% of AOC Development II, L.L.C., which owns substantially all of One Lake
Park, L.L.C. We are leasing part of an office building owned by One Lake Park,
L.L.C. for use as our corporate headquarters. The lease has a term of 25 years
and the lease payments for 2002, 2001 and 2000 totaled approximately $2.9, $2.7
million and $2.7 million respectively. We also lease a portion of Lennox Center,
a retail complex owned by AOC Development, L.L.C., for use as offices. The
Lennox Center lease has a term of three years and the lease payments for 2002
and 2001 totaled approximately $122,580 and $122,580, respectively. AOC Land
Investment, L.L.C. also owns 70% of AOC Development, L.L.C. We believe that the
terms of our lease with One Lake Park, L.L.C. and AOC Development, L.L.C. are at
least as favorable as could be obtained from unaffiliated third parties.
From time to time we have entered into stock disposition agreements, which
allowed our executive officers, directors, and stockholders to borrow money from
third-parties and use our capital stock held by them as collateral. The stock
disposition agreements provide that in the event of a default on the underlying
loan, we will do one of several things, including registering the capital stock
under the Securities Act of 1933, finding a buyer to purchase the stock or
purchasing the stock ourselves. There was never a default under any of these
agreements. As of March 1, 2002 and March 15, 2001, there was one stock
disposition agreement in existence,
29
entered into in 1997, covering approximately 250,000 shares of our common stock.
As of March 1, 2000, there were stock disposition agreements in existence
covering 1,809,120 shares of our common stock. As of December 31, 2002, all
stock disposition agreements were terminated. Lennox will not enter into these
types of agreements in the future.
These transactions were not the result of arms-length negotiations.
Accordingly, certain of the terms of these transactions may be more or less
favorable to us than might have been obtained from unaffiliated third parties.
We do not intend to enter into any future transaction in which our directors,
executive officers or principal stockholders and their affiliates have a
material interest unless such transactions are approved by a majority of the
disinterested members of our board of directors and are on terms that are no
less favorable to us than those that we could obtain from unaffiliated third
parties.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion describes the material United States federal
income tax consequences of the purchase of the notes, and the ownership and
disposition of the notes and our common stock into which such notes may be
converted. This discussion applies only to notes, and common stock into which
notes are converted, that are held as capital assets within the meaning of
Section 1221 of the Code (generally, for investment).
This discussion does not describe the United States federal income tax
consequences that may be relevant to a holder in light of such holder's
particular circumstances or to holders subject to special rules, such as:
- certain financial institutions;
- regulated investment companies;
- insurance companies;
- pension funds;
- tax-exempt organizations;
- dealers in securities or foreign currencies;
- persons holding notes as part of a "straddle," hedge, "conversion" or
similar transaction;
- persons deemed to sell the notes or common stock under the constructive
sale provisions of the Code;
- United States Holders (as defined below) whose functional currency is not
the United States dollar;
- certain former citizens or residents of the United States;
- partnerships or other entities classified as partnerships for United
States federal income tax purposes or persons who hold the notes or our
common stock through such entities; or
- persons subject to the alternative minimum tax.
This summary is based on the Code, administrative pronouncements, judicial
decisions and final, temporary and proposed Treasury regulations, changes to any
of which subsequent to the date of this prospectus may affect the tax
consequences described herein, possibly with retroactive effect. We have not
sought any ruling from the Internal Revenue Service ("IRS") with respect to the
statements made and the conclusions reached in this discussion, and there can be
no assurance that the IRS will agree with our statements or conclusions. PERSONS
CONSIDERING THE PURCHASE OF NOTES SHOULD CONSULT THEIR TAX ADVISERS WITH REGARD
TO THE APPLICATION OF THE UNITED STATES FEDERAL INCOME TAX LAWS TO THEIR
PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF
ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION.
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TAX CONSEQUENCES TO UNITED STATES HOLDERS
As used herein, the term "United States Holder" means a beneficial owner of
a note or our common stock that is for United States federal income tax
purposes:
- a citizen or resident of the United States;
- a corporation, or other entity taxable as a corporation for United States
federal income tax purposes, created or organized in or under the laws of
the United States or of any political subdivision thereof;
- an estate the income of which is subject to United States federal income
taxation regardless of its source; or
- a trust if:
- its administration is subject to the primary supervision of a court
within the United States and one or more United States persons has
authority to control all of its substantial decisions; or
- it was in existence on August 20, 1996, and has elected to continue to
be treated as a United States trust.
STATED INTEREST
Interest paid on a note will generally be taxable to a United States Holder
as ordinary interest income at the time it accrues or is received in accordance
with the United States Holder's method of accounting for federal income tax
purposes.
SALE, EXCHANGE OR RETIREMENT OF THE NOTES
Upon the sale, exchange or retirement (including redemption or repurchase,
but excluding conversion) of a note, a United States Holder will recognize
taxable gain or loss equal to the difference between (i) the amount realized
(i.e., the amount of cash and fair market value of property received in exchange
for the note, but not including any amounts received in respect of accrued
interest, which will be taxed as ordinary income) on the sale, exchange or
retirement and (ii) the United States Holder's adjusted tax basis in the note. A
United States Holder's adjusted tax basis in a note generally will be equal to
the United States Holder's original purchase price for the note. Except as
explained below in "Tax Consequences to United States Holders -- Market
Discount," gain or loss realized on the sale, exchange or retirement of a note
generally will be capital gain or loss and will be long-term capital gain or
loss if, at the time of sale, exchange or retirement, the note has been held for
more than one year.
CONVERSION OF THE NOTES
A United States Holder's conversion of a note into our common stock
generally will not be a taxable event, except that the receipt of cash in lieu
of a fractional share of common stock will result in capital gain or loss
(measured by the difference between the cash received in lieu of the fractional
share and the United States Holder's tax basis in the fractional share).
A United States Holder's tax basis in common stock received upon the
conversion of a note will be the same as the United States Holder's basis in the
note at the time of conversion, reduced by any basis allocated to a fractional
share. The United States Holder's holding period for the common stock received
will include the Holder's holding period for the note converted.
ADJUSTMENTS OF THE CONVERSION RATIO
The terms of the notes allow for changes in their conversion rate in
certain circumstances. Changes in conversion rate could be treated as a taxable
stock dividend if the changes have the effect of increasing a United States
Holder's proportionate interest in our earnings and profits. This could occur,
for example, if the conversion rate is adjusted to compensate holders of notes
for distributions of property to our stockholders. By contrast, changes in the
conversion rate will not be treated as a taxable stock dividend if the changes
simply
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prevent the dilution of interests of holders of the notes through application of
a bona fide, reasonable adjustment formula. Any taxable constructive stock
dividend resulting from a change to, or failure to change, the conversion rate
would be treated like dividends paid in cash or other property. The constructive
stock dividend would result in ordinary income to the recipient to the extent of
our earnings and profits (and an increase in the adjusted basis of the notes by
the same amount), with any excess treated first as a tax-free reduction in
adjusted basis and then as capital gain.
DIVIDENDS ON COMMON STOCK
If we make distributions on our common stock, those distributions will
generally be treated as a dividend, subject to tax as ordinary income, to the
extent of our current or accumulated earnings and profits as of the year of
distribution, then as a tax-free return of capital to the extent of the United
States Holder's adjusted tax basis in the common stock and thereafter as gain
from the sale or exchange of that stock.
SALE OF COMMON STOCK
Upon the sale or exchange of our common stock, a United States Holder
generally will recognize capital gain or loss equal to the difference between
(i) the amount of cash and the fair market value of any property received upon
the sale or exchange and (ii) the United States Holder's adjusted tax basis in
the common stock. That capital gain or loss will be long-term if the United
States Holder's holding period is more than one year and will be short-term if
the holding period is equal to or less than one year.
MARKET DISCOUNT
The resale of the notes may be affected by the market discount provisions
of the Code. For this purpose, the market discount on a note generally will
equal the amount, if any, by which the stated redemption price at maturity of
the note immediately after its acquisition (other than at original issue)
exceeds the United States Holder's adjusted tax basis in the note. Subject to a
limited exception, these provisions generally require a United States Holder who
acquires a note at a market discount to treat as ordinary income any gain
recognized on the disposition of that note to the extent of the accrued market
discount on that note at the time of maturity or disposition, unless the United
States Holder elects to include accrued market discount in income over the life
of the note.
This election to include market discount in income over the life of the
note, once made, applies to all market discount obligations acquired on or after
the first day of the first taxable year to which the election applies and may
not be revoked without the consent of the IRS. In general, market discount will
be treated as accruing on a straight-line basis over the remaining term of the
note at the time of acquisition, or, at the election of the United States
Holder, under a constant yield method. If a constant yield election is made, it
will apply only to the note with respect to which it is made, and may not be
revoked. A United States Holder who acquires a note at a market discount and who
does not elect to include accrued market discount in income over the life of the
note may be required to defer the deduction of all or a portion of the interest
on any indebtedness incurred or maintained to purchase or carry the note until
maturity or until the note is disposed of in a taxable transaction. If a United
States Holder acquires a note with market discount and receives common stock
upon conversion of the note, the amount of accrued market discount not
previously included in income with respect to the converted note through the
date of conversion will be treated as ordinary income when the holder disposes
of the common stock.
AMORTIZABLE PREMIUM
A United States Holder who purchases a note at a premium over its stated
principal amount, plus accrued interest, generally may elect to amortize that
premium (referred to as Section 171 premium) from the purchase date to the
note's maturity date under a constant-yield method that reflects semiannual
compounding based on the note's payment period. Amortizable premium, however,
will not include any premium attributable to a note's conversion feature. The
premium attributable to the conversion feature is the excess, if any, of the
note's purchase price over what the note's fair market value would be if there
were no
32
conversion feature. Amortized Section 171 premium is treated as an offset to
interest income on a note and not as a separate deduction. The election to
amortize premium on a constant yield method, once made, applies to all debt
obligations held or subsequently acquired by the electing United States Holder
on or after the first day of the first taxable year to which the election
applies and may not be revoked without the consent of the IRS.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Information returns will be filed with the IRS in connection with payments
on the notes or our common stock and the proceeds from a sale or other
disposition of the notes or our common stock. A United States Holder may be
subject to United States backup withholding at the rates specified in the Code
on these payments if it fails to provide its taxpayer identification number to
the paying agent and comply with certain certification procedures or otherwise
establish an exemption from backup withholding. The amount of any backup
withholding from a payment will be allowed as a credit against the United States
Holder's United States federal income tax liability and may entitle the United
States Holder to a refund, provided that the required information is furnished
to the IRS.
TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
As used herein, the term "Non-United States Holder" means a beneficial
owner of a note or our common stock that is, for United States federal income
tax purposes:
- an individual who is classified as a nonresident for United States
federal income tax purposes;
- a foreign corporation; or
- an estate or trust that is not a United States estate or trust, as
defined above.
PAYMENTS OF INTEREST
Subject to the discussion below concerning backup withholding, payments of
interest on a note by us or any paying agent to any Non-United States Holder
will not be subject to United States federal withholding tax, provided that:
- the Non-United States Holder does not own, actually or constructively,
10% or more of the total combined voting power of all classes of our
stock entitled to vote, is not a controlled foreign corporation related,
directly or indirectly, to us through stock ownership and is not a bank
receiving certain types of interest;
- either (i) the Non-United States Holder timely certifies to us or our
paying agent, under penalties of perjury, that such holder is not a
United States person and provides its name and address, or (ii) a
custodian, broker, nominee or other intermediary acting as an agent for
the Non-United States Holder (such as a securities clearing organization,
bank or other financial institution that holds customer's securities in
the ordinary course of its trade or business) that holds the notes in
such capacity timely certifies to us or our paying agent, under penalties
of perjury, that such statement has been received from the beneficial
owner of the notes by such intermediary, or by any other financial
institution between such intermediary and the beneficial owner, and
furnishes to us or our paying agent a copy thereof. The foregoing
certification may be provided on a properly completed IRS Form W-8BEN or
W-8IMY, as applicable, or any successor forms duly executed under
penalties of perjury; and
- neither we nor our paying agent has actual knowledge or reason to know
that the conditions of the exemption are, in fact, not satisfied.
If a Non-United States Holder of a note is engaged in a trade or business
in the United States, and if payments on the note are effectively connected with
the conduct of this trade or business, the Non-United States Holder, although
exempt from the withholding tax discussed above, generally will be taxed in the
same manner as a United States Holder (see "-- Tax Consequences to United States
Holders" above), except that (i) the Non-United States Holder will be required
to provide to us or our paying agent a properly executed
33
IRS Form W-8ECI in order to claim an exemption from withholding tax, and (ii) if
the Non-United States Holder is a foreign corporation it may also be subject to
a branch profits tax on its effectively connected income at a 30% rate or such
lower rate that may be provided by an applicable income tax treaty. Non-United
States Holders should consult their own tax advisers with respect to other
United States tax consequences of the ownership and disposition of notes
including the applicability of income tax treaties, which may provide different
rules.
SALE, EXCHANGE, CONVERSION OR REDEMPTION OF THE NOTES AND COMMON STOCK
Subject to the exceptions in this paragraph, a Non-United States Holder of
a note will not be subject to United States federal income tax (i) upon
conversion of a note into shares of our common stock, or (ii) on gain realized
on the sale, exchange or redemption of the note or our common stock into which
such note may be converted (including cash for a fractional share on
conversion). If the gain is effectively connected with the conduct by the
Non-United States Holder of a trade or business in the United States, the
Non-United States Holder would be subject to the rules described above under
"Tax Consequences to United States Holders -- Sale, Exchange or Retirement of
the Notes." Moreover, if that Non-United States Holder is a foreign corporation,
it may also be subject to a branch profits tax on its effectively connected
income at a 30% rate or such lower rate that may be provided by an applicable
income tax treaty. If we are a United States real property holding corporation,
or USRPHC, a Non-United States Holder would, subject to the exception described
below, be subject to federal income tax with respect to gain realized on the
disposition of the notes or shares of our common stock. We do not believe that
we are a USRPHC or will become a USRPHC in the future. If we become a USRPHC, so
long as our common stock continues to be regularly traded on an established
securities market, only a Non-United States Holder (i) who owns notes with a
value greater than 5% of our common stock on the date acquired, or (ii) who
actually or constructively owns (or owned at any time during the five-year
period ending on the date of disposition) more than 5% of our common stock will
be subject to United States tax on the disposition thereof. If you are an
individual who is present in the United States for 183 days or more in the
taxable year of disposition, you are not otherwise a resident of the United
States for United States federal income tax purposes and certain other
requirements are met, you will be subject to a 30% tax on gain realized on the
sale, exchange or other disposition (other than conversion) of a note or our
common stock into which such note may be converted.
ADJUSTMENTS OF THE CONVERSION RATIO
The conversion rate of the notes is subject to adjustment in some
circumstances, which could give rise to a taxable deemed distribution to
Non-United States Holders of the notes. See "-- Tax Consequences to United
States Holders -- Adjustments of the Conversion Ratio" above. The deemed
distribution will constitute a dividend for United States federal income tax
purposes to the extent of our current or accumulated earnings and profits as
determined under United States federal income tax principles and generally will
be subject to United States withholding tax at a 30% rate (which withholding
generally will be satisfied by withholding subsequent interest payments on the
notes), unless (x) a lower rate is provided by an applicable income tax treaty
and the Non-United States Holder or its agent timely furnishes to us or our
agent a properly completed IRS Form W-8BEN or W-8IMY, as applicable, or any
successor form, duly executed under penalties of perjury, certifying that such
Non-United States Holder is entitled to the reduced or zero percent withholding
tax rate under the income tax treaty, and neither we nor our paying agent has
actual acknowledge or reason to know that the conditions of this exemption are,
in fact, not satisfied or (y) the distribution is effectively connected with the
conduct by the Non-United States Holder of a trade or business in the United
States and the Non-United States Holder timely furnishes to us or our paying
agent a properly completed IRS Form W-8ECI, or any successor form, duly executed
under penalties of perjury, certifying to the foregoing, and neither we nor our
paying agent have actual knowledge or reason to know that the conditions of this
exemption are, in fact, not satisfied.
34
DIVIDENDS ON COMMON STOCK
Subject to the discussion below of backup withholding, dividends, if any,
paid on our common stock to a Non-United States Holder generally will be subject
to United States withholding tax at a 30% rate unless (x) a lower rate is
provided by an applicable income tax treaty and the Non-United States Holder or
its agent timely furnishes to us or our agent a properly completed IRS Form
W-8BEN or W-8IMY, as applicable, or any successor form, duly executed under
penalties of perjury, certifying that such Non-United States Holder is entitled
to the reduced or zero percent withholding tax rate under the income tax treaty,
and neither we nor our paying agent has actual knowledge or reason to know that
the conditions of this exemption are, in fact, not satisfied or (y) the
distribution is effectively connected with the conduct by the Non-United States
Holder of a trade or business in the United States and the Non-United States
Holder timely furnishes to us or our paying agent a properly completed IRS Form
W-8ECI, or any successor form, duly executed under penalties of perjury,
certifying to the foregoing, and neither we nor our paying agent have actual
knowledge or reason to know that the conditions of this exemption are, in fact,
not satisfied. Dividends for this purpose may include stock distributions
treated as deemed dividends as discussed in "-- Tax Consequences to United
States Holders -- Adjustments of the Conversion Ratio" above.
Except to the extent otherwise provided under an applicable income tax
treaty, a Non-United States Holder generally will be taxed in the same manner as
a United States Holder on dividends paid (or deemed paid) that are effectively
connected with the conduct of a trade or business in the United States by the
Non-United States Holder (and, if required by an income tax treaty, are
attributable to a permanent establishment maintained in the United States). If
that Non-United States Holder is a foreign corporation, it may also be subject
to a United States branch profits tax on that effectively connected income at a
30% rate or a lower rate as may be specified by an applicable income tax treaty.
UNITED STATES FEDERAL ESTATE TAX
A note held by an individual who at the time of death is not a citizen or
resident of the United States, as specially defined for United States federal
estate tax purposes, will not be subject to United States federal estate tax if
the individual did not actually or constructively own 10% or more of the total
combined voting power of all classes of our stock and, at the time of the
individual's death, payments with respect to that note would not have been
effectively connected with the conduct by that individual of a trade or business
in the United States. Common stock held by an individual who at the time of
death is not a citizen or resident of the United States, as specially defined
for United States federal estate tax purposes, will be included in that
individual's estate for United States federal estate tax purposes, and the
applicable rate of tax may be reduced or eliminated if an estate tax treaty
otherwise applies.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Information returns will be filed annually with the IRS and provided to
each Non-United States Holder with respect to any dividends paid on our common
stock or interest paid on the notes that are subject to withholding or that are
exempt from United States withholding tax pursuant to an income tax treaty or
other reason. Copies of these information returns also may be made available
under the provisions of a specific treaty or agreement to the tax authorities of
the country in which the Non-United States Holder resides. Under certain
circumstances, the Internal Revenue Code imposes a backup withholding
obligation. Dividends or interest paid to a Non-United States Holder of common
stock or notes generally will be exempt from backup withholding if the
Non-United States Holder or its agent provides a properly executed IRS Form
W-8BEN or W-8IMY, as applicable, or otherwise establishes an exemption.
The payment of the proceeds from the disposition of common stock or notes
to or through the United States office of any broker, United States or foreign,
will be subject to information reporting and possible backup withholding unless
the owner certifies as to its non-United States status under penalties of
perjury or otherwise establishes an exemption, provided that the broker does not
have actual knowledge that the holder is a United States person or that the
conditions of any other exemption are not, in fact, satisfied. The payment of
the proceeds from the disposition of common stock or notes to or through a
non-United States office of a non-
35
United States broker will not be subject to information reporting or backup
withholding unless the non-United States broker has certain types of
relationships with the United States (a "United States related person"). In the
case of the payment of the proceeds from the disposition of common stock or
notes to or through a non-United States office of a broker that is either a
United States person or a United States related person, the Treasury regulations
require information reporting (but not backup withholding) on the payment unless
the broker has documentary evidence in its files that the owner is a Non-United
States Holder and the broker has no knowledge to the contrary. Non-United States
Holders should consult their own tax advisors on the application of information
reporting and backup withholding to them in their particular circumstances
(including upon their disposition of common stock or notes).
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from a payment to a Non-United States Holder will be
refunded or credited against the Non-United States Holder's federal income tax
liability, if any, if the Non-United States Holder provides the required
information to the IRS.
36
SELLING SECURITYHOLDERS
We originally issued the notes in a private placement on May 8, 2002. The
initial purchasers of the notes have advised us that the notes were resold in
transactions exempt from the registration requirements of the Securities Act to
"qualified institutional buyers," as defined in Rule 144A of the Securities Act,
and outside the United States in compliance with Regulation S under the
Securities Act. Selling securityholders may offer and sell the notes and/or
shares of common stock issuable upon conversion of the notes pursuant to this
prospectus.
The following table sets forth information as of April 28, 2003 about the
principal amount of notes and the underlying common stock beneficially owned by
each selling securityholder that may be offered using this prospectus.
PRINCIPAL AMOUNT
OF NOTES PERCENTAGE NUMBER OF SHARES OF PERCENTAGE OF
BENEFICIALLY OWNED OF NOTES COMMON STOCK THAT COMMON STOCK
NAME AND ADDRESS OF SELLING SECURITYHOLDER THAT MAY BE SOLD OUTSTANDING MAY BE SOLD(1) OUTSTANDING(2)
------------------------------------------ ------------------ ----------- ------------------- --------------
Allstate Insurance Company
3075 Sanders Road, Suite G6B
Northbrook, IL 60062(3)............... $ 500,000 * 27,643 *
Allstate Life Insurance Company
3075 Sanders Road, Suite G5A
Northbrook, IL 60062(3)............... $ 500,000 * 27,643 *
Bank Austria Cayman Islands, LTD
c/o Ramius Capital Group LLC
666 Third Avenue, 26th Floor
New York, NY 10017.................... $ 750,000 * 41,465 *
BP Amoco Corporation Master Trust for
Employee Pension Plans
c/o Noddings Investments
Two Mid-America Plaza, Suite 920
Oakbrook Terrace, IL 60181............ $ 5,680,000 3.95% 314,029 *
BP Amoco PLC Master Trust
c/o SSI Investment Management Inc.
357 North Canon Drive
Beverly Hills, CA 90210............... $ 906,000 * 50,089 *
CALAMOS Convertible Growth and Income
Fund -- CALAMOS Investment Trust
c/o Calamos Investments
1111 E. Warrenville Road
Naperville, IL 60563.................. $ 4,670,000 3.25% 258,189 *
Context Convertible Arbitrage Fund, LP
12626 High Bluff Drive, Suite #440
San Diego, CA 92130................... $ 275,000 * 15,203 *
Context Convertible Arbitrage Offshore
Fund, LP
48 Par-La-Ville Road, Suite #193
Hamilton HM11, Bermuda................ $ 125,000 * 6,910 *
Continental Assurance Company On Behalf of
Its Separate Account(E)
CNA Plaza
333 South Wabash Avenue, 23 South
Chicago, IL 60685..................... $ 1,320,000 * 72,978 *
37
PRINCIPAL AMOUNT
OF NOTES PERCENTAGE NUMBER OF SHARES OF PERCENTAGE OF
BENEFICIALLY OWNED OF NOTES COMMON STOCK THAT COMMON STOCK
NAME AND ADDRESS OF SELLING SECURITYHOLDER THAT MAY BE SOLD OUTSTANDING MAY BE SOLD(1) OUTSTANDING(2)
------------------------------------------ ------------------ ----------- ------------------- --------------
Convertible Securities Fund
c/o Banc of America Capital Management,
LLC
601 W. Riverside Avenue, Suite 420
Spokane, WA 99201..................... $ 103,000 * 5,694 *
Daimler Chrysler Corp. Emp. #1 Pension
Plan dtd. 4/1/89
c/o Palisade Capital Management, L.L.C.
One Bridge Plaza, Suite 695
Fort Lee, New Jersey 07024............ $ 2,699,000 1.88% 149,219 *
Deutsche Bank AG London
1251 Avenue of the Americas
New York, NY 10020(4)................. $ 4,000,000 2.78% 221,147 *
Deutsche Bank Securities, Inc.
1251 Avenue of the Americas
New York, NY 10020(5)................. $ 250,000 * 13,821 *
FIST Franklin Convertible Securities Fund
920 Park Place
San Mateo, CA 94403................... $ 3,500,000 2.44% 193,503 *
Franklin and Marshall College
c/o Palisade Capital Management, L.L.C.
One Bridge Plaza, Suite 695
Fort Lee, New Jersey 07024............ $ 147,000 * 8,127 *
Grace Brothers Management LLC
1560 Sherman Avenue, Suite 900
Evanston, IL 60201(4)................. $ 3,750,000 2.61% 207,325 *
Hotel Union & Hotel Industry of Hawaii
Pension Plan
c/o SSI Investment Management Inc.
357 North Canon Drive
Beverly Hills, CA 90210............... $ 398,000 * 22,004 *
Jefferies & Company Inc.
c/o SSI Investment Management Inc.
357 North Canon Drive
Beverly Hills, CA 90210(5)............ $ 9,000 * 497 *
LDG Limited
48 Par-La-Ville Road, Suite #780
Hamilton, HM II Bermuda............... $ 500,000 * 27,643 *
Man Convertible Bond Master Fund, Ltd. c/o
Marin Capital Partners, LP
101 Glacier Point Road, Suite D
San Rafael, CA 94901.................. $ 3,680,000 2.56% 203,455 *
McMahan Securities Co. L.P.
500 West Putnam Avenue
Greenwich, CT 068030(5)............... $ 4,775,000 3.32% 263,994 *
Nations Convertible Securities Fund
c/o Banc of America Capital Management,
LLC
601 W. Riverside Avenue, Suite 420
Spokane, WA 99201..................... $ 7,897,000 5.49% 436,599 *
38
PRINCIPAL AMOUNT
OF NOTES PERCENTAGE NUMBER OF SHARES OF PERCENTAGE OF
BENEFICIALLY OWNED OF NOTES COMMON STOCK THAT COMMON STOCK
NAME AND ADDRESS OF SELLING SECURITYHOLDER THAT MAY BE SOLD OUTSTANDING MAY BE SOLD(1) OUTSTANDING(2)
------------------------------------------ ------------------ ----------- ------------------- --------------
Oakwood Assurance Company
c/o Calamos Investments
1111 E. Warrenville Road
Naperville, IL 60563.................. $ 50,000 * 2,764 *
Oakwood Healthcare Inc. Funded
Depreciation
c/o Calamos Investments
1111 E. Warrenville Road
Naperville, IL 60563.................. $ 90,000 * 4,975 *
Oakwood Healthcare Inc. (Pension)
c/o Calamos Investments
1111 E. Warrenville Road
Naperville, IL 60563.................. $ 165,000 * 9,122 *
Oakwood Healthcare Inc. Endowment
c/o Calamos Investments
1111 E. Warrenville Road
Naperville, IL 60563.................. $ 10,000 * 552 *
Oakwood Healthcare Inc. -- OHP
c/o Calamos Investments
1111 E. Warrenville Road
Naperville, IL 60563.................. $ 15,000 * 829 *
Pioneer High Yield Fund
c/o Pioneer Investment Management, Inc.
60 State Street
Boston, MA 02109-01820................ $ 36,500,000 25.39% 2,017,968 3.21%
Pioneer High Yield VCT Portfolio
c/o Pioneer Investment Management, Inc.
60 State Street
Boston, MA 02109-01820................ $ 500,000 * 27,643 *
Pioneer Strategic Income Fund
c/o Pioneer Investment Management, Inc.
60 State Street
Boston, MA 02109-01820................ $ 200,000 * 11,057 *
Pioneer US High Yield Fund Crp Bond Sub
Fund (UCIT-LUX)
c/o Pioneer Investment Management, Inc.
60 State Street
Boston, MA 02109-01820................ $ 6,300,000 4.38% 348,306 *
Quattro Fund Ltd.
230 Park Avenue, 7th Floor
New York, NY 10169.................... $ 6,400,000 4.45% 353,835 *
Quest Global Convertible Fund LTD
c/o Quest Investment Management Inc.
500 W. Putnam Avenue
Greenwich, CT 06830................... $ 2,000,000 1.39% 110,573 *
RCG Halifax Master Fund, LTD
c/o Ramius Capital Group LLC
666 Third Avenue, 26th Floor
New York, NY 10017.................... $ 500,000 * 27,643 *
39
PRINCIPAL AMOUNT
OF NOTES PERCENTAGE NUMBER OF SHARES OF PERCENTAGE OF
BENEFICIALLY OWNED OF NOTES COMMON STOCK THAT COMMON STOCK
NAME AND ADDRESS OF SELLING SECURITYHOLDER THAT MAY BE SOLD OUTSTANDING MAY BE SOLD(1) OUTSTANDING(2)
------------------------------------------ ------------------ ----------- ------------------- --------------
RCG Latitude Master Fund, LTD
c/o Ramius Capital Group LLC
666 Third Avenue, 26th Floor
New York, NY 10017.................... $ 1,250,000 * 69,108 *
RCG Multi Strategy, LP
c/o Ramius Capital Group LLC
666 Third Avenue, 26th Floor
New York, NY 10017.................... $ 2,500,000 1.74% 138,217 *
Sage Capital
1280 N. Palm Avenue
Sarasota, FL 34236.................... $ 3,100,000 2.16% 171,389 *
Sphinx Convertible Arb Fund SPC
c/o SSI Investment Management Inc.
357 North Canon Drive
Beverly Hills, CA 90210............... $ 223,000 * 12,328 *
State Street Bank Custodian for GE Pension
Trust
c/o Palisade Capital Management, L.L.C.
One Bridge Plaza, Suite 695
Fort Lee, New Jersey 07024............ $ 1,234,000 * 68,223 *
St. Thomas Trading, Ltd.
c/o Marin Capital Partners, LP
101 Glacier Point Road, Suite D
San Rafael, CA 94901.................. $ 6,320,000 4.40% 349,412 *
Sunrise Partners Limited Partnership
Two American Lane
Greenwich, CT 06836................... $ 2,000,000 1.39% 110,573 *
The Estate of James Campbell
c/o SSI Investment Management Inc.
357 North Canon Drive
Beverly Hills, CA 90210............... $ 276,000 * 15,259 *
The James Campbell Corporation
c/o SSI Investment Management Inc.
357 North Canon Drive
Beverly Hills, CA 90210............... $ 221,000 * 12,218 *
TQA Master Fund, LTD
405 Lexington Avenue, 45th Floor
New York, NY 10174.................... $ 500,000 * 27,643 *
UBS Warburg LLC
677 Washington Blvd., 9-N
Stamford, CT 06901(5)(6).............. $ 6,920,000 4.81% 382,584 *
Van Kampen Harbor Fund
c/o Van Kampen Asset Management Inc.
2800 Post Oak Blvd
Houston, TX 77056..................... $ 1,500,000 1.04% 82,930 *
Viacom Inc. Pension Plan Master Trust
c/o SSI Investment Management Inc.
357 North Canon Drive
Beverly Hills, CA 90210............... $ 32,000 * 1,769 *
40
PRINCIPAL AMOUNT
OF NOTES PERCENTAGE NUMBER OF SHARES OF PERCENTAGE OF
BENEFICIALLY OWNED OF NOTES COMMON STOCK THAT COMMON STOCK
NAME AND ADDRESS OF SELLING SECURITYHOLDER THAT MAY BE SOLD OUTSTANDING MAY BE SOLD(1) OUTSTANDING(2)
------------------------------------------ ------------------ ----------- ------------------- --------------
Wachovia Securities International LTD
8739 Research Drive
Charlotte, NC 28262(5)(6)............. $ 3,000,000 2.09% 165,860 *
Zurich Institutional Benchmarks Management
c/o Quattro Fund Ltd.
230 Park Avenue, 7th Floor
New York, NY 10169.................... $ 1,600,000 1.11% 88,458 *
Zurich Institutional Benchmarks Master
Fund, Ltd.
c/o SSI Investment Management Inc.
357 North Canon Drive
Beverly Hills, CA 90210............... $ 1,935,000 1.35% 106,979 *
Zurich Institutional Benchmarks Master
Fund, LTD
c/o TQA Investors, LLC
405 Lexington Avenue, 45th Floor
New York, NY 10174.................... $ 500,000 * 27,643 *
Any other holder of notes or any future
transferee, pledgee, donee or successor
of or from any holder(7).............. $ 11,375,000 7.91% 628,887 1.02%
------------ ------ --------- -----
Total................................... $143,750,000 100.00% 7,947,478 12.09%
============ ====== ========= =====
---------------
* Less than 1%.
(1) Assumes conversion of all of the holder's notes at a conversion rate of
55.2868 shares of common stock per $1,000 principal amount of the notes.
However, this conversion rate will be subject to adjustment as described
under "Description of Notes -- Conversion Rights." As a result, the amount
of common stock issuable upon conversion of the notes may increase or
decrease in the future.
(2) Calculated based on 60,786,815 shares of common stock outstanding as of
December 31, 2002. In calculating this amount, we treated as outstanding
that number of shares of common stock issuable upon conversion of all of a
particular holder's notes. However, we did not assume the conversion of any
other holder's notes.
(3) Allstate Life Insurance Company is a subsidiary of Allstate Insurance
Company. Allstate Insurance Company beneficially owns 12,881 shares of our
common stock.
(4) Such selling securityholder is an affiliate of a broker-dealer.
Broker-dealers are deemed to be, under interpretations of the Securities and
Exchange Commission, "underwriters" within the meaning of the Securities
Act. We have received assurances that such selling securityholder acquired
its notes or underlying common stock in the ordinary course of business and,
at the time of the purchase of the notes or the underlying common stock,
such selling securityholder had no agreements or understandings, directly or
indirectly, with any person to distribute the notes or underlying common
stock.
(5) Such selling securityholder is a broker-dealer, and is deemed to be, under
interpretations of the Securities and Exchange Commission, an "underwriter"
within the meaning of the Securities Act. We have received assurances that
such selling securityholder acquired its notes or underlying common stock in
the ordinary course of business and, at the time of the purchase of the
notes or the underlying common stock, such selling securityholder had no
agreements or understandings, directly or indirectly, with any person to
distribute the notes or underlying common stock.
41
(6) UBS Warburg LLC and First Union Securities, Inc., an affiliate of Wachovia
Securities International LTD and Wachovia Securities Inc., were the initial
purchasers in connection with the private placement of notes on May 8, 2002.
UBS Warburg LLC has in the past provided financial advisory services to us.
(7) Information about other selling securityholders will be set forth in a
post-effective amendment to the registration statement of which this
prospectus forms a part.
With respect to selling securityholders that are affiliates of
broker-dealers, we believe that such entities acquired their notes or underlying
common stock in the ordinary course of business and, at the time of the purchase
of the notes or the underlying common stock, such selling securityholders had no
agreements or understandings, directly or indirectly, with any person to
distribute the notes or underlying common stock. To the extent that we become
aware that such entities did not acquire their notes or underlying common stock
in the ordinary course of business or did have such an agreement or
understanding, we will file a post-effective amendment to the registration
statement of which this prospectus forms a part to designate such affiliate as
an "underwriter" within the meaning of the Securities Act.
We prepared this table based on the information supplied to us by the
selling securityholders named in the table. Unless otherwise disclosed in the
footnotes to the table, no selling securityholder has indicated that it has held
any position or office or had any other material relationship with us or our
affiliates during the past three years. The selling securityholders listed in
the above table may have sold or transferred, in transactions exempt from the
registration requirements of the Securities Act, some of all of their notes
since the date as of which the information is presented in the above table.
Information about the selling securityholders may change over time.
Because the selling securityholders may offer all of some of their notes or
the underlying common stock from time to time, we cannot estimate the amount of
the notes or the underlying common stock that will be held by the selling
securityholders upon the termination of any particular offering. See "Plan of
Distribution."
Only selling securityholders identified above who beneficially own the
notes set forth opposite each such selling securityholder's name in the
foregoing table on the effective date of the registration statement, of which
this prospectus forms a part, may sell such securities pursuant to the
registration statement. Prior to any use of this prospectus in connection with
an offering of the notes or the underlying common stock by any holder not
identified above, the registration statement of which this prospectus forms a
part will be amended by a post-effective amendment to set forth the name and
aggregate amount of notes beneficially owned by the selling securityholder
intending to sell such notes or the underlying common stock and the aggregate
amount of notes or the number of shares of the underlying common stock to be
offered. The prospectus, which will be a part of such a post-effective
amendment, will also disclose whether any selling securityholder selling in
connection with such prospectus has held any position or office with, has been
employed by or otherwise has had a material relationship with us during the
three years prior to the date of the prospectus if such information has not been
disclosed herein.
PLAN OF DISTRIBUTION
We will not receive any of the proceeds of the sale of the notes and the
underlying common stock offered by this prospectus. The notes and the underlying
common stock may be sold from time to time to purchasers:
- directly by the selling securityholders; or
- through underwriters, broker-dealers or agents who may receive
compensation in the form of discounts, concessions or commissions from
the selling securityholders or the purchasers of the notes and underlying
common stock.
The selling securityholders and any such broker-dealers or agents who
participate in the distribution of the notes and the underlying common stock may
be deemed to be "underwriters." As a result, any profits on the sale of the
underlying common stock by selling securityholders and any discounts,
commissions or concessions received by any such broker-dealers or agents may be
deemed to be underwriting discounts and commissions under the Securities Act. If
the selling securityholders were deemed to be underwriters, the
42
selling securityholders may be subject to statutory liabilities including, but
not limited to, those of Sections 11, 12 and 17 of the Securities Act and Rule
10b-5 under the Exchange Act.
If the notes and the underlying common stock are sold through underwriters
or broker-dealers, the selling securityholders will be responsible for
underwriting discounts or commissions or agent's commissions.
The notes and the underlying common stock may be sold in one or more
transactions at:
- fixed prices;
- prevailing market prices at the time of sale;
- varying prices determined at the time of sale; or
- negotiated prices.
These sales may be effected in transactions:
- on any national securities exchange or quotation service on which the
notes and underlying common stock may be listed or quoted at the time of
the sale, including the New York Stock Exchange in the case of the common
stock;
- in the over-the-counter market;
- in transactions otherwise than on such exchanges or services or in the
over-the-counter market; or
- through the writing of options.
These transactions may include block transactions or crosses. Crosses are
transactions in which the same broker acts as an agent on both sides of the
transaction.
In connection with the sales of the notes and the underlying common stock
or otherwise, the selling securityholders may enter into hedging transactions
with broker-dealers. These broker-dealers may in turn engage in short sales of
the notes and the underlying common stock in the course of hedging their
positions. The selling securityholders may also sell the notes and the
underlying common stock short and deliver notes and the underlying common stock
to close out short positions, or loan or pledge notes and the underlying common
stock to broker-dealers that, in turn, may sell the notes and the underlying
common stock.
To our knowledge, there are currently no plans, arrangements or
understandings between any selling securityholders and any underwriter,
broker-dealer or agent regarding the sale of the notes and the underlying common
stock by the selling securityholders. Selling securityholders may decide not to
sell all or a portion of the notes and the underlying common stock offered by
them pursuant to this prospectus or may decide not to sell notes or the
underlying common stock under this prospectus. In addition, any selling
securityholder may transfer, devise or give the notes and the underlying common
stock by other means not described in this prospectus. Any notes or underlying
common stock covered by this prospectus that qualify for sale pursuant to Rule
144 or Rule 144A of the Securities Act, or Regulation S under the Securities
Act, may be sold under Rule 144 or Rule 144A or Regulation S rather than
pursuant to this prospectus.
Our common stock is listed on the New York Stock Exchange under the trading
symbol "LII." We do not intend to apply for listing of the notes on any
securities exchange or for quotation through any automated quotation system. The
notes originally issued in the private placement are eligible for trading on the
PORTAL Market. However, notes sold pursuant to this prospectus will no longer be
eligible for trading on the PORTAL Market. Accordingly, no assurance can be
given as to the development of liquidity or any trading market for the notes.
The selling securityholders and any other persons participating in the
distribution of the notes or underlying common stock will be subject to the
Exchange Act. The Exchange Act rules include, without limitation, Regulation M,
which may limit the timing of purchases and sales of any of the notes and the
underlying common stock by the selling securityholders and any such other
person. In addition, Regulation M of the Exchange Act may restrict the ability
of any person engaged in the distribution of the notes and the underlying common
stock to engage in market-making activities with respect to the particular notes
and
43
underlying common stock being distributed for a period of up to five business
days prior to the commencement of such distribution. This may affect the
marketability of the notes and the underlying common stock and the ability to
engage in market-making activities with respect to the notes and the underlying
common stock.
Under the registration rights agreement that has been filed as an exhibit
to this registration statement, we agreed to use our commercially reasonable
efforts to keep the registration statement of which this prospectus is a part
effective for a period of two years after the original issuance of the notes on
May 8, 2002 or such shorter time (1) as permitted by Rule 144(k) under the
Securities Act or any successor provisions thereunder or (2) that will terminate
when each of the registrable securities covered by the registration statement
ceases to be a registrable security. "Registrable securities" means each note
and any underlying share of common stock until the earlier of (x) the date on
which such note or underlying share of common stock has been effectively
registered under the Securities Act and disposed of, whether or not in
accordance with the registration statement of which this prospectus forms a
part, and (y) the date which is two years after the date of original issue of
such note or such shorter period of time as permitted by Rule 144(k) under the
Securities Act or any successor provision thereunder.
We are permitted to prohibit offers and sales of securities pursuant to
this prospectus under certain circumstances and subject to certain conditions
for a period not to exceed 45 days in the aggregate in any three-month period or
90 days in the aggregate in any 12-month period. During the time periods when
the use of this prospectus is suspended, each selling securityholder has agreed
not to sell notes or shares of common stock issuable upon conversion of the
notes. We also agreed to pay liquidated damages to certain holders of the notes
and shares of common stock issuable upon conversion of the notes if the
prospectus is unavailable for periods in excess of those permitted.
Under the registration rights agreement, we and the selling securityholders
will each indemnify the other against certain liabilities, including certain
liabilities under the Securities Act, or will be entitled to contribution in
connection with these liabilities.
We have agreed to pay substantially all of the expenses incidental to the
registration, offering and sale of the notes and the underlying common stock to
the public other than commissions, fees and discounts of underwriters, brokers,
dealers and agents.
LEGAL MATTERS
The validity of the notes and the common stock issuable upon their
conversion will be passed upon for Lennox International Inc. by Baker Botts
L.L.P., Dallas, Texas.
EXPERTS
The consolidated financial statements and financial statement schedule of
Lennox International Inc. and subsidiaries as of December 31, 2002, and for the
year then ended, have been incorporated by reference herein in reliance upon the
report of KPMG LLP, independent accountants, incorporated by reference herein,
and upon the authority of said firm as experts in accounting and auditing. The
audit report refers to the adoption of Statement of Financial Accounting
Standard (SFAS) No. 142, "Goodwill and Other Intangible Assets". The audit
report also refers to the transitional disclosures for 2001 and 2000 required by
SFAS No. 142 and included in Note 2 under the heading "Goodwill and Other
Intangible Assets".
The consolidated financial statements of Lennox International Inc. as of
December 31, 2001 and for each of the two years in the period ended December 31,
2001, incorporated by reference in this prospectus, have been audited by Arthur
Andersen LLP, independent auditors, as stated in their reports appearing
therein. Arthur Andersen LLP has not consented to the inclusion of their report
in this prospectus, and we have dispensed with the requirement to file their
consent in reliance upon Rule 437a of the Securities Act of 1933. Because Arthur
Andersen LLP has not consented to the inclusion of their report in this
prospectus, you will not be able to recover against Arthur Andersen LLP under
Section 11 of the Securities Act for any untrue
44
statements of a material fact contained in the financial statements audited by
Arthur Andersen LLP or any omissions to state a material fact required to be
stated therein.
WHERE YOU CAN FIND MORE INFORMATION
We file reports and other information with the SEC. You may read and copy
any document we file with the SEC at the SEC's public reference room located at
450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain further
information regarding the operation of the SEC's Public Reference Room by
calling the SEC at 1-800-SEC-0330. Our filings are also available to the public
on the SEC's Internet site located at http://www.sec.gov.
INCORPORATION BY REFERENCE
Some of the information that you may want to consider in deciding whether
to invest in the notes is not included in this prospectus, but rather is
incorporated by reference to certain reports that we have filed with the SEC.
This permits us to disclose important information to you by referring to those
documents rather than repeating them in full in this prospectus. The information
incorporated by reference in this prospectus contains important business and
financial information. In addition, information that we file with the SEC after
the date of this prospectus and prior to the completion of the offering of the
notes and common stock under this prospectus will update and supersede the
information contained in this prospectus and incorporated filings. We
incorporate by reference the following documents filed by us with the SEC:
- our Annual Report on Form 10-K for the fiscal year ended December 31,
2002;
- our Current Reports on Form 8-K dated February 5, 2003 and April 22,
2003; and
- the description of our common stock on Form 8-A dated July 12, 1999.
Also incorporated by reference are all documents we file with the SEC after the
date of this prospectus and before the completion of this offering under
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934.
Any statement contained in a document incorporated by reference, or deemed
to be incorporated by reference, in this prospectus shall be deemed to be
modified and superseded for purposes of this prospectus to the extent that a
statement contained herein or in any subsequently filed document which also is
incorporated by reference in this prospectus modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this prospectus.
Statements contained in this prospectus as to the contents of any contract or
other document referred to in this prospectus do not purport to be complete, and
where reference is made to the particular provisions of such contract or other
document, such provisions are qualified in all respects by reference to all of
the provisions of such contract or other document.
You may also obtain a copy of our filings with the SEC as well as copies of
the indenture, registration rights agreement and other documents described
herein, other than an exhibit to those filings unless we have specifically
incorporated an exhibit by reference, at no cost, by writing to or telephoning
us at the following address:
Lennox International Inc.
2140 Lake Park Blvd.
Richardson, Texas 75080
(972) 497-5000
Attn: Investor Relations
The information in this prospectus may not contain all of the information
that may be important to you. You should read the entire prospectus, as well as
the documents incorporated by reference in the prospectus, before making an
investment decision.
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A WARNING ABOUT FORWARD-LOOKING STATEMENTS
This prospectus includes "forward-looking statements," within the meaning
of federal securities laws, that are based upon our beliefs as well as
assumptions made by and information currently available to us. All statements
other than statements of historical fact included in this prospectus constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, including, but not limited to, statements
identified by the words "may," "will," "should," "plan," "predict,"
"anticipate," "believe," "intend," "estimate," "potential," "continue" and
"expect" or the negative of such terms and similar expressions. Such statements
reflect our current views with respect to future events, based on what we
believe are reasonable assumptions; however, such statements are subject to
certain risks, uncertainties and assumptions. In particular, we urge you to
fully consider the cautionary statements described in "Risk Factors" beginning
on page 3, which identify many important factors that could cause actual results
to differ materially from our forward-looking statements. These include, but are
not limited to:
- general economic conditions in the United States and abroad;
- the impact of the weather on our business;
- warranty and product liability claims;
- our ability to successfully complete and integrate acquisitions;
- our ability to manage new lines of business;
- our substantial indebtedness;
- our ability to incur substantially more indebtedness;
- our dependence on our subsidiaries for cash flow;
- the consolidation trend in the heating, ventilation, air conditioning and
refrigeration, or HVACR, industry;
- competition in the HVACR business;
- our ability to successfully develop and manage new products;
- increases in the prices of components and raw materials;
- labor relations problems; and
- environmental risks.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may differ materially
from those in the forward-looking statements. All forward-looking statements
included in this prospectus speak only as of the date hereof, and we disclaim
any intention or obligation to update or review any forward-looking statements
or information, whether as a result of new information, future events or
otherwise.
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(LENNOX LOGO)