<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-K
(Mark one)
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1997.
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required) for the transition period
from ____________ to ____________.
Commission File Number 333-20095
--------------
ATRIUM COMPANIES, INC.
(Exact name of Registrant as specified in its charter)
--------------
DELAWARE 75-2642488
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
1341 W. MOCKINGBIRD LANE, SUITE 1200W
DALLAS, TEXAS 75247
(Address of executive offices, including zip code)
(214) 630-5757
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) and (g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant - NONE
Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 25, 1998, the registrant had 100 shares of Common Stock, par value
$.01 per share outstanding.
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<PAGE> 2
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
1997 FORM 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM NO. DESCRIPTION PAGE
-------- ----------- ----
PART I
<S> <C>
Item 1. Business................................................................................................. 3
Item 2. Properties............................................................................................... 8
Item 3. Legal Proceedings............................................. .......................................... 9
Item 4. Submission of Matters to a Vote of Security Holders...................................................... 9
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.................................... 9
Item 6. Selected Financial Information........................................................................... 9
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.....................................................................................10
Item 8. Financial Statements and Supplementary Data.............................................................. 14
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure......................................................................................14
PART III
Item 10. Directors and Executive Officers of the Registrant....................................................... 14
Item 11. Executive Compensation................................................................................... 17
Item 12. Security Ownership of Certain Beneficial Owners and Management.......................................... 19
Item 13. Certain Relationships and Related Transactions........................................................... 20
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.......................................... 23
Signatures........................................................................................................ 23
</TABLE>
2
<PAGE> 3
PART I
ITEM 1. BUSINESS
Atrium Companies, Inc. (the "Company"), founded in 1948 as Lumberman
Sash & Door Co., is a leading vertically-integrated domestic manufacturer and
distributor of a full line of residential windows and doors. The Company began
manufacturing operations in 1953 and was renamed Fojtasek Companies, Inc. in
1988. On July 3, 1995, the Company completed an equity recapitalization
transaction with Heritage Partners Inc. (the "Heritage Transaction"), in which
Fojtasek Companies, Inc. became a wholly-owned subsidiary of the newly-formed
FCI Holding Corp. Heritage Fund I, L.P., an equity investment fund, purchased
67.9% of FCI Holding Corp.'s outstanding common stock (representing 49.8% of its
outstanding voting common stock). On November 8, 1996, Fojtasek Companies, Inc.,
a Texas corporation was merged with and into FCI Holding Corp. Following the
merger, the surviving Delaware corporation, with corporate headquarters in
Dallas, was renamed Atrium Companies, Inc., a direct wholly-owned subsidiary of
Atrium Corporation ("Holding"), which serves as a non-operational holding
company. On November 27, 1996, the Company completed an equity recapitalization
transaction with Hicks Muse Tate & Furst ("Hicks Muse"), a private investment
firm based in Dallas, New York, St. Louis and Mexico City (the "Hicks Muse
Transaction"). In the transaction, affiliates of Hicks Muse purchased newly
issued shares representing 82% of Atrium Corporation's outstanding stock, with
Heritage and the Company's officers holding the remainder.
The Company originally focused on the manufacturing of aluminum and
wood windows and doors. Over time, the Company augmented its original product
line with vinyl windows and doors. The Company's divisions initially included
Atrium Aluminum Products ("Atrium Aluminum", formerly Skotty Aluminum Products),
Atrium Door & Window Company ("Atrium Wood") and Extruders ("Extruders").
Subsequently, the Company started new divisions such as Atrium Door and Window
Distributors of Arizona in 1979 ("ADW Arizona"), North Texas Die & Tool in 1989,
Atrium Door and Window Distributors of Texas in 1994 ("ADW Texas") and Atrium
Vinyl Windows ("Atrium Vinyl") in 1995. Through acquisitions, the Company added
H-R Windows in 1988 ("H-R"), Dow-Tech Plastics ("Dow Tech") in 1990, Atrium Door
and Window Distributors of Nevada ("ADW Nevada") in 1994 to its operations. The
Company also recently acquired Kel-Star Building Products ("Kel-Star"),
Woodville Extruders ("Woodville Extruders"), Atrium Door and Window Company of
the Northeast ("ADW Northeast" formerly the merged companies of Bishop
Manufacturing Company, Incorporated and Vinyl Building Specialties Connecticut,
Inc.), Atrium Door and Window Company of New England ("ADW New England" formerly
Bishop Manufacturing Company of New England, Inc.) and Atrium Door and Window
Company of New York ("ADW New York" formerly Bishop Manufacturing Co. of New
York, Inc.) in 1996, Atrium Door and Window Company - West Coast ("ADW West
Coast" formerly H-R Window Supply doing business as Gentek Building Products) in
1997 and Masterview Window Company, LLC ("Masterview") in 1998.
The Company is one of a limited number of window and door manufacturers
that offers a diversified product line consisting of aluminum, vinyl and wood
products. While the Company has sales throughout the United States, its windows
and doors are manufactured and marketed primarily in the Southwest, South and
Southeast regions of the country. More recently, as a result of acquisitions,
the Company has developed a presence in the Northeast and Western regions of the
country. The Company's ten-state "Primary Market," consisting of Alabama,
Arizona, California, Florida, Georgia, Louisiana, Nevada, Oklahoma, Tennessee,
and Texas, accounted for approximately 77% of the Company's 1997 revenues. The
Primary Market includes some of the fastest growing residential housing markets
in the United States and accounts for approximately 45% of total national
housing starts and almost a third of total nationwide unit window sales. During
the period from 1992 to 1997, unit sales of windows in the Company's Primary
Market increased at a compounded annual growth rate ("CAGR") of 7.0%, almost 20%
faster than sales growth for the rest of the country.
Historically, the Company has emphasized the sale of aluminum windows
and doors because they are the products of choice and regional standard within
the Company's Primary Market. In 1997, it is estimated that aluminum windows
accounted for 72.8% of residential new construction window units and 47.0% of
residential remodel/replacement window units within the Company's Primary
Market, compared to 44.1% and 27.7%, respectively, on a national basis. The
preference for aluminum over vinyl and wood in the Company's Primary Market is
attributable to aluminum's lower cost, greater durability, ease of installation,
lack of unnecessary service callbacks and lower maintenance requirements, as
well as a reduced need for thermal efficiency in moderate Southern climates.
3
<PAGE> 4
While the Company sells its products in all the states of the
contiguous United States, its focus has historically been on its Primary Market,
a region that provides the Company with a broad, diversified and rapidly-growing
market base. The sales in states within the Company's Primary Market have grown
at a significantly faster rate than the rest of the country, and are forecasted
to continue to do so. The Company maintains a diversified product line that
comprises aluminum, vinyl and wood windows and doors. This full line allows the
Company to differentiate itself from its competition, leverage its distribution
system and ensure that it is well positioned to capture and benefit from any
shifts in product preference.
The Company's vertically-integrated operations include aluminum and
non-rigid vinyl extrusion, window and door fabrication and distribution. The
Extruders and Woodville Extruders divisions provide the Company's fabrication
facilities with aluminum extrusions, and the Dow-Tech division extrudes
non-rigid vinyl extrusions used in window and door manufacturing. The Company's
extrusion operations also sell extrusions to third parties. By extruding
aluminum and vinyl components in-house, the Company is able to secure a
low-cost, reliable source of extrusions, control product quality and reduce
inventory levels.
The Company fabricates and distributes a broad line of aluminum, vinyl
and wood windows and doors at eight fabrication facilities in California,
Connecticut, Massachusetts and Texas, as well as at distribution centers in
Arizona and Nevada. The Atrium Wood division fabricates the Company's wood
products. The Company's vinyl products are made by the Atrium Vinyl division,
ADW West Coast, ADW Northeast and ADW New England subsidiaries. The Company
produces aluminum windows at Atrium Aluminum, as well as at its H-R and Kel-Star
divisions. The Company will also produce aluminum products at the facility in
Phoenix acquired as part of the Masterview acquisition in March of 1998. Window
products include single-hung and double-hung windows, sliders, casements and
specialty windows such as half rounds, transoms and ellipticals. Door products
include center-hinge patio doors, French patio doors and sliding patio doors.
The Company owns and operates eight Distribution Centers, consisting of
ADW Arizona and ADW Nevada, both of which also assemble some of the products
they distribute, and ADW Texas, H-R Window Distributors ("H-R Distributors"),
ADW New York and ADW West Coast (three Centers). ADW Arizona and ADW Nevada
carry Atrium products and sell directly to homebuilders in their respective
regions. ADW Texas sells Atrium products and distributes directly to large
homebuilders in Texas. H-R Distributors sells directly to large homebuilders in
Texas. ADW New York markets Atrium products primarily to remodelers and
contractors within a seven-state region in the Northeast. The three ADW West
Coast facilities market to remodelers and contractors in the California, Utah
and Pacific Northwest regions.
Sales & Marketing: The Company markets its products through a sales
force consisting of approximately 50 salaried and commissioned sales
representatives and approximately 100 independent commissioned sales
representatives, as well as Company customer service representatives. A sales
manager, direct sales representatives and independent representatives support
each of the Company's divisions. The sales managers coordinate marketing
activities among both Company and independent representatives. Company sales
representatives focus primarily on direct sales to homebuilders, remodelers and
contractors, while independent sales representatives sell to DIY
(do-it-yourself) home centers, lumberyards and wholesalers. In general,
independent sales representatives carry the Company's window and door products
on an exclusive basis, although they may carry other building products from
other manufacturers.
The Company believes that customer service plays a key role in the
marketing process. On-time delivery of products, order fill rate, consistency of
service and flexibility in meeting changing customer requirements have made it
possible for the Company to build a large and loyal customer base. The Company
distributes its windows and doors through (i) one-step distribution to major
retail DIY home centers, lumberyards and the Company's Distribution Centers,
(ii) two-step distribution to wholesalers who resell to DIY home centers and
lumberyards and (iii) direct sales to homebuilders (of both single-family and
multi-family housing), remodelers and contractors. The Company uses these
multiple distribution channels and brand names to maximize market penetration.
4
<PAGE> 5
INDUSTRY OVERVIEW
In 1997, the U.S. residential window and door expenditures reached
approximately $8.5 billion. The domestic window market has grown more than 33%
in unit sales over the last five years, and has outpaced the growth in the
domestic building materials industry. F.W. Dodge estimates that sales of window
units will reach 59.7 million by 2002. The residential window industry can be
divided into two end-use segments: new construction (an estimated 17.0 million
window shipments in 1997) and repair/remodeling (approximately 41.1 million
windows sold in 1997). Expenditures in the Company's Primary Market are more
balanced between new construction and repair and remodeling, due to the
relatively new age of the housing stock and the ensuing high growth in housing
starts in the South, Southeast and Southwest regions. The percentage of total
window units made of aluminum, wood or vinyl varies by region.
Aluminum
In the Company's Primary Market, aluminum windows are the products of
choice and regional standard because of their low cost, durability and
suitability to warm climates. Because aluminum is the least expensive window
alternative, homebuilders generally prefer aluminum to control costs, as a home
buyer is not generally willing to pay for the increased cost of vinyl or wood.
Aluminum is not utilized as frequently in homes in the North and the Northeast
regions of the United States due to historical architectural trends and the
superior insulating qualities of wood and vinyl windows.
Vinyl
Vinyl windows represent the middle price point of windows. Vinyl
windows have thermal efficiency characteristics that approach those of wood
windows, but some homeowners do not consider them as aesthetically pleasing.
Historically, vinyl windows have not been as popular as aluminum windows in
warmer climates such as those found in the Company's Primary Market because of
the increased cost of vinyl and because early vinyl windows suffered from ultra
violet degradation, which caused the vinyl to become brittle after prolonged
exposure to the sun. However, in recent years, advances in plastics have
increased the quality and durability of vinyl windows.
Wood
Wood is the most thermally efficient window material, however, it is
the most expensive and requires the greatest amount of maintenance. Unit sales
of aluminum-clad and vinyl-clad wood windows, which are classified as wood, have
grown so that, overall, the wood window market share has been stable for the
last several years. In clad windows, composite materials such as aluminum,
vinyl, fiberglass or industrial coating are applied to the exterior of the
window frame so that the frame inside the house has the desired aesthetics while
the exterior frame has the desired durability or insulating features. Due to
maintenance issues surrounding all-wood windows, the Company believes that the
trend towards aluminum- and vinyl-clad wood windows and composite frame
materials will continue.
COMPETITION
The residential window and door industry is highly fragmented. With few
exceptions, competitors are privately-owned, regional companies with sales under
$100 million. The Company's major competitors throughout its Primary Market for
the sale of aluminum windows are Alenco, a division of Reliant Building
Products, and Caradon Better-Bilt Inc. In addition, the Company competes with
various other companies in specific regions within its Primary Market.
In the vinyl window and door segment, there is no large dominant
manufacturer of vinyl windows that operates on a national basis. Small regional
manufacturers that compete on a local and regional basis characterize the
segment. Historically, demand for vinyl windows and doors has been concentrated
in the cooler regions of the United States. The Company's major competitors for
the sale of vinyl windows are SilverLine Building Products and Milgard
Manufacturing Inc. In addition, the Company competes with a number of regional
manufacturers that sell directly to vinyl contractors.
In the wood window and door segment of the industry, two large
manufacturers, Andersen Corporation and Pella Corporation, sell premium products
on a national basis. The Company's wood windows and doors are sold at a
5
<PAGE> 6
medium price point throughout the United States. The Company has many
competitors in the wood window and door segment, including Kolbe & Kolbe
Millwork Co. Inc. and Hurd Millwork Co. Inc.
MANAGEMENT INFORMATION SYSTEMS
The Company uses a variety of hardware and software technologies in its
operations. Mainframe computer systems are utilized to operate its accounting
and certain manufacturing systems. The Company has completed its assessment of
the effect of Year 2000 on its management information systems and is currently
Year 2000 compliant with respect to substantially all of its systems. The
Company does not expect any material future expenditures will be required in
order to become fully Year 2000 compliant on all systems.
EMPLOYEES
The Company employs approximately 1,885 persons, of whom approximately
1,835 are employed at the extrusion, manufacturing and distribution locations
and 50 are employed at headquarters. Approximately 1,100 of the Company's hourly
employees are covered by collective bargaining agreements. The Company entered
into collective bargaining agreements in 1995 with the United Needle and
Industrial Trade Employee Union, SWRJB, ACTWU, AFL-CIO-CLC, covering certain
employees at its Atrium Aluminum, H-R, Atrium Wood and Extruders manufacturing
facilities, all of which expire on May 20, 1998.
In addition, the Company has collective bargaining agreements for its
Kel-Star operations with The Sheet Metal International Association Local Union
No. 54, due to expire on September 30, 2001. The Company also has an agreement
with Local Union 2743, Southern Council of Industrial Workers, Chartered By
United Brotherhood of Carpenters and Joiners of America, AFL/CIO, for its
Woodville Extruders operations, due to expire on October 6, 2001. The Company
anticipates that all such collective bargaining agreements will be extended and
renegotiated in the ordinary course of business. There are no union affiliations
in connection with the ADW Northeast, ADW West Coast, Dow-Tech, and Masterview
facilities or with any of the distribution centers. The Company believes that
its relationship with its employees is satisfactory.
INFLATION AND RAW MATERIALS
During the past several years, the rate of general inflation has been
relatively low and has not had a significant impact on the Company's results of
operations. The Company purchases raw material, including aluminum, glass, wood
and vinyl, that are subject to fluctuations in price that may not reflect the
rate of general inflation. These materials fluctuate in price based on supply
and demand. Historically, there have been periods of significant and rapid
aluminum and wood price changes, both upward and downward, with a concurrent
short-term impact on the Company's operating margins. The Company has
historically mitigated the effects of these fluctuations over the long-term by
passing through price increases to its customers. The Company also enters into
forward commitments for aluminum billet to hedge against price changes. See
financial statement footnotes for forward commitments at December 31, 1997. The
primary raw materials used in the production of the Company's windows and doors
are readily available and are procured from numerous suppliers. Currently, wood
is purchased primarily from a single source, but is available from alternative
sources.
SEASONALITY AND CYCLICALITY
The Company's business is seasonal. The warmer months generally allow
for a higher level of building, generating a higher level of sales for the
Company. Consequently, the second and third calendar quarters have traditionally
represented the highest level of sales during the year. Demand in the window and
door manufacturing industry is influenced by new home construction activity and
the demand for replacement products. Trends in the housing sector (the most
important of which to the Company is new housing starts in its Primary Market)
directly impact the financial performance of the Company. Accordingly, the
strength of the U.S. economy, the age of existing
6
<PAGE> 7
home stock, job growth, consumer confidence, consumer credit, interest rates and
migration of the inter/intra U.S. population have a direct impact on the
Company.
BACKLOG AND MATERIAL CUSTOMERS
The Company has no material long-term contracts. Orders are generally
filled within 7 days of receipt. The Company's backlog is subject to fluctuation
due to various factors, including the size and timing of orders for the
Company's products, and the backlog is not necessarily indicative of the level
of future revenue. For the year ended December 31, 1997, no customer accounted
for more than 10% or more of the Company's sales.
GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS
The Company is subject to numerous federal and state statutes and
regulations relating to, among other things, air and water quality, the
discharge of materials into the environment and safety and health issues. The
Company does not expect compliance with such provisions to have a material
impact on the Company's earnings or competitive position in the foreseeable
future. Additionally, no significant capital expenditures are anticipated
related to compliance with such provisions.
The Company is involved in various stages of investigation and cleanup
relative to environmental protection matters, some of which relate to waste
disposal sites. The potential costs related to such matters and the possible
impact thereof on future operations are uncertain due in part to: the
uncertainty as to the extent of pollution; the complexity of Government laws and
regulations and their interpretations; the varying costs and effectiveness of
alternative cleanup technologies and methods; the uncertain level of insurance
or other types of recovery; and the questionable level of the Company's
involvement. The Company is a named party in several government enforcement and
private actions associated with old waste disposal sites, some of which are on
the U.S. Environmental Protection Agency's Superfund priority list. These
actions seek cleanup cost and, in some cases, damages for alleged personal
injury or property damage. The Company does not believe, based upon the
information available at this time, that the outcome of the matters discussed
above will have a material adverse effect on the Company's financial condition,
results of operations or liquidity.
TRADEMARKS AND PATENTS
The Company has registered and nonregistered trade names and trademarks
covering the principal brand names and product lines under which its products
are marketed.
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<PAGE> 8
ITEM 2. PROPERTIES
The Company's operations are conducted at the owned or leased
facilities described below:
<TABLE>
<CAPTION>
CAPACITY
(SQUARE OWNED/
LOCATION PRINCIPAL USE FEET) LEASED
- -------- ------------------------------------------------- -------- ------
<S> <C> <C> <C>
Dallas, Texas Fabrication (H-R Windows) 186,000
Fabrication (Atrium Door & Window Company) 266,000
Fabrication (Atrium Vinyl Windows) 90,000
---------
542,000 Leased*
Irving, Texas Fabrication (Atrium Aluminum Products) 147,218
Extrusion (North Texas Die & Tool) 1,400
---------
148,618 Owned
Irving, Texas Distribution (Atrium Door & Window 22,000
Distributors of Texas)
Fabrication (Atrium Aluminum Products) 98,000
---------
120,000 Owned
Wylie, Texas Extrusion (Extruders) 100,000 Owned
Carrollton, Texas Extrusion (Dow-Tech Plastics) 25,200 Leased
Phoenix, Arizona Distribution (Atrium Door & Window
Distributors of Arizona) 44,743 Leased
Las Vegas, Nevada Distribution (Atrium Door & Window
Distributors of Nevada) 30,400 Leased
Woodville, Texas Fabrication (Kel-Star Building Products) 180,000
Extrusion (Woodville Extruders) 120,000
---------
300,000 Leased
San Antonio, Texas Distribution (H-R Distributors) 15,500 Leased
Anaheim, California Fabrication (Atrium Door & Window Company - West Coast) 55,000 Leased
Union City, California Distribution (Atrium Door & Window Company - West Coast) 12,000 Leased
Portland, Oregon Distribution (Atrium Door & Window Company - West Coast) 12,000 Leased
Salt Lake City, Utah Distribution (Atrium Door & Window Company - West Coast) 12,000 Leased
Clinton, Fabrication (Atrium Door & Window Company
Massachusetts of New England) 31,000 Owned
Bridgeport, Connecticut Fabrication (Atrium Door & Window Company of the
Northeast) 75,000 Leased
Farmingdale, Distribution (Atrium Door & Window Company of
New York New York) 6,000 Leased
---------
Total 1,529,461
=========
</TABLE>
*Leased from an affiliate of certain stockholders.
The Company maintains its corporate headquarters in Dallas, Texas. The
facilities provide approximately 11,000 square feet and are leased for a
seven-year term expiring in 2004.
The Company believes that its manufacturing and distribution facilities
are generally in good operating condition and are adequate to meet anticipated
future requirements.
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<PAGE> 9
ITEM 3. LEGAL PROCEEDINGS
The Company is involved from time to time in litigation arising in the
ordinary course of its business, none of which, after giving effect to the
Company's existing insurance coverage, is expected to have a material adverse
effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
There is no established public trading market for the Company's
outstanding equity securities.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial information set forth below for the five-year
period ended December 31, 1997 was derived from the financial statements of the
Company which have been audited by Coopers & Lybrand L.L.P., independent
auditors. The data should be read in conjunction with Management's Discussion
and Analysis of Financial Condition and Results of Operations and the financial
statements, related notes and other financial information included elsewhere in
this report.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
INCOME STATEMENT DATA (1):
Net sales ....................................... $ 98,752 $123,571 $135,478 $156,269 $186,764
Income from continuing operations before
extraordinary charges ......................... 10,083 9,191 1,849 5,379 6,167
Net income (2) .................................. 10,083 9,191 1,849 4,203 6,167
BALANCE SHEET DATA (END OF PERIOD) (3):
Total assets .................................... 52,517 58,507 48,569 74,750 83,375
Total debt ...................................... 7,614 6,786 49,000 100,000 100,000
</TABLE>
(1) The historical results of operations for the year ended December 31, 1997
include the results of ADW-West Coast from the date of acquisition on July
1, 1997. The results of operations for the year ended December 31, 1996
include the results of ADW-Northeast from the date of acquisition on
September 30, 1996 and the results of Keller from the commencement of
operations in September 1996. All significant intercompany transactions
have been eliminated in consolidation.
(2) Prior to the Heritage Transaction, the Company was a subchapter S
corporation and, for federal income tax purposes, all income or loss was
allocated to the stockholders for inclusion in their respective federal
income tax returns. The Company made periodic distributions to
stockholders for their pro rata portion of federal income taxes payable.
In conjunction with the Heritage Transaction, the Company became a C
corporation. Pro forma income tax expense prior to July 3, 1995, had the
Company been subject to corporate federal income taxes, would have been as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Income tax expense .... $ 3,750 $ 4,032 $ 1,109
======= ======= =======
</TABLE>
(3) All significant intercompany balances have been eliminated in
consolidation.
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<PAGE> 10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
GENERAL: The Company's results are generally impacted by the level of
activity in residential new construction and remodel/replacement in the
Company's Primary Market and throughout the United States. This activity is
influenced by regional and national economic trends, such as availability of
consumer credit, interest rates, job formation, age of housing stock,
inter/intra U.S. migration and consumer confidence. The Company's operating
results reflect significant sales growth, which can be attributed to increased
market share and product demand in its markets. The Company attributes these
market share gains to its brand name recognition, strong customer service, new
product offerings, expanded distribution, including the opening of new
Company-owned Distribution Centers, and increased sales to the DIY home center
market.
The Company has implemented measures to enhance manufacturing
efficiencies and reduce operating costs. These initiatives include the
realignment of workflow processes and the reduction of scrap and direct labor
costs. The Company has also outsourced delivery operations and improved customer
service. Further, the Company is implementing an integrated management
information system. This system is expected to provide additional production
efficiencies and optimize inventory management, as well as enhance financial
reporting.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, information
derived from the Company's consolidated statements of income expressed as a
percentage of net sales.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net sales .................................................. 100.0% 100.0% 100.0%
Cost of goods sold ......................................... 65.0 65.5 69.4
----- ----- -----
Gross profit ............................................... 35.0 34.5 30.6
Selling, delivery, general and administrative expenses ..... 23.8 22.3 21.6
Special charges ............................................ -- 1.9 5.3
Stock option compensation expense .......................... 0.1 1.9 0.2
----- ----- -----
Income from operations ................................ 11.1 8.4 3.5
Interest expense ........................................... (6.2) (3.1) (2.0)
Other income (expense), net ................................ 0.6 (0.1) 1.1
----- ----- -----
Income before income taxes and
extraordinary charge .................................. 5.5 5.2 2.6
Provision for income taxes ................................. 2.2 1.7 1.1
----- ----- -----
Income before extraordinary charge ......................... 3.3 3.5 1.5
Extraordinary charge, net of income tax benefit ............ -- .8 --
----- ----- -----
Net income ................................................. 3.3% 2.7% 1.5%
===== ===== =====
</TABLE>
ACCOUNTING ADJUSTMENTS. Certain accounting adjustments affect the
comparability of the Company's operating results for the periods presented.
Prior to the Heritage Transaction, the Company was a subchapter S corporation
for tax purposes and all federal income taxes were paid by the Company's
stockholders. Had the Company been a C corporation for all periods presented,
income tax expense would have been $1,109 in 1995.
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<PAGE> 11
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
NET SALES. Net sales increased by $30,495 from $156,269 in 1996 to
$186,764 in 1997. The increase was primarily due to the increase in sales of
$19,708 at the ADW - Northeast, Kel-Star and Woodville Extruders divisions, all
of which were acquired during the second half of 1996, and the ADW-West Coast
division, acquired from Gentek Building Products, effective July 1, 1997.
Additionally, the Company experienced slight growth at its distribution centers
and within its core manufacturing divisions, including significant growth at
Atrium Wood, which was awarded a national patio door sales contract during the
second quarter of 1997.
COST OF GOODS SOLD. Cost of goods sold decreased from 65.5% of net
sales during 1996 to 65.0% of net sales during 1997. The decrease was due
largely to on-going cost reductions at Atrium Wood, which were offset by
start-up inefficiencies at Kel-Star.
SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE EXPENSES. Selling,
delivery, general and administrative expenses increased $9,671 from $34,815
(22.3% of sales during 1996) to $44,486 (23.8% of sales during 1997). The
increase is largely due to the inclusion of twelve months of selling, delivery,
general and administrative expenses at the ADW-Northeast, Kel-Star, Woodville
Extruders and ADW-West Coast divisions, as well as amortization expense related
to software implementation costs. Additionally, delivery expenses were
negatively impacted during 1997 as a result of the fire at the Company's
Extruders division in January.
SPECIAL CHARGES. Special charges during 1996 consisted of $3,044 in
management bonuses which were the result of the Hicks Muse Transaction. There
were no special charges during 1997.
STOCK OPTION COMPENSATION EXPENSE. Stock option compensation expense
decreased $2,716 from $3,023 during 1996 to $307 during 1997. In 1997, stock
option compensation expense relates to amortization of deferred compensation
charges related to previously issued options and the cash redemption of certain
options issued to a former executive of the Company. In 1996, stock option
compensation expense consisted of charges associated with the granting of new
stock options at exercise prices below the fair value of the underlying common
stock and the expense associated with the cash redemption of certain options,
both resulting from the Hicks Muse Transaction, and amortization of deferred
compensation charges related to previously issued options. Included in stock
option compensation expense during 1996 is $1,320 representing the difference
between the fair market value of Holding Common Stock and the exercise price
associated with a Warrant granted to an executive of the Company in connection
with the Hicks Muse Transaction.
INTEREST EXPENSE. Interest expense increased $6,736 from $4,786 during
1996 to $11,522 during 1997. The increase was due largely to an increase in
average outstanding debt which resulted from the issuance of $100,000 Senior
Subordinated Notes offered in connection with the Hicks Muse Transaction, as
well as borrowings under the Company's $20,000 revolving credit facility.
Interest expense during 1997 includes amortization of the related deferred
financing costs.
OTHER INCOME (EXPENSE), NET. Other income (expense), net increased
$1,270 from other expense of $182 in 1996 to other income of $1,088 in 1997.
Other income in 1997 includes an insurance settlement of $1,193. This settlement
with the Company's insurance carrier resulted from the business interruption
portion of the Company's insurance claim filed as a result of the January fire
at the Company's Extruders division.
EXTRAORDINARY CHARGE. Extraordinary charge of $1,176 during 1996
represents the write-off of certain deferred financing charges incurred in
connection with the Heritage Transaction, as all outstanding debt was retired
with a portion of the proceeds from the $100,000 Senior Subordinated Notes. This
amount is net of income tax benefit of $720.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
NET SALES. Net sales increased by $20,791 from $135,478 during 1995 to
$156,269 during 1996. The increase in sales primarily resulted from combined
sales of $5,519 at ADW-Northeast, acquired September 30, 1996, and Kel-Star and
Woodville Extruders, which resulted from a June 13, 1996 asset purchase, an
increase of $10,719 at the Atrium Aluminum division and an increase of $4,097 at
Atrium Vinyl, which was a start-up operation in 1995.
11
<PAGE> 12
COST OF GOODS SOLD. Cost of goods sold decreased from 69.4% of sales
during 1995 to 65.5% of sales during 1996. This improvement was due largely to
the reduction from 1995 to 1996 in charges associated with inventory and other
product reserves at Atrium Wood of approximately $1,684. The remainder was due
to a decrease in raw material prices, the replacement of a significant low
margin H-R customer with customers at higher margins, sales price increases at
the Atrium Aluminum division, and three months of operations at ADW-Northeast,
which has a significantly lower cost of goods sold percentage than the core
company divisions.
SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE EXPENSES. Selling,
delivery, general and administrative expenses increased $5,512 from $29,303
(21.6% of sales during 1995) to $34,815 (22.3% of sales during 1996). The
increase was largely due to the addition of selling, delivery, general and
administrative expenses at the ADW-Northeast, Kel-Star and Woodville Extruders
divisions. Additionally, general and administrative expenses increased due to
the amortization of certain non-compete agreements and the combined consulting
fees at three of the Company's divisions.
SPECIAL CHARGES. Special charges decreased $4,144 from $7,188 during
1995 to $3,044 during 1996. Special charges during 1996 consisted of $3,044 in
management bonuses, which were the result of the Hicks Muse Transaction. Special
charges during 1995 included officer and management bonuses of $6,380 in
connection with the Heritage Transaction, consulting fees of $408 and a
restructuring charge of $400.
STOCK OPTION COMPENSATION EXPENSE. Stock option compensation expense
increased $2,715 from $308 during 1995 to $3,023 during 1996. Stock option
compensation expense consisted of charges associated with the granting of new
stock options at exercise prices below the fair value of the underlying common
stock and the expense associated with the cash redemption of certain options,
both resulting from the Hicks Muse Transaction, and amortization of deferred
compensation charges related to previously issued options. Included in stock
option compensation expense is $1,320 representing the difference between the
fair market value of Holding Common Stock and the exercise price associated with
a Warrant granted to an executive of the Company in connection with the Hicks
Muse Transaction.
INTEREST EXPENSE. Interest expense increased $2,033 from $2,753 during
1995 to $4,786 during the year ended 1996. The increase was primarily due to the
debt incurred in connection with the Heritage Transaction, which was outstanding
for five months of 1995, as compared to eleven months of 1996. The remainder of
the increase was due to interest related to the $100,000 Senior Subordinated
Notes, offered in connection with the Hicks Muse Transaction, which occurred on
November 27, 1996 and the amortization of deferred financing charges for a full
year in 1996.
OTHER INCOME (EXPENSE), NET. Other income (expense), net decreased
$1,624 from other income of $1,442 during 1995 to other expense of $182 for
1996. In 1995, the Company had rental income prior to the distribution of
certain rental property in the Heritage Transaction and a gain on sale of assets
associated with the sale of the Company's truck fleet in 1995.
EXTRAORDINARY CHARGE. Extraordinary charge of $1,176 for 1996
represents the write-off of certain deferred financing charges incurred in
connection with the Heritage Transaction, as all outstanding debt was retired
with a portion of the proceeds from the $100,000 Senior Subordinated Notes. This
amount is net of income tax benefit of $720.
QUARTERLY FINANCIAL DATA (UNAUDITED)
General. Because most of the Company's building products are intended
for exterior use, sales and operating profits tend to be lower during periods of
inclement weather. Weather conditions in the first quarter of each calendar year
historically result in that quarter producing less sales revenue than in any
other period of the year.
Quarterly sales and operating profit data for the Company in 1997 and
1996 are shown in the table below:
<TABLE>
<CAPTION>
Fiscal Quarter Ended
--------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31,
<S> <C> <C> <C> <C>
1997:
Net sales ............ $ 37,846 $ 47,431 $ 54,516 $ 46,971
Gross profit ......... 13,281 17,617 19,240 15,325
Income from operations 3,175 6,705 6,888 3,902
Net income ........... $ 211 $ 3,226 $ 2,431 $ 300
1996:
Net sales ............ $ 33,429 $ 40,976 $ 38,641 $ 43,223
Gross profit ......... 11,146 14,178 13,840 14,764
Income from operations 3,634 5,275 5,034 (897)
Net income ........... $ 1,841 $ 2,835 $ 2,539 $ (3,012)
</TABLE>
12
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
Cash generated from operations and cash provided by financing
activities are the Company's principal sources of liquidity. During 1997, cash
was primarily used for the acquisition of the ADW-West Coast and capital
expenditures. Operating activities provided cash of $9,103 in 1997, compared
with $8,767 in 1996. The increase in cash from operations was attributable
primarily to an increase in net income of $1,924. Cash flows from financing
activities decreased from cash provided of $6,497 in 1997, compared to $441 in
1996 primarily due to the Hicks Muse Transaction in 1996, in which the Company
issued $100,000 Senior Subordinated Notes, which were used to pay-off the
Company's previously outstanding debt and fund certain shareholder distributions
made by Holding. To fund future acquisitions, the Company may use its
availability under its revolving credit facility combined with additional debt,
equity proceeds and internally generated funds.
OTHER CAPITAL RESOURCES
In connection with the Hicks Muse Transaction, the Company entered into
a Credit Agreement providing for borrowing of up to $20,000 under a revolving
credit facility. Annual standby commitment fees are currently 0.5% of the
unborrowed portion of the facility. Borrowing rates are based upon the lender's
prime rate plus a borrowing margin of 1.5% or a LIBOR-based rate plus a
borrowing margin of 2.5%. The revolving credit facility terminates in March
2002. At December 31, 1997, the Company had $19,191 of availability under the
revolving credit facility, net of outstanding letters of credit totaling $809.
CAPITAL EXPENDITURES
The Company had cash capital expenditures (exclusive of the ADW-West
Coast acquisition in 1997 and the ADW-Northeast acquisition in 1996) of $3,438,
$3,380 and $2,337 for the years ended December 31, 1997, 1996, and 1995,
respectively. Capital expenditures in 1996 included $1,150 for the acquisition
of the capital assets of Keller Building Products (Kel-Star and Woodville
Extruders). The Company expects capital expenditures (exclusive of acquisitions)
will be approximately $3,985 in 1998 (exclusive of the Masterview acquisition),
however, actual capital requirements may change, particularly as a result of
acquisitions the Company may make. Capital expenditures exclude costs related to
the implementation of the Company's new management information system which
include internally capitalized costs.
The ability of the Company to meet its debt service and working capital
obligations and capital expenditure requirements is dependent, however, upon the
future performance of the Company and its subsidiaries which, in turn, will be
subject to general economic conditions and to financial, business and other
factors, including factors beyond the Company's control. As of March 25, 1998,
the Company had $18,774 available for borrowings under the credit facility, net
of borrowings of $417 and outstanding letters of credit totaling $809.
FINANCIAL ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards ("SFAS") No. 130 "Reporting Comprehensive Income"
and SFAS No. 131 "Disclosures About Segments of an Enterprise and Related
Information" which are effective for financial statement periods beginning after
December 15, 1997. The
13
<PAGE> 14
Company believes that these statements will have no effect on the Company's
financial position, results of operations or cash flows.
CERTAIN FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements (as such term
is defined in the Private Securities Litigation Reform Act of 1995) relating to
the Company that are based on the beliefs of the management. When used in this
report, the words "anticipate," "believe," "estimate," "expect," "intend," and
similar expressions, as they relate to the Company or the Company's management,
identify forward-looking statements. Such statements reflect the current views
of the Company with respect to the operations and results of operations of the
Company as well as its customers and suppliers, including as a result of the
availability of consumer credit, interest rates, employment trends, changes in
levels of consumer confidence, changes in consumer preferences, national and
regional trends in new housing starts, raw material costs, pricing pressures,
shifts in market demand, and general economic conditions. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions or
estimates prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated, expected or intended.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements are listed in the accompanying Index to
Financial Statements on page F-1 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table provides information concerning the directors and
the executive officers of the Company. The directors of the Company are also the
directors of Holding. All directors hold office until the next annual meeting of
stockholders of Holding and until their successors have been duly elected and
qualified. The parties to the Stock Purchase Agreement have agreed to take all
actions required to cause the Board of Directors of Holding at all times to
consist of at least five directors, of whom one shall be designated by the
Fojtasek shareholder group, one shall be designated by Heritage Fund I, L.P. and
the remainder shall be designated by Hicks Muse and Hicks Muse Affiliates.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------- --- ---------------------------------------------------------
<S> <C> <C>
Randall S. Fojtasek ........... 35 President, Chief Executive Officer and Director
Louis W. Simi, Jr.............. 57 Executive Vice President of Atrium Companies, Inc
and President of Atrium Door and Window Company
Jeff L. Hull................... 32 Chief Financial Officer and Secretary
Jill K. Anderson............... 40 Vice President of Human Resources
Russell S. Fojtasek 36 Vice President and General Manager of Atrium Aluminum
Horace T. Hicks................ 60 Vice President and General Manager of H-R Windows
Arthur G. Frost................ 63 Vice President of Atrium Companies, Inc. and President
of Extruders
Eric W. Long................... 29 Corporate Controller and Assistant Secretary
John R. Muse................... 46 Director
Michael J. Levitt.............. 39 Director
Stephen M. Humphrey 53 Director
C. Dean Metropoulos 50 Director
Michel Reichert................ 47 Director
</TABLE>
14
<PAGE> 15
Randall S. Fojtasek has served as President and Chief Executive Officer
of the Company since 1993. From 1990 to 1993, he served as Vice President of
Operations and General Manager of Atrium Door & Window Company. Mr. Fojtasek
also is a director of Holding.
Louis W. Simi, Jr. served as General Manager of Atrium Aluminum
beginning in 1971 and was promoted to the position of President of
Atrium Door & Window Company in 1998. He has served in other capacities with the
Company since 1966. Lou was promoted in 1993 to the position of Executive Vice
President of the Company with oversight responsibility for its operations.
Jeff L. Hull has served as Chief Financial Officer since April 1996 and
Secretary since December 1996. From June 1995, Mr. Hull managed the
asset/liability department of AmVestors Financial Corporation (NYSE:AMV). From
1990 to 1995, he was an audit manager with the accounting firm of Deloitte &
Touche. Mr. Hull is a certified public accountant.
Jill K. Anderson has been Vice President of Human Resources since April
1997. From 1989, she was Director of Human Resources for Laidlaw Waste Systems,
Inc., a subsidiary of Laidlaw, Inc. Jill has a Juris Doctor from Drake
University Law School.
Russell S. Fojtasek, Randall S. Fojtasek's brother, has served as Vice
President and Plant Manager of Atrium Aluminum since 1992. In 1998, he was
promoted to General Manager of Atrium Aluminum. From 1983 to 1992, Mr. Fojtasek
served in various capacities for Atrium Aluminum.
Horace T. Hicks has served as Vice President and General Manager of H-R
Windows since 1993. From 1988 to 1993, he was the General Manager of H-R
Windows, after the division was acquired by the Company's predecessor, Fojtasek
Companies, Inc. Horace founded Hicks-Robinson Window Co., the predecessor to H-R
Windows in 1985 and has worked in the window and door fabrication industry since
1953.
A. George Frost has served as Vice President and General Manager of
Extruders since 1977. In 1998, he was promoted to the position of President of
Extruders. Between 1968 to 1977, George managed extrusion operations at
Krestmark, later becoming assistant to the President. Prior to that, Frost
worked at Porter-lite Corp. and CertainTeed Corp. George has approximately 30
years of experience in the extrusion industry.
Eric W. Long has served as Corporate Controller since April 1996. From
April 1995, Mr. Long was a financial analyst with Applebee's International. From
1991 to 1995, he was with the accounting firm of Deloitte & Touche. Mr. Long is
a certified public accountant.
John R. Muse has been a director of the Company since November 1996.
Mr. Muse is Chief Operating Officer, Managing Director and co-founder of Hicks
Muse. Prior to the formation of Hicks Muse in 1989, Mr. Muse headed the
merchant/investment banking operations of Prudential Securities in the
Southwestern region of the United States. Mr. Muse is Chairman of Arena Brands,
Inc., Atrium Companies, Inc., Sunrise Television Corp. and serves as Director of
International Home Foods, Inc., Olympus Real Estate Corporation, Arnold Palmer
Golf Management Co. and Suiza Foods Corporation. Mr. Muse also serves on the
Board of Directors for the SMU Edwin L. Cox School of Business, St. Philip's
School and Community Center, and Goodwill Industries.
Michael J. Levitt has been a director of the Company since November
1996. Mr. Levitt is a Managing Director and Principal of Hicks Muse. Before
joining Hicks Muse, Mr. Levitt was a Managing Director and Deputy Head of
Investment Banking with Smith Barney Inc. from 1993 through 1995. From 1986
through 1993, Mr. Levitt was with Morgan Stanley & Co. Incorporated, most
recently as a Managing Director responsible for the New York-based Financial
Entrepreneurs Group. Mr. Levitt also serves as a director of Sunrise Television,
LIN Television and International Home Foods, Inc.
Stephen M. Humphrey has been a director of the Company since November
1996. Presently, Mr. Humphrey is the President and Chief Executive Officer of
Riverwood International. From 1994 to 1996, Mr. Humphrey served as President and
Chief Executive Officer of National Gypsum Company. Prior to joining National
Gypsum, Mr. Humphrey served as President of On-Highway Products from 1991 to
1994 and Executive Vice President from 1989 to 1991. On-Highway Products, now
named Meritor Automotive Company, was formerly a subsidiary of Rockwell
International Corporation.
15
<PAGE> 16
C. Dean Metropoulos has been a director of the Company since November
1996. Mr. Metropoulos is the Chairman of the Board of Directors and Chief
Executive Officer of International Home Foods, Inc. and Chief Executive Officer
of C. Dean Metropoulos & Co., a management services company. From 1983 through
1993, Mr. Metropoulos served as President and Chief Executive Officer of Stella
Foods, Inc. Before then, Mr. Metropoulos served in a variety of U.S. and
international executive positions with GTE Corporation, including Vice President
and General Manager-Europe and Vice President and Controller, GTE International.
Mr. Metropoulos also serves as a Director of Suiza Foods.
Michel Reichert has been a director of the Company since July 1995.
Mr. Reichert is the managing general partner of Heritage Partners, Inc., a
Boston-based principal investment firm. Prior to founding Heritage Partners,
Inc. in 1993, Mr. Reichert was a Managing Director of BancBoston Capital's
Equity Partners, a direct equity investment unit of Bank of Boston. In addition
to serving as a director of Holding, Mr. Reichert is a director of 20th Century
Plastics, Inc., APX Holdings, LLC., Fountain View, Inc., IMPAC, Inc. and
Jordan's Foods.
16
<PAGE> 17
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information concerning
compensation of the Company's Chief Executive Officer and its four other most
highly compensated executive officers (collectively, the "Named Officers") for
services rendered in all capacities during the fiscal year ended December 31,
1997 and 1996:
COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
-------------------------------------- OTHER COMPENSATION
NAME AND PRINCIPAL POSITION SALARY BONUS OTHER COMPENSATION OPTIONS # (5)
--------------------------- ------ ----- ----- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Randall S. Fojtasek .............................. 1997 $ 350,000 $ 125,000 --(2) $ 308,928 (3) --
President and Chief Executive Officer ......... 1996 303,865 3,075,000(1) --(2) 221,500 (4) 2,195,222
Louis W. Simi, Jr ................................ 1997 125,000 250,690 --(2) 106,025 (3) --
Executive Vice President of Atrium and ........ 1996 125,000 270,681 --(2) 282,886 (4) 161,237
President of Atrium Aluminum
Arthur G. Frost .................................. 1997 100,000 231,103 --(2) 60,586 (3) --
Vice President of Atrium and President
of Extruders ................................ 1996 100,000 224,701 --(2) 716,711 (4) 120,707
Horace T. Hicks .................................. 1997 100,000 176,176 --(2) 30,293 (3) --
Vice President and General Manager of H-R ..... 1996 100,000 110,938 --(2) 123,172 (4) 60,353
Jeff L. Hull ..................................... 1997 120,000 20,000 --(2) 15,146 (3) 5,000
Chief Financial Officer ....................... 1996 100,000 -- -- -- 100,000
</TABLE>
(1) Includes one-time bonus in the amount of $3,000,000 for completion of the
Hicks Muse Transaction.
(2) Prerequisites related to automobile allowances are excluded since the
aggregated amounts are the lesser of $50,000 or 10% of the total annual salary.
(3) Amounts represent fees received in connection with the termination of the
purchase and sale agreement to acquire PlyGem Industries.
(4) In connection with the Heritage Transaction, certain members of management
were granted options at below fair market prices. Accordingly, compensation
expense is being recognized for financial statement purposes. Upon completion of
the Hicks Muse Transaction and the exercise of these options, the compensatory
portion of the options were reflected in the individual's wages and in the
Company's financial statements.
(5) All options granted are for the Common Stock of Holding.
OPTION GRANTS IN LAST FISCAL YEAR (1)
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------
% OF TOTAL POTENTIAL REALIZABLE VALUE AT
NUMBER OF OPTIONS ASSUMED ANNUAL RATES OF
SECURITIES GRANTED TO STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE OR FOR OPTION TERM (2)
OPTIONS IN FISCAL BASE PRICE EXPIRATION -----------------------------
NAME GRANTED(#) YEAR ($/SH) DATE 5%($) 10%($)
---- ---------- ---- ------ ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Randall S. Fojtasek .... -- -- -- -- -- --
Louis W. Simi, Jr ...... -- -- -- -- -- --
Arthur G. Frost ........ -- -- -- -- -- --
Horace T. Hicks ........ -- -- -- -- -- --
Jeff L. Hull ........... 5,000(3) .1% 1.75 1/1/2003 2,417 5,342
</TABLE>
(1) All options are for the Common Stock of Holding.
17
<PAGE> 18
(2) The assumed rates are compounded annually for the full terms of the options.
(3) Options vest ratably over five years.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FY-END(#) FY-END($)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
- ------------------ --------------------- ------------- ------------------- ------------------
<S> <C> <C> <C> <C>
Randall S. Fojtasek ......... -- -- 1,647,391/547,831 (1) 2,561,543/410,873 (1)
Louis W. Simi, Jr. .......... -- -- 102,247/408,990 (1) 145,986/583,942 (1)
Arthur G. Frost ............. -- -- 64,141/256,566 (1) 87,706/350,824 (1)
Horace T. Hicks ............. -- -- 32,071/128,282 (1) 43,853/175,412 (1)
Jeff L. Hull ................ -- -- 20,000 / 85,000 (1) 15,000 / 60,000 (1)
</TABLE>
(1) Represents options held by the named individual to purchase the Common Stock
of Holding.
COMPENSATION AND INCENTIVE PROGRAM
BONUS PLAN
The Company maintains a bonus plan providing for annual bonus awards to
certain key employees. Such bonus amounts are based on the Company and the
divisions meeting certain performance goals established by the Company's Board
of Directors.
OTHER BENEFIT PROGRAMS
The executive officers also participate in other employee benefit
programs including health insurance, group life insurance, and a savings and
supplemental retirement plan (the "401(k) Plan") on the same basis as other
employees of the Company.
EMPLOYMENT AGREEMENTS
On November 27, 1996, the Company entered into an employment agreement
with Randall S. Fojtasek, pursuant to which Mr. Fojtasek serves as President and
Chief Executive Officer. Pursuant to the agreement, Mr. Fojtasek receives an
annual base salary in the amount of $350,000, subject to increase at the
discretion of the Board of Directors, and such benefits as are customarily
accorded to other executives of the Company and such other benefits as the Board
of Directors may establish. In addition, Mr. Fojtasek shall be eligible to
receive an annual performance bonus in such amount, if any (which amount shall
not exceed $150,000), as determined by the Board of Directors pursuant to the
annual performance bonus plan adopted by the Board. Holding granted to Mr.
Fojtasek a warrant exercisable for 2,195,222 shares of Common Stock of Holding
("Common Stock). Of such shares, up to 1,333,333 may be immediately purchased
upon exercise of the warrant at a price of $0.01 per share, and the remaining
861,889 shares may be purchased upon exercising the warrant at a price of $1.00
per share, with the right to purchase such shares vesting ratably each day
during the first three years of the term of the warrant, provided that the Board
of Directors has determined in good faith that the affiliates of Hicks Muse have
achieved an internal rate of return of at least 8% on their investment in the
shares of Common Stock purchased pursuant to the Hicks Muse Transaction. Mr.
Fojtasek's agreement terminates three years after November 27, 1996. If his
employment with the Company is terminated without cause, or if Mr. Fojtasek
terminates his employment for good reason, the Company shall pay to Mr. Fojtasek
(i) in a lump sum cash in the amount of his annual base salary earned or accrued
through the termination date, reimbursement of his reasonable and necessary
expenses, any unpaid accrued vacation pay and any amount arising from his
benefits to be received pursuant to the Company's investment plans, (ii) in
regular installments his annual base salary (plus an amount in reimbursement for
certain expenses equal to $2,000 per month) for a period that ends on the later
of (A) the last day of his employment term or (B) 18 months from the termination
date and (iii) an annual bonus in the amount
18
<PAGE> 19
equal of $50,000 for each year in the remainder of his employment term. Mr.
Fojtasek has agreed not to compete with the Company until the later of the
expiration of the term of his employment agreement and 18 months after the
termination of his employment under the agreement.
On January 1, 1998 Messrs. Simi, Hicks, Frost and Hull entered into
employment agreements with the Company. The compensation to be provided to
Messrs. Simi, Hicks, Frost and Hull under their agreements includes an annual
base salary of $170,000, $150,000, $150,000 and $125,000, respectively, subject
to increases at the discretion of the Board of Directors, and such benefits as
are customarily accorded the executives of the Company. In addition, Messrs.
Simi, Hicks, Frost and Hull are eligible for incentive bonuses based on certain
performance targets established by the Board of Directors.
Each of Messrs. Simi's, Hicks' Frost's and Hulls' employment agreements
terminate on December 31, 2000. If any of Messrs. Simi's, Hicks', Frost's or
Hull's employment with the Company is terminated by the Company for any reason
other than for cause, such individual will continue to be paid his salary for 12
months, together with the annual incentive bonus. Each of Messrs. Simi, Hicks,
Frost and Hull have agreed not to compete with the Company in certain geographic
areas for so long as the Company pays salary to him.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
STOCK OWNERSHIP
The Company is a wholly-owned subsidiary of Holding. Holding's address
is P.O. Box 226957, Dallas, Texas 75222. The following table sets forth certain
information regarding the beneficial ownership of Common Stock of Holding, by
each person who owns beneficially more than 5% of the outstanding Common Stock
of Holding and by the directors and certain executive officers of Atrium
Corporation. Unless otherwise indicated below, to the knowledge of the Company,
all persons listed below have sole voting and investment power with respect to
their shares of Common Stock.
HOLDING'S SECURITY OWNERSHIP OF
MANAGEMENT AND PRINCIPAL STOCKHOLDERS
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
SHARES OF SHARES
------ ---------
<S> <C> <C>
5% Stockholders:
Hicks Muse parties (1)..................................................... 32,000,000 82.8%
c/o Hicks, Muse, Tate & Furst Incorporated
200 Crescent Court, Suite 1600
Dallas, Texas 75201
Heritage Fund I, L.P....................................................... 3,543,000 9.2%
30 Rowes Wharf
Suite 300
Boston, Massachusetts 02110
Officers and Directors:
Randall S. Fojtasek (2).................................................... 2,876,618 7.4%
Louis W. Simi, Jr (3)...................................................... 102,247 *
Horace T. Hicks (3)........................................................ 32,071 *
Arthur G. Frost (3)........................................................ 64,141 *
Jeff L. Hull (3)........................................................... 70,000 *
John R. Muse (1)........................................................... 32,000,000 82.8%
Michael J. Levitt (1)...................................................... 32,000,000 82.8%
Stephen M. Humphrey (4).................................................... 200,000 *
C. Dean Metropoulos (5).................................................... 200,000 *
Michel Reichert (6)........................................................ 3,525,000 9.2%
All directors and executive officers as a group (13 persons)............... 37,000,000 95.8%
</TABLE>
- ----------------
* Less than 1%
19
<PAGE> 20
(1) Includes shares owned of record by HM3 Coinvestors, L.P. ("Coinvestors") and
Hicks, Muse, Tate & Furst Equity Fund III, L.P. ("Hicks Muse Fund III,
L.P."). The ultimate general partner of each of Coinvestors and Hicks Muse
Fund III, L.P. is Hicks, Muse Fund III Incorporated. Thomas O. Hicks, whose
address is the same as that for Hicks Muse, is a controlling stockholder of
Hicks Muse and serves as its Chairman of the Board, Chief Executive Officer,
Chief Operating Officer, President and Secretary. Accordingly, Mr. Hicks may
be deemed to be the beneficial owner of these shares. Mr. Hicks disclaims
beneficial ownership of these shares. Each of Mr. Muse and Mr. Levitt is a
Managing Director and Principal of Hicks Muse and may also be deemed a
beneficial owner of these shares. Each of them disclaims such beneficial
ownership.
(2) Includes 1,694,618 shares that Mr. Fojtasek has the right to acquire within
60 days of the date hereof upon exercise of certain warrants granted to him
and includes 260,500 shares held by trusts for the benefit of certain
members of Mr. Fojtasek's immediate family, as to which Mr. Fojtasek
disclaims beneficial ownership. Excludes 1,250,000 shares owned by Mr.
Fojtasek's father and brother upon which he disclaims beneficial ownership.
(3) Includes shares which may be acquired upon the exercise of options
exercisable within 60 days as of the date hereof by Messrs. Simi, Hicks,
Frost and Hull for 102,247, 64,141, 32,071, and 20,000 respectively.
(4) Includes 100,000 shares that Mr. Humphrey has the right to acquire upon
exercise of options.
(5) Includes 100,000 shares held by two trusts for the benefit of Mr.
Metropoulos' children and 100,000 shares that the trusts have the right to
acquire upon exercise of options. Mr. Metropoulos disclaims beneficial
ownership.
(6) Includes shares owned by Heritage of which Mr. Reichert is managing general
partner. Accordingly, Mr. Reichert may be deemed to be the beneficial owner
of these shares. Mr. Reichert disclaims beneficial ownership of these
shares.
ITEM 13. CERTAIN RELATIONSHIPS RELATED TRANSACTIONS
The descriptions set forth below do not purport to be complete and are
qualified in their entirety by reference to the applicable agreements, including
the Stock Purchase Agreement, dated as of November 7, 1996, between affiliates
of Hicks Muse ("Hicks Muse Affiliates"), Holding and certain stock and option
holders of Holding (the "Stock Purchase Agreement"). In connection with this
agreement, the Company, certain stockholders of the Company, Hicks Muse and
Hicks Muse Affiliates entered into a stockholders agreement (the "Stockholders
Agreement") under which the parties agreed to take all actions required to cause
the Board of Directors of Holding at all times to consist of at least five
directors, of whom one shall be designated by the selling stockholders
(represented by Randall S. Fojtasek), one shall be designated by Heritage Fund
I, L.P. and the remainder shall be designated by Hicks Muse and Hicks Muse
Affiliates.
The parties to the Stockholders Agreement agreed, until the earlier of
(i) the tenth anniversary of the date of the Stockholders Agreement or (ii) the
consummation of a firm commitment initial public offering, that in connection
with any sale by Hicks Muse Affiliates of more than 50% of their shares of
Holding Common Stock, Hicks Muse Affiliates shall have the right to require each
other stockholder who is a party to the Stockholders Agreement to sell the
portion of its Common Stock that represents the same percentage of the
Fully-Diluted Common Stock held by that stockholder as the shares being disposed
of by Hicks Muse Affiliates represent of the Fully-Diluted Common Stock held by
Hicks Muse Affiliates. At least 30 days prior to the closing of any sale by
Hicks Muse Affiliates (including a sale described in the preceding sentence in
connection with which Hicks Muse Affiliates do not exercise their right to
require such other stockholders to participate in the sale), Hicks Muse shall
cause Hicks Muse Affiliates to offer to include in the sale the percentage of
each such other stockholder's Common Stock that represents the same percentage
of the Fully-Diluted Common Stock held by that stockholder as the shares being
disposed of by Hicks Muse Affiliates represent of the Fully-Diluted Common Stock
held by Hicks Muse Affiliates; provided that only stockholders which are
Accredited Investors (as defined in Rule 501(a)(1), (2), (3) and (7) under the
Securities Act) shall be entitled to participate in sales in which the
consideration for the sale includes securities, unless the transferee consents
otherwise. If any such stockholder accepts the offer, Hicks Muse shall cause
Hicks Muse Affiliates to reduce, to the extent necessary, the number of shares
of Common Stock it otherwise would have sold in the proposed transfer so as to
permit those stockholders who have accepted the offer to sell the number of
shares of Common Stock that they are entitled to sell under the above terms. The
rights described above do not apply to any exchange, reclassification or other
20
<PAGE> 21
conversion of the shares pursuant to a merger or consolidation of Holding or any
subsidiary or to a sale or transfer by Holding or any subsidiary of
substantially all its assets. In addition, these rights do not apply to any
transfer, sale or disposition of shares of Common Stock solely among the members
of Hicks Muse Affiliates.
Pursuant to the Stockholders Agreement, the stockholders who are
parties to the Stockholders Agreement that are not Hicks Muse Affiliates agreed,
until the earlier of (i) the tenth anniversary of the date of the Stockholders
Agreement or (ii) the consummation of a firm commitment initial public offering,
not to sell any Common Stock or securities that are exercisable for or
convertible into Common Stock without first notifying Hicks Muse and affording
Hicks Muse an opportunity to buy all, but not less than all, of the offered
shares on terms and conditions of the proposed transfer by the non-Hicks Muse
Affiliates stockholders. If Hicks Muse or an assignee of Hicks Muse rejects the
non-Hicks Muse Affiliates stockholder's offer, the stockholder may transfer
within 30 days all, but not less than all, of the offered securities on terms no
more favorable than those proposed to Hicks Muse, provided that the transfer
complies with the Securities Act. If the securities are not so transferred, and
the non-Hicks Muse Affiliates stockholder still desires to transfer the
securities, the securities must be re-offered to Hicks Muse.
Until the tenth anniversary of the date of the Stockholders Agreement
and subject to certain exceptions, Holding agreed not to issue or sell or permit
any Affiliated Successor (as defined) to issue or sell, any shares of Common
Stock or securities that are exercisable for or convertible into Common Stock,
without first notifying each stockholder and offering to sell to any stockholder
who is an Accredited Investor, on the same terms, all or part of that
stockholder's pro rata portion of such securities as calculated under the
provisions of the Stockholders Agreement.
The Stockholders Agreement includes registration rights provisions
under which Hicks Muse, on behalf of Hicks Muse Affiliates, will be entitled to
exercise three demand and an unlimited number of "piggyback" registration
rights, and Randall S. Fojtasek, on behalf of certain non-Hicks Muse Affiliates,
or Heritage, on behalf of certain affiliates of Heritage, will be entitled to
make (in the aggregate) one demand and an unlimited number of piggyback
registrations to require Holding to register under the Securities Act certain
shares of Common Stock held by them. Hicks Muse may exercise its demand rights
if the offering shall be a firm commitment initial underwritten offer of
Holding's Common Stock under the Securities Act where the proceeds to Holding
exceed $10 million and after such offering such shares are listed on the New
York Stock Exchange or quoted or listed on the NASDAQ National Market, and
either Hicks Muse, Randall S. Fojtasek or Heritage may exercise their respective
demand rights for 270 days after the initial underwritten offering. In addition,
the demand rights may be exercised only with respect to a number of shares that
represent, in the aggregate, more than 4.0% of the Fully-Diluted Common Stock or
have an aggregate gross offering price of at least $5.0 million. The exercise of
the demand and piggy-back rights are subject to other limitations and conditions
that are customary in registration rights agreements.
Holding and the Company entered into a ten-year agreement (the
"Monitoring and Oversight Agreement") with an affiliate of Hicks Muse ("Hicks
Muse Partners") pursuant to which Holding and the Company agreed to pay Hicks
Muse Partners an annual fee of $320,000 for oversight and monitoring services to
the Company. The annual fee is adjustable on January 1 of each calendar year to
an amount equal to 0.2% of the budgeted consolidated net sales of the Company
and its subsidiaries for the then-current fiscal year, but in no event may the
fee be less than $320,000. Upon the acquisition by the Company or any of its
subsidiaries of another entity or business, the fee shall be adjusted
prospectively in the same manner using the pro forma budgeted consolidated
annual net sales of the Company and its subsidiaries (including the sales of the
acquired entity or business). John R. Muse and Michael J. Levitt, directors of
Holding and the Company, are each principals of Hicks Muse Partners. In
addition, Holding and the Company, jointly and severally, have agreed to
indemnify Hicks Muse Partners, its affiliates, and their respective directors,
officers, controlling persons, agents and employees from and against all claims,
liabilities, losses, damages, expenses and fees related to or arising out of or
in connection with the services rendered by Hicks Muse Partners under the
Monitoring and Oversight Agreement and not resulting primarily from the bad
faith, gross negligence or willful misconduct of Hicks Muse Partners. The
Monitoring and Oversight Agreement makes available to the Company and its
subsidiaries the personnel resources of Hicks Muse Partners concerning a variety
of financial and operational matters. The services that have been and will
continue to be provided to the Company by Hicks Muse Partners could not
otherwise be obtained by the Company without the addition of personnel or the
engagement of outside professional advisors. In the Company's opinion, the fees
provided for under the Monitoring and Oversight Agreement reasonably reflect the
benefits received and to be received by Holding and the Company. The amount paid
under this agreement totaled $437,000 in 1997.
21
<PAGE> 22
Holding and the Company also entered into a ten-year agreement (the
"Financial Advisory Agreement"), pursuant to which Hicks Muse Partners received
a financial advisory fee of $2.0 million on the Closing Date as compensation for
its services as financial advisor to the Company in connection with the Hicks
Muse Transaction. Hicks Muse Partners also will be entitled to receive a fee
equal to 1.5% of the "transaction value" (as defined) for each "add-on
transaction" (as defined) in which the Company or any of its subsidiaries is
involved. The term "transaction value" means the total value of the add-on
transaction, including without limitation, the aggregate amount of the funds
required to complete the add-on transaction (excluding any fees payable pursuant
to the Financial Advisory Agreement), including the amount of any indebtedness,
preferred stock or similar items assumed (or remaining outstanding). The term
"add-on transaction" means any future proposal for a tender offer, acquisition,
sale, merger, exchange offer, recapitalization, restructuring or other similar
transaction directly involving the Company or any of its subsidiaries, and any
other person or entity. In addition, Holding and the Company, jointly and
severally, will indemnify Hicks Muse Partners, its affiliates, and their
respective directors, officers, controlling persons, agents and employees from
and against all claims, liabilities, losses, damages, expenses and fees related
to or arising out of or in connection with the services rendered by Hicks Muse
Partners under the Financial Advisory Agreement and not resulting primarily from
the bad faith, gross negligence or willful misconduct of Hicks Muse Partners.
The Financial Advisory Agreement makes available to the Company and its
subsidiaries the personnel resources of Hicks Muse Partners concerning a variety
of financial and operational matters. The services that have been and will
continue to be provided by Hicks Muse Partners could not otherwise be obtained
by the Company without the addition of personnel or the engagement of outside
professional advisors. In the Company's opinion, the fees paid under the
Financial Advisory Agreement reasonably reflect the benefits received and to be
received by the Company. The amount paid under this agreement totaled $92,250 in
1997.
The Company entered into indemnification agreements with each of its
directors and executive officers under which the Company will indemnify the
director or officer to the fullest extent permitted by law, and to advance
expenses, if the director or officer becomes a party to or witness or other
participant in any threatened, pending or completed action, suit or proceeding
(a "Claim") by reason of any occurrence related to the fact that the person is
or was a director, officer, employee, agent or fiduciary of the Company or a
subsidiary of the Company or another entity at the Company's request (an
"Indemnifiable Event"), unless a reviewing party (either outside counsel or a
director or directors appointed by the Board of Directors) determines that the
person would not be entitled to indemnification under applicable law. In
addition, if a change in control or a potential change in control of the Company
occurs and if the person indemnified so requests, the Company will establish a
trust for the benefit of the indemnitee and fund the trust in an amount
sufficient to satisfy all expenses reasonably anticipated at the time of the
request to be incurred in connection with any Claim relating to an Indemnifiable
Event. The reviewing party will determine the amount deposited in the trust. An
indemnitee's rights under his or her indemnification agreement are not exclusive
of any other rights under the Company's Articles of Incorporation or By-Laws or
applicable law.
On the Closing Date of the Stock Purchase Agreement, a Hicks Muse
Affiliate, Holding, Heritage, Randall S. Fojtasek (on behalf of certain Selling
Securityholders) and Citibank, N.A. entered into an indemnification escrow
agreement, funded in the amount of $2.0 million by the Selling Securityholders,
securing the indemnification obligations of such Selling Securityholders to
Hicks Muse and its affiliates (including, after the closing of the Transaction,
Holding) under the stock purchase agreement related to the Transaction.
OTHER TRANSACTIONS
On July 3, 1995, Fojtasek Industrial Properties, Ltd., a limited
partnership in which, Randall S. Fojtasek and Russell S. Fojtasek own equity
interests of approximately 10.2% and 10.2%, respectively, executed a lease with
the Atrium Wood division with respect to Atrium Wood's and Atrium Vinyl's
facility (the "Atrium Lease") and a lease with the H-R Windows division with
respect to its facility (the "H-R Windows Lease"). Both leases are absolute net
leases. These leases were extended on October 1, 1997 for a period of ten years,
expiring on July 1, 2008. The amounts paid under these two leases totaled
$753,000 and $605,338 in 1997 and 1996, respectively. Additionally, Fojtasek
Interests, a Texas corporation, in which Messrs' Fojtasek both own interests
in, sub-leases approximately 1,500 square feet of office place at the Company's
corporate headquarters. Amounts paid to the Company under this lease in 1997
were $17,955.
22
<PAGE> 23
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are included in this report.
(1) FINANCIAL STATEMENTS:
The financial statements are listed in the accompanying Index to
Financial Statements on page F-1 of this report.
(2) FINANCIAL STATEMENT SCHEDULES:
The financial statement schedules are listed in the Index to Financial
Statement Schedules on page S-1 of this report.
(3) EXHIBITS
The exhibits filed with or incorporated by reference in this report are
listed in the Exhibit Index beginning on page E-1 of this report.
(b) REPORTS ON FORM 8-K
The following reports on Form 8-K were filed by the Registrant during
the fourth quarter:
December 1, 1997, Item 5. Other Events and Item 7. Financial Statements
and Exhibits. (Atrium Door and Window Company of the Northeast)
December 1, 1997, Item 5. Other Events and Item 7. Financial Statements
and Exhibits. (Atrium Door and Window Company of New England)
December 1, 1997, Item 5. Other Events and Item 7. Financial Statements
and Exhibits. (Atrium Door and Window Company of New York)
December 1, 1997, Item 5. Other Events and Item 7. Financial Statements
and Exhibits. (Atrium Door and Window Company - West Coast)
23
<PAGE> 24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
By: /s/ JEFF L. HULL
--------------------------------------
Jeff L. Hull
Chief Financial Officer and Secretary
Date: March 27, 1998
-------------------------------------
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following person on behalf of the registrant and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------ ---------------------------------------- --------------
<S> <C> <C>
* President, Chief Executive Officer and March 27, 1998
- ------------------------------ Director (Principal Executive Officer)
Randall S. Fojtasek
/s/ JEFF L. HULL Chief Financial Officer and Secretary March 27, 1998
- ----------------------------- (Principal Financial Officer)
Jeff L. Hull
* Corporate Controller March 27, 1998
- ----------------------------- (Principal Accounting Officer)
Eric W. Long
* Director March 27, 1998
- -----------------------------
John R. Muse
* Director March 27, 1998
- -----------------------------
Michael J. Levitt
* Director March 27, 1998
- -----------------------------
Stephen M. Humphrey
* Director March 27, 1998
- -----------------------------
C. Dean Metropoulos
* Director March 27, 1998
- -----------------------------
Michel Reichert
</TABLE>
Jeff L. Hull, by signing his name hereto, signs and executes this
document on behalf of each of the above-named officers and directors of Atrium
Companies, Inc. on the 27th day of March, 1998, pursuant to powers of attorney
executed on behalf of each of such officers and directors, and contemporaneously
filed hereunto with the Securities and Exchange Commission.
* By: /s/ JEFF L. HULL
-------------------------------
Jeff L. Hull
Attorney-in-Fact
Date: March 27, 1998
-------------------------------
24
<PAGE> 25
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Accountants................................................................ F-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1997 and 1996 F-3
Consolidated Statements of Income for the years ended
December 31, 1997, 1996 and 1995............................................................. F-4
Consolidated Statements of Stockholder's Equity (Deficit) for the years ended
December 31, 1997, 1996 and 1995............................................................. F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995............................................................. F-6
Notes to Consolidated Financial Statements..................................................... F-7
</TABLE>
F-1
<PAGE> 26
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Atrium Corporation:
We have audited the accompanying consolidated balance sheets of Atrium
Companies, Inc. and its subsidiaries, (the "Company"), a wholly-owned subsidiary
of Atrium Corporation, as of December 31, 1997 and 1996 and the related
consolidated statements of income, stockholder's equity (deficit), and cash
flows for each of the three years in the period ended December 31, 1997. We have
also audited the financial statement schedule listed in the index on page S-1 of
this Form 10-K. These financial statements and financial statement schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedule based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Atrium
Companies, Inc. and its subsidiaries as of December 31, 1997 and 1996 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
March 27, 1998
F-2
<PAGE> 27
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................... $ 1 $ 617
Equity securities - available for sale .................. 27 --
Accounts receivable, net ................................ 24,376 21,975
Inventories ............................................. 16,534 13,474
Prepaid expenses and other current assets ............... 1,608 1,765
Deferred tax asset ...................................... 692 2,555
--------- ---------
Total current assets .................................... 43,238 40,386
PROPERTY, PLANT, AND EQUIPMENT, net ........................ 16,388 13,970
GOODWILL, net .............................................. 14,884 11,963
DEFERRED FINANCING COSTS, net .............................. 4,961 5,173
OTHER ASSETS ............................................... 3,904 3,258
--------- ---------
Total assets ............................................ $ 83,375 $ 74,750
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable ........................................ 10,007 8,528
Current portion of notes payable ........................ -- --
Accrued liabilities ..................................... 7,102 6,580
--------- ---------
Total current liabilities ............................... 17,109 15,108
LONG-TERM LIABILITIES:
Notes payable ........................................... 100,000 100,000
Deferred tax liability .................................. 1,058 818
--------- ---------
Total long-term liabilities ............................. 101,058 100,818
--------- ---------
Total liabilities ....................................... 118,167 115,926
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY (DEFICIT):
Common stock $.01 par value, 3,000 shares authorized,
100 shares issued and outstanding ..................... -- --
Paid-in capital ......................................... 32,790 31,936
Accumulated deficit ..................................... (67,503) (73,112)
Unrealized loss on equity securities - available for sale (79) --
--------- ---------
Total stockholder's deficit ............................. (34,792) (41,176)
--------- ---------
Total liabilities and stockholder's deficit ....... $ 83,375 $ 74,750
========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-3
<PAGE> 28
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
NET SALES ....................................................... $ 186,764 $ 156,269 $ 135,478
COST OF GOODS SOLD .............................................. 121,301 102,341 93,975
--------- --------- ---------
Gross profit ................................................. 65,463 53,928 41,503
OPERATING EXPENSES:
Selling, delivery, general and administrative expenses ....... 44,486 34,815 29,303
Special charges .............................................. -- 3,044 7,188
Stock option compensation expense ............................ 307 3,023 308
--------- --------- ---------
44,793 40,882 36,799
--------- --------- ---------
Income from operations .................................... 20,670 13,046 4,704
INTEREST EXPENSE ................................................ 11,523 4,786 2,753
OTHER INCOME (EXPENSE), net ..................................... 1,088 (182) 1,442
--------- --------- ---------
Income before income taxes and extraordinary charge ....... 10,235 8,078 3,393
PROVISION FOR INCOME TAXES ...................................... 4,068 2,699 1,544
--------- --------- ---------
Income before extraordinary charge ........................ 6,167 5,379 1,849
EXTRAORDINARY CHARGE ON EARLY RETIREMENT OF DEBT
(net of income tax benefit of $720) .......................... -- 1,176 --
--------- --------- ---------
NET INCOME ...................................................... $ 6,167 $ 4,203 $ 1,849
========= ========= =========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
F-4
<PAGE> 29
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
STOCKHOLDER'S EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
UNREALIZED
RETAINED LOSS ON EQUITY TOTAL
COMMON STOCK EARNINGS SECURITIES STOCKHOLDER'S
------------------ PAID IN (ACCUMULATED AVAILABLE EQUITY
SHARES AMOUNT CAPITAL DEFICIT) FOR SALE (DEFICIT)
-------- ------- ------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994 ............ 100 -- 484 39,881 -- 40,365
Capital contribution ............... -- -- 22,100 -- -- 22,100
Net distributions to stockholders .. -- -- -- (79,741) -- (79,741)
Land contribution .................. -- -- 575 -- -- 575
Stock option compensation expense .. -- -- 308 -- -- 308
Net income ......................... -- -- -- 1,849 -- 1,849
-------- ---- -------- -------- -------- --------
BALANCE, December 31, 1995 ............ 100 -- 23,467 (38,011) -- (14,544)
Capital contributions .............. -- -- 5,025 -- -- 5,025
Net distributions to Holding ....... -- -- -- (39,304) -- (39,304)
Stock option compensation expense .. -- -- 3,023 -- -- 3,023
Income tax benefit upon exercise of
Holding's stock options ....... -- -- 421 -- -- 421
Net income ......................... -- -- -- 4,203 -- 4,203
-------- ---- -------- -------- -------- --------
BALANCE, December 31, 1996 ............ 100 -- 31,936 (73,112) -- (41,176)
Contributions from Holding ......... -- -- 476 -- -- 476
Distributions to Holding ........... -- -- -- (558) -- (558)
Stock option compensation expense .. -- -- 307 -- -- 307
Unrealized loss on equity
securities available for sale .. -- -- -- -- (79) (79)
Income tax benefit upon exercise of
Holding's stock options ........ -- -- 71 -- -- 71
Net income ......................... -- -- -- 6,167 -- 6,167
-------- ---- -------- -------- -------- --------
BALANCE, December 31, 1997 ............ 100 $-- $ 32,790 $(67,503) $ (79) $(34,792)
======== ==== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-5
<PAGE> 30
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................................. $ 6,167 $ 4,203 $ 1,849
Adjustments to reconcile net income to net cash provided by
operating activities:
Extraordinary charge, net of income tax benefit ........................ -- 1,176 --
Depreciation and amortization .......................................... 3,278 2,205 1,779
Amortization of deferred financing costs ............................... 642 279 138
Noncash bonuses ........................................................ -- -- 1,609
Gain on retirement of assets ........................................... (38) (10) (429)
Gain on sale of equity securities ...................................... (2) -- --
Stock option compensation expense ...................................... 307 3,023 308
Deferred tax provision (benefit) ....................................... 2,102 (1,303) 202
Changes in assets and liabilities, net of acquisitions in 1997 and 1996:
Accounts receivable, net .......................................... (640) (3,056) (523)
Inventories ....................................................... (1,688) 2,252 540
Prepaid expenses and other current assets ......................... 197 (730) 171
Accounts payable .................................................. (1,165) 815 722
Accrued liabilities ............................................... (57) (87) 541
--------- --------- ---------
Net cash provided by operating activities .................... 9,103 8,767 6,907
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment ............................. (3,438) (3,380) (2,337)
Proceeds from sales of assets .......................................... 68 25 784
Purchases of equity securities ......................................... (480) -- --
Proceeds from sales of equity securities ............................... 375 -- --
Increase in other assets ............................................... (1,377) (1,134) (1,677)
Payment for acquisition, net of cash acquired .......................... (6,561) (10,243) --
--------- --------- ---------
Net cash used in investing activities ............................. (11,413) (14,732) (3,230)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of notes payable ............................................... -- (62,928) (8,605)
Net borrowings under revolving credit facility ......................... -- 7,740 --
Proceeds from issuance of senior subordinated notes .................... -- 100,000 --
Proceeds from issuance of notes payable ................................ -- 6,000 57,155
Checks drawn in excess of bank balances................................. 2,135 -- 946
Deferred financing costs ............................................... (430) (5,457) (2,127)
Capital contributions .................................................. -- 25 22,100
Contributions from Holding ............................................. 476 -- --
Net distributions to stockholders ...................................... -- -- (74,268)
Net distributions to Holding ........................................... (558) (39,304) --
Income tax benefit upon exercise of Holding's stock options ............ 71 421 --
--------- --------- ---------
Net cash provided by (used in) financing activities ............... 1,694 6,497 (4,799)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ...................... (616) 532 (1,122)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR .............................. 617 85 1,207
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR .................................... $ 1 $ 617 $ 85
========= ========= =========
SUPPLEMENTAL DISCLOSURE:
Cash paid during the period for:
Interest .......................................................... $ 10,393 $ 3,699 $ 2,420
Income taxes ...................................................... 2,737 4,514 1,064
Noncash distributions ............................................. -- -- 4,899
Noncash contribution from Holding ................................. -- 5,000 --
</TABLE>
F-6
<PAGE> 31
During 1996, the Company acquired all of the capital stock of ADW -
Northeast for a combined purchase price of $19,531 of which $10,243 was paid in
cash, as follows:
<TABLE>
<S> <C>
Fair value of net assets acquired $ 20,705
Payable to seller................................... (1,000)
Cash acquired....................................... (3,288)
Common stock issued by Holding (5,000)
Liabilities assumed................................. (1,174)
-----------
Cash paid for capital stock of ADW-Northeast $ 10,243
===========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
F-7
<PAGE> 32
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:
Atrium Companies, Inc. (the "Company"), (formerly Fojtasek Companies,
Inc., a Texas corporation), is engaged in the manufacture and sale of doors,
windows and various building materials throughout the United States. A
significant portion of the Company's sales relates to new home construction
activity, which is cyclical in nature.
On July 3, 1995, the stockholders of Fojtasek Companies, Inc.
("Fojtasek") executed a stock purchase agreement (the "Heritage Transaction")
whereby all of Fojtasek's common stock was acquired by FCI Holding Corp. ("FCI
Holding"), a Delaware holding company which was established in connection with
the Heritage Transaction (Note 12). On September 30, 1996, Atrium Corporation
("Holding"), a Delaware parent company which owned 100% of FCI Holding (which
owned 100% of Fojtasek) acquired Atrium Door and Window Company of the Northeast
("ADW - Northeast," formerly Bishop), a manufacturer of vinyl replacement
windows and doors and contributed the capital stock of ADW - Northeast to
Fojtasek (Note 15). On November 8, 1996, in connection with the Hicks Muse
Transaction (the "Hicks Muse Transaction"), Fojtasek, which was a Texas
corporation, was merged with and into FCI Holding (Note 12). The two companies
were merged to achieve certain business objectives related to brand-name
recognition. The surviving Delaware corporation was renamed "Atrium Companies,
Inc.," (the "Company") which is a direct, wholly-owned subsidiary of Holding.
The merger was accounted for as a merger of companies under common control and
the assets were valued at historical cost.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, ADW - Northeast, acquired in
September 1996, and Atrium Door and Window Company - West Coast ("ADW - West
Coast," formerly H-R Window Supply, Inc). ADW - Northeast refers to the combined
consolidated results of Atrium Door and Window Company of the Northeast (the
merged companies formerly named Vinyl Building Specialties of Connecticut, Inc.
and Bishop Manufacturing Company, Incorporated), its subsidiary Atrium Door and
Window Company of New England ("ADW - New England" formerly Bishop Manufacturing
Company of New England, Inc.), and Atrium Door and Window Company of New York
("ADW - New York" formerly Bishop Manufacturing Co. of New York, Inc.) All
significant intercompany transactions and balances have been eliminated in
consolidation.
INDUSTRY SEGMENT
The Company operates in a single industry segment, the fabrication and
distribution of doors and windows and related components.
REVENUE RECOGNITION
Revenue from the sale of doors and windows and related components is
recorded at the time of delivery and billing to the customer. Allowances are
established to recognize the risk of sales returns from customers.
CASH AND CASH EQUIVALENTS
The Company considers all highly-liquid investments with original
maturities of three months or less to be cash equivalents.
F-8
<PAGE> 33
EQUITY SECURITIES - AVAILABLE FOR SALE
Investments in equity securities - available for sale are carried at
market based on quoted market prices, with unrealized gains (losses) recorded in
stockholder's equity.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable are net of allowances for doubtful accounts of $608
and $1,497 as of December 31, 1997 and 1996, respectively.
PROVISION FOR WARRANTY CLAIMS
Estimated warranty costs are provided at the time of the sale of the
warranted product.
CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially expose the Company to
concentrations of credit risk, consist primarily of trade accounts receivable.
The Company's customers are concentrated in the southern regions of the U.S. and
focus upon the distribution and sale of building products. Sales in the state of
Texas accounted for approximately 38.3% of revenue in 1997. The Company performs
ongoing credit evaluations of its customers' financial condition and generally
requires no collateral. The Company establishes an allowance for doubtful
accounts based upon factors surrounding the credit risk of specific customers,
historical trends, and other information. The Company does not believe it is
dependent upon any single customer. No single customer accounted for more than
10% of sales.
INVENTORIES
Inventories are valued at the lower of cost (last-in, first-out or
"LIFO") or market. Management believes that the LIFO method results in a better
matching of current costs with current revenues.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost less accumulated
depreciation. Prior to January 1, 1997 the Company provided for depreciation and
amortization using straight-line and accelerated methods. For all assets
acquired subsequent to January 1, 1997 the Company depreciates the assets on a
straight-line basis over their estimated useful lives, as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE
-----------
<S> <C>
Buildings and improvements............................................ 5-40 years
Machinery and equipment............................................... 3-12 years
</TABLE>
Gains or losses on disposition are based on the net proceeds and the
adjusted carrying amount of the assets sold or retired. Expenditures for
maintenance, minor renewals and repairs are expensed as incurred, while major
replacements and improvements are capitalized.
GOODWILL
Goodwill represents the excess of cost over fair market value of net
assets acquired. Goodwill is being amortized over 40 years on a straight-line
basis. Amortization expense of $340 and $75 was recorded for the years ended
December 31, 1997 and 1996. Accumulated amortization at December 31, 1997 and
1996 was $415 and $75, respectively. Management continually reviews the carrying
value of goodwill for recoverability based on anticipated undiscounted cash
flows of the assets to which it relates. The Company considers operating
results, trends and prospects of the Company, as well as competitive
comparisons. The Company also takes into consideration competition within the
building materials industry and any other events or circumstances which might
indicate potential impairment. When goodwill is determined not to be
recoverable, an impairment is recognized as a charge to operations to the extent
the carrying value of related assets (including goodwill) exceeds the sum of the
undiscounted cash flows from those related assets.
F-9
<PAGE> 34
CAPITALIZED SOFTWARE COSTS
The Company capitalizes internal employee costs and external consulting
costs associated with implementing and developing software for internal use.
Internal costs capitalized include payroll and payroll-related costs for
employees who are directly associated with the development, modification and
implementation of the software. External costs include direct expenses related
to consulting and other professional fees consumed in developing, modifying and
implementing the software. Capitalization of costs occurs upon the completion of
the preliminary project stage and when management believes it is probable a
project will be completed and the software will be used to perform the function
intended. Amortization begins when the software is put into place and is
calculated on a straight-line basis over five years. Management continually
reviews the carrying value and expected functionality of the accumulated costs
for potential impairment. When it is no longer probable that computer software
being developed will be completed, modified or placed in service, the assets
carrying value will be adjusted to the lower of cost or fair value.
INCOME TAXES
The provision for income taxes is based on pretax income as reported
for financial statement purposes. Deferred income taxes are provided in
accordance with the liability method of accounting for income taxes to recognize
the tax effects of temporary differences between financial statement and income
tax accounting.
FORWARD COMMITMENTS
The Company periodically enters into forward commitments to hedge price
variances in materials. Changes in the market value of forward commitments are
recognized in income when the effects of the related charges in the hedged items
are recognized.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from these estimates. Significant
estimates are used in calculating allowance for bad debt, workers' compensation
and warranty accruals, and deferred tax assets and liabilities.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 and 1995 balances
to conform to the 1997 presentation.
2. FAIR VALUE OF FINANCIAL INSTRUMENTS:
In accordance with Statement of Financial Accounting Standards (SFAS)
No. 107, "Disclosures About Fair Value of Financial Instruments," the following
methods have been used in estimating fair value disclosures for significant
financial instruments of the Company.
Estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies. Due to the
fact that considerable judgment is required to interpret market data to develop
the estimates of fair value, the estimates presented are not necessarily
indicative of the amounts that could be realized in a current market exchange.
Cash and cash equivalents -- The carrying amounts reported in the balance
sheet approximate the fair value.
Equity securities - available for sale - The carrying amounts that are
reported in the balance sheet approximate the fair value based on quoted
market prices.
Notes payable -- The fair value of the Company's notes is based on quoted
market prices.
F-10
<PAGE> 35
Forward aluminum contracts -- The unrealized gains and losses are based on
quotes for aluminum as reported on the London Metal Exchange.
The carrying amounts and estimated fair values of the Company's financial
instruments as of December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
----------------------- -----------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents....................... $ 1 $ 1 $ 617 $ 617
Equity securities - available for sale $ 27 $ 27 $ -- $ --
LIABILITIES:
Notes payable................................... $ 100,000 $ 106,000 $ 100,000 $ 102,000
</TABLE>
<TABLE>
<CAPTION>
NOTIONAL UNREALIZED NOTIONAL UNREALIZED
AMOUNT GAIN/(LOSS) AMOUNT GAIN/(LOSS)
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
OFF BALANCE SHEET:
Forward aluminum contracts....................................... $ 24,960 $ (21) $ 21,656 $ 519
</TABLE>
3. INVENTORIES:
Inventories are valued at the lower of cost or market using the LIFO
method of accounting. Work-in-process and finished goods inventories consist of
materials, labor, and manufacturing overhead. Inventories consisted of the
following at December 31:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Raw materials................................................................... $ 13,653 $ 11,765
Work-in-process................................................................. 705 563
Finished goods.................................................................. 4,056 2,526
---------- -----------
18,414 14,854
LIFO reserve.................................................................... (1,880) (1,380)
---------- -----------
16,534 $ 13,474
=========== ===========
</TABLE>
The change in the LIFO reserve for the years ended December 31, 1997,
1996 and 1995 resulted in an increase in cost of sales of $500 and a decrease in
cost of sales by $491 and $851, respectively.
4. PROPERTY, PLANT, AND EQUIPMENT:
Property, plant, and equipment consisted of the following at December
31:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Land ................................................................................. $ 682 $ 682
Buildings and improvements ........................................................... 7,596 7,139
Machinery and equipment .............................................................. 16,238 11,970
Construction-in-process .............................................................. 434 705
-------- --------
Total .......................................................................... 24,950 20,496
Less accumulated depreciation and amortization ....................................... (8,562) (6,526)
-------- --------
$ 16,388 $ 13,970
======== ========
</TABLE>
Depreciation expense was $2,217, $1,681, and $1,554 for the years ended
December 31, 1997, 1996, and 1995, respectively.
F-11
<PAGE> 36
5. OTHER ASSETS:
Other assets consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Capitalized software costs, net .... $2,406 $1,355
Non-compete agreements, net ........ 1,125 1,575
Deposits, notes receivable and other 373 328
------ ------
$3,904 $3,258
====== ======
</TABLE>
The costs of the non-compete agreements are being amortized over the
terms of the related agreements, which are five years. Amortization expense for
the years ended December 31, 1997, 1996 and 1995 was $450, $450 and $225,
respectively, resulting in accumulated amortization at December 31, 1997 and
1996 of $1,125 and $675, respectively. Amortization expense of $271 was recorded
for the year ended December 31, 1997 for costs related to capitalized software
costs.
6. DEFERRED FINANCING COSTS:
The deferred financing costs relate to costs incurred in the placement
of the Company's debt and are being amortized using the effective interest
method over the terms of the related debt, which range from five to ten years.
Amortization expense for the years ended December 31, 1997, 1996 and 1995 was
$642, $279 and $138, respectively and was recorded as interest expense in the
accompanying Consolidated Statements of Income.
7. ACCRUED LIABILITIES:
Accrued liabilities include the following at December 31:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Accrued salaries and wages .................. $2,627 $2,100
Accrued interest ............................ 1,358 1,003
Accrued taxes payable ....................... 1,263 601
Contingent payable related to
ADW-Northeast acquisition .......... -- 1,000
Warranty and litigation reserve ............. 781 961
Workers' compensation reserve ............... 250 500
Other ....................................... 823 415
------ ------
$7,102 $6,580
====== ======
</TABLE>
8. NOTES PAYABLE:
Notes payable consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Senior subordinated notes .............. $100,000 $100,000
Less current maturities .......... -- --
-------- --------
$100,000 $100,000
======== ========
</TABLE>
In November 1996, the Company issued $100,000 aggregate principal
amount of 10 1/2% Senior Subordinated Notes (the "Notes") due November 15, 2006
under the Indenture dated as of November 27, 1996. Interest on the Notes is
payable semiannually on May 15 and November 15 of each year, commencing on May
15, 1997. The Notes mature on November 15, 2006. The Company may redeem the
Notes based on certain triggering events. In addition, under certain
circumstances the Company will be obligated to make an offer to repurchase the
Notes at 100% of the principal amount, plus accrued and unpaid interest to the
date of repurchase, with the net cash proceeds of certain sales or other
dispositions of assets.
The Notes are fully and unconditionally guaranteed, jointly and
severally, on an unsecured, senior subordinated basis, by each of the Company's
subsidiaries (see Note 18). The Indenture permits the Company to incur
additional indebtedness (including Senior Indebtedness) of up to $45,000 as of
December 31, 1997, subject to certain limitations. The Indenture restricts the
Company's ability to pay dividends or make certain other restricted payments,
consummate certain asset sales, or otherwise dispose of all or substantially all
of the assets of the Company and its subsidiaries.
F-12
<PAGE> 37
The Company has also entered into a Credit Agreement providing for a
revolving credit facility (the "Credit Facility"). The Credit Facility enables
the Company to borrow up to $20,000. The revolving credit loans bear interest at
a rate based upon the lender's prime rate plus a borrowing margin of 1.5% or a
LIBOR-based rate plus a borrowing margin of 2.5%. The Company pays a commitment
fee of .5% based on the unused portion of the Credit Facility. The Credit
Facility terminates in March 2002. The Company had $19,191 of availability under
the Credit Facility as of December 31, 1997, net of outstanding letters of
credit totaling $809. The Credit Facility contains various covenants that
restrict the Company from taking various actions and requires the Company to
achieve and maintain certain financial covenants.
Principal payments due during the next five years on long-term notes
payable as of December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998....................... $ --
1999....................... --
2000....................... --
2001....................... --
2002....................... --
Thereafter................. 100,000
---------
$ 100,000
=========
</TABLE>
9. FEDERAL INCOME TAX:
In connection with the Heritage Transaction in July 1995, the Company
converted from an S corporation to a C corporation. Accordingly, subsequent to
the Heritage Transaction, the Company accounts for income taxes in accordance
with SFAS No. 109, "Accounting for Income Taxes," which requires that deferred
income tax expenses be provided based upon the liability method. Pro forma
federal income tax expense, had the Company been subject to corporate income
taxes for twelve months in 1995, would have been $1,187.
Temporary differences that give rise to the deferred income tax assets
and liabilities are as follows as of December 31:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Deferred income tax assets:
Allowance for doubtful accounts ...................... $ -- $ 495
Deferred stock compensation .......................... 572 501
Inventory cost capitalization and valuation ......... 331 660
Non-compete agreement ................................ 277 167
Accrued vacation ..................................... 178 173
Warranty and litigation .............................. 90 357
Workers' compensation ................................ 92 185
Other ................................................ -- 17
------- -------
1,540 2,555
Deferred income tax liabilities:
Depreciation ......................................... (1,050) (811)
Capitalized software costs ........................... (830) --
Other ................................................ (26) (7)
------- -------
(1,906) (818)
Net deferred income tax asset (liability) .................. (366) 1,737
Less-current deferred tax asset ............................ 692 2,555
------- -------
Long-term deferred tax liability ........................... $(1,058) $ (818)
======= =======
</TABLE>
SFAS 109 requires a valuation allowance against deferred tax assets if,
based on the weight of available evidence, it is more likely than not that some
of or all of the deferred tax assets will not be realized. As of December 31,
1997 and 1996, no valuation reserve was recorded.
The components of the provision for income taxes are as follows for the
years ended December 31:
F-13
<PAGE> 38
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Current federal income tax provision ... $ 1,543 $ 3,388 $ 1,420
Deferred federal income tax
provision (benefit) .............. 2,102 (930) 202
State income tax provision (benefit) ... 423 241 (78)
------- ------- -------
Provision for income taxes ....... $ 4,068 $ 2,699 $ 1,544
======= ======= =======
</TABLE>
The Company recognized a tax benefit in 1997 and 1996 of $71 and $421,
respectively, related to Holding's stock options. This benefit was recorded
directly to paid in capital.
Reconciliation of the federal statutory income tax rate to the
effective tax rate, was as follows for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Tax computed at statutory rate ....................................... $ 3,482 $ 2,777 $ 1,154
State taxes .......................................................... 423 241 (78)
Income tax benefit not recognized on S corporation tax deductions .... -- -- 655
Prior year return to accrual differences ............................. -- (352) --
Other ................................................................ 163 33 (187)
------- ------- -------
Provision for income taxes ........................................... $ 4,068 $ 2,699 $ 1,544
======= ======= =======
</TABLE>
10. RELATED PARTIES:
Included in prepaid expenses and other current assets are the following
receivables due from related parties at December 31:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Receivables from stockholders.................................................... $ 19 $ 82
Receivables from officers........................................................ $ 20 $ 5
Receivables from employees....................................................... $ 64 $ 80
</TABLE>
MONITORING AND OVERSIGHT AGREEMENT
Holding and the Company have entered into a ten-year monitoring and
oversight agreement with Hicks Muse. Pursuant thereto, Holding and the Company
have agreed to pay to Hicks Muse a minimum annual fee of $320 for ongoing
financial oversight and monitoring services to the Company. The annual fee is
adjustable upward or downward on January 1 of each calendar year to an amount
equal to 0.2% of the budgeted consolidated annual net sales of the Company and
its subsidiaries for the then-current fiscal year, provided that such fee shall
at no time be less than $320 per year. In the year ended December 31, 1997, $437
was paid to Hicks Muse under this agreement
FINANCIAL ADVISORY AGREEMENT
Holding and the Company are parties to a ten-year financial advisory
agreement (the "Financial Advisory Agreement") with Hicks Muse pursuant to which
Hicks Muse received a financial advisory fee of $2,000 on the closing date of
the Hicks Muse Transaction as compensation for its services as financial advisor
to the Company in connection with the Hicks Muse Transaction. Pursuant to the
Financial Advisory Agreement, Hicks Muse is also entitled to receive a fee equal
to 1.5% of the transaction value (as defined in the Financial Advisory
Agreement) for each add-on transaction in which the Company or any of its
subsidiaries is involved. In connection with the ADW-West Coast asset
acquisition (see Note 15), the Company paid $92 to Hicks Muse.
F-14
<PAGE> 39
11. COMMITMENTS AND CONTINGENCIES:
COMMITMENTS
The Company has entered into operating lease agreements for office and
manufacturing space with unrelated third parties and with certain affiliates of
certain stockholders of the Company. Total rent expense for the years ended
December 31, 1997, 1996 and 1995 was $4,339, $2,012 and $3,156, respectively.
Of these totals, amounts paid to related parties were $753, $605 and $313 in
1997, 1996 and 1995, respectively. Future minimum rents due under operating
leases with initial or remaining terms greater than twelve months are as
follows:
<TABLE>
<CAPTION>
RELATED OTHER
PARTIES PARTIES TOTAL
------- ------- -------
<S> <C> <C> <C>
1998 ............................................. $ 1,030 $ 1,768 $ 2,798
1999 ............................................. 1,180 1,371 2,551
2000 ............................................. 1,180 1,111 2,291
2001 ............................................. 1,245 828 2,073
2002 ............................................. 1,311 409 1,720
Thereafter ....................................... 7,603 174 7,777
------- ------- -------
$13,549 $ 5,661 $19,210
======= ======= =======
</TABLE>
The Company has contracts with various suppliers to purchase aluminum
for use in the manufacturing process. The contracts vary from one to twelve
months and are at fixed quantities and fixed and floating prices. As of December
31, 1997 and 1996, the Company had forward commitments totaling $24,960 and
$21,656 for delivery through December 1998 and 1997 for 28.6 and 28.7 million
pounds of aluminum, of which 14.3 and 10.0 million pounds were at fixed prices,
respectively.
The Company has entered into employment agreements with several key
executives of the Company including its President and Chief Executive Officer,
its Chief Financial Officer and several Presidents, Vice Presidents, General
Managers and Sales Managers of the Company's divisions. The agreements generally
provide for terms of employment, annual salaries, bonuses, and eligibility for
option awards and severance benefits.
CONTINGENCIES
The Company is party to various claims, legal actions, and complaints
arising in the ordinary course of business. In the opinion of management, all
such matters are without merit or are of such kind, or involve such amounts,
that an unfavorable disposition would not have a material effect on the
financial position, results of operations or liquidity of the Company.
During 1993, factory employees voted to unionize and become members of
Amalgamated Clothing and Textile Workers Union. A three-year union contract was
executed during 1995. In addition, in connection with the Kel-Star acquisition,
the Company became a party to collective bargaining arrangements due to expire
in 2001.
The Company is involved in various stages of investigation and cleanup
relative to environmental protection matters, some of which relate to waste
disposal sites. The potential costs related to such matters and the possible
impact thereof on future operations are uncertain due in part to: the
uncertainty as to the extent of pollution; the complexity of Government laws and
regulations and their interpretations; the varying costs and effectiveness of
alternative cleanup technologies and methods; the uncertain level of insurance
or other types of recovery; and the questionable level of the Company's
involvement. The Company was named in 1988 as a potentially responsible party
("PRP") in two superfund sites pursuant to the Comprehensive Environmental
Response Compensation and Liability Act of 1980, as amended (the Chemical
Recycling, Inc. site in Wylie, Texas, and the Diaz Refinery site in Little Rock,
Arkansas). The Company believes that based on the information currently
available, including the substantial number of other PRP's and relatively small
share allocated to it at such sites, its liability, if any, associated with
either of these sites will not have a material adverse effect on the Company's
financial position, results of operations or liquidity.
F-15
<PAGE> 40
12. STOCK PURCHASE AGREEMENT:
HERITAGE TRANSACTION
On June 23, 1995, Heritage Fund I, L.P. ("Heritage") formed two
Delaware corporations, FCI Holding and its wholly-owned subsidiary,
Fojtasek/Heritage Acquisition Company ("Acquisition Corp."). Heritage
contributed approximately $22,000 to FCI Holding in exchange for 18,318,352
shares of voting common stock, 11,824,398 shares of nonvoting common stock and
11,000 shares of nonvoting preferred stock of FCI Holding. Additionally, FCI
Holding issued 95,854 shares of voting common stock to a member of management
whom had an equity interest in the voting common stock of Fojtasek prior to the
transaction for approximately $50. In a simultaneous transaction, (i)
Acquisition Corp. used the $22,050 proceeds contributed from FCI Holding plus
approximately $57,200 borrowed under a term loan agreement and a revolving line
of credit to purchase a majority of the voting common stock from the Fojtasek
shareholders and pay transaction costs of approximately $5,000 (ii) Fojtasek
shareholders exchanged their remaining 1,643,985 shares of Fojtasek voting stock
(the "Rollover Stock") to FCI Holding for 18,318,352 shares of FCI Holding
voting common stock, (iii) the Rollover Stock was contributed by FCI Holding to
Acquisition Corp. for shares of Acquisition Corp. stock issued to FCI Holding
and (iv) Acquisition Corp. was merged into Fojtasek. The transaction was
accounted for as a recapitalization as it did not result in a change of control.
Accordingly, the assets and liabilities of Fojtasek were not revalued.
The transaction resulted in an increase to stockholder's deficit of $57,000.
After the Heritage Transaction, the voting common stock of FCI Holding
was held by Heritage (49.8%), the Fojtasek shareholders (49.8%) and the
management shareholder (0.4%). FCI Holding owned 100% of the interest in
Fojtasek (the surviving company from the merger with Acquisition Corp.) As a
result of its purchase of nonvoting common stock in the transaction, Heritage
held approximately 68% of the economic interest of FCI Holding.
In connection with the Heritage Transaction, certain assets and
liabilities were excluded from the assets and liabilities of Fojtasek and
distributed as follows. Fojtasek distributed the land, building, and
improvements related to two of its primary operating divisions to certain
Fojtasek shareholders. The book value of the property distributed totaled
approximately $9,300. The shareholders also assumed the industrial development
revenue bonds of $4,400, which were collateralized by the property. Fojtasek
also distributed its investments in rental real estate to certain Fojtasek
shareholders. The net book value of the properties distributed was approximately
$3,100. The shareholders also assumed the related notes payable, which were
collateralized by the property. The outstanding balance of the notes payable
transferred was approximately $2,300. These assets were distributed at fair
market value, resulting in a net loss of $205, which was recorded in the
accompanying 1995 Consolidated Statement of Income.
HICKS MUSE TRANSACTION
The Hicks Muse Transaction refers to a recapitalization transaction
that closed concurrent with the closing of the issuance of the Notes in which
affiliates of Hicks Muse purchased a number of newly issued shares of Holding's
Common Stock for $32,000 pursuant to a Stock Purchase Agreement dated November
7, 1996, and certain outstanding shares, and certain options and warrants to
acquire shares of Holding's Common Stock and all outstanding shares of preferred
stock of Holding were redeemed.
This transaction, which was completed on November 27, 1996, required
approximately $134,500 to complete, consisting of $59,417 in redemption payments
to the Selling Securityholders, $54,369 representing all outstanding
indebtedness under the Old Credit Facility and debt assumed in connection with
its acquisition of ADW - Northeast, $12,472 in redemption payments to preferred
stockholders of Holding (including cumulative dividends in arrears) and
approximately $8,242 of fees and expenses. The funds required to consummate the
Hicks Muse Transaction were provided by (i) the proceeds of the issuance of the
Notes, (ii) $32,000 in equity financing, (iii) drawings of $2,000 under the
Company's Credit Facility, and (iv) other cash provided by the Company of $500.
The shares issued to Hicks Muse, after giving effect to the other elements of
the Hicks Muse Transaction, represent approximately 82.0% of the outstanding
common stock of Holding. The Hicks Muse Transaction has been accounted for as a
recapitalization.
F-16
<PAGE> 41
13. SPECIAL CHARGES AND STOCK OPTION COMPENSATION EXPENSE
Included in special charges in the 1996 Consolidated Statement of
Income are officer bonuses of $3,044 incurred in connection with the Hicks Muse
Transaction. Special charges in 1995 consisted of consulting fees of $408,
officer and management bonuses of $6,380, and restructuring charges of $400
incurred in connection with the Heritage Transaction.
Included in stock option compensation expense are charges associated
with the issuance of new stock options at exercise prices below the fair value
of the underlying common stock, the expense associated with the cash redemption
of certain options, and amortization of deferred compensation expense related to
previously issued options.
14. OTHER INCOME (EXPENSE), NET:
Other income (expense), net consists of the following for the years
ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Insurance settlement ........................ $ 1,193 $ -- $ --
Rental, interest, and other income .......... 65 49 1,013
Gain on sale of assets ...................... 38 10 429
Other ....................................... (208) (241) --
------- ------- -------
$ 1,088 $ (182) $ 1,442
======= ======= =======
</TABLE>
15. ACQUISITIONS:
ADW - WEST COAST (FORMERLY GENTEK) ASSET PURCHASE:
On July 1, 1997, the Company purchased through its wholly-owned
subsidiary, ADW - West Coast (formerly H-R Window Supply, Inc.), the assets of
the Western Window Division of Gentek Building Products, Inc., located in
Anaheim, California. The purchase price (including transactions expenses) was
approximately $6,562 and was funded from borrowings under the Company's
revolving credit facility. The transaction was accounted for under the purchase
method of accounting. The purchase allocation, preliminary in nature and subject
to change, is as follows:
<TABLE>
<S> <C>
Cash and advances to the Company ................. $ 1
Accounts receivable, net ......................... 1,760
Inventories ...................................... 1,372
Other current assets ............................. 39
Property, plant and equipment, net ............... 1,131
Other noncurrent assets .......................... 28
Goodwill ......................................... 3,320
Current liabilities .............................. (1,089)
-------
Total purchase price ....................... $ 6,562
=======
</TABLE>
ADW - NORTHEAST (FORMERLY BISHOP):
Effective September 30, 1996, the Company acquired the capital stock of
ADW - Northeast, a manufacturer of vinyl replacement windows and doors for the
residential market in the northeast region of the United States, for
approximately $19,531. To consummate the acquisition, the Company paid
approximately $13,531 to ADW - Northeast's shareholders (the "Sellers"), agreed
to a $1,000 payable to the Sellers to be paid if certain earnings targets are
met, and issued $5,000 of Holding common stock in exchange for all of ADW -
Northeast's capital stock. The $1,000 was recorded as an accrued liability in
the Company's financial statements at December 31, 1996. During 1997, the
Company paid $500 of the amount and adjusted the purchase price by the remaining
balance (this amount was recorded as a reduction in goodwill). Holding
subsequently contributed the ADW - Northeast capital stock to the Company.
Consequently, as of September 30, 1996, ADW - Northeast became a wholly-owned
subsidiary of the Company. The ADW - Northeast acquisition has been accounted
for under the purchase method of accounting.
F-17
<PAGE> 42
Accordingly, the purchase price has been allocated to the assets
and liabilities based upon their estimated fair values at the date of
acquisition as follows:
<TABLE>
<S> <C>
Cash and advances to the Company ................. $ 3,288
Accounts receivable, net ......................... 2,073
Inventories ...................................... 1,774
Other current assets ............................. 256
Property, plant and equipment, net ............... 1,206
Other noncurrent assets .......................... 70
Goodwill ......................................... 12,038
Current liabilities .............................. (986)
Other noncurrent liabilities ..................... (188)
--------
Total purchase price ....................... $ 19,531
========
</TABLE>
The Company's Consolidated Statements of Income for the years ended
December 31, 1997 and 1996 include ADW - West Coast's and ADW - Northeast's
operations from the dates of acquisition, July 1, 1997 and September 30, 1996,
respectively. The following table presents the historical consolidated
operating results of the Company for the years ended December 31, 1997 and
1996 compared to pro forma operating results for such periods. The following
unaudited pro forma information presents consolidated operating results as
though the acquisitions of ADW - West Coast and ADW - Northeast had occurred at
the beginning of the periods presented:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 YEAR ENDED DECEMBER 31, 1996
---------------------------- ----------------------------
ACTUAL PRO FORMA ACTUAL PRO FORMA
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
Net sales............................................. $ 186,764 $193,497 $156,269 $182,099
Income before
extraordinary charge ............................... 6,167 6,568 5,379 6,358
Net income ........................................... 6,167 6,568 4,203 5,182
</TABLE>
KELLER ASSET PURCHASE:
In June 1996, the Company purchased certain assets from a division of
Keller Building Products for $1,150. In September 1996, the Company purchased
the division's inventory for $500. These asset purchases were recorded at cost.
16. STOCK OPTIONS:
In connection with the Heritage Transaction, FCI Holding issued options
(the "Substitute Options") to certain members of Fojtasek management to purchase
FCI Holding's nonvoting common stock. The options vested ratably over five years
or immediately upon a public offering or a sale of substantially all the assets
of FCI Holding or a subsidiary. In connection with this issuance, $1,350 in
compensation expense representing the difference between the market value of the
underlying common stock and the exercise price of the option was deferred and
amortized over the vesting period. To effect the acquisition of ADW - Northeast,
FCI Holding formed Holding. The Substitute Option holders exchanged 2,875,922
options for equivalent nonvoting common stock options (the "Replacement
Options") in Holding's 1996 Original Stock Option Plan (the "Original Plan"). In
conjunction with the Hicks Muse Transaction, 2,875,922 options of Holding were
tendered at an exercise price of $.01, of which 1,050,000 were exchanged for
Replacement Options of Holding. In connection with the exchanged options, $1,040
was deferred and is being amortized over the new 5 year vesting period. Under
certain circumstances, if the option holders terminate employment prior to the
exercise of such option, they have the right to receive $1.00 per option (net of
the exercise price). Compensation expense of approximately $307, $410 and $308
related to the options was recognized by the Company for the years ended
December 31, 1997, 1996 and 1995, respectively.
FCI Holding also issued stock options (the "Disposition Options") to
certain members of Fojtasek management. Value was recognized on these options
based on the market value of the Company, which became exercisable upon a public
offering or a sale of substantially all the assets of FCI Holding or a
subsidiary of FCI Holding. In connection with the Hicks Muse Transaction, the
options vested and were redeemed and the resultant compensation expense of $743
was recorded in stock option compensation expense in the 1996 Consolidated
Statement of Income.
F-18
<PAGE> 43
Upon completion of the Hicks Muse Transaction, Holding adopted the 1996
Stock Option Plan (the "New Plan") authorizing the issuance of 3,500,000 options
to acquire common stock. Holding's New Plan gives certain individuals and key
employees of Holding and any subsidiary corporation thereof who are responsible
for the continued growth of Holding an opportunity to acquire a proprietary
interest in Holding and thus to create in such persons an increased interest in
and a greater concern for the welfare of Holding or any subsidiary. Through
December 31, 1997 and 1996, the Board of Directors of Holding has granted
2,185,390 and 1,910,390 options, respectively, under the New Plan at a weighted
average price of $1.00 per share which represented fair market value on the
dates of grant. The Company applies APB Opinion 25 and related interpretations
in accounting for the Plan.
The following table summarizes the transactions of the Original Plan
and the New Plan for the periods ended December 31, 1997, 1996 and 1995 (all
outstanding options were granted to management of the Company):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Outstanding options, beginning of period ..... 2,960,390 2,875,922 --
Granted ...................................... 275,000 2,960,390 2,875,922
Canceled or expired .......................... (504,645) -- --
Exchanged .................................... -- (1,050,000) --
Exercised .................................... (355,708) (1,825,922) --
----------- ----------- -----------
Outstanding options, end of year ............. 2,375,037 2,960,390 2,875,922
=========== =========== ===========
Weighted average exercise price of options
granted...................................... $ 1.00 $ .62 $ .01
Weighted average exercise price of options....
exercised.................................... $ .72 $ .01 --
Weighted average exercise price, end of period $ .60 $ .65 $ .01
Options exercisable, end of period ........... 420,007 24,500 --
Options available for future grant ........... 1,819,255 1,589,610 --
</TABLE>
The options vest over periods ranging from three to five years.
On November 27, 1996, Holding issued a warrant (the "Warrant") to the
President and Chief Executive Officer (the "Executive") of the Company. Pursuant
to the terms of the Warrant, the Executive is entitled to purchase 1,333,333
shares of Holding common stock at any time subsequent to the Hicks Muse
Transaction. The exercise price of the Warrant is $.01 per share. An additional
861,889 shares may be purchased under the Warrant at an exercise price of $1.00,
representing the fair market value on the date of grant upon the realization of
an 8.0% internal rate of return. The 861,889 options vest ratably each day for
three years. The Warrant will terminate on November 27, 2006. The Company
recorded non cash compensation expense of $1,320 for the period ended December
31, 1996 in connection with the difference between the fair market value of the
stock at the date of issuance ($1.00) and the exercise price ($.01).
The following table summarizes information about stock options and
warrants outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------- ------------------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER LIFE EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING (MONTHS) PRICE EXERCISABLE PRICE
--------------- ----------- ------------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Options:
$ .01 950,000 107 $ .01 190,000 $ .01
$ 1.00 1,425,037 107 $1.00 230,007 $ 1.00
Warrants:
$ .01 1,333,333 107 $ .01 1,333,333 $ .01
$ 1.00 861,889 107 $1.00 314,058 $ 1.00
</TABLE>
In 1995, the FASB issued FASB Statement No. 123 "Accounting for
Stock-Based Compensation" ("SFAS 123") which, if fully adopted by the Company,
would change the methods the Company applies in recognizing the cost of the
stock-based plans. Adoption of the cost recognition provisions of SFAS 123 is
optional and the Company has
F-19
<PAGE> 44
decided not to elect these provisions of SFAS 123. However, pro forma
disclosures as if the Company adopted the cost recognition provisions of SFAS
123 in 1995 are required by SFAS 123 and are presented below. In 1997 and 1996,
the Company granted only nonqualified stock options under the plans.
The fair value of each stock option granted is estimated on the date of
grant using the minimum value method of option pricing with the following
weighted-average assumptions for grants in 1997 and 1996: dividend yield of
0.0%; risk-free interest rate of 7.0%; and the expected life of 10 years. (In
determining the "minimum value" SFAS 123 does not require the volatility of the
Company's common stock underlying the options to be calculated or considered
because the Company was not publicly-traded when the options were granted).
Had the compensation cost for the Company's stock-based compensation
plans and warrants been determined consistent with SFAS 123, the Company's net
income for 1997, 1996 and 1995 would have been $6,105, $3,934 and $1,949,
respectively.
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards prior to 1995,
and the Company anticipates making awards in the future under its stock-based
compensation plans.
17. EMPLOYEE BENEFIT PLANS:
STOCK PURCHASE PLAN
Holding's 1996 Stock Purchase Plan gives certain key employees of
Holding or related entities who are expected to contribute materially to the
success of Holding or related entities an opportunity to acquire a proprietary
interest in Holding, and thus to retain such persons and create in such persons
an increased interest in and a greater concern for the welfare of Holding and
any Related Entities. The Board of Directors is authorized to offer 500,000
shares for purchase. As of December 31, 1997 and 1996, 425,000 and 375,000
shares, respectively, have been purchased under the plan.
401(k)
During 1996, the Company established an employee benefit plan in
accordance with Section 401(k) of the Internal Revenue Code for all employees
not covered under a collective bargaining agreement. The Company may at its
discretion match employee contributions. During the years ended December 31,
1997 and 1996, the Company incurred no expense.
18. SUBSIDIARY GUARANTORS:
In connection with the Note offering, the Company's payment obligations
under the Notes are fully and unconditionally guaranteed, jointly and severally
(collectively, the Subsidiary Guarantees) on a senior subordinated basis by its
wholly-owned subsidiaries: ADW-Northeast and ADW-West Coast (collectively, the
Subsidiary Guarantors). The Company has no non-guarantor direct or indirect
subsidiaries. The operations related to the assets of ADW-Northeast and ADW-West
Coast are included since September 30, 1996 and July 1, 1997, respectively, the
dates of acquisition. In the opinion of management, separate financial
statements of the respective Subsidiary Guarantors would not provide additional
material information, which would be useful in assessing the financial
composition of the Subsidiary Guarantors. No single Subsidiary Guarantor has any
significant legal restrictions on the ability of investors or creditors to
obtain access to its assets in event of default on the Subsidiary Guarantee
other than its subordination to senior indebtedness.
F-20
<PAGE> 45
Following is summarized combined financial information pertaining to
these Subsidiary Guarantors:
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
------- -------
<S> <C> <C>
Current assets ......................... $12,399 $ 7,939
Noncurrent assets ...................... 17,148 13,242
Current liabilities .................... 1,906 1,135
Noncurrent liabilities ................. -- --
</TABLE>
<TABLE>
<CAPTION>
Twelve Months Ended December 31,
---------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Net sales ........................................ $20,162 $ 5,020 $ 771
Gross profit ..................................... 8,374 2,289 372
Net income from continuing operations ............ 1,495 561 (29)
</TABLE>
The Notes and the Subsidiary Guarantees are subordinated to all
existing and future Senior Indebtedness of the Company. The indenture governing
the Notes contains limitations on the amount of additional indebtedness
(including Senior Indebtedness) which the Company may incur. As of December 31,
1997, the maximum amount of Senior Indebtedness the Company and its Subsidiary
Guarantors collectively, and in the aggregate, could incur was $45,000.
19. SUBSEQUENT EVENTS:
On March 4, 1998, the Company signed an agreement to purchase
substantially all of the assets of Masterview Window Company, LLC. (the
"Acquisition" or "Masterview"), a privately held aluminum window and door
company located in Phoenix, Arizona, for approximately $27.0 million including
fees and other expenses. On March 27, 1998, the Company completed the
transaction. The Company financed the Acquisition through a new amended and
restated credit agreement provided by Bankers Trust Company. The new facility
includes a $17.5 million term loan with the remainder of the purchase price of
$10.0 million being drawn from the present $20.0 million revolving credit
facility. The amended and restated credit agreement is for six and one-half
years expiring September 2004.
The acquisition will be accounted for as a purchase in accordance with
Accounting Principles Board Opinion No. 16, "Business Combinations." The
aggregate purchase price will be allocated to the underlying assets and
liabilities based upon their respective estimated fair market values at the date
of acquisition, with the remainder allocated to goodwill. Based on preliminary
estimates which will be finalized at a later date, the excess of purchase price
over the fair value of the net assets acquired ("goodwill") was approximately
$20 million, which will be amortized over 40 years. The results of operations
for the acquired business will be included in the Company's consolidated
financial statements beginning March 27, 1998.
F-21
<PAGE> 46
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
<S> <C>
Valuation and Qualifying Accounts................................................................ S-2
</TABLE>
S-1
<PAGE> 47
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN C-ADDITIONS
------------------------
COLUMN B - (1) (2)
BALANCE AT CHARGED TO ACQUIRED COLUMN D - COLUMN E -
BEGINNING COSTS AND THROUGH DEDUCTIONS - BALANCE AT
COLUMN A - DESCRIPTION OF PERIOD EXPENSES ACQUISITION WRITE-OFFS(a) END OF PERIOD
- ---------------------- ---------- ---------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1995 .............. $ 1,300 $ 486 $ -- $ (631) $ 1,155
Year ended December 31, 1996 .............. $ 1,155 $ 49 $ 237 $ 56 $ 1,497
Year ended December 31, 1997 .............. $ 1,497 $ 480 $ 250 $(1,619) $ 608
Allowance for excess and obsolete inventories:
Year ended December 31, 1995 .............. $ -- $ 2,000 $ -- $(1,440) $ 560
Year ended December 31, 1996 .............. $ 560 $ 816 $ -- $ (240) $ 1,136
Year ended December 31, 1997 .............. $ 1,136 $ -- $ 250 $ (892) $ 494
</TABLE>
(a) NET OF RECOVERIES
S-2
<PAGE> 48
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<S> <C>
2.1 -- Stock Purchase Agreement by and among HMTF Acquisition Corp., Atrium Corporation and the Selling
Securityholders dated as of November 7, 1996 (1)
2.2 -- Securities Exchange Agreement among Atrium Corporation, FCI Holding Corp, Heritage Fund I, L.P. Randall
Fojtasek, et. al. dated August 22, 1996, as amended (1)
2.3 -- Stock Purchase Agreement by and among Fojtasek Companies, Inc., Howard S. Saffan, Leslie Goldbloom and Kevin
Schumacher dated August 22, 1996, as amended (1)
3.1 -- Certificate of Incorporation of Atrium Companies, Inc., as amended (1)
3.2 -- Bylaws of Atrium Companies, Inc.(1)
3.3 -- Certificate of Incorporation of Vinyl Building Specialties of Connecticut, Inc. (1)
3.4 -- Bylaws of Vinyl Building Specialties of Connecticut, Inc. (1)
3.5 -- Certificate of Incorporation of Bishop Manufacturing Co. of New York, Inc. (1)
3.6 -- Bylaws of Bishop Manufacturing Co. of New York, Inc. (1)
3.7 -- Certificate of Incorporation of Bishop Manufacturing Company, Incorporated (1)
3.8 -- Bylaws of Bishop Manufacturing Company, Incorporated (1)
3.9 -- Certificate of Incorporation of Bishop Manufacturing Company of New England, Inc. (1)
3.10 -- Bylaws of Bishop Manufacturing Company of New England, Inc. (1)
3.11 -- Articles of Incorporation of H-R Window Supply, Inc. (1)
3.12 -- Bylaws of H-R Window Supply, Inc. (1)
3.13 -- Amendment to Certificate of Incorporation for Atrium Door and Window Company of the Northeast
(formerly Bishop Manufacturing Company, Incorporated) incorporated by reference from the Form
8-K dated December 1, 1997, SEC File No. 333-20095-02
3.14 -- Amendment to Certificate of Incorporation for Atrium Door and Window Company of the New York (formerly Bishop
Manufacturing Company of New York, Inc.) incorporated by reference from the Form 8-K dated December 1, 1997, SEC File
No. 333-20095-04
3.15 -- Amendment to Certificate of Incorporation for Atrium Door and Window Company of the New England (formerly Bishop
Manufacturing Company of New England, Inc.) incorporated by reference from the Form 8-K dated December 1, 1997, SEC
File No. 333-20095-03
3.16 -- Amendment to Certificate of Incorporation for Atrium Door and Window Company - West Coast (formerly
H-R Window Supply, Inc.) incorporated by reference from the Form 8-K dated December 1, 1997,
SEC File No. 333-20095-05
4.1 -- Exchange and Registration Rights Agreement made as of November 27, 1996 by and among Atrium Companies, Inc.,
the Subsidiary Guarantors and BT Securities Corporation (1)
4.2 -- Indenture dated as of November 27, 1996 by and among Atrium Companies, Inc., the Subsidiary Guarantors and
United States Trust Company of New York (1)
10.1 -- Financial Advisory Agreement dated as of November 27, 1996 among Atrium Corporation, the Company and Hicks,
Muse & Co. Partners, L.P. (1)
10.2 -- Stockholders Agreement dated as of November 27, 1996, by and among Atrium Corporation, the
securityholders listed therein and Hicks, Muse, Tate & Furst Incorporated (1)
10.3 -- Indemnification Agreement dated as of November 27, 1996 by and between Atrium Corporation and Randall S.
Fojtasek, together with a schedule identifying substantially identical documents and setting forth
material details in which those documents differ from the foregoing documents (1)
10.4 -- Credit Agreement by and among Atrium Companies, Inc., the Banks, Parties thereto, and Bankers Trust Company
dated November 27, 1996 (1)
</TABLE>
E-1
<PAGE> 49
<TABLE>
<S> <C>
10.5 -- Monitoring and Oversight Agreement among Atrium Corporation, the Company and Hicks, Muse & Co. Partners,
L.P. dated November 27, 1996 (1)
10.6 -- Atrium Indemnification Escrow Agreement among Hicks, Muse, Tate & Furst Equity Fund III, L.P.,
the Company, Randall S. Fojtasek, Heritage Fund I, L.P., and Citibank N.A. dated November
27, 1996 (1)
10.7 -- Bishop Indemnification Escrow Agreement among Hicks, Muse, Tate & Furst Equity Fund III, L.P., the Company,
Howard S. Saffan and Citibank N.A. dated November 27, 1996(1)
10.8 -- Atrium Corporation 1996 Stock Purchase Plan (1)
10.9 -- Atrium Corporation 1996 Stock Option Plan (1)
10.10-- Employment Agreement dated November 7, 1996 between Atrium Corporation and Randall S. Fojtasek (1)
10.11-- Employment Agreement between the Company and Jeff L. Hull dated January 1, 1998 (2)
10.12-- Employment Agreement between the Company and Horace T. Hicks dated January 1, 1998 (2)
10.13-- Employment Agreement between the Company and Louis W. Simi, Jr. dated January 1, 1998 (2)
10.14-- Employment Agreement between the Company and Arthur G. Frost dated January 1, 1998 (2)
10.15-- Escrow Agreement dated July 3, 1995 among Fojtasek/Heritage Acquisition Company, The Company, Randall
Fojtasek and the First National Bank of Boston (1)
10.16-- Non-Competition Agreement dated July 3, 1995 by and among Randall
Fojtasek and Fojtasek/Heritage Acquisition Company (1)
10.17-- Atrium Lease Agreement, as amended (1)
10.18-- H-R Windows Lease Agreement (1)
10.19-- Second Amendment to the Atrium Lease Agreement (2)
10.20-- First Amendment to the H-R Windows Lease Agreement (2)
12.1 -- Computation of Ratio of Earnings to Fixed Charges (2)
21.1 -- Subsidiaries of the Company (2)
24.1 -- Powers of Attorney (set forth on signature page) (2)
27.1 -- Financial Data Schedule (2)
</TABLE>
- ---------------
(1) Incorporated by reference from the Registrant's Registration Statement on
Form S-4, dated April 4, 1997, SEC File No. 333-20095.
(2) Filed herewith.
E-2
<PAGE> 1
EXHIBIT 10.11
EMPLOYMENT AGREEMENT BETWEEN THE COMPANY AND JEFF L. HULL
DATED JANUARY 1, 1998
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into,
with an effective date of January 1, 1998, by and between Atrium Companies,
Inc., a Delaware corporation (together with its successors and assigns
permitted hereunder, the "Company"), and Jeff L. Hull (the "Employee").
RECITALS
A. The Board of Directors of the Company (the "Board") has
determined that it is in the best interests of the Company and its stockholders
to employ the Employee on the terms and conditions set forth herein.
AGREEMENTS
NOW, THEREFORE, in consideration of the respective agreements and
covenants set forth herein and other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. EMPLOYMENT PERIOD. Subject to Section 3, the Company hereby agrees to
employ the Employee, and the Employee hereby agrees to be employed by the
Company in accordance with the terms and provisions of this Agreement, for a
period (the "Employment Period") commencing on the date herein and ending on
the third anniversary of such date. Neither party is under any obligation to
extend or renew this Agreement. Any new employment agreement shall only be
effective after having been reduced to writing and executed by both parties
hereto. In the event Employee continues to perform services after the
Employment Period, and pending execution of a new employment agreement, if any,
such services shall constitute employment for an unspecified term, terminable
at will, with or without cause or reason, with or without advance notice, and
with or without pay in lieu of advance notice.
2. TERMS OF EMPLOYMENT.
a. Position and Duties.
i. During the term of the Employee's employment, the
Employee shall serve as Chief Financial Officer of the Company, and,
in so doing, shall perform the normal duties and responsibilities
associated with such position, subject to the general direction,
approval and control of the President and Chief Executive Officer of
the Company.
<PAGE> 2
ii. During the term of the Employee's employment, and
excluding any periods of vacation and other leave to which the
Employee is entitled, the Employee agrees to devote his full business
time to the business and affairs of the Company and to use the
Employee's best efforts to perform faithfully, effectively and
efficiently his duties and responsibilities.
iii. During the term of the Employee's employment it shall
not be a violation of this Agreement for the Employee to serve on
corporate, civic or charitable boards or committees, deliver lectures
or fulfill speaking engagements and manage personal investments, so
long as such activities do not interfere with the performance of the
Employee's duties and responsibilities as an employee of the Company.
iv. Employee agrees to observe and comply with the
Company's rules and policies as adopted by the Company from time to
time.
a. Compensation.
i. Base Salary. During the term of the Employee's
employment, the Employee shall receive an annual base salary ("Annual
Base Salary"), which shall be paid in accordance with the customary
payroll practices of the Company, in an amount equal to $125,000. The
Board, in its discretion, may at any time increase the amount of the
Annual Base Salary to such greater amount as it may deem appropriate,
and the term "Annual Base Salary," as used in this Agreement, shall
refer to the Annual Base Salary as it may be so increased. It is
understood that the Company may, at any time, in the discretion of the
Board, increase, but not decrease, the amount of the Annual Base
Salary.
ii. Incentive Bonus. Subject to the other terms and
conditions of this Agreement and as further compensation for the
performance of his services hereunder, during the term of his
employment under this Agreement, the Employee shall be eligible to
receive an annual incentive bonus (the "Incentive Bonus") in
accordance with the Bonus Structure, attached hereto as Exhibit A.
(A) Targets. Prior to the end of each calendar
year, the Board's Compensation Committee shall approve the
performance targets (the "Targets") upon which the Employee's
Incentive Bonus for the following year will be based with
respect to each of the criteria described in the Bonus
Structure, except that the Targets for 1998 have been approved
by the Board's Compensation Committee as of the date hereof.
The Targets for 1998 are as described in Exhibit B, which is
hereby incorporated as part of this Agreement. The Targets
for each of such criteria in each subsequent calendar year
shall, after approval by the Board's Compensation Committee,
be attached hereto as Exhibit B as a substitute for the
previous years' Targets, and shall become a part of this
Agreement for such calendar year.
(B) Amount and Calculation. Should the Employee
achieve 100% of the Targets, the Incentive Bonus shall be
$35,000 (the "Base Incentive Bonus"). A lesser or greater
Incentive Bonus will result should the Employee achieve less
or more
<PAGE> 3
than 100% of the Targets, but in any event, the maximum
Incentive Bonus that the Employee shall be eligible to receive
is $39,375, such amount to be determined in accordance with
the terms of Exhibit A hereto. The Employee understands and
agrees that he is not guaranteed an Incentive Bonus and that
the amount of Incentive Bonus, if any, is dependent on his
achieving one or more of the Targets for the criteria set
forth in the Bonus Structure. In this regard, should the
Employee fail to achieve any of such Targets, the Employee
shall not be entitled to the Incentive Bonus for the
applicable period. "EBITDA," as used in this Agreement and
the Bonus Structure for any calendar year, shall mean the
earnings before income tax, depreciation and amortization for
such year, as determined in accordance with generally accepted
accounting principles by the certified public accountants
regularly engaged by the Company. The determination of the
Company's regularly engaged public accountants shall be final
and conclusive on the parties hereto.
(C) Time of Payment. The Incentive Bonus shall
be paid to the Employee on or before March 15 of the calendar
year immediately following the year with respect to which the
calculation of the Incentive Bonus is made. Payment of the
Incentive Bonus shall be accompanied by a copy of the
calculation on which the Incentive Bonus is based.
iii. Incentive, Savings, Stock Option and Retirement
Plans. During the term of the Employee's employment, the Employee
shall be entitled to participate in all incentive, savings, stock
option and retirement plans, practices, policies and programs
applicable generally to other employees of the Company ("Investment
Plans"), as amended from time to time.
iv. Welfare Benefit Plans. During the term of the
Employee's employment, the Employee and/or the Employee's family, as
the case may be, shall be eligible for participation in and shall
receive all benefits under the welfare benefit plans, practices,
policies and programs ("Welfare Plans") provided by the Company
(including medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and travel
accident insurance plans and programs), as amended from time to time,
to the extent applicable generally to other employees of the Company.
v. Perquisites. During the term of the Employee's
employment, the Employee shall be entitled to receive (in addition to
the benefits described above) such perquisites and fringe benefits
appertaining to his position in accordance with any policies,
practices and procedures established by the Board, as amended from
time to time.
vi. Expenses. During the term of the Employee's
employment, the Employee shall be entitled to receive prompt
reimbursement for all reasonable employment expenses incurred by the
Employee in accordance with the Company's policies, practices and
procedures, as amended from time to time.
vii. Automobile. The Company recognizes the Employee's
need for an automobile for business purposes. The Company shall
provide the Employee with an automobile allowance of $500 per month.
<PAGE> 4
viii. Vacation. During the term of the Employee's
employment, the Employee shall be entitled to four (4) weeks paid
vacation each calendar year. Any vacation shall be taken at the
reasonable and mutual convenience of the Company and the Employee.
Accrued vacation not taken in any calendar year will not be carried
forward or used in any subsequent calendar year and the Employee shall
not be entitled to receive pay in lieu of accrued but unused vacation
in any calendar year.
b. Key-Man Insurance. At any time during the Employment Period,
the Company shall have the right to insure the life of the Employee for the
Company's sole benefit, and to determine the amount of insurance and the type
of policy. The Employee shall cooperate with the Company in taking out such
insurance by submitting to physical examinations, by supplying all information
required by the insurance company, and by executing all necessary documents.
The Employee shall incur no financial obligation by executing any required
document, and shall have no interest in any such policy.
3. TERMINATION OF EMPLOYMENT.
a. Death or Disability. The Employee's employment shall
terminate automatically upon the Employee's death during the Employment Period.
If the Disability (as defined below) of the Employee has occurred during the
Employment Period, the Company may give to the Employee written notice in
accordance with Section 12(b) of its intention to terminate the Employee's
employment. In such event, the Employee's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the
Employee (the "Disability Effective Date"), if, within the 30 days after such
receipt, the Employee shall not have returned to perform, with or without
reasonable accommodation, the essential functions of his position. For
purposes of this Agreement, "Disability" shall mean the Employee's inability to
perform, with or without reasonable accommodations, the essential functions of
his position hereunder for a period of 120 days, consecutive or
non-consecutive, in any 12-month period due to mental or physical incapacity,
as determined by a physician selected by the Company or its insurers and
acceptable to the Employee or the Employee's legal representative, such
agreement as to acceptability not to be unreasonably withheld or delayed. Any
refusal by Employee to submit to a medical examination for the purpose of
determining Disability under this Section 3(a) shall be deemed to constitute
conclusive evidence of Employee's Disability.
b. Cause or Without Cause. The Company may terminate the
Employee's employment during the Employment Period for Cause or without Cause.
For purposes of this Agreement, "Cause" shall mean a breach by the Employee of
the Employee's obligations under Section 2(a) (other than as a result of
physical or mental incapacity) which constitutes a continued material
nonperformance by the Employee of his obligations and duties thereunder, as
determined by the Board, and which is not remedied within 30 days after receipt
of written notice from the Company specifying such breach; commission by the
Employee of an act of fraud, embezzlement, misappropriation, willful misconduct
or breach of fiduciary duty against the Company, as reasonably determined by a
majority of the members of the Board after a hearing by the Board following ten
days' notice to the Employee of such hearing; a material breach by the Employee
of Sections 7, 8, 9, 10 or 11; the Employee's conviction, plea of no contest or
nolo contendere, or unadjudicated probation for any felony or crime involving
moral turpitude; the failure of the Employee to carry out, or comply with, in
any material respect any lawful directive of the Board consistent with the terms
of this Agreement, which is not remedied
<PAGE> 5
within 30 days after receipt of written notice from the Company specifying such
failure; or (vi) the Employee's unlawful use (including being under the
influence) or possession of illegal drugs on the Company's premises or while
performing the Employee's duties and responsibilities under this Agreement. The
Company may suspend the Employee's title and authority pending the hearing
provided for in clause (ii) above, and such suspension shall not constitute
"Good Reason" as defined below. For purposes of this Agreement, "without Cause"
shall mean a termination by the Company of the Employee's employment during the
Employment Period for any reason other than a termination based upon Cause,
death, Disability or upon a Change of Control, as defined below.
c. Good Reason. The Employee's employment may be terminated
during the Employment Period by the Employee for Good Reason or without Good
Reason; provided, however, that the Employee agrees not to terminate his
employment for Good Reason unless (i) the Employee has given the Company at
least 30 days' prior written notice of his intent to terminate his employment
for Good Reason, which notice shall specify the facts and circumstances
constituting Good Reason, and (ii) the Company has not remedied such facts and
circumstances constituting Good Reason within such 30-day period. For purposes
of this Agreement, "Good Reason" shall mean:
i. any significant reduction, approved by the Board
without the Employee's consent, in the Employee's position, authority,
duties or responsibilities as contemplated in Section 2(a) or any
other action by the Company which results in a material diminution in
such position, authority, duties or responsibilities, excluding for
this purpose an inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of written notice
thereof given by the Employee.
ii. any termination or material reduction of a material
benefit under any Investment Plan or Welfare Plan in which the
Employee participates unless (A) there is substituted a comparable
benefit that is economically substantially equivalent to the
terminated or reduced benefit prior to such termination or reduction
or (B) benefits under such Investment Plan or Welfare Plan are
terminated or reduced with respect to all employees previously granted
benefits thereunder;
iii. any failure by the Company to comply with any of the
provisions of Section 2(b), other than an inadvertent failure not
occurring in bad faith and which is remedied by the Company promptly
after receipt of written notice thereof given by the Employee;
iv. without limiting the generality of the foregoing, any
material breach by the Company or any of its subsidiaries or other
affiliates (as defined below) of (A) this Agreement or (B) any other
agreement between the Employee and the Company or any such subsidiary
or other affiliate; or
v. the Company's requirement that the Employee's ongoing
and regular duties and responsibilities be performed in a location
other than the Dallas/Fort Worth Metroplex area, except for travel
reasonably required in the performance of the Employee's duties and
responsibilities.
<PAGE> 6
As used in this Agreement, "affiliate" means, with respect to a
person, any other person controlling, controlled by or under common control
with the first person; the term "control," and correlative terms, means the
power, whether by contract, equity ownership or otherwise, to direct the
policies or management of a person; and "person" means an individual,
partnership, corporation, limited liability company, trust or unincorporated
organization, or a government or agency or political subdivision thereof.
d. Change of Control. If a Change of Control occurs during the
Employment Period and the Board determines in good faith that it is in the
Company's best interest to terminate the Employee's employment with the
Company, within 90 days of such Change of Control the Company may terminate the
Employee's employment by giving the Employee written notice in accordance with
Section 12(b) of its intention to terminate the Employee's employment. Any
such termination by the Company as contemplated in this Section 3(d) is
referred to herein as a termination "upon a Change of Control." For purposes of
this Agreement, "Change of Control" shall have the meaning given to such term
in the Atrium Corporation 1996 Stock Option Plan, as such Plan may be amended
from time to time.
e. Notice of Termination. Any termination by the Company for
Cause or without Cause or upon a Change of Control, or by the Employee for Good
Reason or without Good Reason, shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 12(b). For purposes
of this Agreement, a "Notice of Termination" means a written notice which
indicates the specific termination provision in this Agreement relied upon, to
the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Employee's
employment under the provision so indicated and if the Date of Termination (as
defined below) is other than the date of receipt of such notice, specifies the
termination date (which date shall not be more than 15 days after the giving of
such notice). The failure by the Employee or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing
of Good Reason or Cause or a termination upon a Change of Control shall not
waive any right of the Employee or the Company hereunder or preclude the
Employee or the Company from asserting such fact or circumstance in enforcing
the Employee's or the Company's rights hereunder.
f. Date of Termination. "Date of Termination" means if the
Employee's employment is terminated by the Company for Cause or upon a Change
of Control, or by the Employee for Good Reason or without Good Reason, the date
of receipt of the Notice of Termination or any later date specified therein
pursuant to Section 3(e), as the case may be, if the Employee's employment is
terminated by the Company other than for Cause or upon a Change of Control, the
date on which the Company notifies the Employee of such termination and if the
Employee's employment is terminated by reason of death or Disability, the date
of death of the Employee or the Disability Effective Date, as the case may be.
<PAGE> 7
4. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
a. For Cause; Without Good Reason; Other Than for Death,
Disability or Upon a Change of Control. If, during the Employment Period, the
Company shall terminate the Employee's employment for Cause or the Employee
shall terminate his employment without Good Reason, and the termination of the
Employee's employment in any case is not due to his death or Disability or upon
a Change of Control, the Employee shall forfeit all rights to the Incentive
Bonus otherwise due to him or to which he may be entitled, and the Company
shall have no further payment obligations to the Employee or his legal
representatives, other than for the payment of: (i) in a lump sum in cash
within ten (10) days after the Date of Termination the sum of the Employee's
Annual Base Salary through the Date of Termination to the extent not
theretofore paid, any compensation previously deferred by the Employee
(together with any accrued interest or earnings thereon) and any accrued
vacation pay (collectively, the "Accrued Obligations"); and (ii) any amount
arising from the Employee's participation in, or benefits under, any Investment
Plans (the "Accrued Investments"), which amounts shall be payable in accordance
with the terms and conditions of such Investment Plans.
i. Death. If the Employee's employment is terminated by
reason of the Employee's death during the Employment Period, the
Company shall have no further payment obligations to the Employee or
his legal representatives, other than for payment of: in a lump sum
in cash within ten (10) days after the Date of Termination the Accrued
Obligations; the Accrued Investments, which shall be payable in
accordance with the terms and conditions of the Investment Plans; and
the Incentive Bonus prorated from the first day of the Company's
then-current fiscal year to the Date of Termination (the "Prorated
Incentive Bonus"), to be paid in accordance with Section 2(b)(ii)(C).
ii. Disability. If the Employee's employment is
terminated by reason of the Employee's Disability during the
Employment Period, the Company shall have no further payment
obligations to the Employee or his legal representatives, other than
for payment of: in a lump sum in cash within ten (10) days after the
Date of Termination the Accrued Obligations; the Accrued Investments,
which shall be payable in accordance with the terms and conditions of
the Investment Plans; and the Prorated Incentive Bonus, to be paid in
accordance with Section 2(b)(ii)(C).
iii. Without Cause or for Good Reason. If the Employee's
employment is terminated by the Company without Cause or by the
Employee for Good Reason, the Company shall have no further payment
obligations to the Employee or his legal representatives, other than
for: (i) payment of, in a lump sum in cash within ten (10) days after
the Date of Termination, the Accrued Obligations; (ii) payment of the
Accrued Investments, which shall be payable in accordance with the
terms and conditions of the Investment Plans; (iii) payment of the
Prorated Incentive Bonus, to be paid in accordance with Section
2(b)(ii)(C); and (iv) payment of one-twelfth of the sum of the
Employee's Annual Base Salary on the Date of Termination and the
Annual Incentive Bonus for each month during a period of 12 months
following the Date of Termination (the "Severance Period"), in
accordance with the customary payroll practices of the Company.
<PAGE> 8
iv. Change of Control. If the Employee's employment is
terminated upon a Change of Control as contemplated in Section 3(d),
the Company shall have no further payment obligations to the Employee
or his legal representatives, other than for (i) payment of, in a lump
sum in cash within ten (10) days after the Date of Termination, the
Accrued Obligations; (ii) payment of the Accrued Investments, which
shall be payable in accordance with the terms and conditions of the
Investment Plans; (iii) payment of the Prorated Incentive Bonus, to be
paid in accordance with Section 2(b)(ii)(C); and (iv) payment of
one-twelfth of the sum of the Employee's Annual Base Salary on the
Date of Termination and the Annual Incentive Bonus for each month
during the Severance Period, in accordance with the customary payroll
practices of the Company; provided, however, that the payments
contemplated in (iii) and (iv) above shall not be made to the Employee
if, following such Change of Control, Randall S. Fojtasek continues to
act in the capacity of President and Chief Executive Officer of the
Company.
5. RETENTION BONUS. Following a "Change of Control," as contemplated in
Section 3(d), if the Employee is employed by the Company in his current
position or in a more senior position, or by a subsidiary or other affiliate of
the Company in a position with authority, duties and responsibilities
substantially similar to or greater than those of his current position, on the
12-month anniversary of the Change of Control, the Company shall pay the
Employee a retention bonus in the amount of $75,000. Nothing in this Section 5
shall be deemed to give the Employee the right to be retained in the employ of
the Company or to restrict the right of the Company to terminate the Employee
at any time and for any reason, without Cause or for Cause or upon a Change of
Control. Nothing in this Section 5 shall be deemed to give the Company the
right to require the Employee to remain in the employ of the Company or to
restrict the Employee's right to terminate his employment at any time and for
any reason, without Good Reason or for Good Reason.
6. FULL SETTLEMENT, MITIGATION. In no event shall the Employee be
obligated to seek other employment or take any other action by way of
mitigation of the amounts payable to the Employee under any of the provisions
of this Agreement and such amounts shall not be reduced whether or not the
Employee obtains other employment. Neither the Employee nor the Company shall
be liable to the other party for any damages in addition to the amounts payable
under Section 4 arising out of the termination of the Employee's employment
prior to the end of the Employment Period; provided, however, that the Company
shall be entitled to seek damages from the Employee for any breach of Sections
7, 8, 9, 10, or 11 by the Employee or for the Employee's criminal misconduct.
<PAGE> 9
7. CONFIDENTIAL INFORMATION.
a. The Employee acknowledges that the Company and its affiliates
have trade, business and financial secrets and other confidential and
proprietary information (collectively, the "Confidential Information").
"Confidential Information" includes sales materials, technical information,
processes and compilations of information, records, specifications and
information concerning customers or venders, manuals relating to suppliers'
products, customer lists, information regarding methods of doing business, and
the identity of suppliers. "Confidential Information" shall not include
information that is generally known to other persons or entities who can obtain
economic value from its disclosure or use and information required to be
disclosed by the Employee pursuant to a subpoena or court order, or pursuant to
a requirement of a governmental agency or law of the United States of America
or a state thereof or any governmental or political subdivision thereof;
provided, however, that the Employee shall take all reasonable steps to
prohibit disclosure pursuant to subsection (ii) above.
b. During and following the Employee's employment by the Company,
the Employee shall hold in confidence and not directly or indirectly disclose
or use or copy or make lists of any Confidential Information or proprietary
data of the Company or its affiliates except to the extent authorized in
writing by the Board or required by any court or administrative agency, other
than to an employee of the Company or its affiliates or a person to whom
disclosure is reasonably necessary or appropriate in connection with the
performance by the Employee of his duties as an employee of the Company.
c. The Employee further agrees not to use any Confidential
Information for the benefit of any person or entity other than the Company or
its affiliates.
d. As used in this Section 7, "Company" shall include Atrium
Companies, Inc. and any of its subsidiaries.
8. SURRENDER OF MATERIALS UPON TERMINATION. All records, files,
documents and materials, or copies thereof, relating to the Company's and its
respective affiliates' business which the Employee shall prepare, or use, or
come into contact with, shall be and remain the sole property of the Company or
its affiliates, as the case may be, and shall be returned promptly by the
Employee to the owner upon termination of the Employee's employment with the
Company. As used in this Section 8, "Company" shall include Atrium Companies,
Inc. and any of its subsidiaries.
9. SUCCESSORS. The Company may assign its rights and obligations under
this Agreement to any successor to all or substantially all the assets of the
Company, by merger or otherwise, subject, however, to the Employee's right to
terminate this Agreement for Good Reason as provided in Section 3(c), and may
assign or encumber this Agreement and its rights hereunder as security for
indebtedness of the Company and its affiliates. The Company shall require that
any successor agree to assume in writing the obligations of the Company
pursuant to this Agreement and the failure to secure such assumption on or
prior to the closing of any merger or similar transaction shall constitute Good
Reason under Section 3(c); provided, however, that nothing set forth in this
Section 9 shall be deemed to limit or otherwise affect in any way the right of
the Company or such successor to terminate the Employee's employment upon a
Change in Control as contemplated in Section 3(d). The rights of the Employee
under this Agreement may not be
<PAGE> 10
assigned or encumbered by the Employee, voluntarily or involuntarily, during
his lifetime, and any such purported assignment shall be void. However, all
rights of the Employee under this Agreement shall inure to the benefit of and
be enforceable by the Employee's personal or legal representatives, estates,
executors, administrators, heirs and beneficiaries. All amounts payable to the
Employee hereunder shall be paid, in the event of the Employee's death, to the
Employee's estate, heirs and representatives.
10. NON-COMPETITION.
a. The term of Non-Competition (herein so called) shall be for a
term beginning on the date hereof and continuing until (i) the first
anniversary of the Date of Termination if the Employee's employment is
terminated by the Company for Cause or due to Disability or by the Employee
without Good Reason, (ii) the Date of Termination if the Employee's employment
is terminated by the Company without Cause (and not due to Disability) or by
the Company for Good Reason or (iii) the first anniversary of the last date of
the Severance Period if the Employee's employment is terminated upon a Change
of Control.
b. During the term of Non-Competition, the Employee will not
(other than for the benefit of the Company or its affiliates pursuant to this
Agreement) directly or indirectly, individually or as an officer, director,
employee, shareholder, consultant, contractor, partner, joint venturer, agent,
equity owner or in any capacity whatsoever engage in the business of
manufacturing, marketing or distributing windows or doors or in any other
business activity that the Company is conducting on the Date of Termination or
has notified the Employee that it proposes to conduct in the United States (a
"Competing Business"), hire, attempt to hire, or contact or solicit with
respect to hiring any officer, employee or consultant of the Company or its
affiliates, or divert or take away any customers or suppliers of the Company
or its affiliates. Notwithstanding the foregoing, the Company agrees that the
Employee may own less than five percent of the outstanding voting securities of
any publicly traded company that is a Competing Business so long as the
Employee does not otherwise participate in such competing business in any way
prohibited by the preceding clause.
c. The Employee acknowledges that the geographic boundaries,
scope of prohibited activities, and time duration of the preceding paragraphs
are reasonable in nature and are no broader than are necessary to maintain the
goodwill of the Company and its affiliates and the confidentiality of their
Confidential Information, and to protect the other legitimate business
interests of the Company and its affiliates.
d. If any court determines that any portion of this Section 10 is
invalid or unenforceable, the remainder of this Section 10 shall not thereby be
affected and shall be given full effect without regard to the invalid
provisions. If any court construes any of the provisions of this Section 10,
or any part thereof, to be unreasonable because of the duration or scope of
such provision, such court shall have the power to reduce the duration or scope
of such provision and to enforce such provision as so reduced.
e. As used in this Section 10, "Company" shall include Atrium
Companies, Inc. and any of its subsidiaries.
<PAGE> 11
11. INVENTIONS; ASSIGNMENT. All rights to discoveries, inventions,
improvements and innovations (including all data and records pertaining
thereto) related to the Company's business, whether or not patentable,
copyrightable, registrable as a trademark, or reduced to writing, that the
Employee may discover, invent or originate during the Employment Period, and
for a period of twelve (12) months thereafter, either alone or with others and
whether or not during working hours or by the use of the facilities of the
Company ("Inventions"), shall be the exclusive property of the Company. The
Employee shall promptly disclose all Inventions to the Company, shall execute
at the request of the Company any assignments or other documents the Company
may deem necessary to protect or perfect its rights therein, and shall assist
the Company, at the Company's expense, in obtaining, defending and enforcing
the Company's rights therein. The Employee hereby appoints the Company as his
attorney-in-fact to execute on his behalf any assignments or other documents
deemed necessary by the Company to protect or perfect its rights to any
Inventions. As used in this Section 11, "Company" shall include Atrium
Companies, Inc. and any of its subsidiaries.
12. MISCELLANEOUS.
a. Construction. This Agreement shall be deemed drafted equally
by both the parties. Its language shall be construed as a whole and according
to its fair meaning. Any presumption or principle that the language is to be
construed against any party shall not apply. The headings in this Agreement
are only for convenience and are not intended to affect construction or
interpretation. Any references to paragraphs, subparagraphs, sections or
subsections are to those parts of this Agreement, unless the context clearly
indicates to the contrary. Also, unless the context clearly indicates to the
contrary, (a) the plural includes the singular and the singular includes the
plural; (b) "and" and "or" are each used both conjunctively and disjunctively;
(c) "any," "all," "each," or "every" means "any and all", and "each and every";
(d) "includes" and "including" are each "without limitation"; (e) "herein,"
"hereof," "hereunder" and other similar compounds of the word "here" refer to
the entire Agreement and not to any particular paragraph, subparagraph, section
or subsection; and (f) all pronouns and any variations thereof shall be deemed
to refer to the masculine, feminine, neuter, singular or plural as the identity
of the entities or persons referred to may require.
b. Notices. All notices and other communications hereunder shall
be in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Employee: Jeff L. Hull
941 Gibbs Crossing
Coppell, Texas 75019
(972) 304-9177
Fax: (972) 304-5238
If to the Company: Atrium Companies, Inc.
1341 West Mockingbird Lane
Suite 1200W
Dallas, Texas 75247
Attention: Randall S. Fojtasek
Fax: (214) 631-4231
<PAGE> 12
with a copy to:
Vinson & Elkins L.L.P.
3700 Trammel Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attention: Michael D. Wortley
Fax: (214) 220-7716
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
c. Enforcement. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective during
the term of this Agreement, such provision shall be fully severable; this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a portion of this Agreement; and
the remaining provisions of this Agreement shall remain in full force and
effect and shall not be affected by the illegal, invalid or unenforceable
provision or by its severance from this Agreement. Furthermore, in lieu of
such illegal, invalid or unenforceable provision there shall be added
automatically as part of this Agreement a provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible and be legal,
valid and enforceable.
d. Withholding. The Company shall be entitled to withhold from
any amounts payable under this Agreement any federal, state, local or foreign
withholding or other taxes or charges which it is from time to time required to
withhold. The Company shall be entitled to rely on an opinion of counsel if
any questions as to the amount or requirement of such withholding shall arise.
e. No Waiver No waiver by either party at any time of any breach
by the other party of, or compliance with, any condition or provision of this
Agreement to be performed by the other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at any time.
f. Equitable Relief. The Employee acknowledges that money
damages would be both incalculable and an insufficient remedy for a breach of
Section 7, 8, 9, 10 or 11 by the Employee and that any such breach would cause
the Company irreparable harm. Accordingly, the Company, in addition to any
other remedies at law or in equity it may have, shall be entitled, without the
requirement of posting of bond or other security, to equitable relief,
including injunctive relief and specific performance, in connection with a
breach of Section 7, 8, 9, 10 or 11 by the Employee.
g. Complete Agreement. The provisions of this Agreement
constitute the entire and complete understanding and agreement between the
parties with respect to the subject matter hereof, and supersedes all prior and
contemporaneous oral and written agreements, representations and understandings
between the Employee and the Company, or its affiliates and subsidiaries, which
are hereby terminated. Other than expressly set forth herein, the Employee and
the Company acknowledge and represent that there are no other promises, terms,
conditions or representations (oral or written) regarding any matter relevant
hereto. This Agreement may be
<PAGE> 13
executed in two or more counterparts. Notwithstanding any other provision set
forth in this Agreement, the Employee hereby acknowledges and agrees that
Atrium Corporation, the Company's sole stockholder, and each of the Company's
subsidiaries are intended third party beneficiaries of this Section 12(g), and
each of them shall be entitled to rely on the acknowledgments and agreements of
the Employee made in this Section 12(g) to the same extent as if they were
parties to this Agreement.
h. Arbitration. The Company and the Employee agree to the
resolution by binding arbitration of all claims, demands, causes of action,
disputes, controversies or other matters in question ("claims"), whether or not
arising out of this Agreement or the Employee's employment (or its
termination), whether sounding in contract, tort or otherwise and whether
provided by statute or common law, that the Company may have against the
Employee or that the Employee may have against the Company or its parents,
subsidiaries and affiliates, and each of the foregoing entities' respective
officers, directors, employees or agents in their capacity as such or
otherwise; except that this agreement to arbitrate shall not limit the
Company's right to seek equitable relief, including injunctive relief and
specific performance, and damages in a court of competent jurisdiction for an
alleged breach of Sections 7, 8, 9, 10 or 11 of this Agreement. Claims covered
by this agreement to arbitrate also include claims by the Employee for breach
of this Agreement, wrongful termination, discrimination (based on age, race,
sex, disability, national origin or any other factor) and retaliation. In the
event of any breach of this Agreement by the Company, it is expressly agreed
that notwithstanding any other provision of this Agreement, the only damages to
which Employee shall be entitled is lost compensation and benefits in
accordance with Section 2(b) or 4. The Company and the Employee agree that any
arbitration shall be in accordance with the Federal Arbitration Act ("FAA")
and, to the extent an issue is not addressed by the FAA, with the then-current
National Rules for the Resolution of Employment Disputes of the American
Arbitration Association ("AAA"). If a party refuses to honor its obligations
under this agreement to arbitrate, the other party may compel arbitration in
either federal or state court. The arbitrator shall apply the substantive law
of the State of Texas (excluding Texas choice-of-law principles that might call
for the application of some other state's law), or federal law, or both as
applicable to the claims asserted. The arbitrator shall have exclusive
authority to resolve any dispute relating to the interpretation, applicability,
enforceability or formation of this agreement to arbitrate, including any claim
that all or part of this Agreement is void or voidable and any claim that an
issue is not subject to arbitration. The parties agree that venue for
arbitration will be in Dallas, Texas, and that any arbitration commenced in any
other venue will be transferred to Dallas, Texas, upon the written request of
any party to this Agreement. In the event that an arbitration is actually
conducted pursuant to this Section 12(h), the party in whose favor the
Arbitrator renders the award shall be entitled to have and recover from the
other party all costs and expenses incurred including reasonable attorneys'
fees, expert witness fees, and costs actually incurred. Any and all of the
arbitrator's orders, decisions and awards may be enforceable in, and judgment
upon any award rendered by the arbitrator may be confirmed and entered by, any
federal or state court having jurisdiction. All proceedings conducted pursuant
to this agreement to arbitrate, including any order, decision or award of the
arbitrator, shall be kept confidential by all parties.
i. Survival. Sections 7, 8, 9, 10, 11, and 12 of this Agreement
shall survive the termination of this Agreement.
<PAGE> 14
j. Choice of Law. This Agreement and the rights and obligations
hereunder shall be governed by and construed in accordance with the laws of the
State of Texas without reference to principles of conflicts of law of Texas or
any other jurisdiction, and, where applicable, the laws of the United States.
k. Amendment. This Agreement may not be amended or modified at
any time except by a written instrument approved by the Board and executed by
the Company and the Employee.
l. Employee Acknowledgment. Employee acknowledges that he has
read and understands this Agreement, is fully aware of its legal effect, has
not acted in reliance upon any representations or promises made by the Company
other than those contained in writing herein, and has entered into this
Agreement freely based on his own judgment.
IN WITNESS WHEREOF, the Employee has hereunto set the Employee's hand
and, pursuant to the authorization from the Board, the Company has caused this
Agreement to be executed in its name on its behalf, on this 1st day of January,
1998, to be effective as of the day and year first above written.
EMPLOYEE
/s/ JEFF L. HULL
-------------------------------
Jeff L. Hull
ATRIUM COMPANIES, INC.
By: /s/ RANDALL S. FOJTASEK
----------------------------
Randall S. Fojtasek
President
<PAGE> 15
EXHIBIT A
Fifty percent (50%) of the Employee's Incentive Bonus ("EBITDA Bonus")
shall be payable based upon achievement of the following targets:
o If Atrium Companies, Inc. achieves 80% of its budgeted EBITDA, the
Employee shall receive 50% of the EBITDA Bonus.
o If Atrium Companies, Inc. achieves 90% of its budgeted EBITDA, the
Employee shall receive 75% of the EBITDA Bonus.
o If Atrium Companies, Inc. achieves 100% of its budgeted EBITDA, the
Employee shall receive 100% of the EBITDA Bonus.
o If Atrium Companies, Inc. achieves 110% of its budgeted EBITDA, the
Employee shall receive 125% of the EBITDA Bonus.
The EBITDA Bonus will be paid on a sliding scale and on a pro rata
basis. For example, if 95% of the budgeted EBITDA is achieved, the
Employee is entitled to 87.5% of the EBITDA Bonus. No EBITDA Bonus
will be paid if Atrium Companies, Inc. achieves less than 80% of the
budgeted EBITDA.
Thirty-five percent (35%) of the Employee's Incentive Bonus shall be
payable based upon achievement of the following targets:
o If Atrium Companies, Inc. meets its performance targets with respect
to Bad Debts/Collections, then the Employee shall be entitled to
receive 10% of the Employee's Incentive Bonus.
o If Atrium Companies, Inc. meets its performance targets with respect
to Accounts Receivable Days, then the Employee shall be entitled to
receive 15% of the Employee's Incentive Bonus.
o If Atrium Companies, Inc. meets its performance targets with respect
to Month End Closings, then the Employee shall be entitled to receive
10% of the Employee's Incentive Bonus.
o If Atrium Companies, Inc. meets its performance targets with
respect to the filing of tax returns and of various reports, then the
Employee shall be entitled to receive 10% of the Employee's Incentive
Bonus.
o These parts of the Employee's Incentive Bonus shall not be paid on a
sliding scale or pro rata basis.
The remaining fifteen percent (15%) of the Employee's Incentive Bonus shall
be based upon achievement of objective standards, to be determined by the
Company.
<PAGE> 16
EXHIBIT B
<TABLE>
<CAPTION>
CRITERIA 1998 TARGETS 1997 ACTUAL
-------- ------------ -----------
<S> <C> <C>
Budgeted EBITDA $29,393,153 $26,595,640
Amount of Bad Debt Write-off $1,250,000 (or less) $ 1,368,191
Average Number of Days Accounts
Receivable are Outstanding 49.0 days (or less) 51.1 days
Average Number of Days into Subsequent
Month for Closing of Month-end
Financial Statements 17 days (or less) 19 days
Other Criteria: Complete Installation of
Management Information System at Targeted
Number of Divisions 3 divisions (or more) 2 divisions
Timely filing of
Tax Returns 90 days after year-end 90 days after year-end
SEC Reporting 90 days after year end 90 days after year end
45 days after quarter-end 45 days after quarter-end
Bank Reporting 30 days after month-end 30 days after month-end
Board Reporting 30 days after month-end 30 days after month-end
</TABLE>
APPROVED:
/s/ JEFF L. HULL January 1, 1998
- ------------------------------- -----------------
Jeff L. Hull Date
/s/ RANDALL S. FOJTASEK January 1, 1998
- ------------------------------- -----------------
Randall S. Fojtasek Date
<PAGE> 1
EXHIBIT 10.12
EMPLOYMENT AGREEMENT BETWEEN THE COMPANY AND HORACE T. HICKS
DATED JANUARY 1, 1998 JANUARY 1, 1998
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into, with
an effective date of January 1, 1998, by and between Atrium Companies, Inc., a
Delaware corporation (together with its successors and assigns permitted
hereunder, the "Company"), and Horace Hicks (the "Employee").
RECITALS
A. The Board of Directors of the Company (the "Board") has determined
that it is in the best interests of the Company and its stockholders to employ
the Employee on the terms and conditions set forth herein.
AGREEMENTS
NOW, THEREFORE, in consideration of the respective agreements and
covenants set forth herein and other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. EMPLOYMENT PERIOD. Subject to Section 3, the Company hereby agrees to
employ the Employee, and the Employee hereby agrees to be employed by the
Company in accordance with the terms and provisions of this Agreement, for a
period (the "Employment Period") commencing on the date herein and ending on
the third anniversary of such date. Neither party is under any obligation to
extend or renew this Agreement. Any new employment agreement shall only be
effective after having been reduced to writing and executed by both parties
hereto. In the event Employee continues to perform services after the
Employment Period, and pending execution of a new employment agreement, if any,
such services shall constitute employment for an unspecified term, terminable
at will, with or without cause or reason, with or without advance notice, and
with or without pay in lieu of advance notice.
2. TERMS OF EMPLOYMENT.
a. Position and Duties.
i. During the term of the Employee's employment, the Employee
shall serve as General Manager of HR Windows, and, in so doing, shall perform
the normal duties and responsibilities associated with such position, subject
to the general direction, approval and control of the Executive Vice President
of Operations for the Company.
<PAGE> 2
ii. During the term of the Employee's employment, and excluding
any periods of vacation and other leave to which the Employee is entitled, the
Employee agrees to devote his full business time to the business and affairs of
the Company and to use the Employee's best efforts to perform faithfully,
effectively and efficiently his duties and responsibilities.
iii. During the term of the Employee's employment it shall not be a
violation of this Agreement for the Employee to serve on corporate, civic or
charitable boards or committees, deliver lectures or fulfill speaking
engagements and manage personal investments, so long as such activities do not
interfere with the performance of the Employee's duties and responsibilities as
an employee of the Company.
iii. Employee agrees to observe and comply with the Company's rules
and policies as adopted by the Company from time to time.
b. Compensation.
i. Base Salary. During the term of the Employee's employment,
the Employee shall receive an annual base salary ("Annual Base Salary"), which
shall be paid in accordance with the customary payroll practices of the
Company, in an amount equal to $150,000. The Board, in its discretion, may at
any time increase the amount of the Annual Base Salary to such greater amount
as it may deem appropriate, and the term "Annual Base Salary," as used in this
Agreement, shall refer to the Annual Base Salary as it may be so increased. It
is understood that the Company may, at any time, in the discretion of the
Board, increase, but not decrease, the amount of the Annual Base Salary.
ii. Incentive Bonus. Subject to the other terms and conditions of
this Agreement and as further compensation for the performance of his services
hereunder, during the term of his employment under this Agreement, the Employee
shall be eligible to receive an annual incentive bonus (the "Incentive Bonus")
in accordance with the Bonus Structure, attached hereto as Exhibit A.
(A) Targets. Prior to the end of each calendar year, the
Board's Compensation Committee shall approve the performance targets
(the "Targets") upon which the Employee's Incentive Bonus for the
following year will be based with respect to each of the criteria
described in the Bonus Structure, except that the Targets for 1998
have been approved by the Board's Compensation Committee as of the
date hereof. The Targets for 1998 are as described in Exhibit B,
which is hereby incorporated as part of this Agreement. The Targets
for each of such criteria in each subsequent calendar year shall,
after approval by the Board's Compensation Committee, be attached
hereto as Exhibit B as a substitute for the previous years' Targets,
and shall become a part of this Agreement for such calendar year.
(B) Amount and Calculation. Should the Employee achieve
100% of the Targets, the Incentive Bonus shall be $120,000 (the "Base
Incentive Bonus"). A lesser or greater Incentive Bonus will result
should the Employee achieve
<PAGE> 3
less or more than 100% of the Targets, but in any event, the maximum
Incentive Bonus that the Employee shall be eligible to receive is
$142,500, such amount to be determined in accordance with the terms of
Exhibit A hereto. The Employee understands and agrees that he is not
guaranteed an Incentive Bonus and that the amount of Incentive Bonus,
if any, is dependent on his achieving one or more of the Targets for
the criteria set forth in the Bonus Structure. In this regard, should
the Employee fail to achieve any of such Targets, the Employee shall
not be entitled to an Incentive Bonus for the applicable period.
"EBITDA," as used in this Agreement and the Bonus Structure for any
calendar year, shall mean the earnings before income tax, depreciation
and amortization for such year, as determined in accordance with
generally accepted accounting principles by the certified public
accountants regularly engaged by the Company. The determination of
the Company's regularly engaged public accountants shall be final and
conclusive on the parties hereto.
(C) Time of Payment. The Incentive Bonus shall be paid
to the Employee on or before March 15th of the calendar year
immediately following the year with respect to which the calculation
of the Incentive Bonus is made. Payment of the Incentive Bonus shall
be accompanied by a copy of the calculation on which the Incentive
Bonus is based.
ii. Incentive, Savings, Stock Option and Retirement Plans. During
the term of the Employee's employment, the Employee shall be entitled to
participate in all incentive, savings, stock option and retirement plans,
practices, policies and programs applicable generally to other employees of the
Company ("Investment Plans"), as amended from time to time.
iii. Welfare Benefit Plans. During the term of the Employee's
employment, the Employee and/or the Employee's family, as the case may be, shall
be eligible for participation in and shall receive all benefits under the
welfare benefit plans, practices, policies and programs ("Welfare Plans")
provided by the Company (including medical, prescription, dental, disability,
salary continuance, employee life, group life, accidental death and travel
accident insurance plans and programs), as amended from time to time, to the
extent applicable generally to other employees of the Company.
iv. Perquisites. During the term of the Employee's employment, the
Employee shall be entitled to receive (in addition to the benefits described
above) such perquisites and fringe benefits appertaining to his position in
accordance with any policies, practices and procedures established by the Board,
as amended from time to time.
v. Expenses. During the term of the Employee's employment, the
Employee shall be entitled to receive prompt reimbursement for all reasonable
employment expenses incurred by the Employee in accordance with the Company's
policies, practices and procedures, as amended from time to time.
vi. Automobile. The Company recognizes the Employee's need for an
automobile for business purposes. The Company shall provide the Employee with an
automobile, including all related maintenance, repairs, insurance and other
costs. At the Employee's request, a new automobile shall be purchased for the
Employee's use when the automobile that the Company is presently providing to
the Employee has either: (i) been in
<PAGE> 4
service for three years, or (ii) exceeded 75,000 miles. The Company's cost for
a new automobile for the Employee shall not exceed Twenty-Five Thousand and
No/100 Dollars ($25,000.00) excluding sales tax.
vi. Vacation. During the term of the Employee's employment, the
Employee shall be entitled to four (4) weeks paid vacation each calendar year.
Any vacation shall be taken at the reasonable and mutual convenience of the
Company and the Employee. Accrued vacation not taken in any calendar year will
not be carried forward or used in any subsequent calendar year and the Employee
shall not be entitled to receive pay in lieu of accrued but unused vacation in
any calendar year.
vii. Hunting Lease. The Company recognizes the Employee's need for
a hunting lease for business purposes. The Company shall contribute up to Five
Thousand and No/100 Dollars ($5,000) during each calendar year of the Employment
Period toward the cost of a hunting lease utilized by the Employee.
viii. Key-Man Insurance. At any time during the Employment Period,
the Company shall have the right to insure the life of the Employee for the
Company's sole benefit, and to determine the amount of insurance and the type of
policy. The Employee shall cooperate with the Company in taking out such
insurance by submitting to physical examinations, by supplying all information
required by the insurance company, and by executing all necessary documents. The
Employee shall incur no financial obligation by executing any required document,
and shall have no interest in any such policy.
3. TERMINATION OF EMPLOYMENT.
a. Death or Disability. The Employee's employment shall terminate
automatically upon the Employee's death during the Employment Period. If the
Disability (as defined below) of the Employee has occurred during the Employment
Period, the Company may give to the Employee written notice in accordance with
Section 12(b) of its intention to terminate the Employee's employment. In such
event, the Employee's employment with the Company shall terminate effective on
the 30th day after receipt of such notice by the Employee (the "Disability
Effective Date"), if, within the 30 days after such receipt, the Employee shall
not have returned to perform, with or without reasonable accommodation, the
essential functions of his position. For purposes of this Agreement,
"Disability" shall mean the Employee's inability to perform, with or without
reasonable accommodations, the essential functions of his position hereunder for
a period of 120 days, consecutive or non-consecutive, in any 12-month period due
to mental or physical incapacity, as determined by a physician selected by the
Company or its insurers and acceptable to the Employee or the Employee's legal
representative, such agreement as to acceptability not to be unreasonably
withheld or delayed. Any refusal by Employee to submit to a medical examination
for the purpose of determining Disability under this Section 3(a) shall be
deemed to constitute conclusive evidence of Employee's Disability.
b. Cause or Without Cause. The Company may terminate the Employee's
employment during the Employment Period for Cause or without Cause. For
purposes of this Agreement, "Cause" shall mean a breach by the Employee of the
Employee's obligations under Section 2(a) (other than as a result of physical
or mental incapacity) which constitutes a continued material nonperformance by
the Employee of his obligations and duties thereunder, as
<PAGE> 5
determined by the Board, and which is not remedied within 30 days after receipt
of written notice from the Company specifying such breach; commission by the
Employee of an act of fraud, embezzlement, misappropriation, willful misconduct
or breach of fiduciary duty against the Company, as reasonably determined by a
majority of the members of the Board after a hearing by the Board following ten
days' notice to the Employee of such hearing; a material breach by the
Employee of Sections 7, 8, 9, 10, or 11; the Employee's conviction, plea of no
contest or nolo contendere, or unadjudicated probation for any felony or crime
involving moral turpitude; the failure of the Employee to carry out, or comply
with, in any material respect any lawful directive of the Board consistent with
the terms of this Agreement, which is not remedied within 30 days after receipt
of written notice from the Company specifying such failure; or (vi) the
Employee's unlawful use (including being under the influence) or possession of
illegal drugs on the Company's premises or while performing the Employee's
duties and responsibilities under this Agreement. The Company may suspend the
Employee's title and authority pending the hearing provided for in clause (ii)
above, and such suspension shall not constitute "Good Reason" as defined below.
For purposes of this Agreement, "without Cause" shall mean a termination by the
Company of the Employee's employment during the Employment Period for any
reason other than a termination based upon Cause, death, Disability or upon a
Change of Control, as defined below.
c. Good Reason. The Employee's employment may be terminated during the
Employment Period by the Employee for Good Reason or without Good Reason;
provided, however, that the Employee agrees not to terminate his employment for
Good Reason unless (i) the Employee has given the Company at least 30 days'
prior written notice of his intent to terminate his employment for Good Reason,
which notice shall specify the facts and circumstances constituting Good
Reason, and (ii) the Company has not remedied such facts and circumstances
constituting Good Reason within such 30-day period. For purposes of this
Agreement, "Good Reason" shall mean:
i. any significant reduction, approved by the Board without the
Employee's consent, in the Employee's position, authority, duties or
responsibilities as contemplated in Section 2(a) or any other action by the
Company which results in a material diminution in such position, authority,
duties or responsibilities, excluding for this purpose an inadvertent action not
taken in bad faith and which is remedied by the Company promptly after receipt
of written notice thereof given by the Employee.
ii. any termination or material reduction of a material benefit under
any Investment Plan or Welfare Plan in which the Employee participates unless
(A) there is substituted a comparable benefit that is economically substantially
equivalent to the terminated or reduced benefit prior to such termination or
reduction or (B) benefits under such Investment Plan or Welfare Plan are
terminated or reduced with respect to all employees previously granted benefits
thereunder;
iii. any failure by the Company to comply with any of the provisions
of Section 2(b), other than an inadvertent failure not occurring in bad faith
and which is remedied by the Company promptly after receipt of written notice
thereof given by the Employee;
iv. without limiting the generality of the foregoing, any material
breach by the Company or any of its subsidiaries or other affiliates (as defined
below) of (A) this Agreement or
<PAGE> 6
(B) any other agreement between the Employee and the Company or any such
subsidiary or other affiliate; or
v. the Company's requirement that the Employee's ongoing and regular
duties and responsibilities be performed in a location other than the
Dallas/Fort Worth Metroplex area, except for travel reasonably required in the
performance of the Employee's duties and responsibilities.
As used in this Agreement, "affiliate" means, with respect to a
person, any other person controlling, controlled by or under common control
with the first person; the term "control," and correlative terms, means the
power, whether by contract, equity ownership or otherwise, to direct the
policies or management of a person; and "person" means an individual,
partnership, corporation, limited liability company, trust or unincorporated
organization, or a government or agency or political subdivision thereof.
a. Change of Control. If a Change of Control occurs during the
Employment Period and the Board determines in good faith that it is in the
Company's best interest to terminate the Employee's employment with the Company,
within 90 days of such Change of Control the Company may terminate the
Employee's employment by giving the Employee written notice in accordance with
Section 12(b) of its intention to terminate the Employee's employment. Any such
termination by the Company as contemplated in this Section 3(d) is referred to
herein as a termination "upon a Change of Control." For purposes of this
Agreement, "Change of Control" shall have the meaning given to such term in the
Atrium Corporation 1996 Stock Option Plan, as such Plan may be amended from time
to time.
b. Notice of Termination. Any termination by the Company for Cause or
without Cause or upon a Change of Control, or by the Employee for Good Reason
or without Good Reason, shall be communicated by Notice of Termination to the
other party hereto given in accordance with Section 12(b). For purposes of
this Agreement, a "Notice of Termination" means a written notice which
indicates the specific termination provision in this Agreement relied upon, to
the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Employee's
employment under the provision so indicated and if the Date of Termination (as
defined below) is other than the date of receipt of such notice, specifies the
termination date (which date shall not be more than 15 days after the giving of
such notice). The failure by the Employee or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing
of Good Reason or Cause or a termination upon a Change of Control shall not
waive any right of the Employee or the Company hereunder or preclude the
Employee or the Company from asserting such fact or circumstance in enforcing
the Employee's or the Company's rights hereunder.
c. Date of Termination. "Date of Termination" means if the Employee's
employment is terminated by the Company for Cause or upon a Change of Control,
or by the Employee for Good Reason or without Good Reason, the date of receipt
of the Notice of Termination or any later date specified therein pursuant to
Section 3(e), as the case may be, if the Employee's employment is terminated
by the Company other than for Cause or upon a Change of Control, the date on
which the Company notifies the Employee of such termination and if the
Employee's employment is terminated by reason of death or Disability, the date
of death of the Employee or the Disability Effective Date, as the case may be.
<PAGE> 7
4. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
a. For Cause; Without Good Reason; Other Than for Death, Disability or
Upon a Change of Control. If, during the Employment Period, the Company shall
terminate the Employee's employment for Cause or the Employee shall terminate
his employment without Good Reason, and the termination of the Employee's
employment in any case is not due to his death or Disability or upon a Change of
Control, the Employee shall forfeit all rights to the Incentive Bonus otherwise
due to him or to which he may be entitled, and the Company shall have no further
payment obligations to the Employee or his legal representatives, other than for
the payment of: (i) in a lump sum in cash within ten (10) days after the Date of
Termination the sum of the Employee's Annual Base Salary through the Date of
Termination to the extent not theretofore paid, any compensation previously
deferred by the Employee (together with any accrued interest or earnings
thereon) and any accrued vacation pay (collectively, the "Accrued Obligations");
and (ii) any amount arising from the Employee's participation in, or benefits
under, any Investment Plans (the "Accrued Investments"), which amounts shall be
payable in accordance with the terms and conditions of such Investment Plans.
b. Death. If the Employee's employment is terminated by reason of the
Employee's death during the Employment Period, the Company shall have no
further payment obligations to the Employee or his legal representatives, other
than for payment of: in a lump sum in cash within ten (10) days after the Date
of Termination the Accrued Obligations; the Accrued Investments, which shall be
payable in accordance with the terms and conditions of the Investment Plans; and
the Incentive Bonus prorated from the first day of the Company's then-current
fiscal year to the Date of Termination (the "Prorated Incentive Bonus"), to be
paid in accordance with Section 2(b)(ii)(C).
c. Disability. If the Employee's employment is terminated by reason of
the Employee's Disability during the Employment Period, the Company shall have
no further payment obligations to the Employee or his legal representatives,
other than for payment of: in a lump sum in cash within ten (10) days after the
Date of Termination the Accrued Obligations; the Accrued Investments, which
shall be payable in accordance with the terms and conditions of the Investment
Plans; and the Prorated Incentive Bonus, to be paid in accordance with Section
2(b)(ii)(C).
d. Without Cause or for Good Reason. If the Employee's employment is
terminated by the Company without Cause or by the Employee for Good Reason, the
Company shall have no further payment obligations to the Employee or his legal
representatives, other than for: (i) payment of, in a lump sum in cash within
ten (10) days after the Date of Termination, the Accrued Obligations; (ii)
payment of the Accrued Investments, which shall be payable in accordance with
the terms and conditions of the Investment Plans; (iii) payment of the Prorated
Incentive Bonus, to be paid in accordance with Section 2(b)(ii)(C) and (iv)
payment of one-twelfth of the sum of the Employee's Annual Base Salary on the
Date of Termination and the Annual Incentive Bonus for each month during a
period of twelve (12) months following the Date of Termination (the 'severance
Period"), in accordance with the customary payroll practices of the Company.
<PAGE> 8
e. Change of Control. If the Employee's employment is terminated upon a
Change of Control as contemplated in Section 3(d), the Company shall have no
further payment obligations to the Employee or his legal representatives, other
than for (i) payment of, in a lump sum in cash within ten (10) days after the
Date of Termination, the Accrued Obligations; (ii) payment of the Accrued
Investments, which shall be payable in accordance with the terms and conditions
of the Investment Plans; (iii) payment of the Prorated Incentive Bonus, to be
paid in accordance with Section 2(b)(ii)(C); and (iv) payment of one-twelfth of
the sum of the Employee's Annual Base Salary on the Date of Termination and the
Annual Incentive Bonus for each month during the Severance Period, in
accordance with the customary payroll practices of the Company; provided,
however, that the payments contemplated in (iii) and (iv) above shall not be
made to the Employee if, following such Change of Control, Randall S. Fojtasek
continues to act in the capacity of President and Chief Executive Officer of
the Company.
5. RETENTION BONUS. Following a "Change of Control," as contemplated in
Section 3(d), if the Employee is employed by the Company in his current position
or in a more senior position, or by a subsidiary or other affiliate of the
Company in a position with authority, duties and responsibilities substantially
similar to or greater than those of his current position, on the 12-month
anniversary of the Change of Control, the Company shall pay the Employee a
retention bonus in the amount of $100,000. Nothing in this Section 5 shall be
deemed to give the Employee the right to be retained in the employ of the
Company or to restrict the right of the Company to terminate the Employee at any
time and for any reason, without Cause or for Cause or upon a Change of Control.
Nothing in this Section 5 shall be deemed to give the Company the right to
require the Employee to remain in the employ of the Company or to restrict the
Employee's right to terminate his employment at any time and for any reason,
without Good Reason or for Good Reason.
6. FULL SETTLEMENT, MITIGATION. In no event shall the Employee be obligated
to seek other employment or take any other action by way of mitigation of the
amounts payable to the Employee under any of the provisions of this Agreement
and such amounts shall not be reduced whether or not the Employee obtains other
employment. Neither the Employee nor the Company shall be liable to the other
party for any damages in addition to the amounts payable under Section 4 arising
out of the termination of the Employee's employment prior to the end of the
Employment Period; provided, however, that the Company shall be entitled to seek
damages from the Employee for any breach of Sections 7, 8, 9, 10 or 11 by the
Employee or for the Employee's criminal misconduct.
<PAGE> 9
7. CONFIDENTIAL INFORMATION.
a. The Employee acknowledges that the Company and its affiliates have
trade, business and financial secrets and other confidential and proprietary
information (collectively, the "Confidential Information"). "Confidential
Information" includes sales materials, technical information, processes and
compilations of information, records, specifications and information concerning
customers or venders, manuals relating to suppliers' products, customer lists,
information regarding methods of doing business, and the identity of suppliers.
"Confidential Information" shall not include information that is generally known
to other persons or entities who can obtain economic value from its disclosure
or use and information required to be disclosed by the Employee pursuant to a
subpoena or court order, or pursuant to a requirement of a governmental agency
or law of the United States of America or a state thereof or any governmental or
political subdivision thereof; provided, however, that the Employee shall take
all reasonable steps to prohibit disclosure pursuant to subsection (ii) above.
b. During and following the Employee's employment by the Company, the
Employee shall hold in confidence and not directly or indirectly disclose or
use or copy or make lists of any Confidential Information or proprietary data
of the Company or its affiliates except to the extent authorized in writing by
the Board or required by any court or administrative agency, other than to an
employee of the Company or its affiliates or a person to whom disclosure is
reasonably necessary or appropriate in connection with the performance by the
Employee of his duties as an employee of the Company.
c. The Employee further agrees not to use any Confidential Information
for the benefit of any person or entity other than the Company or its
affiliates.
d. As used in this Section 7, "Company" shall include Atrium Companies,
Inc. and any of its subsidiaries.
8. SURRENDER OF MATERIALS UPON TERMINATION. All records, files, documents and
materials, or copies thereof, relating to the Company's and its respective
affiliates' business which the Employee shall prepare, or use, or come into
contact with, shall be and remain the sole property of the Company or its
affiliates, as the case may be, and shall be returned promptly by the Employee
to the owner upon termination of the Employee's employment with the Company. As
used in this Section 8, "Company" shall include Atrium Companies, Inc. and any
of its subsidiaries.
9. SUCCESSORS. The Company may assign its rights and obligations under this
Agreement to any successor to all or substantially all the assets of the
Company, by merger or otherwise, subject, however, to the Employee's right to
terminate this Agreement for Good Reason as provided in Section 3(c), and may
assign or encumber this Agreement and its rights hereunder as security for
indebtedness of the Company and its affiliates. The Company shall require that
any successor agree to assume in writing the obligations of the Company
pursuant to this Agreement and the failure to secure such assumption on or
prior to the closing of any merger or similar transaction shall constitute Good
Reason under Section 3(c); provided, however, that nothing set forth in this
Section 9 shall be deemed to limit or otherwise affect in any way the right of
the Company or such successor to terminate the Employee's employment upon a
Change in Control as contemplated in Section 3(d). The rights of the Employee
under this Agreement may not be
<PAGE> 10
assigned or encumbered by the Employee, voluntarily or involuntarily, during
his lifetime, and any such purported assignment shall be void. However, all
rights of the Employee under this Agreement shall inure to the benefit of and
be enforceable by the Employee's personal or legal representatives, estates,
executors, administrators, heirs and beneficiaries. All amounts payable to the
Employee hereunder shall be paid, in the event of the Employee's death, to the
Employee's estate, heirs and representatives.
10. NON-COMPETITION.
a. The term of Non-Competition (herein so called) shall be for a term
beginning on the date hereof and continuing until (i) the first anniversary of
the Date of Termination if the Employee's employment is terminated by the
Company for Cause or due to Disability or by the Employee without Good Reason,
(ii) the Date of Termination if the Employee's employment is terminated by the
Company without Cause (and not due to Disability) or by the Employee for Good
Reason or (iii) the first anniversary of the last date of the Severance Period
if the Employee's employment is terminated upon a Change in Control.
b. During the term of Non-Competition, the Employee will not (other than
for the benefit of the Company or its affiliates pursuant to this Agreement)
directly or indirectly, individually or as an officer, director, employee,
shareholder, consultant, contractor, partner, joint venturer, agent, equity
owner or in any capacity whatsoever engage in the business of manufacturing,
marketing or distributing windows or doors or in any other business activity
that the Company is conducting on the Date of Termination or has notified the
Employee that it proposes to conduct in the United States (a "Competing
Business"), hire, attempt to hire, or contact or solicit with respect to hiring
any officer, employee or consultant of the Company or its affiliates, or divert
or take away any customers or suppliers of the Company or its affiliates.
Notwithstanding the foregoing, the Company agrees that the Employee may own less
than five percent of the outstanding voting securities of any publicly traded
company that is a Competing Business so long as the Employee does not otherwise
participate in such competing business in any way prohibited by the preceding
clause.
c. The Employee acknowledges that the geographic boundaries, scope of
prohibited activities, and time duration of the preceding paragraphs are
reasonable in nature and are no broader than are necessary to maintain the
goodwill of the Company and its affiliates and the confidentiality of its
Confidential Information, and to protect the other legitimate business
interests of the Company and its affiliates.
d. If any court determines that any portion of this Section 10 is invalid
or unenforceable, the remainder of this Section 10 shall not thereby be affected
and shall be given full effect without regard to the invalid provisions. If any
court construes any of the provisions of this Section 10, or any part thereof,
to be unreasonable because of the duration or scope of such provision, such
court shall have the power to reduce the duration or scope of such provision and
to enforce such provision as so reduced.
e. As used in this Section 10, "Company" shall include Atrium Companies,
Inc. and any of its subsidiaries.
<PAGE> 11
11. INVENTIONS; ASSIGNMENT. All rights to discoveries, inventions,
improvements and innovations (including all data and records pertaining thereto)
related to the Company's business, whether or not patentable, copyrightable,
registrable as a trademark, or reduced to writing, that the Employee may
discover, invent or originate during the Employment Period, and for a period of
twelve (12) months thereafter, either alone or with others and whether or not
during working hours or by the use of the facilities of the Company
("Inventions"), shall be the exclusive property of the Company. The Employee
shall promptly disclose all Inventions to the Company, shall execute at the
request of the Company any assignments or other documents the Company may deem
necessary to protect or perfect its rights therein, and shall assist the
Company, at the Company's expense, in obtaining, defending and enforcing the
Company's rights therein. The Employee hereby appoints the Company as his
attorney-in-fact to execute on his behalf any assignments or other documents
deemed necessary by the Company to protect or perfect its rights to any
Inventions. As used in this Section 11, "Company" shall include Atrium
Companies, Inc. and any of its subsidiaries.
2. MISCELLANEOUS.
a. Construction. This Agreement shall be deemed drafted equally by both
the parties. Its language shall be construed as a whole and according to its
fair meaning. Any presumption or principle that the language is to be construed
against any party shall not apply. The headings in this Agreement are only for
convenience and are not intended to affect construction or interpretation. Any
references to paragraphs, subparagraphs, sections or subsections are to those
parts of this Agreement, unless the context clearly indicates to the contrary.
Also, unless the context clearly indicates to the contrary, (a) the plural
includes the singular and the singular includes the plural; (b) "and" and "or"
are each used both conjunctively and disjunctively; (c) "any," "all," "each," or
"every" means "any and all", and "each and every"; (d) "includes" and
"including" are each "without limitation"; (e) "herein," "hereof," "hereunder"
and other similar compounds of the word "here" refer to the entire Agreement and
not to any particular paragraph, subparagraph, section or subsection; and (f)
all pronouns and any variations thereof shall be deemed to refer to the
masculine, feminine, neuter, singular or plural as the identity of the entities
or persons referred to may require.
b. Notices. All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Employee: Horace Hicks
1068 Greenwood Lane
Lewisville, Texas 75067
(972) 436-6231
<PAGE> 12
If to the Company: Atrium Companies, Inc.
1341 West Mockingbird Lane
Suite 1200W
Dallas, Texas 75247
Attention: Randall S. Fojtasek
Fax: (214) 631-4231
with a copy to:
Vinson & Elkins L.L.P.
3700 Trammel Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attention: Michael D. Wortley
Fax: (214) 220 -7716
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
a. Enforcement. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective during
the term of this Agreement, such provision shall be fully severable; this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a portion of this Agreement; and the
remaining provisions of this Agreement shall remain in full force and effect and
shall not be affected by the illegal, invalid or unenforceable provision or by
its severance from this Agreement. Furthermore, in lieu of such illegal, invalid
or unenforceable provision there shall be added automatically as part of this
Agreement a provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and enforceable.
b. Withholding. The Company shall be entitled to withhold from any
amounts payable under this Agreement any federal, state, local or foreign
withholding or other taxes or charges which it is from time to time required to
withhold. The Company shall be entitled to rely on an opinion of counsel if any
questions as to the amount or requirement of such withholding shall arise.
c. No Waiver No waiver by either party at any time of any breach by the
other party of, or compliance with, any condition or provision of this
Agreement to be performed by the other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at any time.
d. Equitable Relief. The Employee acknowledges that money damages would
be both incalculable and an insufficient remedy for a breach of Section 7, 8, 9,
10 or 11 by the Employee and that any such breach would cause the Company
irreparable harm. Accordingly, the Company, in addition to any other remedies at
law or in equity it may have, shall be entitled, without the requirement of
posting of bond or other security, to equitable relief, including injunctive
relief and specific performance, in connection with a breach of Section 7, 8, 9,
10 or 11 by the Employee.
<PAGE> 13
e. Complete Agreement. The provisions of this Agreement constitute the
entire and complete understanding and agreement between the parties with
respect to the subject matter hereof, and supersedes all prior and
contemporaneous oral and written agreements, representations and understandings
between the Employee and the Company, or its affiliates and subsidiaries,
including the Employment Agreement made as of January 1, 1995, by and between
Fojtasek Companies, Inc. and Horace Hicks, which are hereby terminated. Other
than expressly set forth herein, the Employee and the Company acknowledge and
represent that there are no other promises, terms, conditions or
representations (oral or written) regarding any matter relevant hereto. This
Agreement may be executed in two or more counterparts. Notwithstanding any
other provision set forth in this Agreement, the Employee hereby acknowledges
and agrees that Atrium Corporation, the Company's sole stockholder, and each of
the Company's subsidiaries are intended third party beneficiaries of this
Section 12(g), and each of them shall be entitled to rely on the
acknowledgments and agreements of the Employee made in this Section 12(g) to
the same extent as if they were parties to this Agreement.
f. Arbitration. The Company and the Employee agree to the resolution by
binding arbitration of all claims, demands, causes of action, disputes,
controversies or other matters in question ("claims"), whether or not arising
out of this Agreement or the Employee's employment (or its termination),
whether sounding in contract, tort or otherwise and whether provided by statute
or common law, that the Company may have against the Employee or that the
Employee may have against the Company or its parents, subsidiaries and
affiliates, and each of the foregoing entities' respective officers, directors,
employees or agents in their capacity as such or otherwise; except that this
agreement to arbitrate shall not limit the Company's right to seek equitable
relief, including injunctive relief and specific performance, and damages in a
court of competent jurisdiction for an alleged breach of Sections 7, 8, 9, 10
or 11 of this Agreement. Claims covered by this agreement to arbitrate also
include claims by the Employee for breach of this Agreement, wrongful
termination, discrimination (based on age, race, sex, disability, national
origin or any other factor) and retaliation. In the event of any breach of
this Agreement by the Company, it is expressly agreed that notwithstanding any
other provision of this Agreement, the only damages to which Employee shall be
entitled is lost compensation and benefits in accordance with Section 2(b) or
4. The Company and the Employee agree that any arbitration shall be in
accordance with the Federal Arbitration Act ("FAA") and, to the extent an issue
is not addressed by the FAA, with the then-current National Rules for the
Resolution of Employment Disputes of the American Arbitration Association
("AAA"). If a party refuses to honor its obligations under this agreement to
arbitrate, the other party may compel arbitration in either federal or state
court. The arbitrator shall apply the substantive law of the State of Texas
(excluding Texas choice-of-law principles that might call for the application
of some other state's law), or federal law, or both as applicable to the claims
asserted. The arbitrator shall have exclusive authority to resolve any dispute
relating to the interpretation, applicability, enforceability or formation of
this agreement to arbitrate, including any claim that all or part of this
Agreement is void or voidable and any claim that an issue is not subject to
arbitration. The parties agree that venue for arbitration will be in Dallas,
Texas, and that any arbitration commenced in any other venue will be
transferred to Dallas, Texas, upon the written request of any party to this
Agreement. In the event that an arbitration is actually conducted pursuant to
this Section 12(h), the party in whose favor the Arbitrator renders the award
shall be entitled to have and recover from the other party all costs and
expenses incurred including reasonable attorneys' fees, expert witness fees,
and costs actually incurred. Any and all of the arbitrator's orders, decisions
and awards may be enforceable in, and judgment upon any award rendered by
<PAGE> 14
the arbitrator may be confirmed and entered by, any federal or state court
having jurisdiction. All proceedings conducted pursuant to this agreement to
arbitrate, including any order, decision or award of the arbitrator, shall be
kept confidential by all parties.
g. Survival. Sections 7, 8, 9, 10, 11 and 12 of this Agreement shall
survive the termination of this Agreement.
h. Choice of Law. This Agreement and the rights and obligations
hereunder shall be governed by and construed in accordance with the laws of the
State of Texas without reference to principles of conflicts of law of Texas or
any other jurisdiction, and, where applicable, the laws of the United States.
i. Amendment. This Agreement may not be amended or modified at any time
except by a written instrument approved by the Board and executed by the
Company and the Employee.
j. Employee Acknowledgment. Employee acknowledges that he has read and
understands this Agreement, is fully aware of its legal effect, has not acted
in reliance upon any representations or promises made by the Company other than
those contained in writing herein, and has entered into this Agreement freely
based on his own judgment.
IN WITNESS WHEREOF, the Employee has hereunto set the Employee's hand
and, pursuant to the authorization from the Board, the Company has caused this
Agreement to be executed in its name on its behalf, on this 1st day of January,
1998, to be effective as of the day and year first above written.
EMPLOYEE
/s/ HORACE HICKS
------------------------------
Horace Hicks
ATRIUM COMPANIES, INC.
By: /s/ RANDALL S. FOJTASEK
---------------------------
Randall S. Fojtasek
President
<PAGE> 15
EXHIBIT A
Seventy-five percent (75%) of the Employee's Incentive Bonus ("EBITDA
Bonus") shall be payable based upon achievement of the following targets:
o If HR Windows achieves 80% of its budgeted EBITDA, the Employee shall
receive 50% of the EBITDA Bonus;
o If HR Windows achieves 90% of its budgeted EBITDA, the Employee shall
receive 75% of the EBITDA Bonus;
o If HR Windows achieves 100% of its budgeted EBITDA, the Employee shall
receive 100% of the EBITDA Bonus; and
o If HR Windows achieves 110% of its budgeted EBITDA, the Employee shall
receive 125% of the EBITDA Bonus.
The EBITDA Bonus will be paid on a sliding scale and on a prorata basis.
For example, if 95% of the budgeted EBITDA is achieved, the Employee is
entitled to 87.5% of the EBITDA Bonus. No EBITDA Bonus will be paid if HR
Windows achieves less than 80% of the budgeted EBITDA.
The remaining twenty-five percent (25%) of the Employee's Incentive Bonus
shall be payable based upon achievement of the following targets:
o If HR Windows meets its performance targets with respect to Accounts
Receivable Days, then the Employee shall be entitled to receive 5% of the
Employee's Incentive Bonus.
o If HR Windows meets its performance targets with respect to Accounts
Payable Days, then the Employee shall be entitled to receive 5% of the
Employee's Incentive Bonus.
o If HR Windows meets its performance targets with respect to Inventory, then
the Employee shall be entitled to receive 5% of the Employee's Incentive
Bonus.
o If HR Windows meets its performance targets with respect to Fixed Assets,
then the Employee shall be entitled to receive 5% of the Employee's
Incentive Bonus.
o If HR Windows meets its performance targets with respect to Lost Work Days,
then the Employee shall be entitled to receive 5% of the Employee's
Incentive Bonus.
These parts of the Employee's Incentive Bonus shall not be paid on a
sliding scale or prorata basis.
<PAGE> 16
EXHIBIT B
<TABLE>
<CAPTION>
CRITERIA 1998 TARGET 1997 ACTUAL
-------- ----------- -----------
<S> <C> <C>
Budgeted EBITDA $5,861,894 $5,560,252
Number of Days Accounts Receivable
Outstanding 36.3 (or less) 38.2
Number of Days Accounts Payable
Outstanding 39.8 (or more) 38.9
Number of Inventory Turns 9.00 (or more) 8.6
Number of Fixed Assets Turns 65.0 (or more) 64.2
Number of Lost Days Due to Work
Injuries 72 (or less) 80
</TABLE>
APPROVED:
/s/ HORACE HICKS JANUARY 1, 1998
- ------------------------------- -----------------
Horace Hicks Date
/s/ RANDALL S. FOJTASEK JANUARY 1, 1998
- ------------------------------- -----------------
Randall S. Fojtasek Date
/s/ JEFF L. HULL JANUARY 1, 1998
- ------------------------------- -----------------
Jeff L. Hull Date
<PAGE> 1
EXHIBIT 10.13
EMPLOYMENT AGREEMENT BETWEEN THE COMPANY AND LOUIS W. SIMI, JR.
DATED JANUARY 1, 1998
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into, with
an effective date of January 1, 1998, by and between Atrium Companies, Inc., a
Delaware corporation (together with its successors and assigns permitted
hereunder, the "Company"), and Louis W. Simi (the "Employee").
RECITALS
A. The Board of Directors of the Company (the "Board") has determined
that it is in the best interests of the Company and its stockholders to employ
the Employee on the terms and conditions set forth herein.
AGREEMENTS
NOW, THEREFORE, in consideration of the respective agreements and covenants
set forth herein and other good and valuable consideration, the receipt of which
is hereby acknowledged, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. EMPLOYMENT PERIOD. Subject to Section 3, the Company hereby agrees to
employ the Employee, and the Employee hereby agrees to be employed by the
Company in accordance with the terms and provisions of this Agreement, for a
period (the "Employment Period") commencing on the date herein and ending on
the third anniversary of such date. Neither party is under any obligation to
extend or renew this Agreement. Any new employment agreement shall only be
effective after having been reduced to writing and executed by both parties
hereto. In the event Employee continues to perform services after the
Employment Period, and pending execution of a new employment agreement, if any,
such services shall constitute employment for an unspecified term, terminable
at will, with or without cause or reason, with or without advance notice, and
with or without pay in lieu of advance notice.
2. TERMS OF EMPLOYMENT.
a. Position and Duties.
i. During the term of the Employee's employment, the Employee shall
serve as Executive Vice President of the Company and President of Atrium Door
and Window Company, and, in so doing, shall perform the normal duties and
responsibilities associated with such position, subject to the general
direction, approval and control of President and Chief Executive Officer of the
Company.
<PAGE> 2
ii. During the term of the Employee's employment, and excluding any
periods of vacation and other leave to which the Employee is entitled, the
Employee agrees to devote his full business time to the business and affairs of
the Company and to use the Employee's best efforts to perform faithfully,
effectively and efficiently his duties and responsibilities.
iii. During the term of the Employee's employment it shall not be a
violation of this Agreement for the Employee to serve on corporate, civic or
charitable boards or committees, deliver lectures or fulfill speaking
engagements and manage personal investments, so long as such activities do not
interfere with the performance of the Employee's duties and responsibilities as
an employee of the Company.
iv. Employee agrees to observe and comply with the Company's rules
and policies as adopted by the Company from time to time.
b. Compensation.
i. Base Salary. During the term of the Employee's employment, the
Employee shall receive an annual base salary ("Annual Base Salary"), which shall
be paid in accordance with the customary payroll practices of the Company, in an
amount equal to $170,000. The Board, in its discretion, may at any time increase
the amount of the Annual Base Salary to such greater amount as it may deem
appropriate, and the term "Annual Base Salary," as used in this Agreement, shall
refer to the Annual Base Salary as it may be so increased. It is understood that
the Company may, at any time, in the discretion of the Board, increase, but not
decrease, the amount of the Annual Base Salary.
ii. Incentive Bonus. Subject to the other terms and conditions of
this Agreement and as further compensation for the performance of his services
hereunder, during the term of his employment under this Agreement, the Employee
shall be eligible to receive an annual incentive bonus (the "Incentive Bonus")
in accordance with the Bonus Structure, attached hereto as Exhibit A.
(A) Targets. Prior to the end of each calendar year, the Board's
Compensation Committee shall approve the performance targets (the
"Targets") upon which the Employee's Incentive Bonus for the following
year will be based with respect to each of the criteria described in
the Bonus Structure, except that the Targets for 1998 have been
approved by the Board's Compensation Committee as of the date hereof.
The Targets for 1998 are as described in Exhibit B, which is hereby
incorporated as part of this Agreement. The Targets for each of such
criteria in each subsequent calendar year shall, after approval by the
Board's Compensation Committee, be attached hereto as Exhibit B as a
substitute for the previous years' Targets, and shall become a part of
this Agreement for such calendar year.
(B) Amount and Calculation. Should the Employee achieve 100% of
the Targets, the Incentive Bonus shall be $120,000 (the "Base
Incentive Bonus"). A lesser or greater Incentive Bonus will result
should the Employee achieve
<PAGE> 3
less or more than 100% of the Targets, but in any event, the maximum
Incentive Bonus that the Employee shall be eligible to receive is
$142,500, such amount to be determined in accordance with the terms of
Exhibit A hereto. The Employee understands and agrees that he is not
guaranteed an Incentive Bonus and that the amount of Incentive Bonus,
if any, is dependent on his achieving one or more of the Targets for
the criteria set forth in the Bonus Structure. In this regard, should
the Employee fail to achieve any of such Targets, the Employee shall
not be entitled to an Incentive Bonus for the applicable period.
"EBITDA," as used in this Agreement and the Bonus Structure for any
calendar year, shall mean the earnings before income tax, depreciation
and amortization for such year, as determined in accordance with
generally accepted accounting principles by the certified public
accountants regularly engaged by the Company. The determination of
the Company's regularly engaged public accountants shall be final and
conclusive on the parties hereto.
(C) Time of Payment. The Incentive Bonus shall be paid to the
Employee on or before March 15th of the calendar year immediately
following the year with respect to which the calculation of the
Incentive Bonus is made. Payment of the Incentive Bonus shall be
accompanied by a copy of the calculation on which the Incentive Bonus
is based.
iii. Incentive, Savings, Stock Option and Retirement Plans. During
the term of the Employee's employment, the Employee shall be entitled to
participate in all incentive, savings, stock option and retirement plans,
practices, policies and programs applicable generally to other employees of the
Company ("Investment Plans"), as amended from time to time.
iv. Welfare Benefit Plans. During the term of the Employee's
employment, the Employee and/or the Employee's family, as the case may be, shall
be eligible for participation in and shall receive all benefits under the
welfare benefit plans, practices, policies and programs ("Welfare Plans")
provided by the Company (including medical, prescription, dental, disability,
salary continuance, employee life, group life, accidental death and travel
accident insurance plans and programs), as amended from time to time, to the
extent applicable generally to other employees of the Company. In the event that
Gay Ellis Simi does not qualify for coverage under the Company's medical plan,
the Company shall pay to the Employee, as additional compensation, the cost for
coverage of Gay Ellis Simi as if she did qualify for coverage under the
Company's medical plan.
v. Perquisites. During the term of the Employee's employment, the
Employee shall be entitled to receive (in addition to the benefits described
above) such perquisites and fringe benefits appertaining to his position in
accordance with any policies, practices and procedures established by the
Board, as amended from time to time.
vi. Payment of Certain Expenses by the Company. The Company hereby
agrees to pay certain expenses incurred by the Employee (including, but not
limited to, the Employee's American Express credit card statements, country club
statements, and gasoline credit card statements) which have been approved in
writing by the Company. To the extent that the Employee does not furnish an
itemized list of such expenditures (in such form as required by the Company for
reimbursement of expenses incurred in carrying out his duties hereunder), then
such amount not itemized during any fiscal year of the Company shall be set-off
against the
<PAGE> 4
Employee's Incentive Bonus, if any. In the event the Employee does not earn an
Incentive Bonus for any applicable period in an amount in excess of
non-itemized expenditures, then such non-itemized expenditures in excess of the
Incentive Bonus shall be treated as additional compensation of the Employee.
Payments by the Company pursuant to this Section 2(b)(vi) shall not exceed
Twenty-Five Thousand and No/100 Dollars ($25,000) during any fiscal year of the
Company.
vii. Automobile. The Company recognizes the Employee's need for an
automobile for business purposes. The Company shall provide the Employee with
an automobile, including all related maintenance, repairs, insurance and other
costs. At the Employee's request, a new automobile shall be purchased for the
Employee's use when the automobile that the Company is presently providing to
the Employee has either: (i) been in service for three years, or (ii) exceeded
75,000 miles. The Company's cost for a new automobile for the Employee shall
not exceed Twenty-Five Thousand and No/100 Dollars ($25,000.00) excluding sales
tax.
viii. Vacation. During the term of the Employee's employment, the
Employee shall be entitled to four (4) weeks paid vacation each calendar year.
Any vacation shall be taken at the reasonable and mutual convenience of the
Company and the Employee. Accrued vacation not taken in any calendar year will
not be carried forward or used in any subsequent calendar year and the Employee
shall not be entitled to receive pay in lieu of accrued but unused vacation in
any calendar year.
c. Key-Man Insurance. At any time during the Employment Period, the
Company shall have the right to insure the life of the Employee for the
Company's sole benefit, and to determine the amount of insurance and the type of
policy. The Employee shall cooperate with the Company in taking out such
insurance by submitting to physical examinations, by supplying all information
required by the insurance company, and by executing all necessary documents. The
Employee shall incur no financial obligation by executing any required document,
and shall have no interest in any such policy.
3. TERMINATION OF EMPLOYMENT.
a. Death or Disability. The Employee's employment shall terminate
automatically upon the Employee's death during the Employment Period. If the
Disability (as defined below) of the Employee has occurred during the
Employment Period, the Company may give to the Employee written notice in
accordance with Section 12(b) of its intention to terminate the Employee's
employment. In such event, the Employee's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the
Employee (the "Disability Effective Date"), if, within the 30 days after such
receipt, the Employee shall not have returned to perform, with or without
reasonable accommodation, the essential functions of his position. For
purposes of this Agreement, "Disability" shall mean the Employee's inability to
perform, with or without reasonable accommodations, the essential functions of
his position hereunder for a period of 120 days, consecutive or
non-consecutive, in any 12-month period due to mental or physical incapacity,
as determined by a physician selected by the Company or its insurers and
acceptable to the Employee or the Employee's legal representative, such
agreement as to acceptability not to be unreasonably withheld or delayed. Any
refusal by Employee to submit to a medical examination for the purpose of
determining Disability under this Section 3(a) shall be deemed to constitute
conclusive evidence of Employee's Disability.
<PAGE> 5
b. Cause or Without Cause. The Company may terminate the Employee's
employment during the Employment Period for Cause or without Cause. For
purposes of this Agreement, "Cause" shall mean a breach by the Employee of the
Employee's obligations under Section 2(a) (other than as a result of physical
or mental incapacity) which constitutes a continued material nonperformance by
the Employee of his obligations and duties thereunder, as determined by the
Board, and which is not remedied within 30 days after receipt of written notice
from the Company specifying such breach; commission by the Employee of an act
of fraud, embezzlement, misappropriation, willful misconduct or breach of
fiduciary duty against the Company, as reasonably determined by a majority of
the members of the Board after a hearing by the Board following ten days'
notice to the Employee of such hearing; a material breach by the Employee of
Sections 7, 8, 9, 10, or 11; the Employee's conviction, plea of no contest or
nolo contendere, or unadjudicated probation for any felony or crime involving
moral turpitude; the failure of the Employee to carry out, or comply with, in
any material respect any lawful directive of the Board consistent with the
terms of this Agreement, which is not remedied within 30 days after receipt of
written notice from the Company specifying such failure; or (vi) the Employee's
unlawful use (including being under the influence) or possession of illegal
drugs on the Company's premises or while performing the Employee's duties and
responsibilities under this Agreement. The Company may suspend the Employee's
title and authority pending the hearing provided for in clause (ii) above, and
such suspension shall not constitute "Good Reason" as defined below. For
purposes of this Agreement, "without Cause" shall mean a termination by the
Company of the Employee's employment during the Employment Period for any
reason other than a termination based upon Cause, death, Disability or upon a
Change of Control, as defined below.
c. Good Reason. The Employee's employment may be terminated during the
Employment Period by the Employee for Good Reason or without Good Reason;
provided, however, that the Employee agrees not to terminate his employment for
Good Reason unless (i) the Employee has given the Company at least 30 days'
prior written notice of his intent to terminate his employment for Good Reason,
which notice shall specify the facts and circumstances constituting Good
Reason, and (ii) the Company has not remedied such facts and circumstances
constituting Good Reason within such 30-day period. For purposes of this
Agreement, "Good Reason" shall mean:
i. any significant reduction, approved by the Board without the
Employee's consent, in the Employee's position, authority, duties or
responsibilities as contemplated in Section 2(a) or any other action by the
Company which results in a material diminution in such position, authority,
duties or responsibilities, excluding for this purpose an inadvertent action not
taken in bad faith and which is remedied by the Company promptly after receipt
of written notice thereof given by the Employee.
ii. any termination or material reduction of a material benefit under
any Investment Plan or Welfare Plan in which the Employee participates unless
(A) there is substituted a comparable benefit that is economically substantially
equivalent to the terminated or reduced benefit prior to such termination or
reduction or (B) benefits under such Investment Plan or Welfare Plan are
terminated or reduced with respect to all employees previously granted benefits
thereunder;
<PAGE> 6
iii. any failure by the Company to comply with any of the provisions
of Section 2(b), other than an inadvertent failure not occurring in bad faith
and which is remedied by the Company promptly after receipt of written notice
thereof given by the Employee;
iv. without limiting the generality of the foregoing, any material
breach by the Company or any of its subsidiaries or other affiliates (as defined
below) of (A) this Agreement or (B) any other agreement between the Employee and
the Company or any such subsidiary or other affiliate; or
v. the Company's requirement that the Employee's ongoing and regular
duties and responsibilities be performed in a location other than the
Dallas/Fort Worth Metroplex area, except for travel reasonably required in the
performance of the Employee's duties and responsibilities.
As used in this Agreement, "affiliate" means, with respect to a
person, any other person controlling, controlled by or under common control
with the first person; the term "control," and correlative terms, means the
power, whether by contract, equity ownership or otherwise, to direct the
policies or management of a person; and "person" means an individual,
partnership, corporation, limited liability company, trust or unincorporated
organization, or a government or agency or political subdivision thereof.
b. Change of Control. If a Change of Control occurs during the
Employment Period and the Board determines in good faith that it is in the
Company's best interest to terminate the Employee's employment with the Company,
within 90 days of such Change of Control the Company may terminate the
Employee's employment by giving the Employee written notice in accordance with
Section 12(b) of its intention to terminate the Employee's employment. Any such
termination by the Company as contemplated in this Section 3(d) is referred to
herein as a termination "upon a Change of Control." For purposes of this
Agreement, "Change of Control" shall have the meaning given to such term in the
Atrium Corporation 1996 Stock Option Plan, as such Plan may be amended from time
to time.
c. Notice of Termination. Any termination by the Company for Cause or
without Cause or upon a Change of Control, or by the Employee for Good Reason
or without Good Reason, shall be communicated by Notice of Termination to the
other party hereto given in accordance with Section 12(b). For purposes of
this Agreement, a "Notice of Termination" means a written notice which
indicates the specific termination provision in this Agreement relied upon, to
the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Employee's
employment under the provision so indicated and if the Date of Termination (as
defined below) is other than the date of receipt of such notice, specifies the
termination date (which date shall not be more than 15 days after the giving of
such notice). The failure by the Employee or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing
of Good Reason or Cause or a termination upon a Change of Control shall not
waive any right of the Employee or the Company hereunder or preclude the
Employee or the Company from asserting such fact or circumstance in enforcing
the Employee's or the Company's rights hereunder.
d. Date of Termination. "Date of Termination" means if the Employee's
employment is terminated by the Company for Cause or upon a Change of Control,
or by the
<PAGE> 7
Employee for Good Reason or without Good Reason, the date of receipt of the
Notice of Termination or any later date specified therein pursuant to Section
3(e), as the case may be, if the Employee's employment is terminated by the
Company other than for Cause or upon a Change of Control, the date on which the
Company notifies the Employee of such termination and if the Employee's
employment is terminated by reason of death or Disability, the date of death of
the Employee or the Disability Effective Date, as the case may be.
4. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
a. For Cause; Without Good Reason; Other Than for Death, Disability or
Upon a Change of Control. If, during the Employment Period, the Company shall
terminate the Employee's employment for Cause or the Employee shall terminate
his employment without Good Reason, and the termination of the Employee's
employment in any case is not due to his death or Disability or upon a Change of
Control, the Employee shall forfeit all rights to the Incentive Bonus otherwise
due to him or to which he may be entitled, and the Company shall have no further
payment obligations to the Employee or his legal representatives, other than for
the payment of: (i) in a lump sum in cash within ten (10) days after the Date of
Termination the sum of the Employee's Annual Base Salary through the Date of
Termination to the extent not theretofore paid, any compensation previously
deferred by the Employee (together with any accrued interest or earnings
thereon) and any accrued vacation pay (collectively, the "Accrued Obligations");
and (ii) any amount arising from the Employee's participation in, or benefits
under, any Investment Plans (the "Accrued Investments"), which amounts shall be
payable in accordance with the terms and conditions of such Investment Plans.
i. Death. If the Employee's employment is terminated by reason of
the Employee's death during the Employment Period, the Company shall have no
further payment obligations to the Employee or his legal representatives, other
than for payment of: in a lump sum in cash within ten (10) days after the Date
of Termination the Accrued Obligations; the Accrued Investments, which shall be
payable in accordance with the terms and conditions of the Investment Plans; and
the Incentive Bonus prorated from the first day of the Company's then-current
fiscal year to the Date of Termination (the "Prorated Incentive Bonus"), to be
paid in accordance with Section 2(b)(ii)(C).
ii. Disability. If the Employee's employment is terminated by reason
of the Employee's Disability during the Employment Period, the Company shall
have no further payment obligations to the Employee or his legal
representatives, other than for payment of: in a lump sum in cash within ten
(10) days after the Date of Termination the Accrued Obligations; the Accrued
Investments, which shall be payable in accordance with the terms and conditions
of the Investment Plans; and the Prorated Incentive Bonus, to be paid in
accordance with Section 2(b)(ii)(C).
iii. Without Cause or for Good Reason. If the Employee's employment
is terminated by the Company without Cause or by the Employee for Good Reason,
the Company shall have no further payment obligations to the Employee or his
legal representatives, other than for: (i) payment of, in a lump sum in cash
within ten (10) days after the Date of Termination, the Accrued Obligations;
(ii) payment of the Accrued Investments, which shall be payable in accordance
with the terms and conditions of the Investment Plans; (iii) payment of the
Prorated Incentive Bonus, to be paid in accordance with Section 2(b)(ii)(C) and
(iv) payment of
<PAGE> 8
one-twelfth of the sum of the Employee's Annual Base Salary on the Date of
Termination and the Annual Incentive Bonus for each month during a period of
twelve (12) months following the Date of Termination (the 'severance Period"),
in accordance with the customary payroll practices of the Company.
iv. Change of Control. If the Employee's employment is terminated
upon a Change of Control as contemplated in Section 3(d), the Company shall have
no further payment obligations to the Employee or his legal representatives,
other than for (i) payment of, in a lump sum in cash within ten (10) days after
the Date of Termination, the Accrued Obligations; (ii) payment of the Accrued
Investments, which shall be payable in accordance with the terms and conditions
of the Investment Plans; (iii) payment of the Prorated Incentive Bonus, to be
paid in accordance with Section 2(b)(ii)(C); and (iv) payment of one-twelfth of
the sum of the Employee's Annual Base Salary on the Date of Termination and the
Annual Incentive Bonus for each month during the Severance Period, in accordance
with the customary payroll practices of the Company; provided, however, that the
payments contemplated in (iii) and (iv) above shall not be made to the Employee
if, following such Change of Control, Randall S. Fojtasek continues to act in
the capacity of President and Chief Executive Officer of the Company.
5. RETENTION BONUS. Following a "Change of Control," as contemplated in
Section 3(d), if the Employee is employed by the Company in his current position
or in a more senior position, or by a subsidiary or other affiliate of the
Company in a position with authority, duties and responsibilities substantially
similar to or greater than those of his current position, on the 12-month
anniversary of the Change of Control, the Company shall pay the Employee a
retention bonus in the amount of $125,000. Nothing in this Section 5 shall be
deemed to give the Employee the right to be retained in the employ of the
Company or to restrict the right of the Company to terminate the Employee at any
time and for any reason, without Cause or for Cause or upon a Change of Control.
Nothing in this Section 5 shall be deemed to give the Company the right to
require the Employee to remain in the employ of the Company or to restrict the
Employee's right to terminate his employment at any time and for any reason,
without Good Reason or for Good Reason.
6. FULL SETTLEMENT, MITIGATION. In no event shall the Employee be obligated
to seek other employment or take any other action by way of mitigation of the
amounts payable to the Employee under any of the provisions of this Agreement
and such amounts shall not be reduced whether or not the Employee obtains other
employment. Neither the Employee nor the Company shall be liable to the other
party for any damages in addition to the amounts payable under Section 4 arising
out of the termination of the Employee's employment prior to the end of the
Employment Period; provided, however, that the Company shall be entitled to seek
damages from the Employee for any breach of Sections 7, 8, 9, 10 or 11 by the
Employee or for the Employee's criminal misconduct.
<PAGE> 9
7. CONFIDENTIAL INFORMATION.
a. The Employee acknowledges that the Company and its affiliates have
trade, business and financial secrets and other confidential and proprietary
information (collectively, the "Confidential Information"). "Confidential
Information" includes sales materials, technical information, processes and
compilations of information, records, specifications and information concerning
customers or venders, manuals relating to suppliers' products, customer lists,
information regarding methods of doing business, and the identity of suppliers.
"Confidential Information" shall not include information that is generally known
to other persons or entities who can obtain economic value from its disclosure
or use and information required to be disclosed by the Employee pursuant to a
subpoena or court order, or pursuant to a requirement of a governmental agency
or law of the United States of America or a state thereof or any governmental or
political subdivision thereof; provided, however, that the Employee shall take
all reasonable steps to prohibit disclosure pursuant to subsection (ii) above.
b. During and following the Employee's employment by the Company, the
Employee shall hold in confidence and not directly or indirectly disclose or
use or copy or make lists of any Confidential Information or proprietary data
of the Company or its affiliates except to the extent authorized in writing by
the Board or required by any court or administrative agency, other than to an
employee of the Company or its affiliates or a person to whom disclosure is
reasonably necessary or appropriate in connection with the performance by the
Employee of his duties as an employee of the Company.
c. The Employee further agrees not to use any Confidential Information
for the benefit of any person or entity other than the Company or its
affiliates.
d. As used in this Section 7, "Company" shall include Atrium Companies,
Inc. and any of its subsidiaries.
8. SURRENDER OF MATERIALS UPON TERMINATION. All records, files, documents and
materials, or copies thereof, relating to the Company's and its respective
affiliates' business which the Employee shall prepare, or use, or come into
contact with, shall be and remain the sole property of the Company or its
affiliates, as the case may be, and shall be returned promptly by the Employee
to the owner upon termination of the Employee's employment with the Company. As
used in this Section 8, "Company" shall include Atrium Companies, Inc. and any
of its subsidiaries.
9. SUCCESSORS. The Company may assign its rights and obligations under this
Agreement to any successor to all or substantially all the assets of the
Company, by merger or otherwise, subject, however, to the Employee's right to
terminate this Agreement for Good Reason as provided in Section 3(c), and may
assign or encumber this Agreement and its rights hereunder as security for
indebtedness of the Company and its affiliates. The Company shall require that
any successor agree to assume in writing the obligations of the Company
pursuant to this Agreement and the failure to secure such assumption on or
prior to the closing of any merger or similar transaction shall constitute Good
Reason under Section 3(c); provided, however, that nothing set forth in this
Section 9 shall be deemed to limit or otherwise affect in any way the right of
the Company or such successor to terminate the Employee's employment upon a
Change in Control as contemplated in Section 3(d). The rights of the Employee
under this Agreement may not be
<PAGE> 10
assigned or encumbered by the Employee, voluntarily or involuntarily, during
his lifetime, and any such purported assignment shall be void. However, all
rights of the Employee under this Agreement shall inure to the benefit of and
be enforceable by the Employee's personal or legal representatives, estates,
executors, administrators, heirs and beneficiaries. All amounts payable to the
Employee hereunder shall be paid, in the event of the Employee's death, to the
Employee's estate, heirs and representatives.
10. NON-COMPETITION.
a. The term of Non-Competition (herein so called) shall be for a term
beginning on the date hereof and continuing until (i) the first anniversary of
the Date of Termination if the Employee's employment is terminated by the
Company for Cause or due to Disability or by the Employee without Good Reason,
(ii) the Date of Termination if the Employee's employment is terminated by the
Company without Cause (and not due to Disability) or by the Employee for Good
Reason or (iii) the first anniversary of the last date of the Severance Period
if the Employee's employment is terminated upon a Change in Control.
b. During the term of Non-Competition, the Employee will not (other than
for the benefit of the Company or its affiliates pursuant to this Agreement)
directly or indirectly, individually or as an officer, director, employee,
shareholder, consultant, contractor, partner, joint venturer, agent, equity
owner or in any capacity whatsoever engage in the business of manufacturing,
marketing or distributing windows or doors or in any other business activity
that the Company is conducting on the Date of Termination or has notified the
Employee that it proposes to conduct in the United States (a "Competing
Business"), hire, attempt to hire, or contact or solicit with respect to hiring
any officer, employee or consultant of the Company or its affiliates, or divert
or take away any customers or suppliers of the Company or its affiliates.
Notwithstanding the foregoing, the Company agrees that the Employee may own less
than five percent of the outstanding voting securities of any publicly traded
company that is a Competing Business so long as the Employee does not otherwise
participate in such competing business in any way prohibited by the preceding
clause.
c. The Employee acknowledges that the geographic boundaries, scope of
prohibited activities, and time duration of the preceding paragraphs are
reasonable in nature and are no broader than are necessary to maintain the
goodwill of the Company and its affiliates and the confidentiality of their
Confidential Information, and to protect the other legitimate business
interests of the Company and its affiliates.
d. If any court determines that any portion of this Section 10 is invalid
or unenforceable, the remainder of this Section 10 shall not thereby be affected
and shall be given full effect without regard to the invalid provisions. If any
court construes any of the provisions of this Section 10, or any part thereof,
to be unreasonable because of the duration or scope of such provision, such
court shall have the power to reduce the duration or scope of such provision and
to enforce such provision as so reduced.
e. As used in this Section 10, "Company" shall include Atrium Companies,
Inc. and any of its subsidiaries.
<PAGE> 11
11. INVENTIONS; ASSIGNMENT. All rights to discoveries, inventions,
improvements and innovations (including all data and records pertaining thereto)
related to the Company's business, whether or not patentable, copyrightable,
registrable as a trademark, or reduced to writing, that the Employee may
discover, invent or originate during the Employment Period, and for a period of
twelve (12) months thereafter, either alone or with others and whether or not
during working hours or by the use of the facilities of the Company
("Inventions"), shall be the exclusive property of the Company. The Employee
shall promptly disclose all Inventions to the Company, shall execute at the
request of the Company any assignments or other documents the Company may deem
necessary to protect or perfect its rights therein, and shall assist the
Company, at the Company's expense, in obtaining, defending and enforcing the
Company's rights therein. The Employee hereby appoints the Company as his
attorney-in-fact to execute on his behalf any assignments or other documents
deemed necessary by the Company to protect or perfect its rights to any
Inventions. As used in this Section 11, "Company" shall include Atrium
Companies, Inc. and any of its subsidiaries.
12. MISCELLANEOUS.
a. Construction. This Agreement shall be deemed drafted equally by both
the parties. Its language shall be construed as a whole and according to its
fair meaning. Any presumption or principle that the language is to be construed
against any party shall not apply. The headings in this Agreement are only for
convenience and are not intended to affect construction or interpretation. Any
references to paragraphs, subparagraphs, sections or subsections are to those
parts of this Agreement, unless the context clearly indicates to the contrary.
Also, unless the context clearly indicates to the contrary, (a) the plural
includes the singular and the singular includes the plural; (b) "and" and "or"
are each used both conjunctively and disjunctively; (c) "any," "all," "each," or
"every" means "any and all", and "each and every"; (d) "includes" and
"including" are each "without limitation"; (e) "herein," "hereof," "hereunder"
and other similar compounds of the word "here" refer to the entire Agreement and
not to any particular paragraph, subparagraph, section or subsection; and (f)
all pronouns and any variations thereof shall be deemed to refer to the
masculine, feminine, neuter, singular or plural as the identity of the entities
or persons referred to may require.
b. Notices. All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Employee: Louis W. Simi, Jr.
2901 Hickory Hill
Colleyville, Texas 76034
(817) 267-8298
If to the Company: Atrium Companies, Inc.
1341 West Mockingbird Lane
Suite 1200W
Dallas, Texas 75247
Attention: Randall S. Fojtasek
Fax: (214) 631-4231
<PAGE> 12
with a copy to:
Vinson & Elkins L.L.P.
3700 Trammel Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attention: Michael D. Wortley
Fax: (214) 220 -7716
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
a. Enforcement. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective during
the term of this Agreement, such provision shall be fully severable; this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a portion of this Agreement; and the
remaining provisions of this Agreement shall remain in full force and effect and
shall not be affected by the illegal, invalid or unenforceable provision or by
its severance from this Agreement. Furthermore, in lieu of such illegal, invalid
or unenforceable provision there shall be added automatically as part of this
Agreement a provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and enforceable.
b. Withholding. The Company shall be entitled to withhold from any
amounts payable under this Agreement any federal, state, local or foreign
withholding or other taxes or charges which it is from time to time required to
withhold. The Company shall be entitled to rely on an opinion of counsel if any
questions as to the amount or requirement of such withholding shall arise.
c. No Waiver No waiver by either party at any time of any breach by the
other party of, or compliance with, any condition or provision of this
Agreement to be performed by the other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at any time.
d. Equitable Relief. The Employee acknowledges that money damages would
be both incalculable and an insufficient remedy for a breach of Section 7, 8, 9,
10 or 11 by the Employee and that any such breach would cause the Company
irreparable harm. Accordingly, the Company, in addition to any other remedies at
law or in equity it may have, shall be entitled, without the requirement of
posting of bond or other security, to equitable relief, including injunctive
relief and specific performance, in connection with a breach of Section 7, 8, 9,
10 or 11 by the Employee.
e. Complete Agreement. The provisions of this Agreement constitute the
entire and complete understanding and agreement between the parties with
respect to the subject matter hereof, and supersedes all prior and
contemporaneous oral and written agreements, representations and understandings
between the Employee and the Company, or its affiliates and subsidiaries,
including the Employment Agreement made as of January 1, 1995, by and between
Fojtasek Companies, Inc. and Louis W. Simi, Jr., which are hereby terminated.
Other than expressly set forth herein, the Employee and the Company acknowledge
and represent that there
<PAGE> 13
are no other promises, terms, conditions or representations (oral or written)
regarding any matter relevant hereto. This Agreement may be executed in two or
more counterparts. Notwithstanding any other provision set forth in this
Agreement, the Employee hereby acknowledges and agrees that Atrium Corporation,
the Company's sole stockholder, and each of the Company's subsidiaries are
intended third party beneficiaries of this Section 12(g), and each of them
shall be entitled to rely on the acknowledgments and agreements of the Employee
made in this Section 12(g) to the same extent as if they were parties to this
Agreement.
f. Arbitration. The Company and the Employee agree to the resolution by
binding arbitration of all claims, demands, causes of action, disputes,
controversies or other matters in question ("claims"), whether or not arising
out of this Agreement or the Employee's employment (or its termination),
whether sounding in contract, tort or otherwise and whether provided by statute
or common law, that the Company may have against the Employee or that the
Employee may have against the Company or its parents, subsidiaries and
affiliates, and each of the foregoing entities' respective officers, directors,
employees or agents in their capacity as such or otherwise; except that this
agreement to arbitrate shall not limit the Company's right to seek equitable
relief, including injunctive relief and specific performance, and damages in a
court of competent jurisdiction for an alleged breach of Sections 7, 8, 9, 10
or 11 of this Agreement. Claims covered by this agreement to arbitrate also
include claims by the Employee for breach of this Agreement, wrongful
termination, discrimination (based on age, race, sex, disability, national
origin or any other factor) and retaliation. In the event of any breach of
this Agreement by the Company, it is expressly agreed that notwithstanding any
other provision of this Agreement, the only damages to which Employee shall be
entitled is lost compensation and benefits in accordance with Section 2(b) or
4. The Company and the Employee agree that any arbitration shall be in
accordance with the Federal Arbitration Act ("FAA") and, to the extent an issue
is not addressed by the FAA, with the then-current National Rules for the
Resolution of Employment Disputes of the American Arbitration Association
("AAA"). If a party refuses to honor its obligations under this agreement to
arbitrate, the other party may compel arbitration in either federal or state
court. The arbitrator shall apply the substantive law of the State of Texas
(excluding Texas choice-of-law principles that might call for the application
of some other state's law), or federal law, or both as applicable to the claims
asserted. The arbitrator shall have exclusive authority to resolve any dispute
relating to the interpretation, applicability, enforceability or formation of
this agreement to arbitrate, including any claim that all or part of this
Agreement is void or voidable and any claim that an issue is not subject to
arbitration. The parties agree that venue for arbitration will be in Dallas,
Texas, and that any arbitration commenced in any other venue will be
transferred to Dallas, Texas, upon the written request of any party to this
Agreement. In the event that an arbitration is actually conducted pursuant to
this Section 12(h), the party in whose favor the Arbitrator renders the award
shall be entitled to have and recover from the other party all costs and
expenses incurred including reasonable attorneys' fees, expert witness fees,
and costs actually incurred. Any and all of the arbitrator's orders, decisions
and awards may be enforceable in, and judgment upon any award rendered by the
arbitrator may be confirmed and entered by, any federal or state court having
jurisdiction. All proceedings conducted pursuant to this agreement to
arbitrate, including any order, decision or award of the arbitrator, shall be
kept confidential by all parties.
g. Survival. Sections 7, 8, 9, 10, 11 and 12 of this Agreement shall
survive the termination of this Agreement.
<PAGE> 14
h. Choice of Law. This Agreement and the rights and obligations
hereunder shall be governed by and construed in accordance with the laws of the
State of Texas without reference to principles of conflicts of law of Texas or
any other jurisdiction, and, where applicable, the laws of the United States.
i. Amendment. This Agreement may not be amended or modified at any time
except by a written instrument approved by the Board and executed by the
Company and the Employee.
j. Employee Acknowledgment. Employee acknowledges that he has read and
understands this Agreement, is fully aware of its legal effect, has not acted
in reliance upon any representations or promises made by the Company other than
those contained in writing herein, and has entered into this Agreement freely
based on his own judgment.
IN WITNESS WHEREOF, the Employee has hereunto set the Employee's hand
and, pursuant to the authorization from the Board, the Company has caused this
Agreement to be executed in its name on its behalf, on this 1st day of January,
1998, to be effective as of the day and year first above written.
EMPLOYEE
/s/ LOUIS W. SIMI, JR.
---------------------------
Louis W. Simi, Jr.
ATRIUM COMPANIES, INC.
By: /s/ RANDALL S. FOJTASEK
------------------------
Randall S. Fojtasek
President
<PAGE> 15
EXHIBIT A
Seventy-five percent (75%) of the Employee's Incentive Bonus ("EBITDA Bonus")
shall be payable based upon achievement of the following targets:
o If Atrium Aluminum and Vinyl achieves 80% of its budgeted EBITDA, the
Employee shall receive 50% of the EBITDA Bonus;
o If Atrium Aluminum and Vinyl achieves 90% of its budgeted EBITDA, the
Employee shall receive 75% of the EBITDA Bonus;
o If Atrium Aluminum and Vinyl achieves 100% of its budgeted EBITDA, the
Employee shall receive 100% of the EBITDA Bonus; and
o If Atrium Aluminum and Vinyl achieves 110% of its budgeted EBITDA, the
Employee shall receive 125% of the EBITDA Bonus.
The EBITDA Bonus will be paid on a sliding scale and on a pro rata
basis. For example, if 95% of the budgeted EBITDA is achieved, the
Employee is entitled to 87.5% of the EBITDA Bonus. No EBITDA Bonus
will be paid if Atrium Aluminum and Vinyl achieves less than 80% of
the budgeted EBITDA.
The remaining twenty-five percent (25%) of the Employee's Incentive Bonus shall
be payable based upon achievement of the following targets:
o If Atrium Aluminum and Vinyl meets its performance targets with
respect to Accounts Receivable Days, then the Employee shall be
entitled to receive 5% of the Employee's Incentive Bonus.
o If Atrium Aluminum and Vinyl meets its performance targets with
respect to Accounts Payable Days, then the Employee shall be entitled
to receive 5% of the Employee's Incentive Bonus.
o If Atrium Aluminum and Vinyl meets its performance targets with
respect to Inventory, then the Employee shall be entitled to receive
5% of the Employee's Incentive Bonus.
o If Atrium Aluminum and Vinyl meets its performance targets with
respect to Fixed Assets, then the Employee shall be entitled to
receive 5% of the Employee's Incentive Bonus.
o If Atrium Aluminum and Vinyl meets its performance targets with
respect to Lost Work Days, then the Employee shall be entitled to
receive 5% of the Employee's Incentive Bonus.
<PAGE> 16
These parts of the Employee's Incentive Bonus shall not be paid on a
sliding scale or prorata basis.
EXHIBIT B
<TABLE>
<CAPTION>
CRITERIA 1998 TARGET 1997 ACTUAL
-------- ----------- -----------
<S> <C> <C>
Budgeted EBITDA $7,630,079 $6,867,207
Number of Days Accounts Receivable
Outstanding 52.1 (or less) 54.8
Number of Days Accounts Payable
Outstanding 46.9 (or more) 45.8
Number of Inventory Turns 11.00 (or more) 10.85
Number of Fixed Assets Turns 60.0 (or more) 59.8
Number of Days Lost Due to Work
Injuries 3.18 (or less) 398
</TABLE>
APPROVED:
/s/ LOUIS W. SIMI, JR. JANUARY 1, 1998
- ------------------------------- -----------------
Louis W. Simi, Jr. Date
/s/ RANDALL S. FOJTASEK JANUARY 1, 1998
- ------------------------------- -----------------
Randall S. Fojtasek Date
/s/ JEFF L. HULL JANUARY 1, 1998
- ------------------------------- -----------------
Jeff L. Hull Date
<PAGE> 1
EXHIBIT 10.14
EMPLOYMENT AGREEMENT BETWEEN THE COMPANY AND ARTHUR G. FROST
DATED JANUARY 1, 1998
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into, with
an effective date of January 1, 1998, by and between Atrium Companies, Inc., a
Delaware corporation (together with its successors and assigns permitted
hereunder, the "Company"), and A. George Frost (the "Employee").
RECITALS
A. The Board of Directors of the Company (the "Board") has determined
that it is in the best interests of the Company and its stockholders to employ
the Employee on the terms and conditions set forth herein.
AGREEMENTS
NOW, THEREFORE, in consideration of the respective agreements and covenants
set forth herein and other good and valuable consideration, the receipt of which
is hereby acknowledged, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. EMPLOYMENT PERIOD. Subject to Section 3, the Company hereby agrees to
employ the Employee, and the Employee hereby agrees to be employed by the
Company in accordance with the terms and provisions of this Agreement, for a
period (the "Employment Period") commencing on the date herein and ending on the
third anniversary of such date. Neither party is under any obligation to extend
or renew this Agreement. Any new employment agreement shall only be effective
after having been reduced to writing and executed by both parties hereto. In the
event Employee continues to perform services after the Employment Period, and
pending execution of a new employment agreement, if any, such services shall
constitute employment for an unspecified term, terminable at will, with or
without cause or reason, with or without advance notice, and with or without pay
in lieu of advance notice.
2. TERMS OF EMPLOYMENT.
a. Position and Duties.
i. During the term of the Employee's employment, the Employee shall
serve as President of the Extrusion Division, and, in so doing, shall perform
the normal duties and responsibilities associated with such position, subject to
the general direction, approval and control of Executive Vice President of
Operations for the Company.
<PAGE> 2
ii. During the term of the Employee's employment, and excluding any
periods of vacation and other leave to which the Employee is entitled, the
Employee agrees to devote his full business time to the business and affairs of
the Company and to use the Employee's best efforts to perform faithfully,
effectively and efficiently his duties and responsibilities.
iii. During the term of the Employee's employment it shall not be a
violation of this Agreement for the Employee to serve on corporate, civic or
charitable boards or committees, deliver lectures or fulfill speaking
engagements and manage personal investments, so long as such activities do not
interfere with the performance of the Employee's duties and responsibilities as
an employee of the Company.
iv. Employee agrees to observe and comply with the Company's rules
and policies as adopted by the Company from time to time.
b. Compensation.
i. Base Salary. During the term of the Employee's employment, the
Employee shall receive an annual base salary ("Annual Base Salary"), which shall
be paid in accordance with the customary payroll practices of the Company, in an
amount equal to $150,000. The Board, in its discretion, may at any time increase
the amount of the Annual Base Salary to such greater amount as it may deem
appropriate, and the term "Annual Base Salary," as used in this Agreement, shall
refer to the Annual Base Salary as it may be so increased. It is understood that
the Company may, at any time, in the discretion of the Board, increase, but not
decrease, the amount of the Annual Base Salary.
ii. Incentive Bonus. Subject to the other terms and conditions of
this Agreement and as further compensation for the performance of his services
hereunder, during the term of his employment under this Agreement, the Employee
shall be eligible to receive an annual incentive bonus (the "Incentive Bonus")
in accordance with the Bonus Structure, attached hereto as Exhibit A.
(A) Targets. Prior to the end of each calendar year, the Board's
Compensation Committee shall approve the performance targets (the
"Targets") upon which the Employee's Incentive Bonus for the following
year will be based with respect to each of the criteria described in
the Bonus Structure, except that the Targets for 1998 have been
approved by the Board's Compensation Committee as of the date hereof.
The Targets for 1998 are as described in Exhibit B, which is hereby
incorporated as part of this Agreement. The Targets for each of such
criteria in each subsequent calendar year shall, after approval by the
Board's Compensation Committee, be attached hereto as Exhibit B as a
substitute for the previous years' Targets, and shall become a part of
this Agreement for such calendar year.
(B) Amount and Calculation. Should the Employee achieve 100% of
the Targets, the Incentive Bonus shall be $100,000 (the "Base Incentive
Bonus"). A lesser or greater Incentive Bonus will result should the
Employee achieve
<PAGE> 3
less or more than 100% of the Targets, but in any event, the maximum
Incentive Bonus that the Employee shall be eligible to receive is
$118,750, such amount to be determined in accordance with the terms of
Exhibit A hereto. The Employee understands and agrees that he is not
guaranteed an Incentive Bonus and that the amount of Incentive Bonus,
if any, is dependent on his achieving one or more of the Targets for
the criteria set forth in the Bonus Structure. In this regard, should
the Employee fail to achieve any of such Targets, the Employee shall
not be entitled to an Incentive Bonus for the applicable period.
"EBITDA," as used in this Agreement and the Bonus Structure for any
calendar year, shall mean the earnings before income tax, depreciation
and amortization for such year, as determined in accordance with
generally accepted accounting principles by the certified public
accountants regularly engaged by the Company. The determination of
the Company's regularly engaged public accountants shall be final and
conclusive on the parties hereto.
(C) Time of Payment. The Incentive Bonus shall be paid to the
Employee on or before March 15th of the calendar year immediately
following the year with respect to which the calculation of the
Incentive Bonus is made. Payment of the Incentive Bonus shall be
accompanied by a copy of the calculation on which the Incentive Bonus
is based.
iii. Incentive, Savings, Stock Option and Retirement Plans. During
the term of the Employee's employment, the Employee shall be entitled to
participate in all incentive, savings, stock option and retirement plans,
practices, policies and programs applicable generally to other employees of the
Company ("Investment Plans"), as amended from time to time.
iv. Welfare Benefit Plans. During the term of the Employee's
employment, the Employee and/or the Employee's family, as the case may be, shall
be eligible for participation in and shall receive all benefits under the
welfare benefit plans, practices, policies and programs ("Welfare Plans")
provided by the Company (including medical, prescription, dental, disability,
salary continuance, employee life, group life, accidental death and travel
accident insurance plans and programs), as amended from time to time, to the
extent applicable generally to other employees of the Company.
v. Perquisites. During the term of the Employee's employment, the
Employee shall be entitled to receive (in addition to the benefits described
above) such perquisites and fringe benefits appertaining to his position in
accordance with any policies, practices and procedures established by the
Board, as amended from time to time.
vi. Expenses. During the term of the Employee's employment, the
Employee shall be entitled to receive prompt reimbursement for all reasonable
employment expenses incurred by the Employee in accordance with the Company's
policies, practices and procedures, as amended from time to time.
v. Automobile. The Company recognizes the Employee's need for an
automobile for business purposes. The Company shall provide the Employee with
an automobile, including all related maintenance, repairs, insurance and other
costs. At the Employee's request, a new automobile shall be purchased for the
Employee's use when the automobile that the Company is presently providing to
the Employee has either: (i) been in
<PAGE> 4
service for three years, or (ii) exceeded 75,000 miles. The Company's cost for
a new automobile for the Employee shall not exceed Twenty-Five Thousand and
No/100 Dollars ($25,000.00) excluding sales tax.
vi. Vacation. During the term of the Employee's employment, the
Employee shall be entitled to four (4) weeks paid vacation each calendar year.
Any vacation shall be taken at the reasonable and mutual convenience of the
Company and the Employee. Accrued vacation not taken in any calendar year will
not be carried forward or used in any subsequent calendar year and the Employee
shall not be entitled to receive pay in lieu of accrued but unused vacation in
any calendar year.
c. Key-Man Insurance. At any time during the Employment Period, the
Company shall have the right to insure the life of the Employee for the
Company's sole benefit, and to determine the amount of insurance and the type of
policy. The Employee shall cooperate with the Company in taking out such
insurance by submitting to physical examinations, by supplying all information
required by the insurance company, and by executing all necessary documents. The
Employee shall incur no financial obligation by executing any required document,
and shall have no interest in any such policy.
3. TERMINATION OF EMPLOYMENT.
a. Death or Disability. The Employee's employment shall terminate
automatically upon the Employee's death during the Employment Period. If the
Disability (as defined below) of the Employee has occurred during the
Employment Period, the Company may give to the Employee written notice in
accordance with Section 12(b) of its intention to terminate the Employee's
employment. In such event, the Employee's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the
Employee (the "Disability Effective Date"), if, within the 30 days after such
receipt, the Employee shall not have returned to perform, with or without
reasonable accommodation, the essential functions of his position. For
purposes of this Agreement, "Disability" shall mean the Employee's inability to
perform, with or without reasonable accommodations, the essential functions of
his position hereunder for a period of 120 days, consecutive or
non-consecutive, in any 12-month period due to mental or physical incapacity,
as determined by a physician selected by the Company or its insurers and
acceptable to the Employee or the Employee's legal representative, such
agreement as to acceptability not to be unreasonably withheld or delayed. Any
refusal by Employee to submit to a medical examination for the purpose of
determining Disability under this Section 3(a) shall be deemed to constitute
conclusive evidence of Employee's Disability.
b. Cause or Without Cause. The Company may terminate the Employee's
employment during the Employment Period for Cause or without Cause. For
purposes of this Agreement, "Cause" shall mean a breach by the Employee of the
Employee's obligations under Section 2(a) (other than as a result of physical
or mental incapacity) which constitutes a continued material nonperformance by
the Employee of his obligations and duties thereunder, as determined by the
Board, and which is not remedied within 30 days after receipt of written notice
from the Company specifying such breach; commission by the Employee of an act
of fraud, embezzlement, misappropriation, willful misconduct or breach of
fiduciary duty against the Company, as reasonably determined by a majority of
the members of the Board after a hearing by the Board following ten days'
notice to the Employee of such hearing; a material
<PAGE> 5
breach by the Employee of Sections 7, 8, 9, 10, or 11; the Employee's
conviction, plea of no contest or nolo contendere, or unadjudicated probation
for any felony or crime involving moral turpitude; the failure of the Employee
to carry out, or comply with, in any material respect any lawful directive of
the Board consistent with the terms of this Agreement, which is not remedied
within 30 days after receipt of written notice from the Company specifying such
failure; or (vi) the Employee's unlawful use (including being under the
influence) or possession of illegal drugs on the Company's premises or while
performing the Employee's duties and responsibilities under this Agreement.
The Company may suspend the Employee's title and authority pending the hearing
provided for in clause (ii) above, and such suspension shall not constitute
"Good Reason" as defined below. For purposes of this Agreement, "without
Cause" shall mean a termination by the Company of the Employee's employment
during the Employment Period for any reason other than a termination based upon
Cause, death, Disability or upon a Change of Control, as defined below.
c. Good Reason. The Employee's employment may be terminated during the
Employment Period by the Employee for Good Reason or without Good Reason;
provided, however, that the Employee agrees not to terminate his employment for
Good Reason unless (i) the Employee has given the Company at least 30 days'
prior written notice of his intent to terminate his employment for Good Reason,
which notice shall specify the facts and circumstances constituting Good
Reason, and (ii) the Company has not remedied such facts and circumstances
constituting Good Reason within such 30-day period. For purposes of this
Agreement, "Good Reason" shall mean:
i. any significant reduction, approved by the Board without the
Employee's consent, in the Employee's position, authority, duties or
responsibilities as contemplated in Section 2(a) or any other action by the
Company which results in a material diminution in such position, authority,
duties or responsibilities, excluding for this purpose an inadvertent action not
taken in bad faith and which is remedied by the Company promptly after receipt
of written notice thereof given by the Employee.
ii. any termination or material reduction of a material benefit under
any Investment Plan or Welfare Plan in which the Employee participates unless
(A) there is substituted a comparable benefit that is economically substantially
equivalent to the terminated or reduced benefit prior to such termination or
reduction or (B) benefits under such Investment Plan or Welfare Plan are
terminated or reduced with respect to all employees previously granted benefits
thereunder;
iii. any failure by the Company to comply with any of the provisions
of Section 2(b), other than an inadvertent failure not occurring in bad faith
and which is remedied by the Company promptly after receipt of written notice
thereof given by the Employee;
iv. without limiting the generality of the foregoing, any material
breach by the Company or any of its subsidiaries or other affiliates (as defined
below) of (A) this Agreement or (B) any other agreement between the Employee and
the Company or any such subsidiary or other affiliate; or
v. the Company's requirement that the Employee's ongoing and regular
duties and responsibilities be performed in a location other than the
Dallas/Fort Worth Metroplex
<PAGE> 6
area, except for travel reasonably required in the performance of the
Employee's duties and responsibilities.
As used in this Agreement, "affiliate" means, with respect to a
person, any other person controlling, controlled by or under common control
with the first person; the term "control," and correlative terms, means the
power, whether by contract, equity ownership or otherwise, to direct the
policies or management of a person; and "person" means an individual,
partnership, corporation, limited liability company, trust or unincorporated
organization, or a government or agency or political subdivision thereof.
d. Change of Control. If a Change of Control occurs during the Employment
Period and the Board determines in good faith that it is in the Company's best
interest to terminate the Employee's employment with the Company, within 90
days of such Change of Control the Company may terminate the Employee's
employment by giving the Employee written notice in accordance with Section
12(b) of its intention to terminate the Employee's employment. Any such
termination by the Company as contemplated in this Section 3(d) is referred to
herein as a termination "upon a Change of Control." For purposes of this
Agreement, "Change of Control" shall have the meaning given to such term in the
Atrium Corporation 1996 Stock Option Plan, as such Plan may be amended from
time to time.
e. Notice of Termination. Any termination by the Company for Cause or
without Cause or upon a Change of Control, or by the Employee for Good Reason
or without Good Reason, shall be communicated by Notice of Termination to the
other party hereto given in accordance with Section 12(b). For purposes of
this Agreement, a "Notice of Termination" means a written notice which
indicates the specific termination provision in this Agreement relied upon, to
the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Employee's
employment under the provision so indicated and if the Date of Termination (as
defined below) is other than the date of receipt of such notice, specifies the
termination date (which date shall not be more than 15 days after the giving of
such notice). The failure by the Employee or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing
of Good Reason or Cause or a termination upon a Change of Control shall not
waive any right of the Employee or the Company hereunder or preclude the
Employee or the Company from asserting such fact or circumstance in enforcing
the Employee's or the Company's rights hereunder.
f. Date of Termination. "Date of Termination" means if the Employee's
employment is terminated by the Company for Cause or upon a Change of Control,
or by the Employee for Good Reason or without Good Reason, the date of receipt
of the Notice of Termination or any later date specified therein pursuant to
Section 3(e), as the case may be, if the Employee's employment is terminated
by the Company other than for Cause or upon a Change of Control, the date on
which the Company notifies the Employee of such termination and if the
Employee's employment is terminated by reason of death or Disability, the date
of death of the Employee or the Disability Effective Date, as the case may be.
<PAGE> 7
4. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
a. For Cause; Without Good Reason; Other Than for Death, Disability or
Upon a Change of Control. If, during the Employment Period, the Company shall
terminate the Employee's employment for Cause or the Employee shall terminate
his employment without Good Reason, and the termination of the Employee's
employment in any case is not due to his death or Disability or upon a Change of
Control, the Employee shall forfeit all rights to the Incentive Bonus otherwise
due to him or to which he may be entitled, and the Company shall have no further
payment obligations to the Employee or his legal representatives, other than for
the payment of: (i) in a lump sum in cash within ten (10) days after the Date of
Termination the sum of the Employee's Annual Base Salary through the Date of
Termination to the extent not theretofore paid, any compensation previously
deferred by the Employee (together with any accrued interest or earnings
thereon) and any accrued vacation pay (collectively, the "Accrued Obligations");
and (ii) any amount arising from the Employee's participation in, or benefits
under, any Investment Plans (the "Accrued Investments"), which amounts shall be
payable in accordance with the terms and conditions of such Investment Plans.
i. Death. If the Employee's employment is terminated by reason of
the Employee's death during the Employment Period, the Company shall have no
further payment obligations to the Employee or his legal representatives, other
than for payment of: in a lump sum in cash within ten (10) days after the Date
of Termination the Accrued Obligations; the Accrued Investments, which shall be
payable in accordance with the terms and conditions of the Investment Plans; and
the Incentive Bonus prorated from the first day of the Company's then-current
fiscal year to the Date of Termination (the "Prorated Incentive Bonus"), to be
paid in accordance with Section 2(b)(ii)(C).
ii. Disability. If the Employee's employment is terminated by reason
of the Employee's Disability during the Employment Period, the Company shall
have no further payment obligations to the Employee or his legal
representatives, other than for payment of: in a lump sum in cash within ten
(10) days after the Date of Termination the Accrued Obligations; the Accrued
Investments, which shall be payable in accordance with the terms and conditions
of the Investment Plans; and the Prorated Incentive Bonus, to be paid in
accordance with Section 2(b)(ii)(C).
iii. Without Cause or for Good Reason. If the Employee's employment
is terminated by the Company without Cause or by the Employee for Good Reason,
the Company shall have no further payment obligations to the Employee or his
legal representatives, other than for: (i) payment of, in a lump sum in cash
within ten (10) days after the Date of Termination, the Accrued Obligations;
(ii) payment of the Accrued Investments, which shall be payable in accordance
with the terms and conditions of the Investment Plans; (iii) payment of the
Prorated Incentive Bonus, to be paid in accordance with Section 2(b)(ii)(C) and
(iv) payment of one-twelfth of the sum of the Employee's Annual Base Salary on
the Date of Termination and the Annual Incentive Bonus for each month during a
period of twelve (12) months following the Date of Termination (the 'severance
Period"), in accordance with the customary payroll practices of the Company.
<PAGE> 8
iv. Change of Control. If the Employee's employment is terminated
upon a Change of Control as contemplated in Section 3(d), the Company shall have
no further payment obligations to the Employee or his legal representatives,
other than for (i) payment of, in a lump sum in cash within ten (10) days after
the Date of Termination, the Accrued Obligations; (ii) payment of the Accrued
Investments, which shall be payable in accordance with the terms and conditions
of the Investment Plans; (iii) payment of the Prorated Incentive Bonus, to be
paid in accordance with Section 2(b)(ii)(C); and (iv) payment of one-twelfth of
the sum of the Employee's Annual Base Salary on the Date of Termination and the
Annual Incentive Bonus for each month during the Severance Period, in accordance
with the customary payroll practices of the Company; provided, however, that the
payments contemplated in (iii) and (iv) above shall not be made to the Employee
if, following such Change of Control, Randall S. Fojtasek continues to act in
the capacity of President and Chief Executive Officer of the Company.
5. RETENTION BONUS. Following a "Change of Control," as contemplated in
Section 3(d), if the Employee is employed by the Company in his current position
or in a more senior position, or by a subsidiary or other affiliate of the
Company in a position with authority, duties and responsibilities substantially
similar to or greater than those of his current position, on the 12-month
anniversary of the Change of Control, the Company shall pay the Employee a
retention bonus in the amount of $100,000. Nothing in this Section 5 shall be
deemed to give the Employee the right to be retained in the employ of the
Company or to restrict the right of the Company to terminate the Employee at any
time and for any reason, without Cause or for Cause or upon a Change of Control.
Nothing in this Section 5 shall be deemed to give the Company the right to
require the Employee to remain in the employ of the Company or to restrict the
Employee's right to terminate his employment at any time and for any reason,
without Good Reason or for Good Reason.
6. FULL SETTLEMENT, MITIGATION. In no event shall the Employee be obligated
to seek other employment or take any other action by way of mitigation of the
amounts payable to the Employee under any of the provisions of this Agreement
and such amounts shall not be reduced whether or not the Employee obtains other
employment. Neither the Employee nor the Company shall be liable to the other
party for any damages in addition to the amounts payable under Section 4 arising
out of the termination of the Employee's employment prior to the end of the
Employment Period; provided, however, that the Company shall be entitled to seek
damages from the Employee for any breach of Sections 7, 8, 9, 10 or 11 by the
Employee or for the Employee's criminal misconduct.
<PAGE> 9
7. CONFIDENTIAL INFORMATION.
a. The Employee acknowledges that the Company and its affiliates have
trade, business and financial secrets and other confidential and proprietary
information (collectively, the "Confidential Information"). "Confidential
Information" includes sales materials, technical information, processes and
compilations of information, records, specifications and information concerning
customers or venders, manuals relating to suppliers' products, customer lists,
information regarding methods of doing business, and the identity of suppliers.
"Confidential Information" shall not include information that is generally known
to other persons or entities who can obtain economic value from its disclosure
or use and information required to be disclosed by the Employee pursuant to a
subpoena or court order, or pursuant to a requirement of a governmental agency
or law of the United States of America or a state thereof or any governmental or
political subdivision thereof; provided, however, that the Employee shall take
all reasonable steps to prohibit disclosure pursuant to subsection (ii) above.
b. During and following the Employee's employment by the Company, the
Employee shall hold in confidence and not directly or indirectly disclose or
use or copy or make lists of any Confidential Information or proprietary data
of the Company or its affiliates except to the extent authorized in writing by
the Board or required by any court or administrative agency, other than to an
employee of the Company or its affiliates or a person to whom disclosure is
reasonably necessary or appropriate in connection with the performance by the
Employee of his duties as an employee of the Company.
c. The Employee further agrees not to use any Confidential Information
for the benefit of any person or entity other than the Company or its
affiliates.
d. As used in this Section 7, "Company" shall include Atrium Companies,
Inc. and any of its subsidiaries.
8. SURRENDER OF MATERIALS UPON TERMINATION. All records, files, documents and
materials, or copies thereof, relating to the Company's and its respective
affiliates' business which the Employee shall prepare, or use, or come into
contact with, shall be and remain the sole property of the Company or its
affiliates, as the case may be, and shall be returned promptly by the Employee
to the owner upon termination of the Employee's employment with the Company. As
used in this Section 8, "Company" shall include Atrium Companies, Inc. and any
of its subsidiaries.
9. SUCCESSORS. The Company may assign its rights and obligations under this
Agreement to any successor to all or substantially all the assets of the
Company, by merger or otherwise, subject, however, to the Employee's right to
terminate this Agreement for Good Reason as provided in Section 3(c), and may
assign or encumber this Agreement and its rights hereunder as security for
indebtedness of the Company and its affiliates. The Company shall require that
any successor agree to assume in writing the obligations of the Company
pursuant to this Agreement and the failure to secure such assumption on or
prior to the closing of any merger or similar transaction shall constitute Good
Reason under Section 3(c); provided, however, that nothing set forth in this
Section 9 shall be deemed to limit or otherwise affect in any way the right of
the Company or such successor to terminate the Employee's employment upon a
Change in Control as contemplated in Section 3(d). The rights of the Employee
under this Agreement may not be
<PAGE> 10
assigned or encumbered by the Employee, voluntarily or involuntarily, during
his lifetime, and any such purported assignment shall be void. However, all
rights of the Employee under this Agreement shall inure to the benefit of and
be enforceable by the Employee's personal or legal representatives, estates,
executors, administrators, heirs and beneficiaries. All amounts payable to the
Employee hereunder shall be paid, in the event of the Employee's death, to the
Employee's estate, heirs and representatives.
10. NON-COMPETITION.
a. The term of Non-Competition (herein so called) shall be for a term
beginning on the date hereof and continuing until (i) the first anniversary of
the Date of Termination if the Employee's employment is terminated by the
Company for Cause or due to Disability or by the Employee without Good Reason,
(ii) the Date of Termination if the Employee's employment is terminated by the
Company without Cause (and not due to Disability) or by the Employee for Good
Reason or (iii) the first anniversary of the last date of the Severance Period
if the Employee's employment is terminated upon a Change in Control.
b. During the term of Non-Competition, the Employee will not (other than
for the benefit of the Company or its affiliates pursuant to this Agreement)
directly or indirectly, individually or as an officer, director, employee,
shareholder, consultant, contractor, partner, joint venturer, agent, equity
owner or in any capacity whatsoever engage in the business of manufacturing,
marketing or distributing windows or doors or in any other business activity
that the Company is conducting on the Date of Termination or has notified the
Employee that it proposes to conduct in the United States (a "Competing
Business"), hire, attempt to hire, or contact or solicit with respect to hiring
any officer, employee or consultant of the Company or its affiliates, or divert
or take away any customers or suppliers of the Company or its affiliates.
Notwithstanding the foregoing, the Company agrees that the Employee may own less
than five percent of the outstanding voting securities of any publicly traded
company that is a Competing Business so long as the Employee does not otherwise
participate in such competing business in any way prohibited by the preceding
clause.
c. The Employee acknowledges that the geographic boundaries, scope of
prohibited activities, and time duration of the preceding paragraphs are
reasonable in nature and are no broader than are necessary to maintain the
goodwill of the Company and its affiliates and the confidentiality of their
Confidential Information, and to protect the other legitimate business interests
of the Company and its affiliates.
d. If any court determines that any portion of this Section 10 is invalid
or unenforceable, the remainder of this Section 10 shall not thereby be affected
and shall be given full effect without regard to the invalid provisions. If any
court construes any of the provisions of this Section 10, or any part thereof,
to be unreasonable because of the duration or scope of such provision, such
court shall have the power to reduce the duration or scope of such provision and
to enforce such provision as so reduced.
e. As used in this Section 10, "Company" shall include Atrium Companies,
Inc. and any of its subsidiaries.
<PAGE> 11
11. INVENTIONS;ASSIGNMENT. All rights to discoveries, inventions, improvements
and innovations (including all data and records pertaining thereto) related to
the Company's business, whether or not patentable, copyrightable, registrable as
a trademark, or reduced to writing, that the Employee may discover, invent or
originate during the Employment Period, and for a period of twelve (12) months
thereafter, either alone or with others and whether or not during working hours
or by the use of the facilities of the Company ("Inventions"), shall be the
exclusive property of the Company. The Employee shall promptly disclose all
Inventions to the Company, shall execute at the request of the Company any
assignments or other documents the Company may deem necessary to protect or
perfect its rights therein, and shall assist the Company, at the Company's
expense, in obtaining, defending and enforcing the Company's rights therein. The
Employee hereby appoints the Company as his attorney-in-fact to execute on his
behalf any assignments or other documents deemed necessary by the Company to
protect or perfect its rights to any Inventions. As used in this Section 11,
"Company" shall include Atrium Companies, Inc. and any of its subsidiaries.
12. MISCELLANEOUS.
a. Construction. This Agreement shall be deemed drafted equally by both
the parties. Its language shall be construed as a whole and according to its
fair meaning. Any presumption or principle that the language is to be construed
against any party shall not apply. The headings in this Agreement are only for
convenience and are not intended to affect construction or interpretation. Any
references to paragraphs, subparagraphs, sections or subsections are to those
parts of this Agreement, unless the context clearly indicates to the contrary.
Also, unless the context clearly indicates to the contrary, (a) the plural
includes the singular and the singular includes the plural; (b) "and" and "or"
are each used both conjunctively and disjunctively; (c) "any," "all," "each," or
"every" means "any and all", and "each and every"; (d) "includes" and
"including" are each "without limitation"; (e) "herein," "hereof," "hereunder"
and other similar compounds of the word "here" refer to the entire Agreement and
not to any particular paragraph, subparagraph, section or subsection; and (f)
all pronouns and any variations thereof shall be deemed to refer to the
masculine, feminine, neuter, singular or plural as the identity of the entities
or persons referred to may require.
b. Notices. All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Employee: A. George Frost
P. O. Box 1034
Wylie, Texas 75098
If to the Company: Atrium Companies, Inc.
1341 West Mockingbird Lane
Suite 1200W
Dallas, Texas 75247
Attention: Randall S. Fojtasek
Fax: (214) 631-4231
<PAGE> 12
with a copy to:
Vinson & Elkins L.L.P.
3700 Trammel Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attention: Michael D. Wortley
Fax: (214) 220 -7716
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
c. Enforcement. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective during
the term of this Agreement, such provision shall be fully severable; this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a portion of this Agreement; and the
remaining provisions of this Agreement shall remain in full force and effect and
shall not be affected by the illegal, invalid or unenforceable provision or by
its severance from this Agreement. Furthermore, in lieu of such illegal, invalid
or unenforceable provision there shall be added automatically as part of this
Agreement a provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and enforceable.
d. Withholding. The Company shall be entitled to withhold from any
amounts payable under this Agreement any federal, state, local or foreign
withholding or other taxes or charges which it is from time to time required to
withhold. The Company shall be entitled to rely on an opinion of counsel if any
questions as to the amount or requirement of such withholding shall arise.
e. No Waiver No waiver by either party at any time of any breach by the
other party of, or compliance with, any condition or provision of this
Agreement to be performed by the other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at any time.
f. Equitable Relief. The Employee acknowledges that money damages would
be both incalculable and an insufficient remedy for a breach of Section 7, 8, 9,
10 or 11 by the Employee and that any such breach would cause the Company
irreparable harm. Accordingly, the Company, in addition to any other remedies at
law or in equity it may have, shall be entitled, without the requirement of
posting of bond or other security, to equitable relief, including injunctive
relief and specific performance, in connection with a breach of Section 7, 8, 9,
10 or 11 by the Employee.
g. Complete Agreement. The provisions of this Agreement constitute the
entire and complete understanding and agreement between the parties with
respect to the subject matter hereof, and supersedes all prior and
contemporaneous oral and written agreements, representations and understandings
between the Employee and the Company, or its affiliates and subsidiaries,
including the Employment Agreement made as of January 1, 1997, by and between
Fojtasek Companies, Inc. and George Frost, which are hereby terminated. Other
than expressly set forth herein, the Employee and the Company acknowledge and
represent that there are no other promises, terms, conditions or
representations (oral or written) regarding any matter
<PAGE> 13
relevant hereto. This Agreement may be executed in two or more counterparts.
Notwithstanding any other provision set forth in this Agreement, the Employee
hereby acknowledges and agrees that Atrium Corporation, the Company's sole
stockholder, and each of the Company's subsidiaries are intended third party
beneficiaries of this Section 12(g), and each of them shall be entitled to rely
on the acknowledgments and agreements of the Employee made in this Section
12(g) to the same extent as if they were parties to this Agreement.
h. Arbitration. The Company and the Employee agree to the resolution by
binding arbitration of all claims, demands, causes of action, disputes,
controversies or other matters in question ("claims"), whether or not arising
out of this Agreement or the Employee's employment (or its termination),
whether sounding in contract, tort or otherwise and whether provided by statute
or common law, that the Company may have against the Employee or that the
Employee may have against the Company or its parents, subsidiaries and
affiliates, and each of the foregoing entities' respective officers, directors,
employees or agents in their capacity as such or otherwise; except that this
agreement to arbitrate shall not limit the Company's right to seek equitable
relief, including injunctive relief and specific performance, and damages in a
court of competent jurisdiction for an alleged breach of Sections 7, 8, 9, 10
or 11 of this Agreement. Claims covered by this agreement to arbitrate also
include claims by the Employee for breach of this Agreement, wrongful
termination, discrimination (based on age, race, sex, disability, national
origin or any other factor) and retaliation. In the event of any breach of
this Agreement by the Company, it is expressly agreed that notwithstanding any
other provision of this Agreement, the only damages to which Employee shall be
entitled is lost compensation and benefits in accordance with Section 2(b) or
4. The Company and the Employee agree that any arbitration shall be in
accordance with the Federal Arbitration Act ("FAA") and, to the extent an issue
is not addressed by the FAA, with the then-current National Rules for the
Resolution of Employment Disputes of the American Arbitration Association
("AAA"). If a party refuses to honor its obligations under this agreement to
arbitrate, the other party may compel arbitration in either federal or state
court. The arbitrator shall apply the substantive law of the State of Texas
(excluding Texas choice-of-law principles that might call for the application
of some other state's law), or federal law, or both as applicable to the claims
asserted. The arbitrator shall have exclusive authority to resolve any dispute
relating to the interpretation, applicability, enforceability or formation of
this agreement to arbitrate, including any claim that all or part of this
Agreement is void or voidable and any claim that an issue is not subject to
arbitration. The parties agree that venue for arbitration will be in Dallas,
Texas, and that any arbitration commenced in any other venue will be
transferred to Dallas, Texas, upon the written request of any party to this
Agreement. In the event that an arbitration is actually conducted pursuant to
this Section 12(h), the party in whose favor the Arbitrator renders the award
shall be entitled to have and recover from the other party all costs and
expenses incurred including reasonable attorneys' fees, expert witness fees,
and costs actually incurred. Any and all of the arbitrator's orders, decisions
and awards may be enforceable in, and judgment upon any award rendered by the
arbitrator may be confirmed and entered by, any federal or state court having
jurisdiction. All proceedings conducted pursuant to this agreement to
arbitrate, including any order, decision or award of the arbitrator, shall be
kept confidential by all parties.
i. Survival. Sections 7, 8, 9, 10, 11 and 12 of this Agreement shall
survive the termination of this Agreement.
<PAGE> 14
j. Choice of Law. This Agreement and the rights and obligations
hereunder shall be governed by and construed in accordance with the laws of the
State of Texas without reference to principles of conflicts of law of Texas or
any other jurisdiction, and, where applicable, the laws of the United States.
k. Amendment. This Agreement may not be amended or modified at any time
except by a written instrument approved by the Board and executed by the
Company and the Employee.
l. Employee Acknowledgment. Employee acknowledges that he has read and
understands this Agreement, is fully aware of its legal effect, has not acted
in reliance upon any representations or promises made by the Company other than
those contained in writing herein, and has entered into this Agreement freely
based on his own judgment.
IN WITNESS WHEREOF, the Employee has hereunto set the Employee's hand
and, pursuant to the authorization from the Board, the Company has caused this
Agreement to be executed in its name on its behalf, on this 1st day of January,
1998, to be effective as of the day and year first above written.
EMPLOYEE
/s/ GEORGE FROST
-----------------------------
George Frost
ATRIUM COMPANIES, INC.
By: /s/ RANDALL S. FOJTASEK
-------------------------
Randall S. Fojtasek
President
<PAGE> 15
EXHIBIT A
Seventy-five percent (75%) of the Employee's Incentive Bonus ("EBITDA
Bonus") shall be payable based upon achievement of the following targets:
o If the Extrusion Group achieves 80% of its budgeted EBITDA, the
Employee shall receive 50% of the EBITDA Bonus;
o If the Extrusion Group achieves 90% of its budgeted EBITDA, the
Employee shall receive 75% of the EBITDA Bonus;
o If the Extrusion Group achieves 100% of its budgeted EBITDA, the
Employee shall receive 100% of the EBITDA Bonus; and
o If the Extrusion Group achieves 110% of its budgeted EBITDA, the
Employee shall receive 125% of the EBITDA Bonus.
The EBITDA Bonus will be paid on a sliding scale and on a prorata
basis. For example, if 95% of the budgeted EBITDA is achieved, the
Employee is entitled to 87.5% of the EBITDA Bonus. No EBITDA Bonus
will be paid if the Extrusion Group achieves less than 80% of the
budgeted EBITDA.
The remaining twenty-five percent (25%) of the Employee's Incentive Bonus
shall be payable based upon achievement of the following targets:
o If the Extrusion Group meets its performance targets with respect to
Accounts Receivable Days, then the Employee shall be entitled to
receive 5% of the Employee's Incentive Bonus.
o If the Extrusion Group meets its performance targets with respect to
Accounts Payable Days, then the Employee shall be entitled to receive
5% of the Employee's Incentive Bonus.
o If the Extrusion Group meets its performance targets with respect to
Inventory, then the Employee shall be entitled to receive 5% of the
Employee's Incentive Bonus.
o If the Extrusion Group meets its performance targets with respect to
Fixed Assets, then the Employee shall be entitled to receive 5% of the
Employee's Incentive Bonus.
o If the Extrusion Group meets its performance targets with respect to
Lost Work Days, then the Employee shall be entitled to receive 5% of
the Employee's Incentive Bonus.
These parts of the Employee's Incentive Bonus shall not be paid on a
sliding scale or prorata basis.
<PAGE> 16
EXHIBIT B
<TABLE>
<CAPTION>
CRITERIA 1998 TARGET 1997 ACTUAL
-------- ----------- -----------
<S> <C> <C>
Budgeted EBITDA $9,463,658 $8,421,436
Number of Days Accounts Receivable
Outstanding 41.7 (or less) 43.9
Number of Days Accounts Payable
Outstanding 39.4 (or more) 38.5
Number of Inventory Turns 12.0 (or more) 11.5
Number of Fixed Assets Turns 20.0 (or more) 19.7
Number of Lost Work Days Due to Work
Injuries 111 (or less) 123
</TABLE>
APPROVED:
/s/ A. GEORGE FROST JANUARY 1, 1998
- ------------------------------- -----------------
A. George Frost Date
/s/ RANDALL S. FOJTASEK JANUARY 1, 1998
- ------------------------------- -----------------
Randall S. Fojtasek Date
/s/ JEFF L. HULL JANUARY 1, 1998
- ------------------------------- -----------------
Jeff L. Hull Date
<PAGE> 1
EXHIBIT 10.19
SECOND AMENDMENT TO THE ATRIUM LEASE AGREEMENT
SECOND AMENDMENT TO LEASE AGREEMENT Atrium
BETWEEN
FOJTASEK INDUSTRIAL PROPERTIES, LTD., AS LANDLORD,
and
ATRIUM COMPANIES, INC.,
AS TENANT
WHEREAS, on or about July 3, 1995, FOJTASEK INDUSTRIAL PROPERTIES, LTD.,
A TEXAS LIMITED PARTNERSHIP, as Landlord ("Landlord"), and FOJTASEK COMPANIES,
INC., A TEXAS CORPORATION ("Fojtasek"), entered into that certain Lease
Agreement ("Lease") regarding the Leased Premises described in the Lease and
being located at 9001 Ambassador Row, Dallas, Texas ("Leased Premises");
WHEREAS, on or about February 13, 1996, Landlord and Fojtasek entered
into that certain Amendment of Lease Agreement ("First Amendment");
WHEREAS, subsequent to the execution and delivery of the First
Amendment, Fojtasek was merged into ATRIUM COMPANIES, INC., A DELAWARE
CORPORATION ("Tenant");
WHEREAS, Landlord and Tenant have discussed certain provisions contained
in the Lease which should be revised to reflect the current agreement of the
parties; and
WHEREAS, Landlord and Tenant hereby enter into this Second Amendment to
Lease ("Second Amendment") as written evidence of their agreement.
NOW, THEREFORE, in consideration of the foregoing, and the mutual
obligations contained herein, Landlord and Tenant agree as follows:
1. Term. The definition of "Term", as set forth in Exhibit C-1,
Paragraph B, of the Lease, shall be deleted in its entirety and the following
substituted in its place:
"The term of this Lease begins on the Commencement Date and continues
until July 3, 2008, unless terminated prior to such date pursuant to the
terms, covenants, and conditions of this Lease."
SECOND AMENDMENT TO LEASE AGREEMENT PAGE 1
<PAGE> 2
2. Rent. The itemization of "Rent", as set forth in the chart
contained in Exhibit C-2 of the Lease, shall be deleted in its entirety and the
following substituted in its place:
<TABLE>
<CAPTION>
"Year Monthly Rent Rate p.s.f.
----- ------------ -----------
<S> <C> <C>
1 $21,114.33 $ .75
2 $21,114.33 $ .75
3 $42,228.75 $1.50
4-6 $63,343.12 $2.25
7-10 $70,381.25 $2.50
11-13 $77,419.37 $2.75
</TABLE>
3. Early Termination. The provision contained in Exhibit C-1,
paragraph C of the Lease, captioned "Early Termination", shall be deleted from
the Lease for all purposes.
4. Effective Date. For purposes of this Second Amendment, the terms
hereof shall be effective on, and as of, October 1, 1997.
5. IN THE EVENT A CONFLICT ARISES BETWEEN THE PROVISIONS OF THIS
SECOND AMENDMENT AND ANY OTHER PART OF THE LEASE, THIS SECOND AMENDMENT SHALL
MODIFY AND SUPERSEDE SUCH OTHER PART OF THE LEASE TO THE EXTENT NECESSARY TO
ELIMINATE ANY SUCH CONFLICT BUT NO FURTHER. ALL TERMS WHICH ARE DEFINED IN THE
LEASE SHALL HAVE THE SAME MEANING WHEN USED HEREIN.
6. Except as hereby amended or supplemented, all other provisions of
the Lease are hereby confirmed and ratified.
LANDLORD
Fojtasek Industrial Properties,
Ltd., a Texas limited partnership
By: Fojtasek Industrial Properties
Management, Inc., a Texas
Corporation, general partner
By: /s/ JOE FOJTASEK
Printed Name: Joe Fojtasek
Title: President
TENANT
Atrium Companies, Inc., a Delaware Corporation
By: /s/LOU SIMI
Printed Name: Lou Simi
Title: Executive Vice President
SECOND AMENDMENT TO LEASE AGREEMENT PAGE 2
<PAGE> 1
EXHIBIT 10.20
FIRST AMENDMENT TO THE H-R WINDOWS LEASE AGREEMENT
FIRST AMENDMENT TO LEASE AGREEMENT H-R
BETWEEN
FOJTASEK INDUSTRIAL PROPERTIES, LTD., AS LANDLORD,
and
ATRIUM COMPANIES, INC.,
AS TENANT
WHEREAS, on or about July 3, 1995, FOJTASEK INDUSTRIAL PROPERTIES, LTD.,
A TEXAS LIMITED PARTNERSHIP, as Landlord ("Landlord"), and FOJTASEK COMPANIES,
INC., A TEXAS CORPORATION ("Fojtasek"), entered into that certain Lease
Agreement ("Lease") regarding the Leased Premises described in the Lease and
being located at 959 Profit Drive, Dallas, Texas ("Leased Premises");
WHEREAS, subsequent to the execution and delivery of the Lease, Fojtasek
was merged into ATRIUM COMPANIES, INC., A DELAWARE CORPORATION ("Tenant");
WHEREAS, Landlord and Tenant have discussed certain provisions contained
in the Lease which should be revised to reflect the current agreement of the
parties; and
WHEREAS, Landlord and Tenant hereby enter into this First Amendment to
Lease ("First Amendment") as written evidence of their agreement.
NOW, THEREFORE, in consideration of the foregoing, and the mutual
obligations contained herein, Landlord and Tenant agree as follows:
1. Term. The definition of "Term", as set forth in Exhibit C-1,
Paragraph B, of the Lease, shall be deleted in its entirety and the following
substituted in its place:
"The term of this Lease begins on the Commencement Date and continues
until July 3, 2008, unless terminated prior to such date pursuant to the
terms, covenants, and conditions of this Lease."
FIRST AMENDMENT TO LEASE AGREEMENT PAGE 1
<PAGE> 2
2. Rent. The itemization of "Rent", as set forth in the chart
contained in Exhibit C-2 of the Lease, shall be deleted in its entirety and the
following substituted in its place:
<TABLE>
<CAPTION>
"Year Monthly Rent Rate p.s.f.
----- ------------ -----------
<S> <C> <C>
1-3 $31,090.00 $2.00
4-6 $34,976.25 $2.25
7-10 $38,862.50 $2.50
11-13 $42,748.75 $2.75
</TABLE>
3. Effective Date. For purposes of this First Amendment, the terms
hereof shall be effective on, and as of, October 1, 1997.
4. IN THE EVENT A CONFLICT ARISES BETWEEN THE PROVISIONS OF THIS
FIRST AMENDMENT AND ANY OTHER PART OF THE LEASE, THIS FIRST AMENDMENT SHALL
MODIFY AND SUPERSEDE SUCH OTHER PART OF THE LEASE TO THE EXTENT NECESSARY TO
ELIMINATE ANY SUCH CONFLICT BUT NO FURTHER. ALL TERMS WHICH ARE DEFINED IN THE
LEASE SHALL HAVE THE SAME MEANING WHEN USED HEREIN.
5. Except as hereby amended or supplemented, all other provisions of
the Lease are hereby confirmed and ratified.
LANDLORD
Fojtasek Industrial Properties,
Ltd., a Texas limited
partnership
By: Fojtasek Industrial Properties
Management, Inc., a Texas
corporation, general partner
By: /s/ JOE FOJTASEK
Printed Name: Joe Fojtasek
Title: President
TENANT
Atrium Companies, Inc. a Delaware Corporation
By: /s/ LOU SIMI
Printed Name: Lou Simi
Title: Executive Vice President
FIRST AMENDMENT TO LEASE AGREEMENT PAGE 2
<PAGE> 1
EXHIBIT 12.1
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
FIXED CHARGES:
Interest expense ................................ $10,881 $ 4,507 $ 2,615
Implicit interest in rent ....................... 1,446 670 1,052
Amortization of deferred
financing costs ................................. 642 279 138
------- ------- -------
Total fixed charges ............................. 12,969 5,456 3,805
Earnings before provision for income taxes ...... 10,235 8,078 3,393
Fixed charges ................................... 12,969 5,456 3,805
------- ------- -------
Earnings, as defined ............................ 23,204 13,534 7,198
Ratio of earnings to fixed charges .............. 1.8x 2.5x 1.9x
------- ------- -------
</TABLE>
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES OF ATRIUM COMPANIES, INC.
Atrium Door and Window Company of the Northeast, a Connecticut
corporation (the merged companies formerly named Vinyl Building Specialties of
Connecticut, Inc. and Bishop Manufacturing Company, Incorporated) (direct
subsidiary)
Atrium Door and Window Company of New England, a Connecticut
corporation (formerly Bishop Manufacturing Company of New England, Inc.)
(indirect subsidiary)
Atrium Door and Window Company of New York, a Connecticut corporation
(formerly Bishop Manufacturing Company of New York, Inc.) (direct subsidiary)
Atrium Door and Window Company - West Coast, a Texas corporation
(formerly H-R Window Supply, Inc.) (direct subsidiary)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1
<SECURITIES> 27
<RECEIVABLES> 24,984
<ALLOWANCES> 608
<INVENTORY> 16,534
<CURRENT-ASSETS> 43,238
<PP&E> 24,950
<DEPRECIATION> 8,562
<TOTAL-ASSETS> 83,375
<CURRENT-LIABILITIES> 17,109
<BONDS> 100,000
0
0
<COMMON> 0
<OTHER-SE> (34,792)
<TOTAL-LIABILITY-AND-EQUITY> 83,375
<SALES> 186,764
<TOTAL-REVENUES> 186,764
<CGS> 121,301
<TOTAL-COSTS> 121,301
<OTHER-EXPENSES> (1,088)
<LOSS-PROVISION> 480
<INTEREST-EXPENSE> 11,523
<INCOME-PRETAX> 10,235
<INCOME-TAX> 4,068
<INCOME-CONTINUING> 6,167
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,167
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
