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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1998.
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
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ATRIUM COMPANIES, INC.
(Exact name of Registrant as specified in its charter)
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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)
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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 April 15, 1999, the registrant had 100 shares of Common Stock, par
value $.01 per share outstanding.
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ATRIUM COMPANIES, INC. AND SUBSIDIARIES
1998 FORM 10-K
TABLE OF CONTENTS
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ITEM NO. DESCRIPTION PAGE
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PART I
Item 1. Business................................................................ 3
Item 2. Properties.............................................................. 12
Item 3. Legal Proceedings....................................................... 12
Item 4. Submission of Matters to a Vote of Security Holders..................... 12
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters... 13
Item 6. Selected Financial Information.......................................... 13
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 14
Item 8. Financial Statements and Supplementary Data............................. 18
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................... 18
PART III
Item 10. Directors and Executive Officers of the Registrant...................... 19
Item 11. Executive Compensation.................................................. 21
Item 12. Security Ownership of Certain Beneficial Owners and Management.......... 27
Item 13. Certain Relationships and Related Transactions.......................... 28
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......... 31
Signatures.......................................................................... 32
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PART I
ITEM 1. BUSINESS
ALL REFERENCES TO PRO FORMA ASSUMES THAT THE "RECAPITALIZATION" DESCRIBED ON
PAGE 11, IN "SELECTED FINANCIAL DATA" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" OCCURRED ON JANUARY 1, 1998
AND THE FINANCIAL DATA IS THAT OF ATRIUM, WING AND DARBY FOR THE ENTIRE YEAR
ENDED DECEMBER 31, 1998.
THE TERM "WING" REFERS TO WING INDUSTRIES, INC. AND ITS DIRECT PARENT, WING
INDUSTRIES HOLDINGS, INC., AS A COMBINED ENTITY AND THE TERM "DARBY" REFERS TO
R.G. DARBY COMPANY, INC., TOTAL TRIM, INC. AND THEIR DIRECT PARENT, DOOR
HOLDINGS, INC., AS A COMBINED ENTITY, WHICH ENTITIES WERE CONTRIBUTED TO OUR
COMPANY AND BECAME OUR SUBSIDIARIES IN CONNECTION WITH THE RECAPITALIZATION OF
ATRIUM IN 1998.
THE COMPANY
We are one of the largest manufacturers and distributors of residential
windows and doors in the United States based on 1998 pro forma net sales. We
offer a complete product line including aluminum, vinyl and wood windows and
doors to our customers, which include leading national homebuilders and home
center retailers such as Centex, The Home Depot and Lowe's. We have grown
rapidly through a combination of internal growth and by making complementary
acquisitions.
We were founded in 1948 and have become one of the two largest manufacturers
and suppliers of non-wood windows and the third largest manufacturer and
supplier of doors in the United States, based on 1998 pro forma net sales. Our
portfolio of products includes some of the industry's most recognized brand
names including ATRIUM-Registered Trademark- and WING-Registered Trademark-.
We have 29 manufacturing facilities and distribution centers strategically
located in 14 states to service customers on a nationwide basis. We distribute
through multiple channels including direct distribution to large homebuilders
and independent contractors, one-step distribution through home centers and
lumberyards and two-step distribution to wholesalers and dealers who
subsequently resell to lumberyards, contractors and retailers. We believe that
our multi-channel distribution network allows us to reach the greatest number of
end customers and provide nationwide service to those customers.
Our company is vertically integrated with operations that include:
- The extrusion of aluminum and vinyl, which is utilized internally in our
fabrication operations or sold to third parties;
- The manufacture and assembly of window and door units, including
pre-hanging of doors, and sale of such units to wholesalers, lumberyards,
home centers and homebuilders;
- A turn-key installation program in which we supply and install many of our
products, including windows and interior and exterior doors; and
- The sale of finished products to homebuilders, remodelers and contractors
through company-owned distribution centers located across the country.
PRODUCTS
We are one of a few window and door manufacturers that offer a diversified
product line that consists of a full range of aluminum, vinyl and wood windows
and patio doors. Our full product line allows us to differentiate ourselves from
our competition, leverage our distribution system and be well-positioned to
benefit from shifts in product preference. As significant regional product
preferences exist among aluminum, vinyl and wood, a full product line is
important to serve a national customer base effectively. We estimate that 55% of
our 1998 pro forma sales were derived from the sale of windows, 40% from the
sale of doors, and approximately 5% from the sale of other products and
services.
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WINDOWS. Our window products include sliders, double hung, and casement
products and are sold under the ATRIUM-Registered Trademark- and HR brand names.
We sell our products primarily to building contractors and lumberyards through
direct and one-step distribution.
The demand for our aluminum, vinyl and wood products vary by region:
- ALUMINUM--Aluminum windows are the product of choice in the southern
United States due to the regions' warmer weather and more value-conscious
customers. Aluminum is the most appropriate fenestration material for the
region because it provides less thermal efficiency at a lower cost than
either vinyl or wood.
- VINYL--Demand for vinyl windows, particularly in colder climates, has
significantly increased over the last five years as vinyl windows have
gained acceptance as a substitute for wood windows. This trend has been
strengthened as prices for vinyl windows have become more competitive with
wood products and durability and energy efficiency have improved. We
entered the vinyl window market in mid-1995 and have increased sales of
vinyl windows by leveraging the Atrium brand name and our distribution
channels and through acquisitions.
- WOOD--Wood windows have the highest thermal efficiency and highest cost
compared to aluminum and vinyl. Accordingly, wood windows are in demand in
colder regions and in higher end homes. The ATRIUM-Registered Trademark-
name gained wide recognition in the 1970s and 1980s through the success of
our line of wood patio doors. In order to capitalize on this success, we
added a wood window line in 1991 including aluminum-clad and primed wood
windows and patio doors. We have made the strategic decision to minimize
our participation in the wood window business as it is concentrated on the
higher end of our market which is not part of our core focus.
DOORS. We estimate that our revenues from the sale of doors in 1998,
represented approximately 6% of the total U.S. door market. We estimate that
approximately 85% of our door sales were generated from interior doors and 15%
from exterior doors. Our door products are sold under the ATRIUM-Registered
Trademark-, WING-Registered Trademark- and SUPER MILLWORK-Registered Trademark-
brand names. We sell our products primarily to home center retailers through
one-step distribution.
- INTERIOR DOORS--There are two broad categories of interior doors: bi-fold
doors and passage doors. Bi-fold doors are hinged folding doors and
passage doors are the traditional doors used to connect rooms. There are
also two types of interior wood bi-fold doors and passage doors: solid
wood doors and hollow core doors. Solid doors are made completely of wood
while hollow core doors consist of two door facings glued to a wood frame
and are hollow on the inside. Both solid wood and hollow core passage
doors are sold one of two ways, either as slabs or as pre-hung units.
Slabs refer to the door itself and pre-hung units refer to slab doors
already hinged to a door frame at the factory.
- EXTERIOR DOORS--Our exterior door product offering consists primarily of
patio doors and pre-hung steel entry doors.
We estimate that 45% of our 1998 door sales were generated from the sale of
pre-hung doors, 30% from solid wood doors, 10% from hollow core doors and 15%
from patio doors. We estimate that 60% of all passage doors sold through home
center retailers are sold as pre-hung units, mainly because of the ease of
installation for the do-it-yourself consumer. We are one of the few
vertically-integrated companies that both manufactures and pre-hangs the doors.
We believe that sales of our pre-hung door line will continue to grow and will
represent a larger portion of our total door sales in the future.
OTHER PRODUCTS AND SERVICES. We also manufacture and distribute other
products including cafe doors, columns and shutters. We manufacture two types of
cafe doors as well as louvered shutters. The shutters can be used both for
interior and exterior applications. Columns come in many styles and are
purchased from domestic suppliers.
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We also offer a turnkey total installation program in which we supply and
install all interior doors, exterior doors, mouldings, locks, hardware, wire
shelving, bath accessories, plate glass mirrors, and toilet partitions. This
concept allows a developer to transfer the risk associated with retaining
reliable work crews and provides protection from cost overruns. We believe that
developers view this as a value added service and are willing to pay a premium
price for it.
SALES, MARKETING AND DISTRIBUTION
One of the key components of our marketing strategy is to capitalize on the
complementary nature of our distribution channels. Historically, the majority of
our revenues of window business have been derived from sales to remodelers,
homebuilders, lumberyards and wholesalers, while through our door business we
have targeted principally home center retailers. We plan to broaden our product
offerings principally by selling doors to our traditional window customers and
windows to our traditional door customers.
We have a multi-channel distribution network that includes direct, one-step
and two-step distribution as well as 8 company-owned distribution centers. Our
distribution strategy maximizes our market penetration and reduces reliance upon
any one distribution channel for the sale of our products. Furthermore, as a
manufacturer and distributor of windows and doors for more than four decades, we
have developed long-standing relationships with key distributors in each of our
markets. In each instance, we seek to secure the leading distributors in each
market. If we cannot secure a top-tier distributor in a desired geographic
market, we will consider the acquisition or start up of our own distribution
center in such market.
We also sell windows to major home center retailers and smaller
regional-based retail centers. Although these have become more important to us
because they target the repair and remodeling market, they still accounted for
less than one-fifth of our total window sales in 1998. One of our goals is to
increase our window business' market share in the repair and remodeling market
by capitalizing our door business' strong relationship with home center
retailers.
We utilize the following distribution channels:
- Direct Distribution: We sell our windows and doors directly to
contractors, remodelers and other homebuilders without the use of an
intermediary. By selling directly to builders, we are able to increase our
gross profits while at the same time offering builders more favorable
pricing.
- One-Step Distribution: We sell our finished windows directly to
lumberyards, building products distributors, home centers, and
company-owned distribution centers, which will then sell to contractors,
homebuilders or remodelers. While it is not required that lumberyards or
building products distributors carry our products on an exclusive basis,
it is not unusual for them to do so. In addition, they generally purchase
based on orders, keeping little or no inventory. One-step distribution
tends to be used most often in metropolitan areas.
- Two-Step Distribution: Two-step distribution is the selling of completed
doors and windows to a wholesaler or distributor who then sells the
products to lumberyards, building products retailers and home centers.
These intermediaries will in turn sell the windows and doors to the
homebuilders, homeowners or remodelers. The wholesalers and distributors
tend to maintain product inventory in order to service the needs of their
client base for small quantities. Essentially, these middlemen sell to
customers who do not guarantee sufficient volume to purchase directly from
us. Two-step distribution is more common in rural areas since urban areas
are serviced by home centers and large lumberyards.
- Company-Owned Distribution Centers: We maintain company-owned
distribution facilities in key markets where available independent
distributors are weak or where we have been unable to make adequate
arrangements with existing distributors. Company-owned distribution
centers essentially act as one-step distributors.
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To enhance our market coverage and leverage our considerable brand equity,
we currently market our windows and patio doors under primarily two brand names,
ATRIUM-REGISTERED TRADEMARK- and H-R WINDOWS. Due to the fact that we enjoy such
significant national name recognition at both the building trade and consumer
levels, we decided to bring the product lines of almost all our other brands
under the ATRIUM-REGISTERED TRADEMARK- name. We have now completed rolling our
SKOTTY and BISHOP product lines, as well as those from the Gentek acquisition in
1997, into the ATRIUM-REGISTERED TRADEMARK- brand. We expect to extend the
ATRIUM-REGISTERED TRADEMARK- brand to other products, as well as to appropriate
product lines acquired in the future.
WINDOWS. We market our window products through a sales force consisting of
approximately 75 company salaried and commissioned sales representatives and
approximately 100 independent commissioned sales representatives. Each of our
divisions is supported by a sales manager, direct sales representatives and
independent representatives. The sales managers coordinate marketing activities
among both company and independent representatives. Our sales representatives
focus primarily on direct sales to homebuilders, remodelers and contractors,
while independent sales representatives sell to home centers, lumberyards and
wholesalers. In general, independent sales representatives carry our window and
door products on an exclusive basis, although they may carry other building
products from other manufacturers.
Our full product line has also been an asset to our sales force, especially
when we are exploring a new distribution channel opportunity. Window
distributors have come to recognize us as a WINDOW supplier, as opposed to an
ALUMINUM window supplier or a VINYL window supplier. The distributors frequently
do not buy the whole range of products since regional tastes vary and
distributors tend to work according to regions. However, these distributors
value our ability to provide these products should they ever demand them.
We believe 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
us to build a large and loyal customer base that includes companies such as
Centex Homes, one of the nation's largest home-builders, and The Home Depot, the
nation's largest home center retailer.
DOORS. Our marketing strategy centers primarily on the fact that we can
supply home center retailers with our own complete line of wood doors. We are
the only company in the industry that is able to provide this convenience. The
"one-stop shopping" we provide enables retailers to reduce their transaction
costs, as they have to pay only one invoice, work with one sales representative,
and schedule the receipt of goods with only one company. Our goal is to be the
"preferred supplier" for the door aisle of home center retailers.
Our pricing/product offering strategy focuses on offering the end consumer
lower price points without sacrificing profit margins. We have executed this
strategy in two steps. First, we have consolidated the current product offerings
in order to simplify the overall offering and reduce inventory levels. Second,
on the remaining product offerings, we offer good, better and best products to
the market. Certain of the products in the offering have been redesigned (with
particular emphasis on taking costs out of the products) in order to have an
offering with three distinct price points. This promotes more "trading up" to
our higher quality products by the customer and displays a complete product
line.
For door sales we use an internal sales force consisting of seven people. In
addition, senior executives are actively involved with both sales and customer
service. This group is segregated between national and regional accounts.
Approximately 80% of our door business sales are made to national retail home
center chains. The internal sales force was realigned in early 1995 reducing the
sales staff from 18 to 7 while increasing the number of merchandise managers. As
a result, we have a smaller, more focused sales force which is better structured
to give the home centers the attention required at the store level.
To assist the sales force and provide better service to its customers, we
have over 20 merchandising managers. The merchandising managers provide home
center retailers with in-store services such as
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product knowledge seminars, store product resets (to straighten stock and fix
displays), sales analysis and in-store merchandising. They also work with the
retailers to resolve claims issues and to handle product returns. This is a
significant advantage to us, as it is a level of service very few suppliers can
offer.
Promotional efforts are focused on the home center industry and its
customers. Cooperative advertising programs are offered to certain of our major
customers, giving us exposure in our customers' local media (e.g., newspaper,
radio, television) in order to generate sales at individual locations. We also
invest in in-store displays showing operating door units and photographs of
in-room settings in order to generate sales once customers are in the stores.
Product knowledge classes are frequently held to inform store employees about
the features and benefits of each product. Award winning packaging and in-store
signage are used to further general awareness within the stores. We also offer
retailers a video showing how quickly a homeowner can install a bi-fold door
using only basic hand tools.
OPERATIONS
We manufacture and sell our windows through a vertically integrated process
that includes extrusion, fabrication and distribution. We realize many
operational and cost benefits from our vertically integrated window operations.
By extruding aluminum and vinyl components in-house, we are able to secure a
low-cost, reliable source of extrusions, control product quality and reduce
inventory levels. The integration of extrusion and fabrication operations gives
us significantly more control over our manufacturing costs. We continually work
to achieve cost savings through increased capacity utilization at our efficient
facilities, adoption of best practices, reduction of cost of materials,
rationalization of product lines and reduction of inventory.
We continue to build on what we believe is our position as one of the
industry's lowest cost manufacturers. Because of the scale of our operations, we
are able to negotiate price concessions for our raw materials, including glass
and vinyl. This is an important consideration since total cost of new materials
typically comprises 45% to 50% of revenue.
We have been manufacturing wood products in Texas since 1953 and today have
three primary manufacturing facilities in the state. As home centers (such as
The Home Depot and Lowe's) have expanded throughout the country, we have
strategically established or acquired seven new manufacturing operations in
Alabama, Ohio, New York, North Carolina, Pennsylvania, Illinois and Texas in
order to serve these customers more efficiently. We believe we are one of the
only door suppliers which can service the home centers on a national basis. As
the home centers continue to expand into new markets, we expect to open new
facilities to serve these regions.
As part of the integration of Wing and Atrium, the Atrium Wood patio door
division is merging its manufacturing, distribution and sales functions with
Wing. We are currently fitting a facility to locate all of Atrium Wood's and a
portion of Wing's manufacturing operations. Due to the fact that both divisions
sell over 80% of their products to the Home Centers, we believe significant
benefits can be realized from the synergies between the sales and distribution
functions of Atrium Wood and Wing. Both service the same customers and
distribute to the same retail locations. This integration is expected to be
completed during the fourth quarter of 1999.
INDUSTRY OVERVIEW
In 1998, new construction spending in the United States totaled over $550
billion, of which residential and commercial spending totaled $250 billion and
$300 billion, respectively. Within the residential construction market, new
construction spending and remodel and replacement spending totaled $170 billion
and $80 billion, respectively. The residential construction market consists of
single-family and multi-family housing construction. In 1998, housing starts in
the United States totaled approximately 1.5 million, of which 1.2 million were
single-family homes and 0.3 million were multi-family homes. During 1998,
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approximately 91% of Atrium's window and door sales were to the single-family
housing construction market, and the remaining 9% of sales were to the
multi-family housing construction market.
We believe that, in 1998, United States residential window and door
expenditures were approximately $10.0 billion, of which new construction and
remodel and replacement expenditures represented approximately $4.3 billion and
$5.7 billion, respectively.
The domestic window market has grown to more than 58.2 million in unit sales
in 1998, and has generally outpaced the growth in the domestic building
materials industry. The domestic door market has grown more than 10% in sales
over the last five years. According to F.W. Dodge, the U.S. residential door
market represents more than 58.0 million units annually.
WINDOWS. The residential window industry can be divided into two end-use
segments: new construction (an estimated 18.7 million windows shipped in 1998)
and repair and remodeling (approximately 39.5 million windows sold in 1998). We
believe that the repair and remodeling segment will continue to experience
strong growth due to the strength of sales of existing homes and the increase in
the average age of homes from 23 years to 28 years in the last decade. We
believe the expected growth in this segment represents an especially attractive
opportunity to leverage existing relationships with the home center retailers.
The home center industry is one of the fastest growing retail sectors in the
United States. According to the National Home Center News, the U.S. retail home
improvement market is expected to grow from $150.0 billion in 1998 to over $170
billion by the year 2000.
DOORS. Demand for doors is derived from three principal segments: new
residential construction, repair and remodeling and commercial construction. We
are primarily affected by repair and remodeling expenditures as our products are
predominantly sold at home centers that cater to the "do-it-yourself" market and
to the smaller builders who principally do remodeling work. We estimate that
interior doors sold to the repair and remodeling segment constitute at least
one-third of all interior doors sold in the United States. We believe that the
repair and remodeling segment will continue to experience strong growth since
approximately three-quarters of total housing transactions are sales of existing
homes.
COMPETITION
The residential window and door industry is highly fragmented. With few
exceptions, competitors are privately-owned, regional companies with sales under
$100 million. On a national basis we compete with a few national companies in
different regions, products, distribution channels and price points, but do not
compete against any single company across all of these areas. We compete with
various other companies in specific regions within each market.
- WINDOWS--ALUMINUM AND VINYL. Our major competitors for the sale of
aluminum windows are Reliant Building Products, Inc. and Caradon
Better-Bilt Inc. In the vinyl window and door segment, there is no
dominant manufacturer that operates on a national basis. 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. Our major
competitors for the sale of vinyl windows are SilverLine Building
Products, Simonton Windows and Milgard Manufacturing Inc. In addition, we
compete with a number of regional manufacturers that sell directly to
repair and remodeling contractors.
- WINDOWS AND PATIO DOORS--WOOD. 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. Our wood windows
and doors are sold at a medium price point and primarily through home
centers throughout the United States and direct to builders. We have many
competitors at our price point in the wood window and door segment,
including Kolbe & Kolbe Millwork Co. Inc. and Hurd Millwork Co. Inc.
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DOORS. We estimate that approximately 60% of all interior passage doors
sold through home centers are pre-hung. We expect this percentage to grow due to
the convenience and ease of installation of pre-hung doors. The pre-hung door
industry is very fragmented and consists primarily of hundreds of small
companies that do not manufacture doors and who have annual sales of $10.0 to
$30.0 million each. These companies are finding it increasingly difficult to
compete due to their lack of manufacturing capability. Our key competitors are
Premdor, Inc. and Jeld Wen, both of which manufacture and pre-hang doors. Other
competitors include Steves and Sons and Haley Bros.
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 our results of
operations. We purchase raw materials, 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 our operating margins. We historically mitigated the effects of these
fluctuations over the long-term by passing through price increases to our
customers and through other means. For example, we enter into forward
commitments for aluminum billet to hedge against price changes, see the
footnotes to our consolidated financial statements for the year ended December
31, 1998. The primary raw materials used in the production of our windows and
doors are readily available and are procured from numerous suppliers. Currently,
wood is purchased through multiple sources from around the world, with little
dependence on one company or one country.
SEASONALITY
The new home construction market and the market for external repairs and
remodeling in northern climates are seasonal, with increased related product
sales in the second and third quarters. The market for interior repairs and
remodeling in northern climates tends to grow in the first and fourth quarters.
Although this results in seasonal fluctuations in the sales of certain of our
products, the complementary nature of our window and door business' selling
seasons helps mitigate this seasonality.
CYCLICALITY
Demand in the window and door manufacturing and distribution industry is
influenced by new home construction activity and the demand for repair and
remodeling. For the year ended December 31, 1998, we believe that approximately
42% of our pro forma sales were related to new home construction. Trends in the
housing sector directly impact our financial performance. Accordingly, the
strength of the U.S. economy, the age of existing home stock, job growth,
interest rates, consumer confidence and the availability of consumer credit, as
well as demographic factors, such as inter/intra-state migration of the U.S.
population have a direct impact on us. Cyclical declines in new housing starts
may adversely impact our business.
EMPLOYEES
We employ approximately 3,200 persons, of whom approximately 3,150 are
employed at our manufacturing facilities and distribution centers and
approximately 50 are employed at corporate headquarters. Approximately 1,200 of
our hourly employees are covered by collective bargaining agreements. We entered
into collective bargaining agreements in 1998 with the United Needle and
Industrial Trade Employee Union, SWRJB, ACTWU, AFL-CIO-CLC, covering certain
employees at the Atrium Aluminum, H-R Windows, Atrium Wood and Extruders
manufacturing facilities. All of these collective bargaining agreements expire
in May, 2001. In addition, we have collective bargaining agreements with The
Sheet Metal International Association Local Union No. 54, due to expire on
September 30, 2001, for our Kel-Star
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operations and Local Union 2743, Southern Council of Industrial Workers,
Chartered By United Brotherhood of Carpenters and Joiners of America, AFL/CIO,
due to expire on October 6, 2001, for our Woodville Extruders operations. There
are no union affiliations in connection with any of our other divisions. We
believe that our relationship with our employees is good.
BACKLOG AND MATERIAL CUSTOMERS
We have no material long-term contracts. Orders are generally filled within
5 to 7 days of receipt. Our backlog is subject to fluctuation due to various
factors, including the size and timing of orders for our products and is not
necessarily indicative of the level of future revenue.
Our sales are concentrated with one of the leading home center retailers,
Home Depot. For the year ended December 31, 1998, Home Depot accounted for
approximately 23% of our pro forma net sales. No other customer accounted for
more than 10% of our pro forma net sales.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
We are 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. We do not expect
ongoing compliance with such provisions to have a material impact on our
earnings or competitive position in the foreseeable future. Additionally, no
significant capital expenditures are anticipated related to ongoing compliance
with such provisions. However, the applicable requirements under the law are
subject to amendment, and to the imposition of new, other, or additional
requirements and to changing interpretations of agencies or courts. We cannot
assure that new, other or additional requirements would not be imposed or that
expenditures, including material expenditures, would not be required to comply.
We are 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 have been assessed, and we believe that we have made adequate
provision for these costs such that they will have no material adverse effect
upon our financial condition or our operations. We cannot be certain that
significant capital expenditures will not become necessary for investigation and
cleanup of environmental conditions which are currently unknown.
We have been named as a 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 costs and in some cases, damages for personal injury or property damage.
Given the uncertain nature of liability under CERCLA for Superfund sites, and
uncertainties regarding factual circumstances, the remedy to be implemented, and
other factors, we cannot determine with certainty the extent of our liability,
if any. However, we do not believe, based upon the information available at this
time, that the outcome of the matters discussed above will result in liability
which exceeds the limited amount of our alleged contribution to the respective
sites, and we do not believe that there will be a material adverse effect on our
financial condition, results of operations or liquidity.
RECENT DEVELOPMENTS
RECAPITALIZATION
On October 2, 1998, GE Investment Private Placement Partners II, a Limited
Partnership ("GEIPPPII"), which was formed by GE Investment Management
Incorporated, a wholly-owned subsidiary of General Electric Company, and
Ardshiel, Inc. ("Ardshiel"), a private equity firm, and certain of its
affiliates, acquired Atrium in a transaction valued at $225.0 million. In
connection with the Atrium acquisition, GEIPPPII and Ardshiel recapitalized Wing
and Darby and combined them with Atrium. As part of the recapitalization,
through a newly-formed company named D and W Holdings, Inc. ("Parent" or "D and
W"), GEIPPPII and Ardshiel contributed to Atrium $50.0 million of contributed
equity from the sale of common stock, approximately $52.0 million in the implied
value of the Wing and Darby businesses
10
<PAGE>
and $45.0 million of contributed equity funded by the issuance of 12% senior
discount debentures (the "Discount Debentures") by Atrium Corporation ("Atrium
Corp."), our direct holding company. The remaining sources of funds were
financed with a $205.0 million senior secured credit facility consisting of a
$30.0 million revolver ($2.0 million drawn at closing), a $75.0 million term
loan B, and a $100.0 million term loan C (of which approximately $29.1 million
was repaid 36 days after closing). The revolving credit facility, term loan B
and term loan C mature in June 2004, June 2005 and June 2006, respectively. The
transactions described in this paragraph are referred to in this 10-K as the
"1998 Recapitalization" or "Recapitalization."
DELTA ACQUISITION
On January 27, 1999, the Company acquired certain assets of Delta Millwork,
Inc., a privately held door pre-hanger located in Orlando, Florida, with 1998
sales of $8.8 million. The Company financed the acquisition through its
revolving credit facility. The results of operations for the acquired business
will be included in the Company's consolidated financial statements beginning
January 27, 1999.
MANAGEMENT CHANGE
On April 9, 1999, the Company completed a separation agreement with Randall
S. Fojtasek, President and Chief Executive Officer, whereby Mr. Fojtasek
resigned from the Company effective March 31, 1999. The Board of Directors has
nominated Jeff L. Hull, Executive Vice President and Chief Financial Officer,
and Ken L. Gilmer, Executive Vice President and Chief Operating Officer, to
oversee day-to-day operations and report directly to the Executive Committee of
the Board of Directors. The Company expects to take a charge of approximately
$1,750 in the first quarter of fiscal year 1999 for severance benefits related
to this management change.
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.
11
<PAGE>
ITEM 2. PROPERTIES
Our operations are conducted at the owned or leased facilities described
below:
<TABLE>
<CAPTION>
CAPACITY
(SQUARE) OWN/
LOCATION PRINCIPAL USE FEET LEASE
- ------------------------------- ---------------------------------------------------------- ---------- ---------
<S> <C> <C> <C>
Dallas, Texas*................. Fabrication of aluminum windows 186,000 Lease
Fabrication of wood patio doors 266,000 Lease
Fabrication of vinyl windows 90,000 Lease
Irving, Texas.................. Fabrication of aluminum windows 147,218 Own
Extrusion die manufacturing 1,400 Own
Irving, Texas.................. Distribution of all window types 22,000 Own
Fabrication of aluminum patio doors 98,000 Own
Wylie, Texas................... Extrusion of aluminum 100,000 Own
Carrollton, Texas.............. Extrusion of vinyl 25,200 Lease
Phoenix, Arizona............... Distribution of aluminum windows 44,743 Lease
Las Vegas, Nevada.............. Distribution of aluminum windows 30,400 Lease
Woodville, Texas............... Fabrication of aluminum windows and storm doors 180,000 Lease
Extrusion of aluminum 120,000 Lease
San Antonio, Texas............. Distribution of aluminum windows 10,000 Lease
Anaheim, California............ Fabrication of vinyl windows 80,000 Lease
Union City, California......... Distribution of vinyl windows 10,000 Lease
Portland, Oregon............... Distribution of vinyl windows 10,000 Lease
Salt Lake City, Utah........... Distribution of vinyl windows 10,000 Lease
Clinton, Massachusetts......... Fabrication of vinyl windows 31,000 Own
Bridgeport, Connecticut........ Fabrication of vinyl windows 75,000 Lease
Farmingdale, New York.......... Distribution of vinyl windows 6,000 Lease
Greenville, Texas.............. Manufacture of solid wood and hollow core bi-fold and
passage doors; pre-hanging 180,000 Own
Greenville, Texas.............. Door finishing operation; custom door manufacture 30,000 Lease
Hanover Park, Illinois......... Manufacture of hollow core bi-fold and passage doors;
pre-hanging; warehouse 73,000 Lease
Allentown, Pennsylvania........ Manufacture of hollow core bi-fold and passage doors; door
pre-hanging; warehouse 105,000 Lease
Mt. Pleasant, Texas............ Door manufacturing 110,000 Lease
Cleveland, Ohio................ Door pre-hanging; warehouse 30,000 Lease
Charlotte, North Carolina...... Door pre-hanging; warehouse 40,000 Lease
Florence, Alabama*............. Door pre-hanging; warehouse 60,000 Lease
</TABLE>
- ------------------------
*Leased from affiliates of certain stockholders. See "Certain Relationships and
Related Transactions-- Facility Leases."
We maintain our corporate headquarters in Dallas, Texas. The facilities
provide approximately 11,000 square feet and are leased for a seven-year term
expiring in 2004.
We believe that our manufacturing plants are generally in good operating
condition and are adequate to meet future anticipated requirements.
ITEM 3. LEGAL PROCEEDINGS
We are involved from time to time in litigation arising in the ordinary
course of our business, none of which is expected to individually have a
material adverse effect on us.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
12
<PAGE>
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 income statement data set forth below for the year ended
December 31, 1995, the periods ended October 25, 1996 and December 31, 1996 and
the years ended December 31, 1997 and 1998, and the selected balance sheet data
at December 31, 1995, 1996, 1997 and 1998 were derived from the audited
financial statements of Atrium as described further below. The selected
financial data as of and for the year ended December 31, 1994, were derived from
Atrium's unaudited financial statements, which in the opinion of management
reflect all adjustments necessary for a fair presentation of results for such
periods. The selected historical financial 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 10-K.
Prior to October 2, 1998, Atrium's historical financial statements as filed
with the Securities and Exchange Commission included its operations and the
operations of its subsidiaries. On October 2, 1998, pursuant to the
Recapitalization, D and W Holdings, Inc. contributed the assets of Wing and
Darby to Atrium.
As Wing was determined to be the accounting acquiror in a "reverse
acquisition", the historical financial statements of Atrium (prior to October 3,
1998) were replaced with the historical financial statements of Wing. As a
result, the statement of operations for 1998 only includes the operations of
Atrium and Darby from October 3 through December 31. The statements of
operations for the years ended December 31, 1994, 1995 and 1997, the periods
ended October 25, 1996 and December 31, 1996 only include the operations and
accounts of Wing and its predecessor. Wing was acquired by it present
controlling shareholders on October 25, 1996. The December 31, 1998 balance
sheet includes the accounts of Atrium, Wing, Darby and each of their respective
subsidiaries. The December 31, 1994, 1995, 1996 and 1997, and October 25, 1996
balance sheets only include the accounts of Wing and its predecessor.
<TABLE>
<CAPTION>
PREDECESSOR
---------------------------------
<S> <C> <C> <C> <C> <C> <C>
PERIOD PERIOD
ENDED ENDED YEAR ENDED YEAR ENDED
OCTOBER 25, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1996 1996 1997 1998
--------- --------- ----------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
INCOME STATEMENT DATA:
Net sales.................................... $ 72,496 $ 68,481 $ 62,880 $ 13,200 $ 99,059 $ 211,059
Income before income taxes................... 179 491 1,789 532 1,391 159,140
Net income (loss)............................ 35 279 1,119 303 696 (2,819)
BALANCE SHEET DATA (END OF PERIOD):
Total assets................................. $ 20,740 $ 18,515 $ 19,966 $ 36,404 $ 55,383 $ 359,869
Total debt................................... 10,296 8,522 8,154 20,489 32,238 179,227
OTHER DATA:
EBITDA(1).................................... $ 1,777 $ 2,374 $ 3,014 $ 1,166 $ 5,836 $ 14,732
Depreciation and amortization................ 689 844 716 260 1,492 7,950
Interest expense............................. 909 1,039 509 374 2,953 9,081
</TABLE>
- ------------------------------
(1) While EBITDA is not intended to represent cash flow from operations as
defined by GAAP and should not be considered as an indicator of operating
performance or an alternative to cash flow or operating income (as measured
by GAAP) or as a measure of liquidity, it is included herein to provide
additional information with respect to the ability of Atrium to meet its
future debt service, capital expenditures and working capital requirements.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations." Atrium believes EBITDA provides investors and analysts in
the building materials industry the necessary information to analyze and
compare historical results of Atrium on a comparable basis with other
companies on the basis of operating performance, leverage and liquidity.
However, as EBITDA is not defined by GAAP, it may not be calculated or
comparable to other similarly titled measures within the building materials
industry.
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements of Atrium (after the Recapitalization) which
appears elsewhere in this 10-K.
CERTAIN FORWARD-LOOKING STATEMENTS
This 10-K contains certain forward-looking statements (as such term is
defined in the Private Securities Litigation Reform Act of 1995) that involve
substantial risks and uncertainties relating to the Company that are based on
the beliefs of the management. When used in this 10-K, 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 risks and uncertainties regarding 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.
ATRIUM (AFTER THE RECAPITALIZATION)
Prior to October 2, 1998, Atrium's historical financial statements as filed
with the Securities and Exchange Commission included its operations and the
operations of its subsidiaries. On October 2, 1998, pursuant to the
Recapitalization, D and W Holdings, Inc. contributed the assets of Wing and
Darby to Atrium.
As Wing was determined to be the accounting acquiror in a "reverse
acquisition", the historical financial statements of Atrium (prior to October 3,
1998) were replaced with the historical financial statements of Wing. As a
result, the statement of operations for 1998 only includes the operations of
Atrium and Darby from October 3 through December 31. The statements of
operations for the years ended December 31, 1998 and 1997, the periods ended
October 25, 1996 and December 31, 1996 only include the operations and accounts
of Wing and its predecessor. Wing was acquired by it present controlling
shareholders on October 25, 1996.
14
<PAGE>
RESULTS OF OPERATIONS (IN THOUSANDS, EXCEPT PERCENTAGES)
The following table sets forth for the periods indicated, information
derived from Atrium's consolidated statements of operations expressed as
percentage of net sales.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net sales................................................................................ 100.0% 100.0% 100.0%
Cost of goods sold....................................................................... 75.4 79.0 75.2
--------- --------- ---------
Gross profit............................................................................. 24.6 21.0 24.8
Selling, delivery, general and administrative expenses................................... 18.8 15.8 20.4
Amortization expense..................................................................... 1.0 0.8 0.2
Stock option compensation expense........................................................ 1.8 -- --
--------- --------- ---------
Income from operations................................................................... 2.9 4.4 4.2
Interest expense......................................................................... 4.3 3.0 1.2
Other income, net........................................................................ 0.3 -- --
--------- --------- ---------
Income (loss) before income taxes and extraordinary charge............................... (1.1) 1.4 3.1
Provision (benefit) for income taxes..................................................... (0.1) 0.7 1.2
--------- --------- ---------
Income (loss) before extraordinary charge................................................ (1.0) 0.7 1.9
Extraordinary charge, net of income tax benefit.......................................... 0.3 -- --
--------- --------- ---------
Net income (loss)........................................................................ (1.3)% 0.7% 1.9%
--------- --------- ---------
--------- --------- ---------
</TABLE>
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
NET SALES. Net sales increased by $112,000 from $99,059 in 1997 to $211,059
in 1998. The increase was due primarily to a combined increase in net sales of
$87,909 from the addition of the Company and Darby in connection with the
Recapitalization in October 1998 and the acquisition of Super Millwork in
November 1997. Additionally, net sales at Wing increased 24.3% due to the
increase in sales to the large home center retail chains.
COST OF GOODS SOLD. Cost of goods sold decreased from 79.0% of net sales
during 1997 to 75.4% of net sales during 1998. The decrease was due largely to
the addition of the Company and Darby in the fourth quarter of 1998, as these
divisions operate at higher margins than Wing.
SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, delivery,
general and administrative expenses increased $24,083 from $15,671 (15.8% of net
sales during 1997) to $39,754 (18.8% of net sales during 1998). The increase was
primarily due to the inclusion of selling, delivery, general and administrative
expenses of Super Millwork for twelve months and the Company and Darby for three
months. Additionally, selling and delivery expenses increased due to the
increase in net sales.
AMORTIZATION EXPENSE. Amortization expense increased $1,359 from $774
during 1997 to $2,133 during 1998. The increase was largely due to the
amortization of goodwill recorded in connection with the Recapitalization.
STOCK OPTION COMPENSATION EXPENSE. Stock option compensation expense
increased $3,851 from $0 during 1997 to $3,851 during 1998. Stock option
compensation expense consisted of $2,813 representing the difference between the
fair market value of common stock of Parent and the exercise price associated
with a warrant granted to an executive of the Company in connection with the
Recapitalization, charges associated with previously issued stock options at
exercise prices below the fair value of the underlying common stock and charges
associated with certain variable options.
INTEREST EXPENSE. Interest expense increased $6,128 from $2,953 during 1997
to $9,081 during 1998. The increase in interest expense was due primarily to an
increase in average outstanding debt related to the Loans issued and Senior
Subordinated Notes assumed in connection with the Recapitalization. In addition,
interest expense included the amortization of deferred financing costs recorded
in connection with the recapitalization.
15
<PAGE>
EXTRAORDINARY CHARGE. Extraordinary charge increased $639 from $0 during
1997 to $639 during 1998. Extraordinary charge represents the write-off of
certain deferred financing costs incurred in the placement of Wing's debt, which
was repaid in connection with the Recapitalization. This amount is net of income
tax benefit of $392.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
NET SALES. Net sales increased by $22,979 from $76,080 in 1996 to $99,059
in 1997. The increase was primarily due to the increase in sales to the large
home center retail chains. The two largest home center retailers, which are
Wing's top two customers, have experienced sales growth in excess of 25%.
Additionally, the increase included $4,140 from the Super Millwork acquisition
in November 1997.
COST OF GOODS SOLD. Cost of goods sold increased from 75.2% of net sales
during 1996 to 79.0% of net sales during 1997. The increase is largely the
result of significant start-up costs incurred at the Cleveland prehanging
facility, the Allentown, Pennsylvania prehanging and hollow core manufacturing
facility and transition costs associated with moving a portion of the sales
volume attributable to the Super Millwork acquisition to the Allentown facility.
SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, delivery,
general and administrative expenses increased $158 from $15,513 (20.4% of sales
during 1996) to $15,671 (15.8% of sales during 1997). The decrease as a
percentage of sales is primarily attributable to lower freight costs per unit as
additional prehanging/distribution facilities are opened. Additionally, retail
store display expenses were reduced as a result of the implementation of a lower
cost display program.
AMORTIZATION EXPENSE. Amortization expense increased $649 from $125 during
1996 to $774 during 1997. The increase was due primarily to the amortization of
goodwill recorded in connection with the October 1996 acquisition of Wing.
INTEREST EXPENSE. Interest expense increased $2,070 from $883 during 1996
to $2,953 during 1997. The increase was due largely to an increase in average
outstanding debt which resulted from the incurrence of additional debt related
to the Wing acquisition in October 1996 and the Super Millwork acquisition in
November 1997, as well as borrowings under the Wing Credit Facility. Interest
expense during 1996 and 1997 includes amortization of related deferred financing
costs.
LIQUIDITY AND CAPITAL RESOURCES
Cash generated from operations and availability under the Revolving Facility
are the Company's principal sources of liquidity. During 1998, cash was
primarily used in connection with the Recapitalization and for capital
expenditures. Net cash used in operating activities was $8,024 during 1998
compared to cash provided by operations of $1,148 during 1997. The increase in
cash used in operations was primarily attributable to a decrease in net income
and an increase in inventories. Cash flows from financing activities increased
from cash provided of $10,609 during 1997 to $133,174 during 1998. The increase
was due primarily to borrowings and contributions from Corp. made in connection
with the Recapitalization.
OTHER CAPITAL RESOURCES
In connection with the Recapitalization, the Company entered into a Credit
Agreement providing for a Revolving Facility in the amount of $30,000, of which
$5,000 is available under a letter of credit sub-facility. The Revolving
Facility has a maturity date of June 30, 2004. At December 31, 1998, the Company
had $23,273 of availability under the Revolving Facility, net of borrowings of
$4,118 and outstanding letters of credit totaling $2,609.
CAPITAL EXPENDITURES
The Company had cash capital expenditures (exclusive of the
Recapitalization) of $2,221 during 1998, compared to $1,355 and $1,083 during
1997 and 1996, respectively. The increase is largely due to the addition of the
Company and Darby for the last three months of 1998. The Company expects capital
expenditures (exclusive of acquisitions) in 1999 to be approximately $9,500,
however, actual capital
16
<PAGE>
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 31, 1999,
the Company had $16,991 available for borrowings under the Revolving Facility,
net of borrowings of $10,700 and outstanding letters of credit totaling $2,609.
YEAR 2000
Many existing computer systems and applications and other control devices
are coded to use only two digits (rather than four) to identify a year in the
date code field. These date code fields will need to accept four digit entries
to distinguish 21st century dates from 20th century dates. Many computer
programs and systems, including certain programs and systems utilized by us, are
highly dependent upon financial and other data that, based on the program's or
system's inability to distinguish between the Year 2000 and other century-end
dates, could be misreported or misinterpreted and cause significant errors. If
not corrected, many computer applications could fail when processing data
related to the Year 2000. In addition, two interacting systems, applications or
devices, each of which has individually been fixed so that it will individually
handle Year 2000 issue, could nonetheless suffer "integration failure" because
their method of dealing with the problem is not compatible.
This Year 2000 issue impacts our owned or licensed computer systems and
equipment and the computer systems and equipment of third parties upon which we
rely. The Year 2000 problem could cause these systems to fail, err, and, in the
case of third party systems, become incompatible with our systems. Therefore, if
we, or a significant third party fail to become Year 2000 ready, or if the Year
2000 problem causes our systems to become internally incompatible or
incompatible with any key third party systems, our business could suffer
material disruptions.
We are assessing the impact of the Year 2000 problem and have or intend to
modify portions of our hardware and software so that our computer systems will
function properly with respect to date in the Year 2000 and thereafter. We have
reviewed and continue to review each operating unit for the appropriate
information system enhancements, with respect to both Year 2000 problem as well
as strategic system upgrade.
To achieve our overall operating strategy, we are enhancing our information
technology by installing new software to implement a fully integrated
manufacturing system for our operating units. This system is intended to be Year
2000 compliant. Each operating unit was prioritized for installation of the
system based on any Year 2000 issues, with the final phase of implementation and
installation of this system scheduled to be completed by the third quarter of
1999. We believe that with this strategy and completed installations, the Year
2000 problem will not pose significant operational problem for us. We can not
assure you, however, that our computer systems, or other companies acquired in
the future or the computer systems of other companies with whom we conduct
business, will be Year 2000 compliant prior to December 31, 1999 or that the
inability of any such systems to process accurately Year 2000 data will not have
a material adverse effect on our business, operating results or financial
condition.
The total amount of costs to be incurred by the Company to address these
system enhancements is estimated at $1,500. The Company has expensed
approximately $750 through December 31, 1998.
17
<PAGE>
FINANCIAL ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130 ("FAS 130") "Reporting
Comprehensive Income." FAS 130 requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. FAS 130 is effective for financial statement periods
beginning after December 15, 1997. The Company adopted FAS 130 beginning January
1, 1998. The Company had no comprehensive income for all periods presented prior
to January 1, 1998.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("AcSEC") Issued Statement of Position
98-1 ("SOP 98-1") "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" that is effective for reporting periods beginning
after December 15, 1998, but provides for earlier application if certain
conditions are met. The Company has applied the provisions of SOP 98-1 in its
financial statements for the year ended December 31, 1998 and its adoption had
no material effect on the Company's consolidated financial position or results
of operations.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 ("FAS 133") "Accounting for Derivative Instruments and Hedging
Activities" that is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. The Company will implement the provisions of FAS 133 as
required. The future adoption of FAS 133 in not expected to have a material
effect on the Company's consolidated financial position or results of
operations.
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.
18
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table provides information concerning the directors and the
executive officers of D and W Holdings, Inc. and its subsidiaries.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
R.L. Gilmer.......................................... 45 Executive Vice President, Chief Operating Officer and
Director
Jeff L. Hull......................................... 33 Executive Vice President, Chief Financial Officer,
Treasurer, Secretary and Director
Louis W. Simi, Jr.................................... 58 Executive Vice President of Operations, Atrium
Companies, Inc.
Michael Quadhamer.................................... 34 President, Wing Industries, Inc.
Cliff Darby.......................................... 32 President, R.G. Darby Company, Inc. and Total Trim,
Inc.
Eric W. Long......................................... 31 Vice President, Corporate Controller and Assistant
Secretary
Sam A. Wing, Jr...................................... 75 Chairman Emeritus and Director
Daniel T. Morley..................................... 46 Chairman of the Board of Directors
James G. Turner...................................... 30 Vice President and Director
Roger A. Knight...................................... 39 Director
Andreas Hildebrand................................... 31 Director
John Deterding....................................... 65 Director
Nimrod Natan......................................... 35 Director
</TABLE>
R.L. Gilmer has served as Executive Vice President of D and W since April
1999 and as the Chief Operating Officer and Director of D and W since October
1998. Mr. Gilmer has also served as President and Chief Executive Officer of
Wing Industries Holdings since 1996. Prior to that, he was Vice President of
Wing from July 1993 to October 1996. Mr. Gilmer has served Wing in various
capacities since 1986 including as Controller and Manufacturing Manager. Prior
to joining Wing, Mr. Gilmer was a certified public accountant with the
accounting firm of Arthur Andersen & Co.
Jeff L. Hull has served as Executive Vice President and Director of D and W
since April 1999 and as Chief Financial Officer, Treasurer and Secretary of D
and W since October 1998. Mr. Hull has served as our Chief Financial Officer
from April 1996 and Secretary and Treasurer from December 1996. Prior to that,
Mr. Hull managed the asset/liability department of AmVestors Financial
Corporation (NYSE:AMV) from June 1995. From 1990 to 1995, he was an audit
manager with the accounting firm of Deloitte & Touche. Mr. Hull is a certified
public accountant.
Louis W. Simi, Jr. has served as our Executive Vice President from 1993 to
October 1998 and General Manager of our Atrium Aluminum division from 1971 to
1998. Mr. Simi also served as our Director from July 1995 to November 1996. He
has served in other capacities with us and our subsidiaries since 1966.
Michael Quadhamer has served as President of Wing since October 1998. Prior
to that, he served as Vice President and Chief Financial Officer of Wing
Industries Holdings from October 1996 until October 1998. Mr. Quadhamer has
served Wing in various capacities since 1991 including as Controller and as
Director of Global Operations. Prior to joining Wing, he worked for the
accounting firm of Arthur Andersen & Co. Mr. Quadhamer is a certified public
accountant.
Cliff Darby has served as President of Darby since 1993 and has worked for
Darby since 1988, performing numerous functions including overseeing operations
in the door plant, installing materials for Total Trim, Inc., sales, and pricing
of jobs.
19
<PAGE>
Eric W. Long has served as Vice President of Atrium since April 1999 and as
Corporate Controller and Assistant Secretary of Atrium since April 1996. From
April 1995 to April 1996, Mr. Long was a financial analyst with Applebee's
International. From 1991 to 1995, he was with the accounting firm of Deloitte &
Touche L.L.P. Mr. Long is a certified public accountant.
Sam A. Wing, Jr. has served as Chairman Emeritus and Director of D and W
since October 1998. Mr. Wing has served Wing in various capacities since 1946,
including as Chairman Emeritus from 1996 until October 1998, as Chairman and
Chief Executive Officer from 1995 until 1996 and as Chairman from 1994 until
1995. Prior to that, Mr. Wing was Chairman and Chief Executive Officer of Wing
from 1969 to 1994.
Daniel T. Morley has served as Chairman of the Board of Directors of D and W
since October 1998. Mr. Morley has served as President of Ardshiel since 1997
and Chairman of WIH since 1996 and Door since January 1998. Mr. Morley also
serves as Chairman of Astro Textiles, Inc. and Koala Holdings, Inc, privately
held companies.
James G. Turner has served as Vice President and Director of D and W since
October 1998. Mr. Turner has served as a Principal of Ardshiel since June 1997.
Mr. Turner has also served as a Director of Wing since October 1997 and Door
since December 1997. From March 1994 until June 1997, Mr. Turner worked as an
Associate for Ardshiel. Prior to that, Mr. Turner worked for Chemical Banking
Corp. since 1991.
Roger A. Knight has served as a Director of D and W since October 1998. Mr.
Knight has served as a Principal of Ardshiel since May 1998. Prior to joining
Ardshiel, he was Managing Director and a member of the Coopers & Lybrand
Securities, Inc., the wholly-owned investment banking subsidiary of Coopers &
Lybrand L.L.P. (now known as PricewaterhouseCoopers LLP).
Andreas Hildebrand has served as a Director of D and W since October 1998.
Mr. Hildebrand is Vice President--Private Equities of GE Investments. Mr.
Hildebrand also served as a Director of Wing since October 1997 and of Darby
since January 1998. He has served in other capacities with GE Investments during
the past five years. Mr. Hildebrand is also a Director of Eagle Family Foods
Holdings, Inc., a privately held company.
John C. Deterding has served as Director of D and W since October 1998. Mr.
Deterding has been the owner of Deterding Associates, a real estate consulting
company, since June 1993. From 1975 until June 1993, he served as Senior Vice
President and General Manager of the Commercial Real Estate division of General
Electric Capital Corporation ("GECC"). From November 1989 to June 1993, Mr.
Deterding served as Chairman of the General Electric Real Estate Investment
Company, a privately held REIT. He served as Director of GECC Financial
Corporation from 1986 to 1993. Mr. Deterding is also a Director of Patriot
American Hospitality and a former member and trustee of the Urban Land
Institute.
Nimrod Natan has served as a Director of D and W since October 1998. Mr.
Natan has served as a Principal of Ardshiel since 1997. Mr. Natan also serves as
a director of Wing and Astro Holdings, Inc., a privately held company. Prior to
joining Ardshiel in 1997, Mr. Natan was a management consultant with Gemini
Consulting for four years.
20
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION AND OTHER INFORMATION
COMPENSATION OF NAMED EXECUTIVE OFFICERS. The following table provides
certain summary information for each of the years ended December 31, 1996, 1997
and 1998 concerning compensation paid or accrued by us to or on behalf of the
Chief Executive Officer and the four other most highly compensated persons
functioning effectively as our executive officers whose individual combined
salary and bonus exceeded $100,000 during such period (the "Named Executive
Officers"):
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
----------------------------------------- COMPENSATION
OTHER ANNUAL SECURITIES ALL OTHER
SALARY BONUS COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION(1) YEAR ($) ($) ($)(1) OPTIONS# ($)
- --------------------------------- --------- ---------- ------------ --------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
*Randall S. Fojtasek ............ 1998 $ 350,000 $ 3,140,000 $ -- $ 5,735,369 $ 2,542,570(2)
President and Chief Executive 1997 350,000 125,000 -- -- 308,928(3)
Officer 1996 303,865 3,075,000 -- 2,195,222 221,500(4)
Jeff L. Hull .................... 1998 155,000 175,000 -- 1,183,842 --
Executive Vice President, Chief 1997 120,000 20,000 -- 5,000 15,146(3)
Financial Officer, Secretary 1996 100,000 0 -- 100,000 --
and Treasurer
R.L. Gilmer ..................... 1998 215,000 56,250 -- 1,183,842 --
Executive Vice President, Chief 1997 138,679 70,000 -- -- --
Operating Officer 1996 106,113 286,889 -- 539,682 --
Louis W. Simi, Jr. .............. 1998 170,000 185,000 -- 250,000 662,923(2)
Executive Vice President of 1997 125,000 250,690 -- -- 106,025(3)
Operations, Atrium Companies, 1996 125,000 270,681 -- 511,237 282,886(4)
Inc.
Cliff Darby ..................... 1998 150,000 76,000 -- 832,314 --
President, R.G. Darby Company, 1997 150,000 66,000 -- -- --
Inc. and Total Trim, Inc. 1996 150,000 66,000 -- -- --
</TABLE>
- ------------------------
* Resigned effective March 31, 1999.
(1) Perquisites related to automobile and expense allowances are excluded since
the aggregated amounts are the lesser of $50,000 or 10% of the total annual
salary.
(2) In connection with a change of control transaction, certain members of
management were granted options at below fair market prices. Accordingly,
compensation expense is being recognized for financial statement purposes.
Upon completion of the 1998 Recapitalization and the exercise of these
options, the compensatory portion of the options were reflected in the
individual's wages and in our financial statements.
(3) Amounts represent fees received in connection with the termination of the
purchase and sale agreement to acquire PlyGem Industries, Inc.
(4) In connection with a change of control transaction, certain members of
management were granted options at below fair market prices. Accordingly,
compensation expense is being recognized for financial statement purposes.
21
<PAGE>
OPTION GRANTS DURING 1998. The following table sets forth option grants to
the Named Executive Officers during the year ended December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
SECURITIES -------------------------------- AT ASSUMED ANNUAL RATES OF
UNDERLYING % OF TOTAL STOCK PRICE APPRECIATION
OPTIONS OPTIONS GRANTED EXERCISE OR FOR OPTION TERM(2)
GRANTED TO EMPLOYEES IN BASE PRICE EXPIRATION --------------------------
NAME (#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- --------------------------- ---------- ----------------- ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Randall S. Fojtasek........ 1,894,148 15 $ 1.00 10/02/08 $ 1,191,419 $ 3,019,272
2,841,221 22 .01 10/02/08 4,599,937 7,341,715
Jeff L. Hull............... 1,183,842 9 1.00 10/02/08 744,637 1,887,044
R.L. Gilmer................ 1,183,842 9 1.00 10/02/08 744,637 1,887,044
Louis W. Simi, Jr.......... 250,000 2 1.00 10/02/08 157,250 398,500
Cliff Darby................ 466,101 4 1.00 10/02/08 293,178 742,965
832,314 8 .83 1/09/08 434,416 1,101,019
</TABLE>
- ------------------------
(1) All options are for the common stock of D and W Holdings, Inc..
(2) The assumed rates are compounded annually for the full terms of the options.
(3) Options vest ratably over the life of the respective employment contract,
except for Simi and Darby, which vest ratably over five years.
AGGREGATED OPTION EXERCISES AND FISCAL-YEAR-END OPTION VALUES. The
following table sets forth option exercises by the Named Executive Officers and
value of in-the-money unexercised options held at December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE- MONEY OPTIONS AT
SHARES OPTIONS AT FY-END (#) FY-END
ACQUIRED ON VALUE -------------------------- ---------------------------
NAME EXERCISE (#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------- -------------- ------------ ---------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Randall S. Fojtasek....... 2,195,222(1) $ 5,118,108 3,841,221 1,894,148(3) $ 3,802,808 $ --
Jeff L. Hull.............. 105,000(1) 244,805 125,000 1,183,842(3) 123,750 --
R.L. Gilmer............... 883(2) 108,167 231,136 1,183,842(3) 228,825 --
Louis W. Simi, Jr......... 511,237(1) 1,191,937 250,000 250,000(3) 247,500 --
Cliff Darby............... -- -- 231,136 466,101(3) 228,824 --
</TABLE>
- ------------------------
(1) Represents options exercised by the named individual to purchase common
stock of Atrium Corp.
(2) Represents options exercised to purchase common stock of Wing Industries
Holdings, Inc.
(3) Represents options held by the named individual to purchase common stock of
D and W Holdings, Inc.
(4) Represents options held by the named individuals to purchase common stock of
D and W Holdings, Inc. Based on the fair market value of the option shares
at fiscal year end ($1.00 per share) less the exercise price per share
payable for such shares.
OPTION PLANS
In connection with the 1998 Recapitalization, the Board of Directors and
stockholders of D and W adopted the D and W Holdings, Inc. 1998 Stock Option
Plan (the "New Plan") providing for the grant of options to purchase common
stock of D and W to key employees and eligible non-employees of D and W and its
subsidiaries. The Stock Option Plan provides for the grant of options to
purchase up to 11,991,142 shares of D and W common stock. In conjunction with
the 1998 Recapitalization, options to purchase
22
<PAGE>
3,582,353 shares of D and W common stock were granted to management of Darby and
Wing in exchange for outstanding options to purchase Darby and Wing stock.
Options to purchase an additional 8,153,588 shares of D and W common stock were
granted to management of D and W and its subsidiaries contemporaneously with the
1998 Recapitalization. After the 1998 Recapitalization, 255,201 shares of D and
W common stock were reserved for future grants under the New Plan. The New Plan
is administered by the compensation committee of the Board of Directors of D and
W.
The New Plan provides that options may be granted in the form of incentive
options qualified for favorable tax treatment under Section 422 of the Internal
Revenue Code or in the form of non-qualified options, which do not qualify under
Section 422. All options granted in connection with the 1998 Recapitalization
are non-qualified options. Unless otherwise provided by the compensation
committee, options granted under the New Plan generally have a term of ten (10)
years from the date of grant and vest in equal installments annually over five
years dependent on continued employment. No option is exercisable until it has
vested. Options granted upon consummation of the 1998 Recapitalization in
exchange for outstanding options of Darby and Wing continue to vest on the
schedule applicable to the exchanged options. Of such options, options to
purchase 371,138 shares of D and W common stock were fully vested upon grant. Of
the options granted in connection with the 1998 Recapitalization, options to
purchase 993,115 shares of D and W common stock will vest only in connection
with a value event, defined as:
- the sale of D and W common stock by D and W in an offering registered with
the SEC which constitutes a qualifying public offering,
- D and W merging or consolidating with another corporation in a merger in
which the surviving corporation has freely tradeable common stock, or
- the sale or transfer of substantially all of the assets of D and W and its
subsidiaries, taken as a whole.
The exercise price of all options was set by the compensation committee upon
grant, and with respect to incentive options is at least equal to the fair
market value of the D and W common stock on the date of grant.
Options are nontransferable other than in accordance with the laws of
descent and distribution. Unvested options will expire, unless otherwise
provided by the compensation committee, upon the optionee's death, disability or
termination of employment for any reason. Upon an optionee's death or disability
the optionee or his or her representative or heir will have the right to
exercise the vested portion of any options for 180 days after the date of death
or disability. Upon termination for cause or voluntary termination by the
optionee without good reason all vested options will automatically expire. Upon
termination of employment for any other reason, including retirement or
termination without cause, the optionee will have the right to exercise the
vested portion of any option for 30 days after the date of termination. Also,
upon termination of an optionee's employment for any reason, D and W will have
the right to purchase outstanding options and any shares of D and W common stock
held by the optionee as a result of the exercise of an option. If termination
occurs with cause, the purchase price will be the lesser of the fair market
value of the D and W common stock or the original cost of the shares or options
purchased, minus the exercise price of any options purchased. In all other
cases, the purchase price will be equal to the fair market value of the D and W
common stock, minus the exercise price of any options purchased.
REPLACEMENT STOCK OPTION PLAN
In addition to the New Plan, the Board of Directors and stockholders of D
and W adopted the D and W Holdings, Inc. Replacement Stock Option Plan (the
"Replacement Plan") to govern the terms of certain options to purchase D and W
common stock which were granted in replacement of outstanding options of Atrium
Corp. in connection with the 1998 Recapitalization. Under the Replacement Plan,
options to purchase an aggregate of 1,575,000 shares of D and W common stock
were granted in exchange
23
<PAGE>
for outstanding options of Atrium Corp. which were not cashed out in the 1998
Recapitalization. The options granted pursuant to the Replacement Plan vest
ratably over a period of five years on each anniversary date of the grant. The
replacement options have an exercise price of $0.01 per share.
Upon termination of an optionee's employment, D and W shall have the right
to repurchase from the optionee all or any portion of their replacement option.
In the event such termination of employment is for Cause, as defined in the
Replacement Plan, the price per option repurchased will be equal to the lesser
of $1.00 per underlying share and the market value per share of D and W common
stock in either case, minus $0.01 per share. If termination occurs for any
reason other than Cause, the repurchase price will, (i) for the unvested portion
of an option be equal to the lesser of the market value per share and $1.00 per
share, in each case minus $0.01 per share, and (ii) for the vested portion of an
option, be equal to the greater of market value per share or $1.00, in each case
minus $0.01 per share. Upon exercise of any vested portion of a replacement
option, D and W may require the optionee to execute a buy-sell agreement
containing provisions similar to the repurchase provisions described above, as a
condition to such option exercise.
The Replacement Plan provides that all options granted thereunder are in the
form of nonqualified options, which are options that do not qualify for favored
tax treatment under Section 422 of the Internal Revenue Code. The replacement
options have a term of 20 years from the date of grant subject to early
termination in connection with termination of employment. No option is
exercisable until it is vested. Replacement options are not transferable by an
optionee, either voluntarily, involuntarily or by operation of law, except that
options may be transferred to an optionee's family members or personal
representative, so long as the transferee agrees to be bound by the provisions
of an option agreement and replacement plan.
BONUS PLAN
We maintain a bonus plan providing for annual bonus awards to certain key
employees. Such bonus amounts are based on Atrium and its divisions meeting
certain performance goals established by our board of directors.
OTHER BENEFIT PROGRAMS
Our 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 our other employees.
EMPLOYMENT AGREEMENTS
Mr. Hull has entered into an employment agreement with D and W pursuant to
which he serves as Chief Financial Officer of D and W. Mr. Hull's employment
agreement has a four year term, commencing in October 1998. Under the terms of
Mr. Hull's employment agreement, he is entitled to receive an annual base salary
of $225,000, as adjusted, subject to increase at the discretion of the Board of
Directors. The agreement provides that Mr. Hull may receive an annual
performance bonus of up to $125,000, as adjusted;
- 50% of which will be payable contingent on achievement of D and W's EBITDA
plan,
- 35% of which will be payable upon achievement of targets established by
the Board of Directors for bad debt collections, accounts receivable days
and month end closing, and
- 15% of which will be payable contingent on achievement of management's
objectives set from time to time by the Board of Directors.
Pursuant to the agreement, Mr. Hull received options to purchase 1,183,842
shares of D and W common stock pursuant to the stock option plan. The options
have an exercise price of $1.00 per share, subject to adjustment under the stock
option plan, and will vest in equal installments over four years from
24
<PAGE>
the date of grant. The agreement also provides that in the event Mr. Hull is
terminated by D and W without cause, or terminates his employment for good
reason, D and W will pay to Mr. Hull a payment
- in a lump sum, an amount equal to the sum 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 D and W's investment
plans, plus
- equal to a prorated portion of his incentive bonus, plus
- equal to one-twelfth of his annual base salary on the date of termination
together with 80% of his maximum incentive bonus for each month during a
period of twelve months following the date of his termination.
Such payments would also be made if Mr. Hull's employment is terminated by D
and W in connection with a change of control of D and W, as defined in the
agreement. Pursuant to the agreement, Mr. Hull agrees not to compete with D and
W and its subsidiaries until (i) one year following termination by D and W for
cause or due to disability or as a result of termination initiated by him
without good reason, or (ii) the last day of any period he is receiving
severance payments upon termination by D and W without cause or upon a change of
control, or as a result of termination initiated by him with good reason.
Mr. Gilmer has entered into an employment agreement with D and W pursuant to
which he serves as Chief Operating Officer of D and W. Mr. Gilmer's employment
agreement has a four year term, commencing in October 1998. Under the terms of
Mr. Gilmer's employment agreement, he is entitled to receive an annual base
salary of $225,000, as adjusted, subject to increase at the discretion of the
Board of Directors. The agreement provides that Mr. Gilmer may receive an annual
performance bonus of up to $125,000,
- 75% of which will be payable contingent on achievement of D and W's EBITDA
plan,
- 15% of which will be payable contingent on achievement of management
objectives set from time to time by the Board of Directors, and
- 10% of which will be payable contingent on achievement of a target return
on equity for D and W set by the Board of Directors.
Pursuant to the agreement, Mr. Gilmer received options to purchase 1,183,842
shares of D and W common stock upon the same terms as the options received by
Mr. Hull. The agreement also provides that, in the event Mr. Gilmer is
terminated by D and W without cause, or terminates his employment for good
reason, D and W will pay to Mr. Gilmer a payment
- in a lump sum, an amount equal to the sum 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 Holdings' investment
plans, plus
- an amount equal to a prorated portion of his incentive bonus, plus
- an amount equal to one-twelfth of his annual base salary on the date of
termination together with 80% of his maximum base incentive bonus for each
month during a period of twelve months following the date of his
termination.
Such payments would also be made if Mr. Gilmer's employment is terminated by
D and W in connection with a change of control of D and W, as defined in the
agreement. Pursuant to the agreement, Mr. Gilmer agrees not to compete with D
and W and its subsidiaries until (i) one year following termination by D and W
for cause or due to disability or as a result of termination initiated by him
without good reason, or (ii) the last day of any period he is receiving
severance payments upon termination by D and W without cause or upon a change of
control, or as a result of termination initiated by him with good reason.
25
<PAGE>
The Company entered into an employment agreement with Mr. Simi on January 1,
1998. The compensation provided to Mr. Simi includes an annual base salary of
$170,000, subject to increases at the discretion of the Board of Directors.
Additionally, Mr. Simi is eligible for an incentive bonus based on certain
performance targets.
Mr. Simi's employment agreement terminates on December 31, 2000. If Mr.
Simi's employment with the Company is terminated by the Company for any reason
other than for cause, he will continue to be paid his salary for 12 months,
together with the annual incentive bonus. Mr. Simi has agreed not to compete
with the Company in certain geographic areas for so long as the Company pays
salary to him.
On January 9, 1998, Mr. Cliff Darby entered into an employment agreement
with Darby for a term commencing in January, 1998. Under the terms of Mr.
Darby's employment agreement, he is entitled to receive an annual base salary of
$156,000, as adjusted, subject to increase at the discretion of the Board of
Directors of Darby. Mr. Darby is entitled to annual performance bonus payable
upon the achievement of Darby's EBITDA plan. The agreement also provides that in
the event Mr. Darby is terminated by Darby without cause, as defined in the
agreement, Darby will pay to Mr. Darby a payment
- in a lump sum equal to all compensation accrued and unpaid as of the date
of termination, and
- in equal semi-monthly installments, an amount equal to the compensation to
which Mr. Darby would have been entitled under the agreement for a period
of one year if the agreement had not been terminated.
Pursuant to the agreement, Mr. Darby has agreed not to compete with the
business of Darby for a period of five years from the date of the agreement,
whether the agreement terminates prior to the end of such five year period;
provided that the non-competition covenant shall apply for one year following
termination without cause by Darby regardless of the date of termination.
Upon consummation of the merger, Mr. Darby received options to purchase
466,101 shares of D and W common stock, with an exercise price of $1.00 per
share. Such options vest over a five year period from the date of grant.
BOARD OF DIRECTORS
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Daniel T. Morley, and Andreas Hildebrand serve as members of our
compensation committee.
AUDIT COMMITTEE
James G. Turner and Roger A. Knight serve as our audit committee.
EXECUTIVE COMMITTEE
James G. Turner, Roger A. Knight, Andreas Hildebrand, R.L. Gilmer and Jeff
L. Hull serve as our executive committee.
NON-EMPLOYEE DIRECTOR COMPENSATION
Any member of our board of directors who is not an officer or employee does
not receive compensation for serving on our board of directors. We
anticipate compensating non-employee directors not affiliated with GEIPPPII
or Ardshiel in the future for their service on our board.
26
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
We are a wholly-owned subsidiary of Atrium Corp., which in turn is a
wholly-owned subsidiary of D and W Holdings, Inc. The following table sets forth
certain information regarding the beneficial ownership of D and W common stock
as of March 31, 1999, by each person who owns beneficially more than 5% of the
outstanding common stock of D and W and by the directors and certain executive
officers of D and W. Unless otherwise indicated below, to our knowledge, all
persons listed below have sole voting and investment power with respect to their
shares of common stock of D and W.
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES PERCENTAGE
- ----------------------------------------------------------------------------------- ----------------- -------------
<S> <C> <C>
GE Investment Private Placement Partners II, a Limited Partnership................. 92,970,561 90.7%
3003 Summer Street
Stamford, CT 06984-7900
Ardshiel, Inc...................................................................... 6,643,600(1) 6.5%
230 Park Avenue, Suite 2527
New York, NY 10169
Randall S. Fojtasek................................................................ 2,841,221(2) 2.8%
R.L. Gilmer........................................................................ 480,159(3) *
Louis W. Simi, Jr.................................................................. 250,000(3) *
Jeff L. Hull....................................................................... 125,000(3) *
Cliff Darby........................................................................ 1,059,000 1.0%
Sam A. Wing, Jr.................................................................... -- --
Daniel T. Morley................................................................... 6,643,600(4) 6.5%
James G. Turner.................................................................... -- --
Roger A. Knight.................................................................... -- --
Andreas Hildebrand................................................................. -- --
John Deterding..................................................................... -- --
Nimrod Natan....................................................................... -- --
All directors and executive officers as a group (13 persons):...................... 11,523,487 11.2%
</TABLE>
- ------------------------
* less than 1%.
(1) Includes (i) 1,040,748 shares of D and W common stock issuable upon exercise
of warrants that are currently exercisable; (ii) 1,819,033 shares of D and W
common stock held by Ardatrium L.L.C., Arddoor L.L.C., Ardwing L.L.C. and
Wing Partners, which are under common control with Ardshiel, and (iii)
3,783,819 shares of Holdings common stock held by certain other stockholders
of D and W who have granted proxies to Ardshiel or its affiliates to vote
their shares.
(2) Includes 2,841,221 shares of D and W Holdings common stock issuable upon
exercise of a warrant that is currently exercisable.
(3) Includes 125,000, 230,771 and 250,000 shares of D and W common stock
issuable upon exercise of options granted to Messrs. Hull, Gilmer and Simi,
respectively, under the New Plan. Such options are exercisable within 60
days.
(4) Represents shares beneficially owned by Ardshiel and its affiliates. Mr.
Morley is the President and a stockholder of Ardshiel and a managing member
of Arddoor L.L.C., Ardatrium L.L.C. and Ardwing L.L.C., the general partner
of Wing Partners. Accordingly, Mr. Morley may be deemed to be the beneficial
owner of these shares. Mr. Morley disclaims beneficial ownership of these
shares.
27
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
THE STOCKHOLDERS AGREEMENT
GEIPPPII, Ardshiel, and certain other stockholders of D and W (collectively,
the "Major Stockholders"), have entered into a stockholders agreement, dated as
of October 2, 1998, which affects their relative rights as stockholders of D and
W.
Pursuant to the stockholders agreement, the Major Stockholders have agreed
that the authorized number of directors of D and W shall consist of up to nine
directors. GEIPPPII, so long as it is a stockholder, shall have the right to
designate one director in the event there are less then seven directors, and two
directors in the event the Board of Directors consists of seven or more members.
The remainder of the directors shall be designated by Ardshiel, so long as it is
stockholder.
Subject to certain exceptions, each of the Major Stockholders other than
GEIPPPII have agreed not to sell, transfer or otherwise dispose of such
stockholder's equity securities of D and W and an affiliate of Ardshiel has
agreed not to sell, transfer or otherwise dispose of its Discount Debentures. In
the event that GEIPPPII intends to transfer its equity securities or Discount
Debentures, each of the other Major Stockholders or holders of Discount
Debentures, will be entitled to require the purchaser of such equity securities
or Discount Debentures to purchase a pro rata portion of the equity securities
or Discount Debentures held by such Major Stockholder or holder of Discount
Debentures; PROVIDED, HOWEVER, that in the event such sale, transfer or
disposition by GEIPPPII occurs at any time following the fourth anniversary of
the stockholders agreement, the other stockholders or holders of Discount
Debentures, upon notice by GEIPPPII, will be obligated to sell all of their
equity securities and/or all of their Discount Debentures to the proposed
transferee. Subject to certain conditions, Ardshiel and its affiliates, may
require that GEIPPPII, at Ardshiel's or any of its affiliate's option, (i) sell
or otherwise dispose of its equity securities and Discount Debentures, in an
arm's length transaction to any person or persons who are not affiliates of
Ardshiel or (ii) purchase all of the other Major Stockholders' equity securities
and Discount Debentures for a purchase price provided in the stockholders
agreement. In addition, subject to certain exceptions, GEIPPPII and/or D and W
have the right to purchase from any selling Major Stockholder any or all equity
securities proposed to be sold to a third party by such selling Major
Stockholder.
The stockholders agreement provides that in the event GEIPPPII or any
Ardshiel stockholder or any of their respective affiliates purchases from D and
W equity securities issued after the date of the stockholders agreement, Randall
Fojtasek and affiliates controlled by him shall be entitled to participate in
such investment on a pro rata basis (based on Mr. Fojtasek's relative ownership
of equity interests in D and W Holdings at the time of any such purchase). The
rights granted to Mr. Fojtasek described above may not be assigned to any
person, without the prior written consent of the parties to the stockholders
agreement.
Pursuant to the terms of the stockholders agreement, D and W has granted the
Major Stockholders the right to require D and W, under certain circumstances, to
register under the Securities Act of 1933 any or all shares of D and W common
stock then held by such Major Stockholder and the right, in the event D and W or
any of its subsidiaries proposes to file, subject to certain exceptions, a
registration statement under the Securities Act with respect to any common stock
or equity security, to include in such registration statement for resale by the
Major Stockholders, such Major Stockholder's common stock.
The stockholders agreement provides that D and W cannot take certain
enumerated actions without obtaining the prior written consent of GEIPPPII.
MANAGEMENT AGREEMENT
We are a party to a management agreement dated October 2, 1998 with D and W,
Atrium Corp. and Ardshiel. Pursuant to the management agreement, Ardshiel
provides advice to D and W and its subsidiaries with respect to business
strategy, operations and budgeting and financial controls in exchange for an
annual fee of $1.3 million plus expenses. Additionally, the management agreement
provides that, prior to
28
<PAGE>
engaging another financial advisor D and W or its subsidiary must offer Ardshiel
the opportunity to perform investment banking services in connection with a sale
or purchase of a business or any financing. Ardshiel shall receive a closing fee
for any such services which shall not be greater than 2% of the total purchase
or sale price for such business and shall be payable upon consummation of such
sale or such purchase. The consent of GEIPPPII is required prior to the payment
by D and W or any of its subsidiaries of any closing fees to Ardshiel where D
and W or any of its subsidiaries is paying similar fees to other entities for
similar services. D and W paid a closing fee of approximately $3.4 million upon
the consummation of the 1998 Recapitalization and paid Ardshiel's fees and
expenses in connection therewith. The management agreement will remain in effect
until October 2, 2008 and will be automatically renewed for one-year periods
unless either party gives written notice to the contrary at least thirty days
prior to the expiration of the initial or any extended term of the agreement
unless terminated earlier in accordance with its terms.
BUY-SELL AGREEMENTS
D and W entered into buy-sell agreements with certain members of its
management pursuant to which D and W may, at its option, repurchase from those
persons all or any portion of their shares of D and W common stock upon the
termination of their employment. Each agreement provides that D and W shall
repurchase those shares at a purchase price equal to the greater of $1.00 per
share or the fair market value of the shares at the date of termination unless
the termination shall have been for cause, in which case the repurchase price
shall be equal to the lesser of the fair market value per share at the date of
termination and $1.00 per share. Each agreement also provides for certain
restrictions on transfer.
In addition to the above, the buy-sell agreements entered into with Messrs.
Gilmer and Darby provide that the manager will have the right to require D and W
to repurchase his shares if he is terminated for any reason other than for cause
and D and W does not exercise its right to purchase the shares.
THE DISCOUNT DEBENTURES
In 1998, Atrium Corp. issued $80.6 million aggregate principal amount at
maturity of its Discount Debentures to GEIPPPII and an affiliate of Ardshiel
(representing $45.0 million in gross proceeds to Atrium Corp.), to fund a
portion of the Atrium merger consideration, the repurchase of $25.0 million of
Atrium's existing senior subordinated notes and repayment of the intercompany
loan described below. See "Description of Certain Indebtedness--Discount
Debentures."
D and W has agreed to cause
- us to make dividend payments to Atrium Corp. to enable Atrium Corp. to
make interest and principal payments on, or to repurchase, redeem or
prepay (at par plus accreted value and unpaid interest), the Discount
Debentures, to the extent we have funds legally available for the payment
of such dividends and we are not prohibited from making such dividend
payments by the terms of any contract to which we are a party (including,
without limitation, the indenture relating to the Credit Facility) and
- Atrium Corp., to the extent Atrium Corp. is not prohibited from doing so
by the terms of any contract to which it or D and W is a party, to pay
interest and principal on, or to repurchase, redeem or repay, the Discount
Debentures from the proceeds of any such dividend payment.
Subject to certain exceptions, an affiliate of Ardshiel has agreed not to
sell, transfer or otherwise dispose of its Discount Debentures. In addition,
such affiliate has certain rights and is subject to certain obligations in the
event of certain transfers by GEIPPPII of its Discount Debentures and is
entitled, under certain circumstances, to require GEIPPPII to sell or otherwise
dispose of its Discount Debentures and equity securities in an arm's length
transaction to any person or persons who are not affiliates of Ardshiel or
purchase such affiliate's Discount Debentures and equity securities. See "--The
Stockholders Agreement."
29
<PAGE>
INTERCOMPANY LOAN
In connection with the 1998 Recapitalization, Atrium Corp. issued to us a
$24.0 million subordinated intercompany note and we in turn used a portion of
the proceeds from our term loan under our credit facility to fund the
intercompany loan to Atrium Corp. The intercompany loan to Atrium Corp. bore
interest at a rate of 5.66% per annum computed semiannually. The intercompany
loan was repaid in November 1998 with proceeds from the issuance of Discount
Debentures.
INDEMNIFICATION AGREEMENTS
We entered into indemnification agreements with Jeff L. Hull and Louis W.
Simi, Jr. under which we agreed to indemnify them to the fullest extent
permitted by law, and to advance expenses, if either of them becomes a party to
or witness or other participant in any threatened, pending or completed action,
suit or proceeding by reason of any occurrence related to the fact that the
person is or was our, our subsidiary's or, at our request, another entity's
director, officer, employee, agent or fiduciary, 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. We expect to enter into similar indemnification agreements
with each of the remaining directors and executive officers.
FACILITY LEASES
On July 3, 1995, Fojtasek Industrial Properties, Ltd., a limited partnership
in which Randall S. Fojtasek owns an equity interest of approximately 10.2%,
executed leases with us with respect to our Atrium Wood's and Atrium Vinyl's
facility and our H-R Windows division's facility. 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
$1,245,281, $753,000 and $605,338 in 1998, 1997 and 1996, respectively.
Additionally, Fojtasek Interests, a Texas corporation, in which Mr. Fojtasek
owns an interest, subleases approximately 1,500 square feet of office space at
our corporate headquarters. Amounts paid to us under this lease in 1998 were
$19,588.
Darby is a party to a facilities lease agreement with R.G. Darby, a former
stockholder of Darby and the father of Cliff Darby, President of Darby. Pursuant
to the terms of the lease, Darby pays rent to Mr. Darby of approximately $12,000
per month, adjusted annually for inflation. The term of the lease is fifteen
years with three extension terms of five years each. Rent expense paid to Mr.
Darby in 1998 was approximately $144,000.
30
<PAGE>
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:
On October 19, 1998, in accordance with Items 1 and 7 of Form 8-K,
the Company filed a report on Form 8-K announcing the completion of the
merger between D and W Holdings, Inc., Atrium Corporation and D and W
Acquisition Corp. on October 2, 1998. The report included the terms of
the $205.0 million Credit Agreement entered into by the Company to
finance the Transaction. The report also included the financial
statements of the acquired businesses, the required pro forma financial
information and certain exhibits required by Item 7 of Form 8-K.
31
<PAGE>
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.
<TABLE>
<S> <C> <C>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
By: /s/ JEFF L. HULL
-----------------------------------------
Jeff L. Hull
EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL
OFFICER, SECRETARY, TREASURER AND DIRECTOR
</TABLE>
Date: April 15, 1999
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
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Executive Vice President,
Chief Financial Officer,
/s/ JEFF L. HULL Secretary, Treasurer and
- ------------------------------ Director (co-Principal April 15, 1999
Jeff L. Hull Executive Officer and
Principal Financial
Officer)
*
- ------------------------------ Director (co-Principal April 15, 1999
R.L. Gilmer Executive Officer)
* Corporate Controller
- ------------------------------ (Principal Acounting April 15, 1999
Eric W. Long Officer)
*
- ------------------------------ Director April 15, 1999
Daniel T Morley
*
- ------------------------------ Director April 15, 1999
Roger G. Knight
*
- ------------------------------ Director April 15, 1999
Sam A. Wing, Jr.
*
- ------------------------------ Director April 15, 1999
James G. Turner
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
*
- ------------------------------ Director April 15, 1999
Nimrod Natan
*
- ------------------------------ Director April 15, 1999
John Deterding
*
- ------------------------------ Director April 15, 1999
Andreas Hildebrand
</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 15th day of April, 1999, 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.
<TABLE>
<S> <C> <C> <C>
*By: /s/ JEFF L. HULL
-------------------------
Jeff L. Hull
ATTORNEY-IN-FACT
</TABLE>
Date: April 15, 1999
33
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
ATRIUM COMPANIES, INC.
Report of Independent Accountants......................................................................... F-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1998 and 1997............................................ F-3
Consolidated Statements of Operations for the year ended December 31, 1998, 1997 and the periods ended
December 31, 1996 and October 25, 1996................................................................ F-4
Consolidated Statements of Stockholders' Equity for the year ended December 31, 1998, 1997 and the
periods ended December 31, 1996 and October 25, 1996.................................................. F-5
Consolidated Statements of Cash Flows for the year ended December 31, 1998, 1997 and the periods ended
December 31, 1996 and October 25, 1996................................................................ F-6
Notes to Consolidated Financial Statements................................................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Atrium Companies, Inc.:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)1 and 2 of this Form 10-K present fairly, in all
material respects, the financial position of Atrium Companies, Inc. and its
subsidiaries at December 31, 1998 and 1997, and the results of their operations
and their cash flows for the years then ended and each of the two periods ended
December 31, 1996 and October 25, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Dallas, Texas
April 4, 1999, except for Note 18, which is as of April 9, 1999.
F-2
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents....................................................................... $ -- $ 34
Equity securities--available for sale........................................................... 137 --
Accounts receivable, net of allowance of $778 and $725, respectively............................ 46,466 9,187
Inventories..................................................................................... 46,289 13,557
Prepaid expenses and other current assets....................................................... 7,756 832
Deferred tax asset.............................................................................. 1,249 --
--------- ---------
Total current assets............................................................................ 101,897 23,610
PROPERTY, PLANT AND EQUIPMENT, net................................................................ 26,760 7,553
GOODWILL, net of amortization of $2,354 and $471, respectively.................................... 214,749 22,394
DEFERRED FINANCING COSTS, net of amortization of $379 and $420, respectively...................... 11,058 1,374
OTHER ASSETS...................................................................................... 5,405 452
--------- ---------
Total assets.................................................................................... $ 359,869 $ 55,383
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of notes payable................................................................ 2,209 3,364
Accounts payable................................................................................ 25,353 6,438
Accrued liabilities............................................................................. 15,432 2,517
Deferred tax liability.......................................................................... -- 566
--------- ---------
Total current liabilities....................................................................... 42,994 12,885
LONG-TERM LIABILITIES:
Notes payable................................................................................... 177,018 28,874
Deferred tax liability.......................................................................... 1 449
Other long-term liabilities..................................................................... 6,800 2,500
--------- ---------
Total long-term liabilities..................................................................... 183,819 31,823
--------- ---------
Total liabilities............................................................................... 226,813 44,708
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock $.01 par value, 3,000 shares authorized, 100 shares issued and outstanding......... -- --
Class A voting common stock $.01 par value, 225,000 authorized; 25,501 issued and retired....... -- --
Class B nonvoting common stock $.01 par value, 100,000 authorized; 54,500 issued and retired.... -- 1
Paid-in capital................................................................................. 134,852 9,675
Retained earnings (accumulated deficit)......................................................... (1,820) 999
Accumulated other comprehensive income.......................................................... 24 --
--------- ---------
Total stockholder's equity...................................................................... 133,056 10,675
--------- ---------
Total liabilities and stockholder's equity.................................................... $ 359,869 $ 55,383
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-3
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 AND THE
PERIODS ENDED DECEMBER 31, 1996 AND OCTOBER 25, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
---------------------------------------- ------------
YEAR ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, OCTOBER 25,
1998 1997 1996 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES.............................................. $ 211,059 $ 99,059 $ 13,200 $ 62,880
COST OF GOODS SOLD..................................... 159,140 78,270 9,927 47,311
------------ ------------ ------------ ------------
Gross profit......................................... 51,919 20,789 3,273 15,569
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Selling, delivery, general and administrative
expenses............................................. 39,754 15,671 2,242 13,271
Amortization expense................................. 2,133 774 125 --
Stock option compensation expense.................... 3,851 -- -- --
------------ ------------ ------------ ------------
45,738 16,445 2,367 13,271
------------ ------------ ------------ ------------
Income from operations............................. 6,181 4,344 906 2,298
INTEREST EXPENSE....................................... 9,081 2,953 374 509
OTHER INCOME, net...................................... 571 -- -- --
------------ ------------ ------------ ------------
Income (loss) before income taxes and extraordinary
charge............................................... (2,329) 1,391 532 1,789
PROVISION (BENEFIT) FOR INCOME TAXES................... (149) 695 229 670
------------ ------------ ------------ ------------
Income (loss) before extraordinary charge............ (2,180) 696 303 1,119
EXTRAORDINARY CHARGE ON EARLY RETIREMENT OF DEBT (net
of income tax benefit of $392)....................... 639 -- -- --
------------ ------------ ------------ ------------
NET INCOME (LOSS)...................................... $ (2,819) $ 696 $ 303 $ 1,119
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
F-4
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 AND THE PERIODS ENDED DECEMBER
31, 1996 AND OCTOBER 25, 1996
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK CLASS A CLASS B
-------------------------- ------------------------ -------------------------- TREASURY
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT STOCK
----------- ------------- ----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
PREDECESSOR
Balance, December 31, 1995....... -- $ -- 512 $ 263 -- $ -- $ (156)
Net income....................... -- -- -- -- -- -- --
Exercise of stock options........ -- -- 59 30 -- -- --
Tax benefit related to option
exercises...................... -- -- -- -- -- -- --
--- --- --- ----- --- --- -----------
Balance, October 25, 1996........ -- $ -- 571 $ 293 -- $ -- $ (156)
--- --- --- ----- --- --- -----------
--- --- --- ----- --- --- -----------
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
THE COMPANY
Balance, October 26, 1996........ -- $ -- -- $ -- -- $ -- $ --
Net income....................... -- -- -- -- -- -- --
Initial issuance of common
stock.......................... -- -- 26 -- 55 1 --
Issuance of warrants............. -- -- -- -- -- -- --
--- --- --- ----- --- --- -----------
Balance, December 31, 1996....... -- -- 26 -- 55 1 --
Net income....................... -- -- -- -- -- -- --
Issuance of warrants............. -- -- -- -- -- -- --
--- --- --- ----- --- --- -----------
Balance, December 31, 1997....... -- -- 26 -- 55 1 --
Conversion of Wing's common stock
to Atrium's common stock....... 100 -- (26) -- (55) (1) --
Conversion of exchangeable
subordinated note payable...... -- -- -- -- -- -- --
Step-up of Wing's assets due to
purchase of minority
interest....................... -- -- -- -- -- -- --
Contribution of assets of Darby.. -- -- -- -- -- -- --
Capital contribution from Atrium
Corp........................... -- -- -- -- -- -- --
Stock option compensation
expense........................ -- -- -- -- -- -- --
Exercise of stock options........ -- -- -- -- -- -- --
Comprehensive loss:
Net loss....................... -- -- -- -- -- -- --
Unrealized gain on equity
securities................... -- -- -- -- -- -- --
--- --- --- ----- --- --- -----------
Total comprehensive loss.........
--- --- --- ----- --- --- -----------
Balance, December 31, 1998....... 100 $ -- -- $ -- -- $ -- $ --
--- --- --- ----- --- --- -----------
--- --- --- ----- --- --- -----------
<CAPTION>
RETAINED
EARNINGS TOTAL
ACCUMULATED OTHER PAID-IN (ACCUMULATED STOCKHOLDER'S
COMPREHENSIVE INCOME CAPITAL DEFICIT) EQUITY
------------------------- --------- --------------- -------------
<S> <C> <C> <C> <C>
PREDECESSOR
Balance, December 31, 1995....... $ -- $ 233 $ 4,171 $ 4,511
Net income....................... -- -- 1,119 1,119
Exercise of stock options........ -- 409 -- 439
Tax benefit related to option
exercises...................... -- 253 -- 253
--- --------- ------- -------------
Balance, October 25, 1996........ $ $ 895 $ 5,290 $ 6,322
--- --------- ------- -------------
--- --------- ------- -------------
THE COMPANY
Balance, October 26, 1996........ $ -- $ -- $ -- $ --
Net income....................... -- -- 303 303
Initial issuance of common
stock.......................... -- 7,999 -- 8,000
Issuance of warrants............. -- 1,327 -- 1,327
--- --------- ------- -------------
Balance, December 31, 1996....... -- 9,326 303 9,630
Net income....................... -- -- 696 696
Issuance of warrants............. -- 349 -- 349
--- --------- ------- -------------
Balance, December 31, 1997....... -- 9,675 999 10,675
Conversion of Wing's common stock
to Atrium's common stock....... -- 1 -- --
Conversion of exchangeable
subordinated note payable...... -- 11,375 -- 11,375
Step-up of Wing's assets due to
purchase of minority
interest....................... -- 1,247 -- 1,247
Contribution of assets of Darby.. -- 13,147 -- 13,147
Capital contribution from Atrium
Corp........................... -- 95,340 -- 95,340
Stock option compensation
expense........................ -- 3,851 -- 3,851
Exercise of stock options........ -- 216 -- 216
Comprehensive loss:
Net loss....................... -- -- (2,819) (2,819)
Unrealized gain on equity
securities................... 24 -- -- 24
--- --------- ------- -------------
Total comprehensive loss......... 24 (2,819) (2,795)
--- --------- ------- -------------
Balance, December 31, 1998....... $ 24 $ 134,852 $ (1,820) $ 133,056
--- --------- ------- -------------
--- --------- ------- -------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 AND
THE PERIODS ENDED DECEMBER 31, 1996 AND OCTOBER 25, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THE COMPANY
-------------------------------------------
YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................................ $ (2,819) $ 696 $ 303
Adjustments to reconcile net income (loss) to net cash flows from
operating activities:
Extraordinary charge, net of income tax benefit.......................... 639 -- --
Depreciation and amortization............................................ 4,158 1,492 260
Stock option compensation expense........................................ 3,851 -- --
Amortization of deferred financing costs................................. 732 390 30
Accretion of discount on exchangeable subordinated notes payable......... 105 113 33
Provision for bad debts.................................................. 227 1,791 287
Gain on sale of assets................................................... (12) -- --
Deferred tax provision (benefit)......................................... 358 184 60
Changes in assets and liabilities, net of acquisitions:
Accounts receivable.................................................... (1,751) (1,949) 582
Inventories............................................................ (12,297) (2,990) (229)
Prepaid expenses and other current assets.............................. (2,142) (166) 93
Accounts payable....................................................... 4,859 354 (462)
Accrued liabilities.................................................... (3,932) 1,233 155
------------- ------------- -------------
Net cash provided by (used in) operating activities.................. (8,024) 1,148 1,112
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment............................... (2,221) (1,355) (122)
Proceeds from sales of assets............................................ 12 -- --
Acquisition of Atrium, net of cash acquired and debt and accrued interest
assumed................................................................ (120,977) -- --
Acquisition of the Door Division of Super Millwork....................... -- (10,408) --
Acquisition of Wing, net of cash acquired................................ -- -- (29,143)
Other assets............................................................. (1,998) -- --
------------- ------------- -------------
Net cash used in investing activities................................ (125,184) (11,763) (29,265)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings under term notes................................ 145,930 -- --
Payment of notes payable................................................. (29,563) (1,032) --
Payment of senior subordinated notes..................................... (70,930) (70) --
Net borrowings under revolving credit facility........................... 4,118 1,497 2,951
Proceeds from issuance of exchangeable subordinated notes................ -- 3,960 --
Proceeds from issuance of notes payable.................................. -- 6,790 18,500
Deferred financing costs................................................. (11,437) (536) (1,258)
Capital contributions.................................................... -- -- 8,000
Scheduled principal payments on term notes............................... (500) -- --
Contributions from Atrium Corp........................................... 95,340 -- --
Exercise of stock options................................................ 216 -- --
------------- ------------- -------------
Net cash provided by financing activities............................ 133,174 10,609 28,193
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....................... (34) (6) 40
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............................. 34 40 --
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD................................... $ -- $ 34 $ 40
------------- ------------- -------------
------------- ------------- -------------
SUPPLEMENTAL DISCLOSURE:
Cash paid during the period for:
Interest............................................................... $ 11,765 $ 2,620 $ 167
Income taxes, net of refunds........................................... 536 550 --
Noncash investing and financing activities:
Conversion of exchangeable subordinated notes payable.................. 11,375 -- --
Contribution of Darby's assets......................................... 13,147 -- --
Step-up of Wing's assets due to purchase of minority interest.......... 1,247 -- --
Purchase of equipment under capital leases............................. 20 840 --
Payable to seller...................................................... -- 2,500 --
Issuance of common stock warrants...................................... -- -- 332
Tax benefit related to option exercises................................ -- -- --
<CAPTION>
PREDECESSOR
-------------
PERIOD ENDED
OCTOBER 25,
1996
-------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................................ $ 1,119
Adjustments to reconcile net income (loss) to net cash flows from
operating activities:
Extraordinary charge, net of income tax benefit.......................... --
Depreciation and amortization............................................ 716
Stock option compensation expense........................................ --
Amortization of deferred financing costs................................. --
Accretion of discount on exchangeable subordinated notes payable......... --
Provision for bad debts.................................................. 1,274
Gain on sale of assets................................................... --
Deferred tax provision (benefit)......................................... (71)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable.................................................... (2,116)
Inventories............................................................ (621)
Prepaid expenses and other current assets.............................. 219
Accounts payable....................................................... 253
Accrued liabilities.................................................... (109)
-------------
Net cash provided by (used in) operating activities.................. 664
-------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment............................... (962)
Proceeds from sales of assets............................................ --
Acquisition of Atrium, net of cash acquired and debt and accrued interest
assumed................................................................ --
Acquisition of the Door Division of Super Millwork....................... --
Acquisition of Wing, net of cash acquired................................ --
Other assets............................................................. 28
-------------
Net cash used in investing activities................................ (934)
-------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings under term notes................................ --
Payment of notes payable................................................. (2,492)
Payment of senior subordinated notes..................................... --
Net borrowings under revolving credit facility........................... 2,122
Proceeds from issuance of exchangeable subordinated notes................ --
Proceeds from issuance of notes payable.................................. --
Deferred financing costs................................................. --
Capital contributions.................................................... 439
Scheduled principal payments on term notes............................... --
Contributions from Atrium Corp........................................... --
Exercise of stock options................................................ --
-------------
Net cash provided by financing activities............................ 69
-------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....................... (161)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............................. 161
-------------
CASH AND CASH EQUIVALENTS, END OF PERIOD................................... $ --
-------------
-------------
SUPPLEMENTAL DISCLOSURE:
Cash paid during the period for:
Interest............................................................... $ 510
Income taxes, net of refunds........................................... 927
Noncash investing and financing activities:
Conversion of exchangeable subordinated notes payable.................. --
Contribution of Darby's assets......................................... --
Step-up of Wing's assets due to purchase of minority interest.......... --
Purchase of equipment under capital leases............................. --
Payable to seller...................................................... --
Issuance of common stock warrants...................................... --
Tax benefit related to option exercises................................ 253
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
F-6
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
1. ORGANIZATION, BUSINESS AND BASIS OF PRESENTATION:
Atrium Companies, Inc. (the "Company") is engaged in the manufacture and
sale of doors, windows and various building materials throughout the United
States.
Prior to October 2, 1998, the Company's historical financial statements as
previously filed with the Securities and Exchange Commission included its
operations and the operations of its wholly-owned subsidiaries, Atrium Door and
Window Company of the Northeast, Atrium Door and Window Company of New England,
Atrium Door and Window Company of New York (collectively "ADW--Northeast"),
Atrium Door and Window Company--West Coast ("ADW--West Coast") and Atrium Door
and Window Company of Arizona ("ADW--Arizona"). On October 2, 1998, pursuant to
an acquisition and merger (the "Recapitalization" or "reverse acquisition") as
more fully described in Note 3, the Company's indirect Parent (D and W Holdings,
Inc.) contributed the assets of Wing Industries Holdings, Inc. and its
subsidiary Wing Industries, Inc. (collectively "Wing") and Door Holdings, Inc.
and its subsidiaries R.G. Darby Company, Inc. and Total Trim, Inc. (collectively
"Darby") to the Company.
As Wing was determined to be the acquiror in the reverse acquisition, the
historical financial statements of the Company (prior to October 3, 1998) were
replaced with the historical financial statements of Wing. As a result, the
statement of operations for 1998 only includes the operations of the Company and
Darby from October 3 through December 31. The statements of operations for the
year ended December 31, 1997, the periods ended December 31, 1996 and October
25, 1996 only include the operations and accounts of Wing and its predecessor.
Wing was acquired by the current controlling shareholders on October 25, 1996.
The December 31, 1998 balance sheet includes the accounts of the Company, Wing,
Darby and each of their respective subsidiaries. The December 31, 1997 balance
sheet only includes the accounts of Wing.
Following is a comparison of the actual results for the Company, Wing and
Darby prior to October 3, 1998, to unaudited pro forma information for the same
period assuming the reverse acquisition had taken place as of January 1, 1997:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997
------------------------ ------------------------
ACTUAL PRO FORMA ACTUAL PRO FORMA
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales.................................... $ 211,059 $ 400,777 $ 99,059 $ 357,870
Income (loss) before income taxes and
extraordinary charge....................... (2,329) 7,464 1,391 5,827
Income (loss) before extraordinary charge.... (2,180) 2,821 696 1,844
Net income (loss)............................ (2,819) 2,821 696 1,844
Depreciation, amortization and stock option
compensation expense....................... 8,009 18,632 1,492 11,026
Interest expense............................. 9,081 17,506 2,953 23,963
</TABLE>
The references to the periods ended December 31, 1996 and October 25, 1996
used throughout these consolidated financial statements, refer to the periods
October 26, 1996 through December 31, 1996 and January 1, 1996 through October
25, 1996, respectively.
F-7
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
2. SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
INDUSTRY SEGMENT
The Company operates in a single industry segment, the fabrication,
distribution and installation 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 to the customer. Allowances are established to
recognize the risk of sales returns from customers and estimates of warranty
costs.
CASH AND CASH EQUIVALENTS
The Company considers all highly-liquid investments with original maturities
of three months or less to be cash equivalents. At December 31, 1998, the
Company had $4,012 of bank overdrafts that were reclassified into Accounts
Payable.
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.
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 located in all 50 states and in 6 different
countries. 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.
Two customers accounted for approximately 58% and 65% of gross sales for 1998
and 1997 and 55% for the periods ended December 31, 1996 and October 25, 1996,
respectively.
INVENTORIES
Inventories are valued at the lower of cost (last-in, first-out or "LIFO")
or market. Work-in- process and finished goods inventories consist of materials,
labor and manufacturing overhead. Inventory costs include direct materials,
labor and manufacturing overhead. Management believes that the LIFO method
results in a better matching of current costs with current revenues.
F-8
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost less accumulated
depreciation. The Company depreciates the assets principally on a straight-line
basis for financial reporting purposes 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.
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.
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 three 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.
Unamortized capitalized software costs at December 31, 1998 and 1997 were
$3,665 and $0, respectively. Amortization expense for 1998 was $304.
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
F-9
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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 bad debt, workers' compensation and warranty
accruals, and in recognizing deferred tax assets and liabilities.
ADVERTISING COSTS
Advertising costs are expensed when incurred and were $2,841, $1,800, $128
and $1,222 for 1998 and 1997 and the periods ended December 31, 1996 and October
25, 1996, respectively. These costs are reflected in "selling, delivery, general
and administrative" in the consolidated statements of operations.
OTHER COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130 ("FAS 130") "Reporting
Comprehensive Income." FAS 130 requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. FAS 130 is effective for financial statement periods
beginning after December 15, 1997. The Company adopted FAS 130 beginning January
1, 1998. The Company had no comprehensive income for all periods presented prior
to January 1, 1998.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("AcSEC") Issued Statement of Position
98-1 ("SOP 98-1") "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" that is effective for reporting periods beginning
after December 15, 1998, but provides for earlier application if certain
conditions are met. The Company has applied the provisions of SOP 98-1 in its
financial statements for the year ended December 31, 1998 and its adoption had
no material effect on the Company's consolidated financial position or results
of operations.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 ("FAS 133") "Accounting for Derivative Instruments and Hedging
Activities" that is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. The Company will implement the provisions of FAS 133 as
F-10
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
required. The future adoption of FAS 133 in not expected to have a material
effect on the Company's consolidated financial position or results of
operations.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 and 1996 balances to
conform to the 1998 presentation.
3. THE REVERSE ACQUISITION (RECAPITALIZATION):
On August 3, 1998, D and W Holdings, Inc. ("Parent"), entered into an
Agreement and Plan of Merger (the "Merger Agreement") with Atrium Corporation
("Corp"), the parent company of the Company and other necessary parties to
acquire all of the outstanding capital stock of Corp for $225.0 million, through
a series of transactions (the "Recapitalization") described below. Corp owned
100% of the outstanding capital stock of the Company prior to the Merger
discussed below. GE Investment Private Placement Partners II, a limited
partnership ("GEIPPPII"), and Ardatrium L.L.C. ("Ardatrium") formed Parent by
acquiring all of its outstanding common stock for an aggregate purchase price of
$50.0 million. GEIPPPII is a private equity partnership affiliated with GE
Investments, a wholly-owned investment management subsidiary of General Electric
Company. Ardatrium is an affiliate of Ardshiel, Inc. ("Ardshiel"), a private
equity investment firm based in New York.
The acquisition of Corp by Parent was effected through the merger on October
2, 1998 of a wholly owned subsidiary of Parent, with and into Corp (the
"Merger") pursuant to the terms of the Merger Agreement. Prior to the Merger,
Parent contributed $50.0 million to the wholly-owned subsidiary in exchange for
all of its outstanding common stock. As a result of the Merger, Corp became a
direct wholly-owned subsidiary of Parent, and the Company became an indirect
wholly owned subsidiary of Parent.
Prior to the Merger, GEIPPPII and Ardshiel held investments in debt and
equity securities of Wing and Darby. Immediately prior to the consummation of
the Merger, all of the outstanding subordinated debt and associated warrants to
purchase common stock of Wing and Darby were converted into common stock of Wing
and Darby, respectively. The stockholders of Wing and Darby contributed their
common stock in Wing and Darby to Parent in exchange for common stock of Parent.
Immediately after the consummation of the Merger, Parent contributed all of the
common stock of Wing and Darby to Corp, which in turn contributed such stock to
the Company.
Upon completion of the Recapitalization, GEIPPPII and Ardshiel and its
affiliates beneficially owned approximately 96.7% of the outstanding common
stock of Parent with management owning the remaining 3.3%.
Pursuant to the terms of the Merger Agreement, all of the outstanding equity
securities of Corp were converted into the right to receive the merger
consideration of $94.2 million (the "Merger Consideration") in cash, net of
transaction costs of $5.4 million, outstanding indebtedness of $122.7 million
and $2.7 million of equity securities of Corp, owned by certain members of
management of Corp, which were converted into comparable equity securities of
Parent. The Merger Consideration was funded with (i) the $50.0 million in cash
that became an asset of Corp in the Merger, (ii) $20.0 million in cash proceeds
from the issuance of Senior Discount Debentures due 2010 by Corp. to GEIPPPII
and Ardatrium (the "Discount Debentures"), (iii) approximately $24.0 million in
cash proceeds from a loan from the Company (the
F-11
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
3. THE REVERSE ACQUISITION (RECAPITALIZATION): (CONTINUED)
"Intercompany Loan") which was funded by a portion of the proceeds of a term
loan to the Company under the Credit Facility (see Note 9), and (iv) $0.2
million in cash proceeds from the issuance of common stock of Parent to certain
members of management of Corp followed by a capital contribution of such
proceeds by Parent to Corp.
The acquisition of Corp by Parent and the Merger was accounted for as a
reverse acquisition. As Wing's shareholder group received the largest ownership
interest in Parent, Wing was determined to be the "accounting acquiror" in the
reverse acquisition. As a result, purchase accounting was applied to the assets
and liabilities of the Company. The purchase price was allocated to the
Company's assets and liabilities as follows:
<TABLE>
<S> <C>
Equity securities available for sale...................... $ 113
Accounts receivable....................................... 32,097
Inventories............................................... 18,766
Prepaid expenses and other current assets................. 4,506
Deferred tax asset........................................ 2,268
Property, plant and equipment............................. 18,391
Other noncurrent assets................................... 3,326
Goodwill.................................................. 170,447
Current liabilities....................................... (24,614)
Other long-term liabilities............................... (300)
---------
Total purchase price...................................... $ 225,000
---------
---------
</TABLE>
The purchase price includes cash paid of $120,977, including the retirement
of certain indebtedness, and the assumption of debt and accrued interest
$104,023
The purchase method of accounting was also applied to the net assets of Wing
and Darby to the extent minority interest was acquired. Goodwill was increased
by $1,247 and $242 for Wing and Darby, respectively.
4. ACQUISITION OF DOOR DIVISION OF SUPER MILLWORK, INC.
On November 10, 1997, Wing purchased certain assets of the Door Division of
Super Millwork, Inc. (SMI), a New York corporation for $12,500, including
contingent payments of $2,500 based on future operating results. The total cost
of the acquisition including transaction costs incurred aggregated $13,444. The
purchase price was funded with borrowings under a line of credit of
approximately $194, term loan borrowings of $6,750 and the issuance of
exchangeable subordinated notes of $4,000 with warrants.
F-12
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
4. ACQUISITION OF DOOR DIVISION OF SUPER MILLWORK, INC. (CONTINUED)
The purchase price allocation is as follows:
<TABLE>
<S> <C>
Accounts receivable........................................ $ 1,791
Inventories................................................ 2,540
Other current assets....................................... 31
Property, plant and equipment.............................. 215
Other noncurrent assets.................................... 300
Deferred financing costs................................... 536
Goodwill................................................... 9,945
Current liabilities........................................ (1,914)
---------
Total purchase price....................................... $ 13,444
---------
---------
</TABLE>
5. FAIR VALUE OF FINANCIAL INSTRUMENTS:
In accordance with Statement of Financial Accounting Standards No. 107 ("FAS
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. The carrying value of notes payable, other than the
exchangeable subordinated notes and the senior subordinated notes,
approximate fair value due to the floating nature of the interest rates.
Management estimates that the effective interest rate for the exchangeable
subordinated note approximates market for similar instruments with
comparable maturities. The senior subordinated notes of $29,070 are valued
at $29,361 as of December 31, 1998 based on quoted market prices.
Interest Rate Swaps--The Company has entered into two interest rate swap
agreements whereby the Company will pay the counterparties interest at a
fixed rate and the counterparties will pay the Company interest at a
floating rate equal to the three-month LIBOR interest rate. The fair value
of
F-13
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
5. FAIR VALUE OF FINANCIAL INSTRUMENTS: (CONTINUED)
interest rate swap agreements is the amount at which they could be settled,
based on estimates obtained from lenders. Swaps consisted of the following
at December 31:
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Swap #1
Notional Amount............................................................ $ 1,406 $ 2,531
Fixed Interest Rate........................................................ 6.50% 6.50%
Termination Date........................................................... 3/31/00 3/31/00
Unrealized Gain/(Loss)..................................................... $ (15) --
Swap #2
Notional Amount............................................................ $ 2,827 --
Fixed Interest Rate........................................................ 6.25% --
Termination Date........................................................... 11/6/03 --
Unrealized Gain/(Loss)..................................................... $ (87) --
</TABLE>
Forward aluminum contracts--The unrealized gains and losses are based on
quotes for aluminum as reported on the London Metal Exchange. As of December
31, 1998, the Company had forward contracts with fixed rate prices totaling
$2,623 with an unrealized loss of $199.
6. INVENTORIES:
Inventories consisted of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Raw materials........................................................... $ 27,362 $ 6,816
Work-in-process......................................................... 4,129 1,591
Finished goods.......................................................... 13,486 5,247
--------- ---------
44,977 13,654
LIFO reserve............................................................ 1,312 (97)
--------- ---------
$ 46,289 $ 13,557
--------- ---------
--------- ---------
</TABLE>
The change in the LIFO reserve for 1998 and 1997, resulted in a decrease in
cost of sales of $1,409 and an increase in cost of sales of $95, respectively
and a decrease in cost of sales for the periods ended December 31, 1996 and
October 26, 1996 of $2 and $360, respectively.
F-14
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
7. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Land.................................................................... $ 1,303 $ 40
Buildings and improvements.............................................. 8,671 1,812
Machinery and equipment................................................. 19,311 6,974
Construction-in-process................................................. 722 --
--------- ---------
Total................................................................. 30,007 8,826
Less accumulated depreciation and amortization.......................... (3,247) (1,273)
--------- ---------
$ 26,760 $ 7,553
--------- ---------
--------- ---------
</TABLE>
Depreciation expense was $1,996, $1,180, $165 and $716 for 1998 and 1997,
and the periods ended December 31, 1996 and October 25, 1996, respectively.
8. 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 1998 and 1997 and for the period ended December 31,
1996 was $732, $390 and $30, respectively and was recorded as interest expense
in the accompanying consolidated statements of operations. No amortization
expense was recorded for the period ended October 25, 1996.
The Company wrote off deferred financing costs of $639, net of income tax
benefit of $392, in connection with the Recapitalization.
F-15
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
9. NOTES PAYABLE:
Notes payable consisted of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
$100,000 Senior Subordinated Notes, due November 15, 2006, with semiannual
interest payments of 10 1/2% due May 15 and November 15........................ $ 29,070 $ --
Revolving credit facility........................................................ 4,118
$75,000 Term Loan B, due June 30, 2005 with $250 quarterly payments, interest at
either the administrative agent's base rate plus an applicable margin or LIBOR
plus an applicable margin (9.625% at December 31, 1998)........................ 74,750 --
$70,930 Term Loan C, due June 30, 2006, with $250 quarterly payments, interest at
either the administrative agent's base rate plus an applicable margin or LIBOR
plus an applicable margin (9.875% at December 31, 1998)........................ 70,680 --
Other notes payable.............................................................. 609 770
$14,500 revolving line of credit with BHF-Bank, bearing interest at bank's base
rate (which approximate prime) plus one and one-half percent (10% at December
31, 1997)...................................................................... -- 4,448
$6,750 note payable to BHF-Bank, due in quarterly installments of $219 through
September 30, 2002 and $591 through maturity, November 6, 2003, plus interest
at the base rate (which approximates prime) plus one and one-half percent (10%
at December 31, 1997).......................................................... -- 6,750
$4,000 exchangeable subordinated note payable to GEIPPPII and Ardwing L.L.C.,
payable interest only in quarterly installments at 11%, due November 10, 2004,
exchangeable into approximately 22,126 shares of common stock.................. -- 4,000
$10,000 note payable to BHF-Bank, due in quarterly installments of $250 through
September 30, 1997 and $562 through maturity, October 25, 2001, plus interest
at the base rate (which approximates prime) plus one and one-half percent (10%
at December 31, 1997).......................................................... -- 9,000
$8,500 exchangeable subordinated note payable to GEIPPPII, payable interest only
in quarterly installments at 11%, due October 25, 2003, exchangeable into
approximately 46,669 shares of common stock.................................... -- 8,500
---------- ---------
179,227 33,468
Less:
Unamortized discount on exchangeable subordinated notes payable................ -- (1,230)
Current maturities of long-term debt........................................... (2,209) (3,364)
---------- ---------
Long-term debt............................................................... $ 177,018 $ 28,874
---------- ---------
---------- ---------
</TABLE>
F-16
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
9. NOTES PAYABLE: (CONTINUED)
The Company's exchangeable subordinated notes payable, notes payable to
banks and revolving line of credit existing at December 31, 1997 and through
October 2, 1998, were repaid or converted in connection with the
Recapitalization.
The note agreements existing prior to the merger contained certain
covenants, including, among others, requirements that the Company comply with
certain financial and operational results and ratios. In addition, the loan
agreements placed certain limitations on the ability to pay dividends, to incur
indebtedness, to change its present method of doing business, to make certain
investments (including capital expenditures) or to sell assets. Substantially
all of Wing's assets and capital stock were collateralized under the BHF-Bank
agreements. The $10,000 and $6,750 term loans contained "excess cash flow"
provisions mandating additional principal payments if certain cash flow targets
were met during each fiscal year. No additional principal payments were required
as of December 31, 1997.
The Company entered into a Credit Agreement (the "Credit Agreement"), dated
as of October 2, 1998 with Bank Boston, as administrative agent (the
"Administrative Agent") and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated, as lead arranger, syndication agent and documentation agent.
The Credit Agreement provides for three separate facilities (the
"Facilities") consisting of two term loans (referred to individually as "Term
Loan B" and "Term Loan C", and collectively as the "Term Loans") and a revolving
credit facility with a letter of credit sub-facility (the "Revolving Facility",
together with the Term Loans, the "Loans"). The Revolving Facility is in the
amount of $30,000, of which $5,000 is available under a letter of credit
sub-facility. The Revolving Facility has a maturity date of June 30, 2004.
All amounts outstanding under the Credit Agreement are secured by (i) a
pledge of all of the capital stock and intercompany notes of the Company and its
direct and indirect subsidiaries existing October 2, 1998 or thereafter and (ii)
an interest in substantially all of the tangible and intangible properties and
assets (including substantially all contract rights, certain real property
interests, trademarks, tradenames, equipment and proceeds of the foregoing) of
Corp, the Company and their respective direct and indirect domestic subsidiaries
existing on the October 2, 1998 or thereafter created or acquired (the "Domestic
Subsidiaries"). Corp and each of the Domestic Subsidiaries have unconditionally
guaranteed, on a joint and several basis, all obligations of the Company under
the Credit Agreement.
The Term Loans have an "excess cash flows" provision mandating additional
principal payments if certain cash flows targets are met during the year. No
additional principal payments are required as of December 31, 1998 related to
this provision.
The Company is required to pay certain commitment fees in connection with
the Credit Agreement based upon the average daily unused portion of the
Revolving Facility, certain fees assessed in connection with the issuance of
letters of credit as well as other fees specified in the Credit Agreement and
other documents related thereto.
The Credit Agreement requires the Company to comply with certain covenants
which, among other things, include limitations on indebtedness, liens and
further negative pledges, investments, contingent obligations, dividends,
redemptions and repurchases of equity interests, mergers, acquisitions and asset
sales, capital expenditures, sale leaseback transactions, transactions with
affiliates, dividend and other payment restrictions affecting subsidiaries,
changes in business conducted, amendment of documents relating to other
indebtedness and other material documents, creation of subsidiaries, designation
of
F-17
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
9. NOTES PAYABLE: (CONTINUED)
Designated Senior Indebtedness in respect of the Notes, and prepayment or
repurchase of other indebtedness. The Credit Agreement requires the Company to
meet certain financial tests pertaining to, interest coverage, fixed charge
coverage and leverage.
The Credit Agreement contains customary events of default, including,
without limitation, payment defaults, covenant defaults, breaches of
representations and warranties, bankruptcy and insolvency, judgments, change of
control and cross-default with certain other indebtedness.
Principal payments due during the next five years on long-term notes payable
as of December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999.............................................. $ 2,209
2000.............................................. 2,260
2001.............................................. 2,140
2002.............................................. 2,000
2003.............................................. 2,000
Thereafter........................................ 168,618
---------
$ 179,227
---------
---------
</TABLE>
F-18
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
10. FEDERAL INCOME TAX:
Temporary differences that give rise to the deferred income tax assets and
liabilities are as follows as of December 31:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Deferred income tax assets:
Stock option compensation.............................................. $ 2,486 $ --
Transaction costs...................................................... 1,341 --
Allowance for doubtful accounts........................................ 380 52
Inventory cost capitalization and valuation............................ 648 72
Accrued vacation and bonus............................................. 608 80
Warranty reserve....................................................... 135 --
Workers' compensation reserve.......................................... 431 --
Other.................................................................. 130 59
--------- ---------
6,159 263
Deferred income tax liabilities:
Depreciation........................................................... (1,861) (449)
LIFO reserve........................................................... (1,505) (829)
Capitalized software costs............................................. (1,039) --
Amortization of goodwill............................................... (506) --
--------- ---------
(4,911) (1,278)
--------- ---------
Net deferred income tax asset asset (liability).......................... 1,248 (1,015)
Less-current deferred tax asset (liability).............................. 1,249 (566)
--------- ---------
Long-term deferred tax liability......................................... $ (1) $ (449)
--------- ---------
--------- ---------
</TABLE>
A valuation allowance is required 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, 1998 and
1997, no valuation reserve was required.
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
------------------------------------------- -------------
YEAR ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, OCTOBER 25,
1998 1997 1996 1996
------------- ------------- ------------- -------------
Current federal income tax provision
(benefit).......................... $ (467) $ 462 $ 153 $ 441
<S> <C> <C> <C> <C>
Deferred federal income tax
provision.......................... 330 184 60 182
State income tax provision
(benefit).......................... (12) 49 16 47
----- ----- ----- -----
Provision (benefit) for income
taxes.............................. $ (149) $ 695 $ 229 $ 670
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
F-19
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
10. FEDERAL INCOME TAX: (CONTINUED)
Reconciliation of the federal statutory income tax rate to the effective tax
rate, was as follows:
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
------------------------------------------- -------------
YEAR ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, OCTOBER 25,
1998 1997 1996 1996
------------- ------------- ------------- -------------
Tax computed at statutory rate...... $ (815) $ 473 $ 181 $ 606
<S> <C> <C> <C> <C>
State taxes, net of federal
benefit........................... (12) 67 22 40
Amortization of goodwill............ 495 110 18 --
Other............................... 183 45 8 24
----- ----- ----- -----
Provision (benefit) for income
taxes............................. $ (149) $ 695 $ 229 $ 670
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
11. PREFERRED STOCK:
Wing was authorized to issue 2,000 shares, $.01 par value of preferred stock
and at December 31, 1997 there were no shares outstanding. Concurrent with the
Recapitalization discussed in Note 3, all of Wing's authorized preferred stock
was canceled.
12. RELATED PARTIES:
MANAGEMENT AND INVESTMENT BANKING AGREEMENT
In November 1997, Wing amended its ten-year Management and Investment
Banking Agreement (the "Old Management Agreement") with Ardshiel. Pursuant
thereto, Wing agreed to pay Ardshiel an annual fee of $375 plus expenses for
ongoing management advisory services to Wing. In 1998, 1997 and 1996, $368, $485
and $72, respectively, was paid to Ardshiel under this agreement. The Old
Management Agreement was terminated in connection with the Recapitalization on
October 2, 1998.
FINANCIAL ADVISORY FEE
Ardshiel received a financial advisory fee of $600 plus expenses on the
closing date of the October 26, 1996 transaction as compensation for its
services as financial advisor to Wing. In addition, Ardshiel received warrants
to obtain 5,714 shares of Class A voting common stock at no additional cost.
Such warrants can be converted into Class A voting common stock at any time. The
warrants were valued at $332 and were included in the total purchase price of
Wing.
Ardshiel received an investment banking fee of $250 plus expenses on the
closing date of the acquisition of the of the Door Division of Super Millwork,
Inc. acquisition as compensation for its services to Wing in connection with
this acquisition.
SHAREHOLDER AGREEMENT
GEIPPPII, Ardatrium and certain of its affiliates, and certain other
shareholders of Parent have entered into a Shareholder Agreement (the
"Shareholder Agreement"), dated as of October 2, 1998, which affect their
relative rights as shareholders of Parent.
F-20
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
12. RELATED PARTIES: (CONTINUED)
MANAGEMENT AGREEMENT
Parent is a party to a Management Agreement (the "Management Agreement")
dated October 2, 1998 with Ardshiel. Pursuant to the Management Agreement,
Ardshiel provides advice to Parent and its subsidiaries with respect to business
strategy, operations and budgeting and financial controls ("Management
Services") in exchange for an annual fee of $1,300 plus expenses. Additionally,
the Management Agreement provides that, prior to entering into any transaction
that involves engaging a financial advisor to perform services in connection
with a sale or purchase of a business or entity or any financing including,
Parent or its subsidiaries must offer Ardshiel the opportunity to perform such
investment banking services, unless in the reasonable exercise of the business
judgement of the Board of Directors of Parent such engagement would result in a
conflict of interest or would otherwise be adverse to the interests of Parent or
such subsidiaries. Ardshiel shall receive a fee for any such services rendered
by Ardshiel to Parent or its subsidiaries which fee shall not be greater than 2%
of the total purchase or sale price for such business or entity and shall be
payable upon consummation of such sale or purchase. The consent of GEIPPPII is
required prior to the payment by Parent or any of its subsidiaries in paying
similar fees to other entities for similar services. Parent paid a closing fee
of approximately $3,375 upon the consummation of the Merger and paid Ardshiel's
fees and expenses in connection therewith. The Management Agreement will remain
in effect until October 2, 2008 and will automatically be renewed for one-year
periods unless either party gives written notice to the contrary at least 30
days prior to the expiration of the initial or any extended term of the
agreement.
NOTES RECEIVABLE
Included in prepaid expenses and other current assets are the following
receivables due from related parties at December 31:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Receivables from officers..................................................... $ 123 $ --
Receivables from employees.................................................... $ 211 $ --
</TABLE>
13. COMMITMENTS AND CONTINGENCIES:
EMPLOYMENT AGREEMENTS
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 Chief Operating Officer and several Divisional
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.
F-21
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
13. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
OPERATING LEASES
The Company has entered into operating lease agreements for office and
manufacturing space, automobiles, and machinery and equipment with unrelated
third parties, affiliates of certain stockholders and certain stockholders of
the Company. Total rent expense for 1998, 1997 and for the periods ended
December 31, 1996 and October 25, 1996 was $2,862, $1,189, $172 and $691,
respectively. Of these totals, amounts paid to related parties was $398 for 1998
and $0 for 1997 and the periods ended December 31, 1996 and October 25, 1996.
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>
1999......................................................... $ 1,317 $ 3,898 $ 5,215
2000......................................................... 1,317 3,348 4,665
2001......................................................... 1,317 2,779 4,096
2002......................................................... 1,180 1,989 3,169
2003......................................................... 1,272 1,407 2,679
Thereafter................................................... 14,001 3,627 17,628
--------- --------- ---------
$ 20,404 $ 17,048 $ 37,452
--------- --------- ---------
--------- --------- ---------
</TABLE>
FORWARD COMMITMENTS
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 with fixed and floating prices. As of December 31,
1998, the Company had forward commitments totaling $2,623 for delivery through
December 1999 for 21.1 million pounds of aluminum, of which 3.6 million pounds
were at fixed prices, respectively. No amounts were outstanding as of December
31, 1997.
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 consolidated
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 and extended for three additional years in 1998. In
addition, in connection with its Woodville, Texas operations, the Company is
party to collective bargaining arrangements due to expire in 2001.
The Company is involved in various stages of investigation and cleanup
related 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
F-22
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
13. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
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 consolidated financial
position, results of operations or liquidity.
14. OTHER INCOME, NET:
Other income, net consists of the following for the year ended December 31,
1998:
<TABLE>
<S> <C>
Rental, interest and other income.................... $ 556
Gain on sale of assets............................... 12
Other................................................ 3
---------
$ 571
---------
---------
</TABLE>
15. STOCK OPTIONS:
The Wing Industries Holdings, Inc. Stock Option Plan (the "Plan") was
adopted on October 25, 1996 and amended on November 17, 1997 to provide certain
employees, officers and directors of Wing an opportunity to purchase Class A
voting common stock of Wing. Options available for grant under the Plan included
(1) "Incentive Stock Options" as defined in Section 422 of the Internal Revenue
Code of 1986, as amended and (2) Nonqualified Stock Options which were options
that did not constitute Incentive Stock Options.
At December 31, 1997, Nonqualified Stock Options for a total of 14,483
shares of Wing's Class A voting common stock had been granted. During 1998, and
prior to the Recapitalization, 1,766 options were exercised. The remaining
12,717 options were exchanged for 2,528,314 options in the D and W Holdings,
Inc. 1998 Stock Option Plan (the "New Plan"). The Plan was terminated in
connection with the Recapitalization. No compensation expense was recorded
during 1997 or 1996.
THE NEW PLAN
In connection with the Recapitalization, the Board of Directors adopted the
New Plan authorizing the issuance of 11,991,142 options to acquire common stock
of the Company. Through December 31, 1998, the Board of Directors granted
11,735,941 options under the New Plan. All options granted under the New Plan
expire ten years from the date of grant, October 2, 1998.
As of December 31, 1998, 1,756,924 options had been granted in three
tranches under the New Plan in replacement of certain of the options granted
under the Plan. These options consist of (a) options to purchase 692,861 shares
of common stock at an exercise price of $0.01 per share; (b) options to purchase
539,135 shares of common stock at an exercise price of $0.72 per share until
December 1, 1999, and then increasing 15% per year thereafter, until and
including December 1, 2000; and (c) options to purchase 524,928 shares of common
stock at an exercise price of $0.82 per share until December 1, 1999, and then
F-23
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
15. STOCK OPTIONS: (CONTINUED)
increasing 30% per year thereafter, until and including December 1, 2000. As of
December 31, 1998, 1,064,030 of these options were fully vested. The remaining
options vest on October 25, 1999, subject to accelerated vesting in the event
(a) the Company sells common stock in an offering registered with the Securities
and Exchange Commission which results in a Change of Control (as defined in the
New Plan); (b) the Company is merged or consolidated with another corporation in
a merger in which the surviving corporation has freely tradeable common stock;
(c) substantially all of the assets of the Company and its subsidiaries, taken
as a whole, are sold or otherwise transferred; or (iv) a plan of liquidation of
the Company of the optionee's employer is adopted.
As of December 31, 1998, options of 771,390 with an exercise price of $1.25
had been granted under the New Plan that become exercisable only as such time at
(each such event, a "Value Event") (a) the Company sells common stock in an
offering registered with the Securities and Exchange Commission, which
constitutes a Qualifying Public Offering (as defined in the New Plan); (b) the
Company is merged or consolidated with another corporation in a merger in which
the surviving corporation has freely tradeable common stock; or (c)
substantially all of the assets of the Company and its subsidiaries, taken as a
whole, are sold or otherwise transferred.
As of December 31, 1998, options of 832,314 had been granted that consisted
of two tranches: (a) - options to purchase 277,438 shares with an exercise price
of $0.83 per share to March 31, 1999 and then increasing 15% per year thereafter
and (b) - options to purchase 554,876 shares with an exercise price of $0.83 per
share to March 31, 1999 and then increasing 30% per year thereafter. For the 15%
and the 30% options, if the holder chooses not to exercise at time of vesting,
the strike price increases annually to the next level until expiration. At
December 31, 1998 none of these options were vested. The options vest equally in
one-third increments on January 9, 1999, 2000 and 2001, respectively.
As of December 31, 1998, options of 221,725 with an exercise price of $1.65
had been granted that are exercisable only upon the occurrence of a Value Event.
These options vest at such time of occurrence of a value event.
As of December 31, 1998, options of 8,153,588 options had been granted with
an exercise price of $1.00. On the anniversary of the grant date and prior to
termination of employment, 3,551,526 options will vest 25% and shall continue to
vest ratably as of and after the fourth anniversary date of grant. The remaining
4,602,062 options will vest 20% and shall continue to vest ratably as of and
after the fifth anniversary date of grant. The options expire ten years from the
date of grant.
The Company recorded non cash stock option compensation expense of $1,038 in
1998 in connection with the difference between the fair value of the stock at
the date of issuance ($1.00) and the respective exercise prices of each of the
above grants.
THE REPLACEMENT PLAN
In addition to the New Plan, the Board of Directors adopted the D and W
Holdings, Inc. Replacement Stock Option Plan (the "Replacement Plan") to govern
the terms of certain options to purchase the Company's common stock which were
granted in replacement of outstanding options of Atrium Corp. in connection with
the Recapitalization. Under the Replacement Plan, options to purchase in
aggregate of 1,575,000 shares of the Company's common stock were granted in
exchange for outstanding options of Atrium Corp. which were not cashed out
pursuant to the Merger Agreement. The options granted
F-24
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
15. STOCK OPTIONS: (CONTINUED)
pursuant to the Replacement Plan vest ratably over a period of five years on
each anniversary date of the grant. The replacement options have an exercise
price of $0.01 per share.
Upon termination of the optionee's employment, the Company shall have the
right to repurchase the options. In the event termination was for cause, the
price per option repurchased will be equal to the lesser of $1.00 per underlying
share and the market value per share of the Company's common stock, in either
case, minus $0.01 per share. If termination is for other than cause, the
repurchase price will differ for the vested and unvested portions. The unvested
portion will be reacquired at a purchase price equal to the lesser of the market
value per share and $1.00 per share, in each case, minus $0.01 per share and the
vested portion may be reacquired at a purchase price equal to the greater of the
market value per share or $1.00 per share, in each case, minus $0.01 per share.
On October 2, 1998, the Company 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 2,841,221
shares of common stock at any time subsequent to the Recapitalization. The
exercise price of the Warrant is $.01 per share. An additional 1,894,148 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 1,894,148 options vest ratably each day for three
years. The Warrant will terminate on October 2, 2008. The Company recorded non
cash compensation expense of $2,813 for 1998 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).
In addition, in exchange for certain warrants to purchase common stock of
Atrium Corp, the Executive received a warrant to purchase 1,000,000 shares of
the Company's common stock at a price of $.01 per share with a term of twenty
years.
If an event or value event as previously defined were to become probable,
the difference between the option price and the then fair market value would be
charged to earnings at that time.
F-25
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
15. STOCK OPTIONS: (CONTINUED)
The following table summarizes the transactions of the New Plan and the
Replacement Plan for the years ended December 31, 1998 and 1997 and the period
ended December 31, 1996 (all outstanding options were granted to management of
the Company):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------- ------------- ------------
<S> <C> <C> <C>
Outstanding options, beginning of period......... 2,849,863 2,078,473 --
Granted.......................................... 13,310,941 771,390 2,078,473
Canceled or expired.............................. -- -- --
Exchanged........................................ (2,528,314) -- --
Exercised........................................ (321,549) -- --
------------- ------------- ------------
Outstanding options, end of year................. 13,310,941 2,849,863 2,078,473
------------- ------------- ------------
------------- ------------- ------------
Weighted average exercise price of options
exercised...................................... $ .84 $ -- $ --
Weighted average exercise price of options
granted........................................ $ .82 $ 1.25 $ .42
Weighted average exercise price, end of period... $ .85 $ 0.74 $ .42
Options exercisable, end of period............... 1,064,030 461,937 --
Options available for future grant............... 255,201 731,415 834,837
</TABLE>
The following table summarizes information about stock options and warrants
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF EXERCISE NUMBER REMAINING EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE (MONTHS) PRICE EXERCISABLE PRICE
- ------------------ ------------ ------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Options:
$ .01 2,267,861 117 $ .01 461,906 $ .01
$.83 - 1.00 9,525,037 117 $ .98 308,150 $ .79
$1.21 - 1.65 1,518,043 117 $ 1.29 293,974 $ 1.07
------------ ----------
13,310,941 1,064,030
Warrants:
$ .01 2,841,221 117 $ .01 2,841,221 $ .01
$1.00 1,894,148 117 $ 1.00 155,541 $ 1.00
------------ ----------
4,735,369 2,996,762
</TABLE>
In 1995, the FASB issued FASB Statement No. 123 ("FAS 123") "Accounting for
Stock-Based Compensation" 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 FAS 123 is optional and
the Company has decided not to elect the provisions of FAS 123. However, pro
forma disclosures as if the Company adopted the cost recognition provisions of
FAS 123 are required by FAS 123;
F-26
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
15. STOCK OPTIONS: (CONTINUED)
however, there is no pro forma effect of adopting the cost provisions of FAS 123
for the years ended December 31, 1998 and 1997 and the periods ended December
31, 1996 and October 25, 1996. In 1998, 1997 and 1996, the Company granted only
nonqualified stock options and warrants 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 1998 and 1997: 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 FAS 123, the Company's net income
(loss) for 1998, 1997 and 1996 would have been ($3,122), $440 and $224,
respectively.
The effects of applying FAS 123 in this pro forma disclosure are not
indicative of future amounts. FAS 123 does not apply to awards prior to 1995.
16. EMPLOYEE BENEFIT PLANS:
Prior to the formation of Wing, management announced the curtailment of the
defined benefit pension plan covering substantially all employees. Upon receipt
of a favorable tax determination letter from the Internal Revenue Service,
settlement of the plan occurred during the period ended October 25, 1996, at
which time a liquidating distribution of $2,789 was made to the eligible
employees based on years of service and the employee's compensation during the
five consecutive years of employment in which compensation was the highest. In
addition, management retired the two nonqualified, unfunded and noncontributory
plans for the directors. Settlement of the plans occurred during the period
ended October 25, 1996 at which time a lump-sum payout of $801 was made to the
directors.
The Company maintains an employees' savings plan under Section 401(k) of the
Internal Revenue Code (the "Code"). The Company makes discretionary matching
contributions equal to 50% of the first 4% of the employee's contribution. The
Company contributed $101, $85, $78 during 1998 and 1997 and the period ended
December 31, 1996, respectively.
In connection with the Recapitalization, the Company maintains two
additional plans under Section 401(k) and 401 of the Code. Each plan provides
for discretionary contributions by the employer. The Plan covered by Section 401
of the Code does not provide for employee contributions. The Company contributed
$57 to the plans during the period from October 3, 1998 to December 31, 1998.
17. SUBSIDIARY GUARANTORS:
In connection with the Company's Senior Subordinated Notes, 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, ADW-Arizona,
ADW-West Coast, Wing and Darby (collectively, the Subsidiary Guarantors). The
Company has no non-guarantor direct or indirect subsidiaries. The operations
related to the assets of ADW-Northeast ADW-Arizona ADW-West Coast and Darby are
included since the reverse acquisition on October 2, 1998.
F-27
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
17. SUBSIDIARY GUARANTORS: (CONTINUED)
The operations of Wing are presented for all periods covered. The balance sheet
information includes all subsidiaries as of December 31, 1998 and only Wing as
of December 31, 1997. 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.
Following is summarized combined financial information pertaining to these
Subsidiary Guarantors:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Current assets................................................... $ 42,887 $ 23,610
Noncurrent assets................................................ 157,678 31,773
Current liabilities.............................................. 16,666 12,885
Noncurrent liabilities........................................... 123,049 31,823
</TABLE>
F-28
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
17. SUBSIDIARY GUARANTORS: (CONTINUED)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
DECEMBER 31,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
Net sales........................................................ $ 165,333 $ 99,059
Gross profit..................................................... 37,340 20,789
Net income from continuing operations............................ 503 696
Net income....................................................... 503 696
</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.
18. SUBSEQUENT EVENTS:
DELTA ACQUISITION
On January 27, 1999, the Company acquired certain assets of Delta Millwork,
Inc., a privately held door pre-hanger located in Orlando, Florida, for $1,300.
The Company financed the acquisition through its revolving credit facility.
The acquisition will be accounted for as a purchase in accordance with
Accounting Principles Board Opinion No. 16, "Business Combinations" ("APB 16").
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
$100, 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 January 27, 1999.
MANAGEMENT CHANGE
On April 9, 1999, the Company completed a separation agreement with Randall
S. Fojtasek, President and Chief Executive Officer, whereby Mr. Fojtasek
resigned from the Company effective March 31, 1999. The Board of Directors has
nominated Jeff L. Hull, Executive Vice President and Chief Financial Officer,
and Ken L. Gilmer, Executive Vice President and Chief Operating Officer, to
oversee day-to-day operations and report directly to the Executive Committee of
the Board of Directors. The Company expects to take a charge of approximately
$1,750 in the first quarter of fiscal year 1999 for severance benefits related
to this management change.
F-29
<PAGE>
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>
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN C -
ADDITIONS
-------------
COLUMN B - (1) COLUMN D -
BALANCE AT CHARGED TO DEDUCTIONS - COLUMN E -
BEGINNING COSTS AND WRITE-OFFS BALANCE AT
COLUMN A - DESCRIPTION OF PERIOD EXPENSES (A) END OF PERIOD
- -------------------------------------------------------- ------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1996.......................... $ 0 $ 1,561 $ (731) $ 830
Year ended December 31, 1997.......................... $ 830 $ 1,791 $ (1,896) $ 725
Year ended December 31, 1998.......................... $ 725 $ 227 $ (174) $ 778
</TABLE>
(a) net of recoveries
S-2
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ----------- ------------------------------------------------------------------------------------------------------
<C> <C> <S>
2.1 -- Asset Purchase Agreement dated as of March 4, 1998, among Masterview Window Company LLC, Atrium
Companies, Inc. and, for the limited purposes set forth therein, BancBoston Ventures, Inc. (3)
2.2 -- Agreement and Plan of Merger by and among D and W Holdings, Inc., D and W Acquisition Corp., Atrium
Corporation, and the securityholders therein dated as of August 3, 1998 (4)
2.3 -- Amendment No. 1 to the Agreement and Plan of Merger by and among D and W Holdings, Inc., D and W
Acquisition Corp., Atrium Corporation and the securityholders named therein, dated as of October 2,
1998 (5)
2.4 -- Amendment No. 2, dated as of April 14, 1999 to the Agreement and Plan of Merger by and among D and W
Holdings, Inc., D and W Acquisition Corp., Atrium Corporation and the securityholders named therein
(5)
3.1 -- Certificate of Incorporation of Atrium Companies, Inc., as amended (1)
3.2 -- Bylaws of Atrium Companies, Inc.(1)
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)
4.3 -- Notice of Change of Control and Offer to Purchase, dated as of October 9, 1998, by Atrium Companies,
Inc. for any and all of its 10 1/2% Senior Subordinated Notes due November 15, 2006, Series B and
Supplemental Letter, dated October 19, 1998 (4)
4.4 -- Amendment No. 1, dated as of March 23, 1998, to the Indenture dated as of November 27, 1996 (the
"Indenture"), by and among Atrium Companies, Inc., the Subsidiary Guarantors named therein and United
States Trust Company of New York (the "Trustee") (5)
4.5 -- Amendment No. 2, dated as of October 2, 1998, to the Indenture dated as of November 27, 1996 and
amended as of March 23, 1998 (the "Indenture"), by and among Atrium Companies, Inc., the Subsidiary
Guarantors named therein and United States Trust Company of New York (the "Trustee") (5)
4.6 -- Amendment No. 3, dated as of January 28, 1999, to the Indenture dated as of November 27, 1996 and
amended as of March 23, 1998 and further amended as of October 2, 1998 (the "Indenture"), by and among
Atrium Companies, Inc., the Subsidiary Guarantor named therein and United States Trust Company of New
York (the "Trustee") (5)
10.1 -- Employment Agreement between the Company and Horace T. Hicks dated January 1, 1998 (2)
10.2 -- Employment Agreement between the Company and Louis W. Simi, Jr. dated January 1, 1998 (2)
10.3 -- Employment Agreement between the Company and Arthur G. Frost dated January 1, 1998 (2)
10.4 -- Escrow Agreement dated July 3, 1995 among Fojtasek/Heritage Acquisition Company, The Company, Randall
Fojtasek and the First National Bank of Boston (1)
10.5 -- Atrium Lease Agreement, as amended (1)
</TABLE>
E-1
<PAGE>
<TABLE>
<C> <C> <S>
10.6 -- H-R Windows Lease Agreement (1)
10.7 -- Second Amendment to the Atrium Lease Agreement (2)
10.8 -- First Amendment to the H-R Windows Lease Agreement (2)
10.9 -- Stockholders Agreement, dated as of October 2, 1998, by and among D and W Holdings, Inc., a Delaware
Corporation (the "Company") and each of the individuals and entities signatory thereto (each a
"Stockholder" and together the "Stockholders") (4)
10.10 -- Credit Agreement dated as of October 2, 1998 by and among Atrium Companies, Inc., as Borrower, D and W
Holdings, Inc., as Parent, the Guarantors party thereto, Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, as Lead Arranger, Syndication Agent and Documentation Agent, and
BankBoston, N.A., as Administrative Agent, and the Lenders party thereto (4)
10.11 -- Management Agreement, dated as of October 2, 1998, by and among Ardshiel, Inc.,
D and W Holdings, Inc., Atrium Corporation and Atrium Companies, Inc. (5)
10.12 -- Employment Agreement, dated as of October 2, 1998, by and between D and W Holdings, Inc., Jeff L. Hull
and Atrium Companies, Inc. (5)
10.13 -- Employment Agreement, dated as of October 2, 1998, by and between D and W Holdings, Inc., R.L. Gilmer
and Wing Industries, Inc. (5)
10.14 -- Employment Agreement, dated as of January 8, 1998, by and between Door Holdings, Inc. and Cliff Darby
(5)
10.15 -- Buy-Sell Agreement, dated as of October 2, 1998, by and among D and W Holdings, Inc., GE Investment
Private Placement Partners II and R.L. Gilmer (standard agreement) (5)
10.16 -- Buy-Sell Agreement, dated as of October 2, 1998, by and among D and W Holdings, Inc., GE Investment
Private Placement Partners II and Cliff Darby (5)
10.17 -- D and W Holdings, Inc. 1998 Stock Option Plan (5)
10.18 -- D and W Holdings, Inc. 1998 Replacement Stock Option Plan (5)
10.19 -- Termination Agreement, dated as of October 2, 1998, between Atrium Corporation, Atrium Companies,
Inc., Hicks, Muse & Co. Partners, L.P. and Hicks, Muse, Tate & Furst Incorporated (5)
10.20 -- Warrant issued to Randall S. Fojtasek, dated as of October 2, 1998, to purchase common stock of D and
W Holdiings, Inc. (5)
10.21 -- Exchange Warrant issued to Randall S. Fojtasek, dated as of October 2, 1998, to purchase common stock
of D and W Holdings, Inc. (5)
10.22 -- Amendment, dated as of October 2, 1998, to Warrant dated as of November 27, 1996 issued to Randall S.
Fojtasek (5)
10.23 -- Agreement and Release, dated as of March 31, 1999, by and among Randall S. Fojtasek and D and W
Holdings, Inc., Atrium Corporation, Atrium Companies, Inc., Ardshiel, Inc., GE Investment Management
Incorporated, GE Investment Private Placement Partners II, a Limited Partnership and the parties named
therein (5)
10.24 -- Identification Escrow Agreement, dated as of October 2, 1998, by and among Hicks, Muse Fund III
Incorporated, D and W Holdings, Inc. and Northwest Bank Texas, N.A. (5)
10.25 -- Amendment No. 1, dated April 14, 1999, to Identification Escrow Agreement by and among Hicks, Muse
Fund III Incorporated, D and W Holdings, Inc. and Northwest Bank Texas, N.A. (5)
12.1 -- Computation of Ratio of Earnings to Fixed Charges (5)
21.1 -- Subsidiaries of the Company (5)
24.1 -- Powers of Attorney (5)
</TABLE>
E-2
<PAGE>
<TABLE>
<C> <C> <S>
27.1 -- Financial Data Schedule (5)
</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) Incorporated by reference from the Registrant's Report on Form 10-K, dated
March 31, 1998.
(3) Incorporated by reference from the Registrant's Report on Form 8-K, dated
March 27, 1998 and filed on April 13, 1998.
(4) Incorporated by reference from the Registrant's Report on Form 8-K, dated
October 2, 1998 and filed on October 19, 1998.
(5) Filed herewith.
E-3
<PAGE>
AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER (this
"Agreement"), dated as of October 2, 1998, is made by and among D and W
Holdings, Inc., a Delaware corporation ("Parent"), and the individuals set forth
on the signature pages hereto (collectively, the "Rolling Securityholders").
PRELIMINARY STATEMENTS
A. Parent, D and W Acquisition Corp., a Delaware corporation ("Sub"),
Atrium Corporation, a Delaware corporation (the "Company"), and the
securityholders of the Company entered into an Agreement and Plan of Merger,
dated as of August 3, 1998 (the "Merger Agreement"), with respect to the merger
of Sub with and into the Company.
B. Capitalized terms used and not defined herein shall have the
respective meanings ascribed to them in the Merger Agreement.
C. As contemplated by Sections 7.6 and 13.2 of the Merger Agreement,
some or all of the Shares and/or Options held by the Rolling Securityholders
shall be converted into shares of Common Stock, par value $.01 per share, of
Parent ("Parent Common Stock") or options to purchase Parent Common Stock, as
applicable.
D. To this end, the parties hereto wish to amend certain of the terms
and conditions of the Merger Agreement.
AGREEMENTS
NOW, THEREFORE, in consideration of the covenants and agreements set
forth herein and in the Merger Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
upon the terms and conditions hereinafter set forth, the parties hereto,
intending to be legally bound, agree as follows:
1. AMENDMENT TO MERGER AGREEMENT.
(a) The first sentence of Section 2.9(a) of the Merger Agreement shall
be deleted in its entirety and replaced with the following:
<PAGE>
At the Closing, Parent and the Surviving Corporation shall
transfer to a bank or trust company designated by Parent (the
"Exchange Agent"), by wire transfer of immediately available
funds, cash in an amount equal to (i) the Merger Consideration,
minus (ii) the aggregate amount paid to Securityholders pursuant
to Paragraph 2.9(b), minus (iii) the Escrow Amount, minus (iv)
the Company Transaction Costs Holdback Amount, minus (v) the
Aggregate Rolled Amount (as herein defined).
(b) Each Rolling Securityholder acknowledges and agrees
that, notwithstanding the provisions of Sections 2.9(a) and 2.9(b) of the Merger
Agreement:
(i) such Rolling Securityholder will not be eligible to
receive a portion of the Merger Consideration in cash from Parent
and/or the Exchange Agent in the manner set forth in Sections
2.9(a) and 2.9(b) of the Merger Agreement in exchange for the
Common Stock set forth beside such Rolling Securityholder's name
on EXHIBIT A hereto (the "Rolled Common Stock") or the Options
set forth beside such Rolling Securityholder's name on EXHIBIT B
hereto (the "Rolled Options"); and
(ii) to the extent that such Rolling Securityholder is
not eligible to receive a portion of the Merger Consideration as
contemplated by Section 1(b)(i) of this Agreement, such Rolling
Securityholder shall receive Parent Common Stock or options to
purchase Parent Common Stock, as applicable, as set forth in, and
subject to the terms and conditions of, the Subscription
Agreement by and between Parent and such Rolling Securityholder
dated as of October 2, 1998 and/or the Replacement Stock Option
Agreement by and between Parent and such Rolling Securityholder
dated as of October 2, 1998.
2. DEFINITIONS. Section 1.1 of the Merger Agreement shall be
amended by inserting the following new defined terms in the appropriate
alphabetical order:
"AGGREGATE ROLLED AMOUNT" means the aggregate Rolled Amounts
of all Rolling Securityholders.
"AMENDMENT NO.1" means Amendment No.1 to Agreement and
Plan of Merger dated as of October 2, 1998 ("Amendment No.1") by
and among Parent and the individuals set forth therein.
<PAGE>
"ROLLED AMOUNT" means, with respect to each Rolling
Securityholder, the amount equal to the sum of:
(i)(x) the product obtained when the number of shares of
Rolled Common Stock (as defined in Section 1 of Amendment
No.1) is multiplied by the Per Share Merger Consideration,
minus (y) the amount set forth opposite such Stockholder's
name in column G of SCHEDULE I; and
(ii) (x) the product obtained when the number of shares of
Common Stock issuable upon the exercise of Rolled Options
(as defined in Section 1 of Amendment No.1) immediately
prior to the Effective Time, whether at or upon the passage
of time or the occurrence of future events, is multiplied
by an amount equal to the excess of the Per Share Merger
Consideration over the per share exercise price of such
Rolled Option, minus (y) the amount set forth opposite such
Optionholder's name in column H of SCHEDULE I.
"ROLLING SECURITYHOLDER" has the meaning set forth in the
preamble of Amendment No. 1.
"TRANSACTION DOCUMENTS" means the collective reference to
Amendment No. 1, the Merger Agreement, the Indemnification Escrow
Agreement and each other agreement, document and instrument
required to be executed in accordance therewith.
3. GENERAL PROVISIONS.
(a) FURTHER ASSURANCES. Each party hereto shall do and
perform or cause to be done and performed all such further acts and things and
shall execute and deliver all such other agreements, certificates, instruments
and documents as any other party hereto reasonably may request in order to carry
out the intent and accomplish the purposes of this Agreement.
(b) AMENDMENT. This Agreement may not be amended or
supplemented except by an instrument or counterparts thereof in writing signed
by the parties to be bound thereby. The Merger Agreement, as amended hereby, is
hereby ratified and confirmed in all respects and shall continue in full force
and effect.
(c) SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal, or incapable of being enforced by any rule of
applicable law, or public policy, all other conditions and provisions of this
Agreement shall
<PAGE>
nevertheless remain in full force and effect. The parties further agree that any
court of competent jurisdiction is expressly authorized to modify any such
unenforceable provision of this Agreement in lieu of severing such unenforceable
provision from this Agreement in its entirety, whether by rewriting the
offending provision, deleting any or all of the offending provision, adding
additional language to this Agreement, or by making such other modifications as
it deems warranted to carry out the intent and agreement of the parties as
embodied herein to the maximum extent permitted by law. The parties expressly
agree that this Agreement as so modified by a court of competent jurisdiction
shall be binding upon and enforceable against each of them.
(d) PARTIES IN INTEREST. This Agreement shall be binding
upon and inure solely to the benefit of such party hereto and their permitted
successors and assigns. Nothing in this Agreement is intended to confer upon any
other person any rights or remedies of any nature whatsoever under or by reason
of this Agreement except as expressly set forth herein. Neither this Agreement
nor any rights, interests or obligations hereunder may be assigned by any
Withholding Stockholder without the prior written consent of the Parent.
(e) COUNTERPARTS. This Agreement may be executed and
delivered (including by facsimile transmission) in one or more counterparts, all
of which shall be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other parties, it being understood that all parties need
not sign the same counterpart.
(f) ENTIRE AGREEMENT. This Agreement (and the schedules
and exhibits hereto), the Merger Agreement (which term shall be deemed to
include the exhibits and schedules thereto and the other certificates, documents
and instruments delivered thereunder) and the Confidentiality Agreement
constitute the entire agreement of the parties hereto, and supersede all prior
agreements, letters of intent and understand ings, both written and oral, among
the parties with respect to the subject matter hereof.
(g) GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware without
giving effect to any conflicts of law provisions.
(h) ASSIGNMENT. Neither this Agreement nor any of the
rights, interests, or obligations hereunder shall be assigned by any of the
parties hereto, whether by operation of law or otherwise; provided, however,
that upon notice to the Company and the Representative and without releasing
Parent from any of their respective obligations or liabilities hereunder, Parent
may assign or delegate any or all of its rights
<PAGE>
or obligations under this Agreement to any Affiliate of Parent. In the event of
such an assignment, the provisions of this Agreement shall inure to the benefit
of and be binding on the assigns of Parent. Any attempted assignment in
violation of this Section shall be null and void.
(i) HEADINGS. The headings of this Agreement are for
convenience of reference only and are not part of the substance of this
Agreement.
(j) EXHIBITS. All Exhibits referred to in this Agreement
are intended to be and are hereby specifically made a part of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the date and year first above written.
D AND W HOLDINGS, INC.
By: ___________________________________
Name:
Title:
ROLLING SECURITYHOLDERS
---------------------------------------
Jill Anderson
---------------------------------------
Al Ashe
---------------------------------------
Ed Beachley
---------------------------------------
Fred Bengston
---------------------------------------
Tom Bowen
---------------------------------------
Martin Cook
---------------------------------------
John Craine
---------------------------------------
Bob Deakin
---------------------------------------
Mike Easterly
<PAGE>
---------------------------------------
Randall Fojtasek
---------------------------------------
Russell Fojtasek
---------------------------------------
George Frost
---------------------------------------
James Gresham
---------------------------------------
Horace Hicks
---------------------------------------
Mike Hillmeyer
---------------------------------------
Rich Kettle
---------------------------------------
Jeff Hull
---------------------------------------
Tom LaManna
---------------------------------------
Eric Long
---------------------------------------
Scott McGill
---------------------------------------
Jim McGlinn
---------------------------------------
Dow Pointer
---------------------------------------
Jamey Renfrow
<PAGE>
---------------------------------------
Billy Robinson
---------------------------------------
Lou Simi
---------------------------------------
Jim Wright
---------------------------------------
Pete Ziegler
<PAGE>
EXHIBIT A
---------
Name
----
Beachley 28,261
Bengston 4,348
Bowen 4,348
Craine 6,522
Deakin 2,174
Easterly 2,174
Kettle 13,913
McGlinn 6,522
Wright 5,217
TOTAL: 73,479
<PAGE>
EXHIBIT B
---------
Name
----
Anderson 10,870
-------- ------
Ashe 870
---- ---
Beachley 15,217
-------- ------
Bengston 39,130
-------- ------
Bowen 6,522
----- -----
Cook 1,739
---- -----
Craine 15,217
------ ------
Deakin 19,565
------ ------
Easterly 19,565
-------- ------
Randall Fojtasek 434,783 (1)
---------------- -------
Russell Fojtasek 43,478
Frost 43,478
Gresham 10,870
Horace Hicks 43,478
Hillmeyer 43,478
Hull 54,348
Kettle 7,826
LaManna 435
Long 10,870
McGill 435
McGlinn 26,087
Pointer 32,609
Renfrow 4,348
Robinson 108,696
Simi 108,696
Wright 16,522
Ziegler 435
TOTAL: 1,119,567
- ------------------------
(1) Randall Fojtasek is converting warrants, as opposed to options, at the same
ratio.
<PAGE>
AMENDMENT NO. 2 TO AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT NO. 2 TO AGREEMENT AND PLAN OF MERGER (this "Amendment"),
dated as of April 14, 1999, is made by and among D and W Holdings, Inc., a
Delaware corporation ("Parent"), Atrium Corporation, a Delaware corporation (the
"Company"), and each of the persons whose names are set forth on the signature
pages hereto (collectively, the "Securityholders").
PRELIMINARY STATEMENTS
A. Parent, the Company, D and W Acquisition Corp., a Delaware corporation
which was a wholly owned subsidiary of Parent and predecessor by merger to the
Company ("Sub"), and the Securityholders entered into an Agreement and Plan of
Merger dated as of August 3, 1998 with respect to the merger of Sub with and
into the Company (as subsequently amended by Amendment No. 1 to Agreement and
Plan of Merger dated as of October 2, 1998, by and among Parent and the
individuals set forth on the signature pages thereto, the "Agreement").
B. Capitalized terms used and not defined herein shall have the
respective meanings ascribed to them in the Agreement.
C. The parties hereto wish to amend the Agreement as set forth herein.
AGREEMENTS
NOW, THEREFORE, in consideration of the covenants and agreements set forth
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, and upon the terms and subject to the
conditions hereinafter set forth, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. DEFINITIONS.
(a) Section 1.1 of the Agreement is hereby amended by inserting the
following new defined terms in the appropriate alphabetical order:
"FOJTASEK" shall mean Randall S. Fojtasek.
"INITIAL MAXIMUM SECURITYHOLDER ESCROW AMOUNT" shall mean, with
respect to any Securityholder, the amount set forth opposite such
Securityholder's name in column C of SCHEDULE I to the Agreement.
"LETTER OF CREDIT" shall mean the original irrevocable letter of
credit in favor of
<PAGE>
the Escrow Agent in the form of ANNEX I hereto, to be issued by Bankers Trust
Company.
(b) Section 1.1 of the Agreement is hereby amended by amending and
restating the following defined terms to read in their entirety as follows:
"ESCROW AMOUNT" shall mean an amount equal to $15,000,000 deposited
with the Escrow Agent (which shall include the Letter of Credit and the funds
that may be drawn under the Letter of Credit) minus any amounts paid from the
Escrow Amount in accordance with Article 11, or such lesser amount as may be
defined as the Escrow Amount from time to time as set forth in Section
11.5(e)(ii).
"MAXIMUM SECURITYHOLDER ESCROW AMOUNT" shall mean, at any time with
respect to any Securityholder, such Securityholder's Initial Maximum
Securityholder Escrow Amount, less any amounts previously deducted from such
Securityholder's Maximum Securityholder Escrow Amount in accordance with Section
11.5(e) (including such Securityholder's PRO RATA portion (based upon the
Maximum Securityholder Escrow Amounts of all Securityholders at the time of such
release) of the amount, if any, released to the Representative pursuant to
Section 11.5(e)(ii)); provided, that, the release of any funds by the Escrow
Agent to Fojtasek upon the deposit of the Letter of Credit with the Escrow Agent
shall not affect Fojtasek's Maximum Securityholder Escrow Amount.
2. INDEMNIFICATION ESCROW. Each of Parent, the Company and the
Securityholders hereby acknowledge and agree that, in accordance with Section
2.10 of the Agreement and in order to secure the indemnity obligations of the
Securityholders to the Buyer Indemnified Parties under the Agreement, at the
Closing a portion of the Merger Consideration that would otherwise have been
required to be delivered to the Securityholders equal to $15,000,000 was
deposited and has been held in escrow pursuant to the terms of the
Indemnification Escrow Agreement, and that the portion of such amount that was
withheld from the portion of the Merger Consideration that would otherwise have
been delivered to such Securityholder is set forth opposite such
Securityholder's name in column C of Schedule I to the Agreement.
Each of Parent, the Company and the Securityholders hereby acknowledge and
agree that, as promptly as practicable following the execution and delivery of
this Amendment by all parties hereto, the Representative, Parent and the Escrow
Agent will enter into an amendment to the Indemnification Escrow Agreement in
the form of ANNEX II hereto, subject only to the comments, if any, of the Escrow
Agent as to its rights and obligations under the Indemnification Escrow
Agreement (the "Escrow Agreement Amendment"). Simultaneously with the execution
and delivery of the Escrow Agreement Amendment, and in order to secure
Fojtasek's indemnity obligations to the Buyer Indemnified Parties, Fojtasek
shall deposit the Letter of Credit with the Escrow Agent to be held in
accordance with the terms hereof and the Indemnification Escrow Agreement. Each
of Parent, the Company and the Securityholders hereby covenant and agree that
the Agreement is hereby amended to the extent required to allow the substitution
of the Letter of Credit for the portion of the Escrow Amount which was
previously deposited on behalf
<PAGE>
of Fojtasek, and hereby irrevocably waive any breach or default that would
otherwise result from such substitution.
3. AMENDMENT TO SECTION 11.5(e)(i). Section 11.5(e)(i) is hereby amended
and restated in its entirety to read as follows:
"(i) In determining whether a Buyer Indemnified Party is entitled
to any amounts from a Securityholder with respect to Buyer Indemnified
Company Costs or Buyer Indemnified Securityholder Costs, Section
11.5(a) and Section 11.5(b) shall apply. Parent hereby covenants and
agrees that, with respect to any claim by a Buyer Indemnified Party
against any Securityholder for Buyer Indemnified Securityholder Costs
payable under this Article 11 other than Title Claims and claims
contemplated in Section 13.16, the Buyer Indemnified Party shall seek
payment only out of the Escrow Amount for all amounts due to the Buyer
Indemnified Party from such Securityholder with respect to such claim
in an amount not to exceed such Securityholder's Maximum
Securityholder Escrow Amount. In the event of any claim by a Buyer
Indemnified Party against a Securityholder for Buyer Indemnified
Securityholder Costs related to a Title Claim or a claim contemplated
in Section 13.16, the Buyer Indemnified Party shall seek payment first
out of the Escrow Amount in an amount not to exceed such
Securityholder's Maximum Securityholder Escrow Amount and, if such
Securityholder's Maximum Securityholder Escrow Amount has been reduced
to zero pursuant to this Section 11.5(e), the Buyer Indemnified Party
shall be entitled, subject to the terms and conditions of this
Agreement, to seek payment directly from such Securityholder for all
amounts remaining due to the Buyer Indemnified Party from such
Securityholder with respect to such Title Claim or claim contemplated
in Section 13.16. If any amount is paid out of the Escrow Amount with
respect to any claim against any Securityholder for Buyer Indemnified
Securityholder Costs, such Securityholder's Maximum Securityholder
Escrow Amount shall be reduced (but not below zero) by the amount so
paid. In no event shall the Buyer Indemnified Party be entitled to be
paid out of the Escrow Amount in respect of claims against a
Securityholder for Buyer Indemnified Securityholder Costs an amount in
excess of such Securityholder's Maximum Securityholder Escrow Amount.
In the event of any claim by a Buyer Indemnified Party against one or
more Securityholders for Buyer Indemnified Company Costs, the Buyer
Indemnified Party shall seek the amount of such claim from the Escrow
Amount, and each Securityholder's Maximum Securityholder Escrow Amount
shall be reduced (but not below zero) by such Securityholder's
PRO RATA portion (based upon the Initial Maximum Securityholder Escrow
Amounts of all Securityholders whose respective Maximum Securityholder
Escrow Amounts then exceed zero) of the amount paid out of the Escrow
Amount in respect of such claim (or, if applicable, such
Securityholder's Maximum Securityholder Escrow Amount shall be reduced
(but
<PAGE>
not below zero) by that portion of such Securityholder's Maximum
Securityholder Escrow Amount as may be set forth in written release
instructions executed and delivered to the Escrow Agent by the
Representative on behalf of such Securityholder), and, to the extent
that the portion of such claim for which such Securityholder is liable
exceeds such Securityholder's Maximum Securityholder Escrow Amount as of
the time of payment of such claim out of the Escrow Amount, then the
Buyer Indemnified Party shall not be entitled to seek payment from such
Securityholder directly for such excess; provided that the Buyer
Indemnified Party shall then be entitled to seek the remaining amount of
any Buyer Indemnified Company Costs from the Escrow Amount with respect
to such other Securityholders whose respective Maximum Securityholder
Escrow Amounts then exceed zero, PRO RATA based upon the Initial Maximum
Securityholder Escrow Amounts of such Securityholders, until such
amounts have been paid in full or each Securityholder's Maximum
Securityholder Escrow Amount has been reduced to zero, after which the
Buyer Indemnified Party shall not be entitled to seek payment from any
Securityholders directly for such excess."
4. AMENDMENT TO SECTION 12.1. Section 12.1 of the Agreement is hereby
amended by inserting the following paragraph immediately prior to the last
paragraph of Section 12.1:
"In addition to the specific grants of authority previously
provided for in this Section 12.1, and without limiting such specific
grants of authority, Fojtasek hereby acknowledges and agrees that the
grant of authority provided for in this Section 12.1 shall include the
power and authority of the Representative to cause to be drawn into
the account established with the Escrow Agent any and all funds which
may be drawn under the Letter of Credit, and to cause such funds to be
held, handled and distributed in the same manner as the Representative
may cause the other funds held by the Escrow Agent to be held, handled
or distributed, including without limitation (i) to distribute those
funds in payment, compromise or settlement of any claim, action,
proceeding or investigation as contemplated in Section 12.1(c),
(including claims asserted under Article 11 of this Agreement), (ii)
to cause such funds to be paid out of the escrow account in payment of
the full amount of any judgment or judgments and legal interest and
costs awarded in favor of any Buyer Indemnified Party arising out of
the indemnification provisions set forth in Article 11 of this
Agreement, (iii) to use such funds to pay expenses as contemplated in
Section 12.2, (iv) to invest and reinvest such funds as contemplated
in Section 12.4, and (v) to use such funds to pay expenses as
contemplated in Section 12.5.
5. EXPENSES. All costs and expenses incurred by the Representative on
behalf of the Securityholders in connection with this Amendment shall be paid by
the Company up to a
<PAGE>
maximum amount of $5,000, and any such expenses in excess of $5,000 shall be
paid by Fojtasek.
6. COUNTERPARTS. This Amendment may be executed and delivered (including
by facsimile transmission) in one or more counterparts, all of which shall be
considered one and the same Amendment and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to the
other parties, it being understood that all parties need not sign the same
counterpart.
7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO ANY
CONFLICTS OF LAW PROVISIONS.
8. HEADINGS. The headings of this Amendment are for convenience of
reference only and are not part of the this Amendment.
9. EFFECT OF AMENDMENT. Except as amended hereby, the terms and
provisions of the Agreement shall remain in full force and effect, and are
hereby in all respects ratified and confirmed by the parties hereto.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment as of the date first written above.
THE COMPANY:
ATRIUM CORPORATION
By:
-----------------------------------------------
Name:
---------------------------------------------
Title:
--------------------------------------------
PARENT:
D AND W HOLDINGS, INC.
By:
-----------------------------------------------
Name:
---------------------------------------------
Title:
--------------------------------------------
<PAGE>
SECURITYHOLDERS:
HERITAGE FUND I, L.P.
By: HF Partners I, L.P., its general partner
By:
Name:
Title:
HICKS, MUSE, TATE & FURST
EQUITY FUND III, L.P.
By: HM3/GP Partners, L.P.,
its General Partner
By: Hicks, Muse GP Partners III, L.P.,
its General Partner
By: Hicks Muse Fund III Incorporated,
its General Partner
By:
Name:
--------------------------------------------
Title:
-------------------------------------------
HM3 COINVESTORS, L.P.,
By: Hicks, Muse GP Partners III, L.P.,
its General Partner
By: Hicks, Muse Fund III Incorporated,
its General Partner
By:
Name:
--------------------------------------------
Title:
-------------------------------------------
<PAGE>
JOE FOJTASEK
RANDALL S. FOJTASEK
RUSSELL S. FOJTASEK
FRED BENGTSON
JACK MARTIN FOJTASEK TRUST
By:
O. Haynes Morris, Jr., Trustee
STEPHEN M. HUMPHREY
JOE FOJTASEK II TRUST
By:
O. Haynes Morris, Jr., Trustee
JOE FOJTASEK, AS CUSTODIAN FOR PHILLIP MICHAEL
FOJTASEK
JEFF L. HULL
<PAGE>
MICHAEL HILLMEYER
DOW POINTER
KEVIN SCHUMACHER
JOHN CRAINE
JAMES WRIGHT
EDWIN BEACHLY
J. DAREN METROPOULOS
IRREVOCABLE TRUST
By:
_______________________, Trustee
EVAN D. METROPOULOS
IRREVOCABLE TRUST
By:
_______________________, Trustee
ROBERT DEAKIN
<PAGE>
MICHAEL EASTERLY
JAMES GRESHAM
JAMES MCGLINN
RICHARD KETTLE
THOMAS BOWEN
P. MICHAEL FOJTASEK TRUST
By:
O. Haynes Morris, Jr., Trustee
LOUIS W. SIMI, JR.
WILLIAM ROBINSON
GEORGE FROST
HORACE HICKS
C. DEAN METROPOULOS
<PAGE>
SHIRLEY CRUTCHER
ERIC W. LONG
JILL ANDERSON
JAMEY RENTFROW
SYLVAN POMERANTZ
MARTIN COOK
AL ASHE
SCOTT MCGILL
THOMAS LAMANNA
PETE ZIEGLER
<PAGE>
ATRIUM COMPANIES, INC.,
AS ISSUER,
ATRIUM DOOR AND WINDOW COMPANY OF ARIZONA
AND
THE OTHER PARTIES LISTED
ON THE SIGNATURE PAGES
HERETO AS SUBSIDIARY GUARANTORS,
AS SUBSIDIARY GUARANTORS,
AND
UNITED STATES TRUST COMPANY OF NEW YORK,
AS TRUSTEE
----------------------------
AMENDMENT NO. 1
DATED AS OF MARCH 23, 1998
TO THE
INDENTURE
DATED AS OF NOVEMBER 27, 1996
----------------------------
$100,000,000
10 1/2% SENIOR SUBORDINATED NOTES DUE 2006
<PAGE>
AMENDMENT NO. 1, dated as of March 23, 1998 ("Amendment No. 1"), to the
INDENTURE, dated as of November 27, 1996 (the"Indenture"), among ATRIUM
COMPANIES, INC., a Delaware Corporation, as Issuer (the "Company"), Atrium Door
and Window Company of Arizona and the other parties listed on the signature
pages hereto as Subsidiary Guarantors (each individually, a "Subsidiary
Guarantor" and collectively, the "Subsidiary Guarantors"), and UNITED STATES
TRUST COMPANY OF NEW YORK, a New York corporation, as trustee (the "Trustee").
Capitalized terms not otherwise defined herein will have the meanings set
forth in the Indenture.
Each party agrees for the benefit of the other parties and for equal and
ratable benefit of the Holders of the Company's 10 1/2% Senior Subordinated
Notes due 2006 (the "Notes") to amend, pursuant to Section 9.1(a)(5) of the
Indenture, the Indenture as follows:
1. Atrium Door and Window Company of Arizona, a Delaware corporation, is
a direct wholly-owned subsidiary of the Company. Pursuant to Section 11.7 of
the Indenture, Atrium Door and Window Company of Arizona hereby guarantees the
obligations of the Company under the Indenture by virtue of its execution of
this Amendment No. 1 and hereby agrees that the defined term "Subsidiary
Guarantor" contained in Section 1.1 of the indenture shall be deemed to include
Atrium Door and Window Company of Arizona.
2. This Amendment No. 1 supplements the Indenture and shall be a part and
subject to all the terms thereof. Except as supplemented hereby, the Indenture
and the Securities issued thereunder shall continue in full force and effect.
3. This Amendment No. 1 may be executed in counterparts, each of which
shall be deemed an original, but all of which shall together constitute one and
the same instrument.
4. This Amendment No. 1 shall be governed by, and construed in accordance
with, the laws of the State of New York but without giving effect to applicable
principles of conflicts of law to the extent that the application of the laws of
another jurisdiction would be required thereby.
5. The Trustee shall not be responsible for any recital herein, as such
recitals shall be taken as statements of the Company, or the validity of the
execution by the Subsidiary Guarantors of this Amendment No. 1. The Trustee
makes no representation as to the validity or sufficiency of this Amendment
No. 1.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment No. 1 to the
Indenture to be duly executed and attested as of the date and year first written
above.
ATRIUM COMPANIES, INC.
By:
Name: Randall S. Fojtasek
Title: President
SUBSIDIARY GUARANTORS:
ATRIUM DOOR AND WINDOW COMPANY -
WEST COAST (formerly: H-R Window Supply, Inc..)
ATRIUM DOOR AND WINDOW COMPANY OF NEW YORK
(formerly: Bishop Manufacturing Co. of New York,
Inc.)
ATRIUM DOOR AND WINDOW COMPANY OF THE NORTHEAST
(formerly: Bishop Manufacturing Company,
Incorporated)
ATRIUM DOOR AND WINDOW COMPANY OF NEW ENGLAND
(formerly: Bishop Manufacturing Company of New
England, Inc.)
ATRIUM DOOR AND WINDOW COMPANY OF ARIZONA
By:
Name: Randall S. Fojtasek
Title: President
UNITED STATES TRUST
COMPANY OF NEW YORK,
as Trustee
By:
Name:
Title:
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ATRIUM COMPANIES, INC.,
AS ISSUER,
WING INDUSTRIES HOLDINGS, INC.,
WING INDUSTRIES, INC.,
DOOR HOLDINGS, INC.,
R. G. DARBY COMPANY, INC.
AND
TOTAL TRIM, INC.,
AS SUBSIDIARY GUARANTORS,
AND
UNITED STATES TRUST COMPANY OF NEW YORK,
AS TRUSTEE
------------------------------
AMENDMENT NO. 2
DATED AS OF OCTOBER 2, 1998
TO THE
INDENTURE
DATED AS OF NOVEMBER 27, 1996 AND AMENDED AS OF MARCH 23, 1998
-------------------------------
$100,000,000
10 1/2% SENIOR SUBORDINATED NOTES DUE 2006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
AMENDMENT NO. 2, dated as of October 2, 1998 ("Amendment No. 2"), to the
INDENTURE, dated as of November 27, 1996 and amended as of March 23, 1998 (the
"Indenture"), among ATRIUM COMPANIES, INC., a Delaware Corporation, as Issuer
(the "Company"), WING INDUSTRIES HOLDINGS, INC., a Delaware corporation ("WIH"),
WING INDUSTRIES, INC., a Texas corporation ("Wing"), DOOR HOLDINGS, INC., a
Delaware corporation ("Door"), R. G. DARBY COMPANY, INC., an Alabama corporation
("Darby"), TOTAL TRIM, INC., an Alabama corporation ("Total Trim," and
collectively with WIH, Wing, Door and Darby, the "Additional Subsidiary
Guarantors"), and UNITED STATES TRUST COMPANY OF NEW YORK, a New York
corporation, as trustee (the "Trustee").
Capitalized terms not otherwise defined herein shall have the meanings set
forth in the Indenture.
Each party hereto agrees for the benefit of the other parties hereto and
for the equal and ratable benefit of the Holders of the Company's 10 1/2% Senior
Subordinated Notes due 2006 to amend, pursuant to Section 9.1(a)(5) of the
Indenture, the Indenture as follows:
1. WIH and Door are direct wholly-owned subsidiaries of the Company.
Wing is a direct wholly-owned subsidiary of WIH, and Darby and Total Trim are
direct wholly-owned subsidiaries of Door. Pursuant to Section 11.7 of the
Indenture, the Additional Subsidiary Guarantors hereby agree to guarantee the
obligations of the Company under the Indenture as set forth in Article XI of the
Indenture by virtue of their execution of this Amendment No. 2 and hereby agree
that the defined term "Subsidiary Guarantor" contained in Section 1.1 of the
Indenture shall be deemed to include the Additional Subsidiary Guarantors.
2. This Amendment No. 2 supplements the Indenture and shall be a part and
subject to all the terms thereof. Except as supplemented hereby, the Indenture
and the Securities issued thereunder shall continue in full force and effect.
3. This Amendment No. 2 may be executed in counterparts, each of which
shall be deemed an original, but all of which shall together constitute one and
the same instrument.
4. This Amendment No. 2 shall be governed by, and construed in accordance
with, the laws of the State of New York, without giving effect to applicable
principles of conflict of laws thereunder.
5. The Trustee shall not be responsible for any recital herein, as such
recitals shall be taken as statements of the Company, or the validity of the
execution by the
<PAGE>
Additional Subsidiary Guarantors of this Amendment No. 2. The Trustee makes no
representation as to the validity or sufficiency of this Amendment No. 2.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment No. 2 to the
Indenture to be duly executed and attested as of the date and year first written
above.
ATRIUM COMPANIES, INC.
By: _______________________________
Name:
Title:
ADDITIONAL SUBSIDIARY GUARANTORS:
WING INDUSTRIES HOLDINGS, INC.
By: _______________________________
Name:
Title:
WING INDUSTRIES, INC.
By: _______________________________
Name:
Title:
DOOR HOLDINGS, INC.
By: _______________________________
Name:
Title:
<PAGE>
R. G. DARBY COMPANY, INC.
By: _______________________________
Name:
Title:
TOTAL TRIM, INC.
By: _______________________________
Name:
Title:
UNITED STATES TRUST COMPANY
OF NEW YORK, as Trustee
By: _______________________________
Name:
Title:
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ATRIUM COMPANIES, INC.,
AS ISSUER,
R.G. DARBY COMPANY - SOUTH,
AS SUBSIDIARY GUARANTOR,
AND
UNITED STATES TRUST COMPANY OF NEW YORK,
AS TRUSTEE
-----------------------------------
AMENDMENT NO. 3
DATED AS OF JANUARY 28, 1999
TO THE
INDENTURE
DATED AS OF NOVEMBER 27, 1996 AND AMENDED AS OF MARCH 23, 1998 AND OCTOBER 2,
1998
-----------------------------------
$100,000,000
10 1/2% SENIOR SUBORDINATED NOTES DUE 2006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
AMENDMENT NO. 3, dated as of January 28, 1999 ("Amendment No. 3"), to the
INDENTURE, dated as of November 27, 1996 and amended as of March 23, 1998 and as
of October 2, 1998 (the "Indenture"), among ATRIUM COMPANIES, INC., a Delaware
Corporation, as Issuer (the "Company"), R.G. DARBY COMPANY - SOUTH, a Delaware
corporation (the "Additional Subsidiary Guarantor"), and UNITED STATES TRUST
COMPANY OF NEW YORK, a New York corporation, as trustee (the "Trustee").
Capitalized terms not otherwise defined herein shall have the meanings set
forth in the Indenture.
Each party hereto agrees for the benefit of the other parties hereto and
for the equal and ratable benefit of the Holders of the Company's 10 1/2%
Senior Subordinated Notes due 2006 to amend, pursuant to Section 9.1(a)(5) of
the Indenture, the Indenture as follows:
1. The Additional Subsidiary Guarantor is a direct wholly-owned
subsidiary of Door Holdings, Inc., a Delaware corporation ("Door"). Door is a
direct wholly-owned subsidiary of the Company. Pursuant to Section 11.7 of the
Indenture, the Additional Subsidiary Guarantor hereby agrees to guarantee the
obligations of the Company under the Indenture as set forth in Article XI of the
Indenture by virtue of its execution of this Amendment No. 3 and hereby agrees
that the defined term "Subsidiary Guarantor" contained in Section 1.1 of the
Indenture shall be deemed to include the Additional Subsidiary Guarantor.
2. This Amendment No. 3 supplements the Indenture and shall be a part and
subject to all the terms thereof. Except as supplemented hereby, the Indenture
and the Securities issued thereunder shall continue in full force and effect.
3. This Amendment No. 3 may be executed in counterparts, each of which
shall be deemed an original, but all of which shall together constitute one and
the same instrument.
4. This Amendment No. 3 shall be governed by, and construed in accordance
with, the laws of the State of New York, without giving effect to applicable
principles of conflict of laws thereunder.
5. The Trustee shall not be responsible for any recital herein, as such
recitals shall be taken as statements of the Company, or the validity of the
execution by the Additional Subsidiary Guarantor of this Amendment No. 3. The
Trustee makes no representation as to the validity or sufficiency of this
Amendment No. 3.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment No. 3 to the
Indenture to be duly executed and attested as of the date and year first written
above.
ATRIUM COMPANIES, INC.
By:
-----------------------------
Name:
-----------------------------
Title:
-----------------------------
ADDITIONAL SUBSIDIARY GUARANTOR:
R.G. DARBY COMPANY-SOUTH
By:
-----------------------------
Name:
-----------------------------
Title:
-----------------------------
TRUSTEE:
UNITED STATES TRUST COMPANY
OF NEW YORK
By:
-----------------------------
Name:
-----------------------------
Title:
-----------------------------
<PAGE>
MANAGEMENT AGREEMENT
MANAGEMENT AGREEMENT (this "Agreement"), dated as of October 2, 1998,
by and among (i) Ardshiel, Inc., a Delaware corporation ("Ardshiel"), (ii) D
and W Holdings, Inc., a Delaware corporation ("Holdings"), and, immediately
after the consummation of the merger (the "Merger") of D and W Acquisition
Corp., a Delaware corporation, with and into Atrium Corporation, a Delaware
corporation ("Atrium"), (iii) Atrium and (iv) Atrium Companies, Inc., a Delaware
corporation ("ACI" and, together with Holdings and Atrium, the "Companies").
RECITALS:
WHEREAS, the parties wish to provide for management advisory services
and, as and when any of the Companies requires, investment advisory services to
be rendered by Ardshiel to Holdings and its subsidiaries.
NOW THEREFORE, in consideration of the mutual premises, agreements and
covenants set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending legally to be bound, hereby agree as follows:
1. SERVICES. Each of the Companies hereby engages Ardshiel to
provide to it and its subsidiaries advice with respect to business strategy,
operations and budgeting and financial controls.
2. ANNUAL MANAGEMENT FEE. Ardshiel hereby accepts the engagement
described in Section 1 hereof. For the above management advisory services, the
Companies shall pay Ardshiel a fee (the "Management Fee") of $1.3 million
dollars ($1,300,000) per annum, payable monthly in arrears.
3. RIGHT OF FIRST REFUSAL. Before entering into any transaction
that involves engaging a financial advisor to perform services in connection
with the sale or purchase of a business or entity or any financing, the
Companies and their subsidiaries shall, unless engaging Ardshiel to perform such
services would result in a conflict of interest or would otherwise be adverse to
the interests of Holdings or any of its subsidiaries in the reasonable exercise
of the business judgment of Holdings' Board of Directors, offer to Ardshiel the
opportunity to perform such services and Ardshiel shall have five (5) business
days within which to accept the Companies' offer. Ardshiel shall charge any of
the Companies or any of their subsidiaries (as applicable) a fee for such
services (a "Closing Fee"), payable only upon the consummation of such sale or
purchase, which fee shall not be greater than 2% of the total purchase or sale
price for such business or entity, provided that Ardshiel will not include in
the Closing Fee any
<PAGE>
charges for services that are included in the annual fee set forth in Section 2
hereof. The consent of GE Investment Private Placement Partners II, a Limited
Partnership ("GEIPPPII") shall be required prior to the payment by any of the
Companies or any of their subsidiaries of any Closing Fee where any of the
Companies or any of their respective subsidiaries is paying similar fees to
other entities for similar services described in this Agreement. GEIPPPII shall
be a third party beneficiary of the agreement made in the preceding sentence.
4. TERM. The term of Ardshiel's engagement hereunder and the right
of first refusal stated in Section 3 hereof shall commence as of the date hereof
and shall continue thereafter for a period of ten (10) years through and
including October 2, 2008, provided, that the right of first refusal stated in
Section 3 hereof shall terminate upon Ardshiel ceasing to be an affiliate of all
the Companies; provided, further, that, unless Ardshiel and its Affiliates
maintain control of the majority of the Board of Directors of Holdings under the
Stockholders Agreement among the Company and certain of its stockholders dated
as of the date hereof, the right to receive the Management Fee shall terminate
and the Management Fee shall cease to be payable when GEIPPPII ceases to hold at
least 10% of the voting securities of Holdings (on a fully diluted basis); and
provided, further, that this Agreement shall terminate upon (i) the sale
(including by way of sale of all of the capital stock or a merger) by Holdings
of Atrium and its subsidiaries in their entirety or all or substantially all of
the assets of Atrium and its subsidiaries, (ii) the termination of the
Investment Agreement, dated as of June 24, 1997 by and between GE Investment
Management Incorporated and Ardshiel (as amended, amended and restated or
otherwise modified in accordance with the terms thereof) pursuant to Section
6.14(b) thereof or (iii) Ardshiel and all its affiliates ceasing to be direct or
indirect stockholders of all the Companies. This Agreement shall be
automatically renewed for additional one-year periods unless either party gives
the other written notice to the contrary at least thirty (30) days before the
end of the term or any extended term of this Agreement. The Management Fee
shall be prorated in connection with any termination or expiration of this
Agreement. Closing Fees shall be payable to Ardshiel for any transactions for
which Ardshiel is engaged that are commenced during the term of this Agreement,
notwithstanding that any such transactions may close after the termination or
expiration of this Agreement.
5. REIMBURSEMENT FOR EXPENSES. The Companies and their subsidiaries
shall reimburse Ardshiel for its reasonable out-of-pocket expenses, including,
but not limited to, reasonable fees and expenses of counsel, (the "Management
Expenses"), incurred during the period of its engagement under this Agreement
with respect to any services rendered or to be rendered by Ardshiel pursuant to
Section 1 hereof. The Management Expenses shall be paid by the Companies and
their subsidiaries when billed by Ardshiel and shall be in addition to the
Management
- 2 -
<PAGE>
Fee. In addition, the Companies and their subsidiaries shall reimburse Ardshiel
for its reasonable out-of-pocket expenses, including, but not limited to,
reasonable fees and expenses of counsel (the "Transaction Expenses"), incurred
during the period of its engagement under this Agreement with respect to any
services rendered or to be rendered by Ardshiel pursuant to Section 3 hereof.
The Transaction Expenses shall be paid by the Companies and their subsidiaries
when billed by Ardshiel and shall be in addition to any Closing Fees.
6. INDEMNITY. Each of the Companies agrees to, and shall cause its
subsidiaries to, indemnify and hold harmless Ardshiel and its affiliates and
their respective officers, directors, employees, stockholders, representatives
and agents from and against any claims, damages, losses, liabilities, costs and
expenses, including, without limitation, any settlement costs and reasonable
legal expenses incurred in connection with investigating or defending any
actions or threatened actions ("Losses") related to or arising out of this
engagement or Ardshiel's connection therewith; provided, however, that none of
the Companies nor any of its subsidiaries shall be responsible for any Losses to
the extent that such Losses result primarily from actions taken or omitted to be
taken by Ardshiel or such other indemnified person due to Ardshiel's or such
other indemnified person's gross negligence or willful misconduct or that such
Losses arise primarily out of or are based primarily upon any material untrue
statement or omission made (i) in any document or writing in reliance upon and
in conformity with written information furnished to any of the Companies or any
of its subsidiaries by Ardshiel or such other indemnified person for use in such
document or writing or (ii) in any document created by Ardshiel in connection
with the engagement and used by Ardshiel without the prior approval of Holdings
or any of its subsidiaries.
If any action or proceeding (including any governmental investigation)
shall be brought or asserted against either Ardshiel or any other indemnified
person in respect of which indemnity shall be sought from any of the Companies
or any of their subsidiaries, Ardshiel or any such other indemnified person, as
the case may be, shall promptly notify the Company or subsidiary from which
indemnification is sought in writing, and such Company and/or subsidiary shall
assume the defense thereof, employ counsel reasonably satisfactory to Ardshiel
and pay all fees and disbursements of such counsel and all other expenses
related to such action or proceeding. Ardshiel or any such other indemnified
person shall have the right to employ separate counsel in any such action or
proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of Ardshiel or such other indemnified
person and not at the expense of any of the Companies or any of their
subsidiaries unless (i) such Company or subsidiary has agreed to pay such fees
and expenses; (ii) such Company or subsidiary shall have failed promptly to
assume the defense of such action or proceeding or employ counsel satisfactory
to Ardshiel in any such action or
- 3 -
<PAGE>
proceeding; or (iii) Ardshiel's counsel shall determine that there is or could
reasonably be expected to be a conflict of interest by reason of having common
counsel in any action or proceeding, in which case, if Ardshiel or such other
indemnified person notifies such Company or subsidiary in writing that it elects
to employ separate counsel at the expense of such Company or subsidiary, such
Company or subsidiary shall not have the right to assume the defense of such
action or proceeding on behalf of Ardshiel or any such other indemnified person,
it being understood, however, that none of the Companies nor any of their
subsidiaries shall, in connection with any one such action or proceeding or
separate but substantially similar or related actions or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys (together with appropriate local counsel) at any time for Ardshiel or
any such other indemnified person, which firms shall be designated in writing by
Ardshiel. None of the Companies nor any of their subsidiaries shall be liable
for any settlement of any such action or proceeding effected without the written
consent of such Company or subsidiary of the Company from which indemnification
is sought, which consent shall not be reasonably withheld, but if such action or
proceeding is settled with the written consent of any of the Companies or any
subsidiary from which indemnification is sought or if there is a judgment for
the plaintiff in any such action or proceeding, such Company and such
subsidiaries agree to indemnify and hold harmless Ardshiel and any such other
indemnified person from and against any Losses (to the extent stated above) by
reason of such settlement or judgment.
If for any reason the indemnification provided for herein is
unavailable to any indemnified party under the first paragraph of this Section 6
in respect of any Losses referred to therein or if such indemnification shall be
insufficient to hold such indemnified party harmless from all such Losses, then
the Companies and their subsidiaries, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such Losses (i) in such proportion as is appropriate to reflect
the relative benefits received by the Companies and their subsidiaries on the
one hand and Ardshiel on the other hand or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
but also the relative fault of the Companies and their subsidiaries on the one
hand and of Ardshiel on the other as well as any other relevant equitable
considerations. The amount paid or payable by a party as a result of the Losses
referred to above shall be deemed to include, subject to the limitations set
forth in the second paragraph of this Section 6, any legal or other fees or
expenses reasonably incurred by such party in connection with investigating or
defending any action or claim. This Section 6 shall survive the termination or
expiration of this Agreement.
7. CLOSING FEE. The Companies shall pay to Ardshiel (i) a closing
- 4 -
<PAGE>
fee of $3,375,000 upon the closing of the Merger and (ii) all out-of-pocket fees
and expenses incurred by Ardshiel and its affiliates in connection with the
Merger and the related transactions.
8. NON-DISCLOSURE. Except (a) as may be necessary to enforce any
rights hereunder or relating hereto or (b) delivery of this Agreement to the
arrangers, agents and lenders party to that certain Credit Agreement (the
"Credit Agreement") dated October 2, 1998 by and among Holdings, ACI, certain
lenders party thereto, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith, as lead arranger, syndication agent and documentation agent, and
BankBoston, N.A., as administrative agent, the advice provided under this
Agreements shall not be disclosed to any party (other than officers, directors,
employees, stockholders, representatives and agents of the Companies on a
need-to-know basis), except with the express written consent of Ardshiel (which
consent shall not be unreasonably withheld), unless required by law or legal
process.
9. NO INCONSISTENT AGREEMENTS; ASSIGNMENT. (a) Ardshiel shall not
provide or enter into any agreement to provide advisory services to the
Companies other than consistent with the terms hereof. Neither this Agreement
nor any rights, interests or obligations hereunder may be assigned by any party
without the prior written consent of all other parties hereto; provided that
Ardshiel may assign its rights, interests and obligations hereunder to any of
its affiliates who are reasonably capable of performing Ardshiel's duties
hereunder.
(b) Upon the consummation of the Merger, Holdings hereby agrees
to cause Atrium and ACI to become signatories to this Agreement.
10. SUBORDINATION. Anything in this Agreement to the contrary
notwithstanding, any amount hereunder that the Companies are not permitted to
pay on a current cash basis to Ardshiel pursuant to the terms of the Credit
Agreement (the "Accruing Portion") shall accrue hereunder on a subordinated
basis to all Obligations (as defined in the Credit Agreement) under the Credit
Agreement, including, without limitation, under Atrium's guarantee of the
Obligations under the Credit Agreement, (such Obligations and other indebtedness
and obligations in connection with any renewal, refunding, restructuring or
refinancing thereof, including interest thereon accruing after the commencement
of any proceedings referred to in clause (i) below, whether or not such interest
is an allowed claim in such proceeding, being hereinafter collectively referred
to as "SENIOR INDEBTEDNESS"). The payment of such subordinated amounts shall be
subject to the following provisions:
(a) In the event of any insolvency or bankruptcy proceedings,
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<PAGE>
and any receivership, liquidation, reorganization or other similar proceedings
in connection therewith, relative to it or to its creditors, as such, or to its
property, and in the event of any proceedings for voluntary liquidation,
dissolution or other windings up of ACI or Atrium, whether or not involving
insolvency or bankruptcy, then (x) the holders of Senior Indebtedness shall be
paid in full in cash in respect of all amounts constituting Senior Indebtedness
before Ardshiel is entitled to receive (whether directly or indirectly), or make
any demands for, the Accruing Portion and (y) until the holders of Senior
Indebtedness are paid in full in cash in respect of all amounts constituting
Senior Indebtedness, any Accruing Portion to which Ardshiel would otherwise be
entitled (other than debt securities of Atrium and ACI that are subordinated, to
at lease the same extent as payments under this Agreement, to the payment of all
Senior Indebtedness then outstanding (such securities being hereinafter referred
to as "RESTRUCTURED DEBT SECURITIES")) shall be made to the holders of Senior
Indebtedness.
(b) If any payment or distribution of any character, whether in
cash, securities or other property (other than Restructured Debt Securities),
under this Agreement shall (despite these subordination provisions) be received
by Ardshiel in violation of clause (i) before all Senior Indebtedness shall have
been paid in full in cash, such payment or distribution shall be held in trust
for the benefit of, and shall be paid over or delivered to, the holders of
Senior Indebtedness (or their representatives), ratably according to the
respective aggregate amounts remaining unpaid thereon, to the extent necessary
to pay all Senior Indebtedness in full in cash.
To the full extent permitted by law, no present or future holder or
Senior Indebtedness shall be prejudiced in its right to enforce the
subordination provisions of this Agreement by any act or failure to act on the
part of Atrium or ACI or by any act or failure to act on the part of such holder
or any trustee or agent for such holder. Ardshiel, Atrium and ACI hereby agree
that the foregoing subordination provisions of this Agreement are for the
benefit of the Creditors (as such term is defined in the Credit Agreement) and
the Administrative Agent (as defined in the Credit Agreement) may, on behalf of
the Creditors, proceed to enforce the subordination provisions herein.
Nothing contained in the subordination provisions set forth above is
intended to or will impair, as among the Atrium, ACI and Ardshiel, the
obligations of Atrium and ACI, which are absolute and unconditional, to pay to
Ardshiel all payments due under this Agreement as and when due and payable in
accordance with its terms, or is intended to or will affect the relative rights
of Ardshiel and other creditors of Atrium and ACI other than the holders of
Senior Indebtedness.
11. MISCELLANEOUS.
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<PAGE>
(a) FURTHER ASSURANCES. Each party hereto shall do and perform
or cause to be done and performed all such further acts and things and shall
execute and deliver all such other agreements, certificates, instruments and
documents as any other party hereto reasonably may request in order to carry out
the intent and accomplish the purposes of this Agreement.
(b) TERMINATION OF MANAGEMENT AGREEMENTS WITH CERTAIN
SUBSIDIARIES OF THE COMPANIES; ENTIRE AGREEMENT; AMENDMENT; WAIVER. The parties
hereto acknowledge and agree that the Management and Investment Banking
Agreements entered into by and between (i) Ardshiel and Wing Industries
Holdings, Inc. and (ii) Ardshiel and Door Holdings, Inc. are hereby terminated
and of no further force and effect.
This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof, supersedes all prior and
contemporaneous agreements and understandings, if any, with respect thereto, may
not be amended or supplemented except by an instrument or counterparts thereof
in writing signed by a duly authorized representative of the parties hereto and
may not be discharged except by such written instrument or by performance. No
waiver of any term or provision of this Agreement shall be effective unless in
writing signed by the parties hereto and such waiver shall not be effective as
to any other provision of this Agreement.
(c) BINDING EFFECT. This Agreement shall be binding on and
inure to the benefit of the parties hereto and, subject to the terms and
provisions hereof, their respective successors and permitted assigns.
(d) INVALIDITY OF PROVISION. The invalidity or unenforceability
of any provision of this Agreement in any jurisdiction shall not affect the
validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of this Agreement, including that
provision, in any other jurisdiction.
(e) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which taken together shall be deemed one and the same
instrument.
(f) HEADINGS. The descriptive headings of the several sections
of this Agreement are inserted for convenience only and do not constitute part
of this Agreement.
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<PAGE>
(g) THIRD-PARTY BENEFICIARY. Except as otherwise expressly set
forth herein, no individual or entity shall be a third-party beneficiary of the
representations, warranties, covenants and agreements made by any party hereto.
(h) GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement
shall be construed and enforced in accordance with, and the rights of the
parties shall be governed by, the laws of the State of New York without regard
to the principles of conflict of laws. The parties agree to submit to the
personal and exclusive jurisdiction of the state and federal courts serving New
York, New York with respect to the enforcement or interpretation of this
Agreement or the parties' obligations hereunder. Each party hereto irrevocably
waives, to the full extent permitted by law, any objection which it may now or
hereafter have to the laying of the venue of any such proceeding brought in such
a court and any claim that any such proceeding brought in such a court has been
brought in an inconvenient forum. Nothing in this Section shall affect the
right of any party hereto to serve legal process in any manner permitted by law.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
ARDSHIEL, INC.
By:________________________________
Name:
Title:
D AND W HOLDINGS, INC.
By:________________________________
Name:
Title:
ATRIUM CORPORATION
By:________________________________
Name:
Title:
ATRIUM COMPANIES, INC.
By:________________________________
Name:
Title:
- 9 -
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of
October 2, 1998, by and between D and W Holdings, Inc., a Delaware corporation
(together with its successors and assigns permitted hereunder, the "Company"),
Jeff L. Hull (the "Employee") and Atrium Companies, Inc., for the limited
purposes of Section 12(m) hereof.
RECITALS
A. The Company, Atrium Corporation ("Atrium"), D and W Acquisition Corp.
("Sub") and certain securityholders have entered into an Agreement and Plan of
Merger, dated as of August 3, 1998, pursuant to which Sub will merge with and
into Atrium and Atrium will become a wholly-owned subsidiary of the Company (the
"Merger").
B. Contemporaneous with the Merger, the outstanding capital stock of Wing
Industries Holdings, Inc. ("Wing") and Door Holdings, Inc. ("Door") will be
contributed, through a series of transactions to Atrium Companies, Inc., a
wholly-owned subsidiary of Atrium (the "Contribution").
C. Atrium Companies, Inc. and the Employee entered into an Employment
Agreement dated as of January 1, 1998 (the "Original Employment Agreement").
D. The Board of Directors of the Company (the "Board") and of Atrium
Companies, Inc. determined that it is in the best interest of each company and
its stockholders to terminate, effective as of the consummation of the Merger
and the Contribution, the Original Employment Agreement and to enter into this
Agreement for purposes of the Company employing the Employee on the terms and
conditions set forth herein upon consummation of the Merger and Contribution.
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 (including any and all renewals thereof, the "Employment Period")
commencing on the date hereof and ending on the fourth anniversary of such date;
provided the Employment Period is renewable for a series of three year terms
thereafter as mutually agreed upon notice by the Company at least 30 days prior
to the end of the then term. In the event Employee continues to perform
services after the
<PAGE>
Employment Period, and pending agreement for extension of the Employment
Agreement, 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. If the Company
provides the Employee with notice of intent not to renew in accordance with the
above, the Company may in its discretion terminate Employee's services as of the
date of such notice by paying to Employee all amounts that will become due
during the remainder of the Employment Period.
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 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.
(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 substantially all his 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 (1) serve on industry
trade, civic or charitable boards or committees, (2) deliver lectures or fulfill
speaking engagements and (3) 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 $155,000. 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. Employee shall be entitled to an
incentive bonus
<PAGE>
as set forth on Schedule A hereto.
(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 $650 per month plus reasonable related expenses
for fuel and insurance.
(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. Vacation will be deemed to accrue daily for
purposes of the payments described in Section 4 hereof.
(ix) STOCK OPTIONS. Upon the effective date of this
Agreement, the Employee will be entitled to the stock options described on
Schedule B hereto.
(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
<PAGE>
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. Nothing in
this Agreement shall be construed as a waiver of Employee's rights under the
Americans with Disabilities Act or any other applicable law or statute relating
to disabilities or handicaps.
(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 (i) 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, and which is not remedied
within 30 days after receipt of written notice from the Company specifying such
breach, (ii) commission by the Employee of an act of fraud, embezzlement,
misappropriation, willful misconduct or breach of fiduciary duty against the
Company; (iii) a material breach by the Employee of Sections 7, 9, 10 or 11;
(iv) the Employee's conviction, plea of no contest or NOLO CONTENDERE, or
unadjudicated probation for any felony or crime involving moral turpitude; (v)
the failure of the Employee to carry out, or comply with, in any material
respect any lawful and reasonable 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
<PAGE>
Employee's duties and responsibilities under this Agreement. 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; or
(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.
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.
<PAGE>
(d) CHANGE OF CONTROL. If a Change of Control (as defined below)
occurs during the Employment Period and the Board determines in good faith that
it in the Company's best interest to terminate the Employee's employment with
the Company, within one year 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."
As used in this Agreement, "Change of Control" means the first to
occur of: (i) any sale, lease, exchange or other transfer of all or
substantially all of the assets of the Company (including capital stock or
assets of operating subsidiaries) to any person or group of persons, (ii) a
majority of the Board of Directors of the Company shall consist of persons who
are not nominated collectively by Ardshiel, Inc. and its affiliates and GE
Investment Private Placement Partners II, a Limited Partnership or (iii) the
acquisition by any person or group (other than Ardshiel, Inc., GE Investment
Private Placement Partners II, a Limited Partnership and their affiliates) of
the power to vote or direct the voting of securities having more than 50% of the
ordinary voting power for the election of directors of the Company.
(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 (i) indicates
the specific termination provision in this Agreement relied upon, (ii) 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 (iii) 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 (i) 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, (ii) 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
(iii) 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>
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, all unexercised stock
options held by Employee shall lapse and expire, 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, all unexercised stock options
held by Employee shall immediately vest (in his legal representatives) and
become exercisable and the Company shall have no further payment obligations to
the Employee or his legal representatives, other than for payment of: (i) in a
lump sum in cash within ten (10) days after the Date of Termination the Accrued
Obligations; (ii) the Accrued Investments, which shall be payable in accordance
with the terms and conditions of the Investment Plans; and (iii) 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"), payable following
calculation of the Incentive Bonus in accordance with Section 2(b)(ii) hereof.
(c) DISABILITY. If the Employee's employment is terminated by reason
of the Employee's Disability during the Employment Period, all unexercised stock
options held by Employee shall immediately vest and become exercisable and the
Company shall have no further payment obligations to the Employee or his legal
representatives, other than for payment of: (i) in a lump sum in cash within ten
(10) days after the Date of Termination the Accrued Obligations; (ii) the
Accrued Investments, which shall be payable in accordance with the terms and
conditions of the Investment Plans; and (iii) the Prorated Incentive Bonus,
payable following calculation of the Incentive Bonus in accordance with Section
2(b)(ii) hereof.
(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,
all unexercised stock options held by Employee shall immediately vest and become
exercisable and 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
<PAGE>
payable in accordance with the terms and conditions of the Investment Plans;
(iii) payment of the Prorated Incentive Bonus, payable following calculation of
the Incentive Bonus in accordance with Section 2(b)(ii) hereof; and (iv) payment
for each month during a period of 12 months following the Date of Termination
(the "Severance Period") of one-twelfth of the sum of the Employee's Annual Base
Salary on the Date of Termination and 80% of the Incentive Bonus, in accordance
with the customary payroll practices of the Company.
(e) CHANGE OF CONTROL. If the Employee's employment is terminated
upon a Change of Control as contemplated in Section 3(d), all unexercised stock
options held by Employee shall immediately vest and become exercisable and 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; and (iv) payment for each month during the Severance Period of
one-twelfth of the sum of the Employee's Annual Base Salary on the Date of
Termination and 80% of the Incentive Bonus, in accordance with the customary
payroll practices 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 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 and either party shall be entitled to seek damages for
criminal misconduct.
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
<PAGE>
materials, technical information, processes and compilations of information,
records, specifications and information concerning customers or vendors, manuals
relating to suppliers' products, customer lists, information regarding methods
of doing business, and the identity of suppliers. "Confidential Information"
shall not include (i) information that is generally known to other persons or
entities who can obtain economic value from its disclosure or use and (ii)
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; 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 D and
W Holdings, Inc. and any of its direct or indirect subsidiaries.
8. RESPONSIBILITIES UPON TERMINATION. Upon the termination of his
employment by the Company for whatever reason and irrespective of whether or not
such termination is voluntary on his part:
(a) The Employee shall advise the Company of the identity of his new
employer within ten (10) days after accepting new employment and further agrees
to keep the Company so advised of any change in employment during the term of
Non-Competition set forth in Section 10 hereof;
(b) The Company in its sole discretion may notify any new employer of
the Employee that he has an obligation not to compete with the Company during
such term;
(c) The Employee shall deliver to the Company any and all records,
forms, contracts, memoranda, work papers, customer data and any other documents
which have come into his possession by reason of his employment with the Company
(including D&W Holdings, Inc. and its direct and indirect subsidiaries),
irrespective of whether or not any of said documents were prepared for him, and
he shall not retain memoranda in respect of or copies of any of said documents;
and
(d) The Employee shall participate in an exit interview with the
Company.
<PAGE>
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. All representations,
warranties, covenants, terms, conditions and provisions of this Agreement shall
be binding upon and inure to the benefit of, and be enforceable by the
respective heirs, legal representatives, successors and permitted assigns of the
Company and Employee. Neither this Agreement nor any rights, interests or
obligations hereunder may be assigned by the Employee without the prior written
consent of the Company.
10. NON-COMPETITION.
(a) The term of Non-Competition (herein so called) shall be for a
term beginning on the effective 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, or (ii) the last day of the Severance Period if the
Employee's employment is terminated by the Company without Cause (and not due to
Disability) or upon a Change of Control or by the Employee for Good Reason.
(b) During the term of Non-Competition, the Employee shall not (other
than for the benefit of the Company or its affiliates pursuant to this
Agreement) directly or indirectly, render services to, assist, participate in
the affairs of, or otherwise be connected with, any person or enterprise (other
than the Company), which person or enterprise is engaged in, or is planning to
engage in, and shall not personally engage in, any business that is in any
respect competitive with the business of the Company, with respect to any
products of the Company that were within the Employee's management
responsibility at any time within the twelve-month period immediately prior to
the termination of the Employee's employment with the Company, in any capacity
which would (i) utilize the Employee's services with respect to such business
within any state of the United States, or any substantially comparable political
subdivision of any other country, wherein the Company sold or actively attempted
to sell, such products within the twelve-month period immediately prior to the
termination of the Employee's employment with the Company; or (ii) utilize the
Employee's services in selling any products similar to such products of the
Company to any person or entity to which the Company sold or actively attempted
to sell such products within the twelve-month period immediately prior to the
termination of the Employee's employment with the Company (a "Competing
Business"). 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) During the term of Non-Competition, Employee will not, and will
not permit any of his affiliates to, directly or indirectly, recruit or
otherwise solicit or induce any employee, customer, subscriber or supplier of
the Company to terminate its employment or
<PAGE>
arrangement with the Company, otherwise change its relationship with the Company
or establish any relationship with the Employee or any of his affiliates for any
business purpose deemed competitive with the business of the Company.
(d) 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.
(e) 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.
(f) As used in this Section 10, "Company" shall include D and
W Holdings, Inc. and any of its direct or indirect subsidiaries.
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.
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
<PAGE>
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
Fax: (972) 304-5238
IF TO THE COMPANY: D and W Holdings, Inc.
c/o Ardshiel, Inc.
230 Park Avenue, Suite 2527
New York, New York 10169
Attention: Daniel T. Morley
Fax: (212) 972-1809
with a copy to:
Joel M. Simon
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue, 31st Floor
New York, New York 10022-4697
Fax: (212) 319-4090
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
<PAGE>
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 executed in two or more counterparts.
(h) MEDIATION; ARBITRATION. (i) The Company and the Employee shall
mediate any claim or controversy arising out of or relating to this Agreement or
any breach thereof if either of them requests mediation and gives written notice
to the other (the "Mediation Notice"). Any notice given pursuant to the
preceding sentence shall include a brief statement of the claim or controversy.
If the Company and the Employee do not resolve the claim or controversy within
five (5) days after the date of the Mediation Notice, the Company and the
Employee shall then use reasonable efforts to agree upon an independent
mediator. If the Company and the Employee do not agree upon an independent
mediator within ten (10) days after the date of the Mediation Notice, either
party may request that JAMS/Endispute ("JAMS"), or a similar mediation service
of a similar national scope if JAMS no longer then exists, appoint an
independent mediator. The Company and the Employee shall share the costs of
mediation equally and shall pay such costs in advance upon the request of the
mediator or any party.
<PAGE>
Within ten (10) days after selection of the mediator, the mediator shall set the
mediation. If the Company and the Employee do not resolve the dispute within
thirty (30) days after the date of the Mediation Notice, the dispute shall be
decided by arbitration as set forth below.
(ii) Any claim or controversy arising out of or relating to
this Agreement or any breach thereof shall be settled by arbitration if such
claim or controversy is not settled pursuant to mediation as set forth above.
The venue for any such arbitration shall be Dallas, Texas, or such other
location as the parties may mutually agree. Except as expressly set forth
herein, all arbitration proceedings under this Section 12(h)(ii) shall be
undertaken in accordance with the Commercial Arbitration Rules of the American
Arbitration Association (the "AAA") then in force. Only individuals who are (i)
lawyers engaged full-time in the practice of law and (ii) on the AAA register of
arbitrators shall be selected as an arbitrator. There shall be one arbitrator
who shall be chosen in accordance with the rules of the AAA. Within twenty (20)
days of the conclusion of the arbitration hearing, the arbitrator shall prepare
written findings of fact and conclusions of law. Judgment on the written award
may be entered and enforced in any court of competent jurisdiction. It is
mutually agreed that the written decision of the arbitrator shall be valid,
binding, final and non-appealable; provided however, that the parties hereto
agree that the arbitrator shall not be empowered to award punitive damages
against any party to such arbitration. The arbitrator shall require the
non-prevailing party to pay the arbitrator's full fees and expenses or, if in
the arbitrator's opinion there is no prevailing party, the arbitrator's fees and
expenses will be borne equally by the parties thereto. In the event action is
brought to enforce the provisions of this Agreement pursuant to this Section
12(h)(ii), the non-prevailing parties shall be required to pay the reasonable
attorneys' fees and expenses of the prevailing parties, except that if in the
opinion of the court or arbitrator deciding such action there is no prevailing
party, each party shall pay its own attorneys' fees and expenses.
(i) SURVIVAL. Sections 4, 6, 7, 8, 9, 10, 11, and 12 of this
Agreement shall survive the termination of this Agreement.
(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.
<PAGE>
(m) TERMINATION OF ORIGINAL EMPLOYMENT AGREEMENT. Effective upon
consummation of the Merger, the Original Employment Agreement shall
automatically be terminated and of no further force or effect and Employee's
employment by the Company and its subsidiaries shall solely be governed by this
Agreement.
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 __ day of ________,
1998, to be effective as of the day and year first above written.
EMPLOYEE
D AND W HOLDINGS, INC.
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
ATRIUM COMPANIES, INC.
for the limited purposes of Section 12(m) hereof
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
<PAGE>
SCHEDULE A
TO HULL EMPLOYMENT AGREEMENT
Employee shall be entitled to a target bonus in the amount of $100,000 per
annum (the "Incentive Bonus").
50% of the Employee's Incentive Bonus ("EBITDA Bonus") shall be payable
based upon achievement of the following targets:
(i) If the Company achieves 80% of its budgeted EBITDA, the Employee
shall receive 50% of the EBITDA Bonus.
(ii) If the Company achieves 90% of its budgeted EBITDA, the Employee
shall receive 75% of the EBITDA Bonus.
(iii) If the Company achieves 100% of its budgeted EBITDA, the Employee
shall receive 100% of the EBITDA Bonus.
(iv) If the Company achieves 110% of its budgeted EBITDA, the Employee
shall receive 125% of the EBITDA Bonus.
(v) The EBITDA Bonus will be paid on a sliding scale on a pro rated
basis. For example, if 95% of budgeted EBITDA is achieved, the
Employee is entitled to 87.5% of the EBITDA Bonus. No EBITDA Bonus
will be paid if the Company achieves less than 80% of the budgeted
EBITDA and in no event will the Company pay in excess of 125% of the
EBITDA Bonus.
(vi) For purposes of the EBITDA Bonus, EBITDA shall be defined as
earnings from operations before interest, taxes, depreciation,
amortization and extraordinary gains or losses of the Company and
all of its subsidiaries on a consolidated basis. Budgeted EBITDA
shall be such amount as is set by the Board of Directors annually as
adjusted from time to time to reflect acquisitions by the Company or
its subsidiaries.
35% of the Employee's Incentive Bonus shall be payable based upon
achievement of the following targets:
(i) If the Company meets the performance targets set by the Board of
Directors with respect to Bad Debts/Collections, then the Employee
shall be entitled to receive 10% of the Incentive Bonus.
<PAGE>
(ii) If the Company meets the performance targets set by the Board of
Directors with respect to Accounts Receivable Days, then the
Employee shall be entitled to receive 15% of the Incentive Bonus.
(iii) If the Company meets its performance targets with respect to Month
End Closing, then the Employee shall be entitled to receive 10% of
the Incentive Bonus.
(iv) The above-stated percentages of Incentive Bonus shall not be paid on
a sliding scale or pro rated basis. Achievement of the performance
targets set by the Board of Directors shall be determined by the
Board of Directors in its sole discretion. The above-described
performance targets shall be set from time to time by the Board of
Directors in its sole discretion.
The remaining 15% of the Employee's Incentive Bonus shall be based upon the
achievement of management objectives to be set from year to year by the Board of
Directors.
<PAGE>
SCHEDULE B
Stock Options:
Effective as of the date of this Agreement the Employee shall be granted
options to purchase 1,183,842 shares of common stock of the Company pursuant to
the D and W Holdings, Inc. 1998 Stock Option Plan (the "Plan"). Such options
shall provide the following:
EXERCISE PRICE: $1.00 per share subject to adjustment as set forth in the Plan.
VESTING: Annually in equal installments over four years from the date of grant,
subject to continued employment as set forth in the Plan, in accordance with the
following schedule:
VESTING SCHEDULE
---------------------------------------------
Anniversary of
Grant Date Vested Shares
---------------- -------------
1st 295,960.5 shares
2nd 295,960.5 shares
3rd 295,960.5 shares
4th 295,960.5 shares
Total 1,183,842 shares
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of
October 2, 1998, by and between D and W Holdings, Inc., a Delaware corporation
(together with its successors and assigns permitted hereunder, the "Company"),
R.L. Gilmer (the "Employee") and Wing Industries, Inc., for the limited purposes
of Section 12(m) hereof.
RECITALS
A. The Company, Atrium Corporation ("Atrium"), D and W Acquisition Corp.
("Sub") and certain securityholders have entered into an Agreement and Plan of
Merger, dated as of August 3, 1998, pursuant to which Sub will merge with and
into Atrium and Atrium will become a wholly-owned subsidiary of the Company (the
"Merger").
B. Contemporaneous with the Merger, the outstanding capital stock of
Wing Industries Holdings, Inc. ("Wing") and Door Holdings, Inc. ("Door")
will be contributed, through a series of transactions to Atrium Companies,
Inc., a wholly-owned subsidiary of Atrium (the "Contribution").
C. Wing Industries, Inc., a subsidiary of Wing, and the Employee entered
into an Employment Agreement dated as of October 25, 1996 (the "Original
Employment Agreement").
D. The Board of Directors of the Company (the "Board") and of Wing
Industries, Inc. have determined that it is in the best interest of each company
and its stockholders to terminate, effective as of the consummation of the
Merger and the Contribution, the Original Employment Agreement and to enter into
this Agreement for purposes of the Company employing the Employee on the terms
and conditions set forth herein upon consummation of the Merger and
Contribution.
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 (including any and all renewals thereof, the "Employment Period")
commencing on the date hereof and ending on the fourth anniversary of such date;
provided the Employment Period is renewable for a series of three year terms
thereafter as mutually agreed upon notice by the Company at least 30 days prior
to the end of the then term. In the event Employee continues to perform
services after the Employment Period, and pending agreement for extension of the
Employment Agreement, such
<PAGE>
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. If the Company provides the Employee
with notice of intent not to renew in accordance with the above, the Company may
in its discretion terminate Employee's services as of the date of such notice by
paying to Employee all amounts that will become due during the remainder of the
Employment Period.
2. TERMS OF EMPLOYMENT.
(a) POSITION AND DUTIES.
(i) During the term of the Employee's employment, the Employee
shall serve as Chief Operating Officer of the Company and, in so doing, shall
perform 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.
(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 substantially all his 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 (1) serve on industry
trade, civic or charitable boards or committees, (2) deliver lectures or fulfill
speaking engagements and (3) 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 $215,000. 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. Employee shall receive the Incentive
Bonus reflected in Schedule A hereto.
<PAGE>
(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 $650 per month plus reasonable related expenses for
fuel and insurance.
(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. Vacation will be deemed to accrued daily for
purposes of the payments described in Section 4 hereof.
(ix) STOCK OPTIONS. Upon the effective date of this Agreement,
the Employee will be entitled to the stock options described on Schedule B
hereto.
(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
<PAGE>
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. Nothing in
this Agreement shall be construed as a waiver of Employee's rights under the
Americans with Disabilities Act or any other applicable law or statute relating
to disabilities or handicaps.
(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 (i) 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, and which is not remedied
within 30 days after receipt of written notice from the Company specifying such
breach, (ii) commission by the Employee of an act of fraud, embezzlement,
misappropriation, willful misconduct or breach of fiduciary duty against the
Company; (iii) a material breach by the Employee of Sections 7, 9, 10 or 11;
(iv) the Employee's conviction, plea of no contest or NOLO CONTENDERE, or
unadjudicated probation for any felony or crime involving moral turpitude; (v)
the failure of the Employee to carry out, or comply with, in any material
respect any lawful and reasonable 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. For purposes of this Agreement, "without
Cause" shall mean a termination by the Company of the Employee's employment
during
<PAGE>
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; or
(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.
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 (as defined below)
occurs during the Employment Period and the Board determines in good faith that
it in the Company's
<PAGE>
best interest to terminate the Employee's employment with the Company, within
one year 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."
As used in this Agreement, "Change of Control" means the first to
occur of: (i) any sale, lease, exchange or other transfer of all or
substantially all of the assets of the Company (including capital stock or
assets of operating subsidiaries) to any person or group of persons, (ii) a
majority of the Board of Directors of the Company shall consist of persons who
are not nominated collectively by Ardshiel, Inc. and its affiliates and GE
Investment Private Placement Partners II, a Limited Partnership or (iii) the
acquisition by any person or group (other than Ardshiel, Inc., GE Investment
Private Placement Partners II, a Limited Partnership and their affiliates) of
the power to vote or direct the voting of securities having more than 50% of the
ordinary voting power for the election of directors of the Company.
(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 (i) indicates
the specific termination provision in this Agreement relied upon, (ii) 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 (iii) 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 (i) 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, (ii) 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
(iii) 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
<PAGE>
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, all unexercised stock options held by Employee
shall lapse and expire, 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, all unexercised stock options
held by Employee shall immediately vest (in his legal representatives) and
become exercisable and the Company shall have no further payment obligations to
the Employee or his legal representatives, other than for payment of: (i) in a
lump sum in cash within ten (10) days after the Date of Termination the Accrued
Obligations; (ii) the Accrued Investments, which shall be payable in accordance
with the terms and conditions of the Investment Plans; and (iii) 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"), payable following
calculation of the Incentive Bonus in accordance with Section 2(b)(ii) hereof.
(c) DISABILITY. If the Employee's employment is terminated by reason
of the Employee's Disability during the Employment Period, all unexercised stock
options held by Employee shall immediately vest and become exercisable and the
Company shall have no further payment obligations to the Employee or his legal
representatives, other than for payment of: (i) in a lump sum in cash within ten
(10) days after the Date of Termination the Accrued Obligations; (ii) the
Accrued Investments, which shall be payable in accordance with the terms and
conditions of the Investment Plans; and (iii) the Prorated Incentive Bonus,
payable following calculation of the Incentive Bonus in accordance with Section
2(b)(ii) hereof.
(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,
all unexercised stock options held by Employee shall immediately vest and become
exercisable and 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, payable following calculation of the Incentive
Bonus in accordance with Section 2(b)(ii) hereof; and (iv) payment for each
month during a period of 12 months following the Date of Termination (the
"Severance Period") of one-twelfth of the sum of the
<PAGE>
Employee's Annual Base Salary on the Date of Termination and 80% of the
Incentive Bonus in accordance with the customary payroll practices of the
Company.
(e) CHANGE OF CONTROL. If the Employee's employment is terminated
upon a Change of Control as contemplated in Section 3(d), all unexercised stock
options held by Employee shall immediately vest and become exercisable and 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; and (iv) payment for each month during the Severance Period of
one-twelfth of the sum of the Employee's Annual Base Salary on the Date of
Termination and 80% of the Incentive Bonus, in accordance with the customary
payroll practices 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 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 and either party shall be entitled to seek damages for
criminal misconduct.
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 vendors, manuals relating to suppliers'
products, customer lists, information regarding methods of doing business, and
the identity of
<PAGE>
suppliers. "Confidential Information" shall not include (i) information that is
generally known to other persons or entities who can obtain economic value from
its disclosure or use and (ii) 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; 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 D and
W Holdings, Inc. and any of its direct or indirect subsidiaries.
8. RESPONSIBILITIES UPON TERMINATION. Upon the termination of his
employment by the Company for whatever reason and irrespective of whether or not
such termination is voluntary on his part:
(a) The Employee shall advise the Company of the identity of his new
employer within ten (10) days after accepting new employment and further agrees
to keep the Company so advised of any change in employment during the term of
Non-Competition set forth in Section 10 hereof;
(b) The Company in its sole discretion may notify any new employer of
the Employee that he has an obligation not to compete with the Company during
such term;
(c) The Employee shall deliver to the Company any and all records,
forms, contracts, memoranda, work papers, customer data and any other documents
which have come into his possession by reason of his employment with the Company
(including D&W Holdings, Inc. and its direct and indirect subsidiaries),
irrespective of whether or not any of said documents were prepared for him, and
he shall not retain memoranda in respect of or copies of any of said documents;
and
(d) The Employee shall participate in an exit interview with the
Company.
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
<PAGE>
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. All representations, warranties, covenants, terms, conditions and
provisions of this Agreement shall be binding upon and inure to the benefit of,
and be enforceable by the respective heirs, legal representatives, successors
and permitted assigns of the Company and Employee. Neither this Agreement nor
any rights, interests or obligations hereunder may be assigned by the Employee
without the prior written consent of the Company.
10. NON-COMPETITION.
(a) The term of Non-Competition (herein so called) shall be for a
term beginning on the effective 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, or (ii) the last day of the Severance Period if the
Employee's employment is terminated by the Company without Cause (and not due to
Disability) or upon a Change of Control or by the Employee for Good Reason.
(b) During the term of Non-Competition, the Employee shall not (other
than for the benefit of the Company or its affiliates pursuant to this
Agreement) directly or indirectly, render services to, assist, participate in
the affairs of, or otherwise be connected with, any person or enterprise (other
than the Company), which person or enterprise is engaged in, or is planning to
engage in, and shall not personally engage in, any business that is in any
respect competitive with the business of the Company, with respect to any
products of the Company that were within the Employee's management
responsibility at any time within the twelve-month period immediately prior to
the termination of the Employee's employment with the Company, in any capacity
which would (i) utilize the Employee's services with respect to such business
within any state of the United States, or any substantially comparable political
subdivision of any other country, wherein the Company sold or actively attempted
to sell, such products within the twelve-month period immediately prior to the
termination of the Employee's employment with the Company; or (ii) utilize the
Employee's services in selling any products similar to such products of the
Company to any person or entity to which the Company sold or actively attempted
to sell such products within the twelve-month period immediately prior to the
termination of the Employee's employment with the Company (a "Competing
Business"). 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) During the term of Non-Competition, Employee will not, and will
not permit any of his affiliates to, directly or indirectly, recruit or
otherwise solicit or induce any employee, customer, subscriber or supplier of
the Company to terminate its employment or arrangement with the Company,
otherwise change its relationship with the Company or establish any relationship
with the Employee or any of his affiliates for any business purpose deemed
competitive with the business of the Company.
<PAGE>
(d) 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.
(e) 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.
(f) As used in this Section 10, "Company" shall include D and
W Holdings, Inc. and any of its direct or indirect subsidiaries.
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.
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
<PAGE>
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: R. L. Gilmer
___________________________
___________________________
Fax:_______________________
IF TO THE COMPANY: D and W Holdings, Inc.
c/o Ardshiel, Inc.
230 Park Avenue, Suite 2527
New York, New York 10169
Attention: Daniel T. Morley
Fax: (212) 972-1809
with a copy to:
Joel M. Simon
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue, 31st Floor
New York, New York 10022-4697
Fax: (212) 319-4090
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.
<PAGE>
(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 executed in two or more counterparts.
(h) MEDIATION; ARBITRATION. (i) The Company and the Employee shall
mediate any claim or controversy arising out of or relating to this Agreement or
any breach thereof if either of them requests mediation and gives written notice
to the other (the "Mediation Notice"). Any notice given pursuant to the
preceding sentence shall include a brief statement of the claim or controversy.
If the Company and the Employee do not resolve the claim or controversy within
five (5) days after the date of the Mediation Notice, the Company and the
Employee shall then use reasonable efforts to agree upon an independent
mediator. If the Company and the Employee do not agree upon an independent
mediator within ten (10) days after the date of the Mediation Notice, either
party may request that JAMS/Endispute ("JAMS"), or a similar mediation service
of a similar national scope if JAMS no longer then exists, appoint an
independent mediator. The Company and the Employee shall share the costs of
mediation equally and shall pay such costs in advance upon the request of the
mediator or any party. Within ten (10) days after selection of the mediator,
the mediator shall set the mediation. If the Company and the Employee do not
resolve the dispute within thirty (30) days after the date of the Mediation
Notice, the dispute shall be decided by arbitration as set forth below.
<PAGE>
(ii) Any claim or controversy arising out of or relating to
this Agreement or any breach thereof shall be settled by arbitration if such
claim or controversy is not settled pursuant to mediation as set forth above.
The venue for any such arbitration shall be Dallas, Texas, or such other
location as the parties may mutually agree. Except as expressly set forth
herein, all arbitration proceedings under this Section 12(h)(ii) shall be
undertaken in accordance with the Commercial Arbitration Rules of the American
Arbitration Association (the "AAA") then in force. Only individuals who are (i)
lawyers engaged full-time in the practice of law and (ii) on the AAA register of
arbitrators shall be selected as an arbitrator. There shall be one arbitrator
who shall be chosen in accordance with the rules of the AAA. Within twenty (20)
days of the conclusion of the arbitration hearing, the arbitrator shall prepare
written findings of fact and conclusions of law. Judgment on the written award
may be entered and enforced in any court of competent jurisdiction. It is
mutually agreed that the written decision of the arbitrator shall be valid,
binding, final and non-appealable; provided however, that the parties hereto
agree that the arbitrator shall not be empowered to award punitive damages
against any party to such arbitration. The arbitrator shall require the
non-prevailing party to pay the arbitrator's full fees and expenses or, if in
the arbitrator's opinion there is no prevailing party, the arbitrator's fees and
expenses will be borne equally by the parties thereto. In the event action is
brought to enforce the provisions of this Agreement pursuant to this Section
12(h)(ii), the non-prevailing parties shall be required to pay the reasonable
attorneys' fees and expenses of the prevailing parties, except that if in the
opinion of the court or arbitrator deciding such action there is no prevailing
party, each party shall pay its own attorneys' fees and expenses.
(i) SURVIVAL. Sections 4, 6, 7, 8, 9, 10, 11, and 12 of this
Agreement shall survive the termination of this Agreement.
(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.
(m) TERMINATION OF ORIGINAL EMPLOYMENT AGREEMENT. Effective upon
consummation of the Merger, the Original Employment Agreement shall
automatically be terminated and of no further force or effect and Employee's
employment by the Company and its subsidiaries shall solely be governed by this
Agreement.
<PAGE>
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 __ day of ________,
1998, to be effective as of the day and year first above written.
EMPLOYEE
D AND W HOLDINGS, INC.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
WING INDUSTRIES, INC., for the limited
purposes of Section 12(m) hereof
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
<PAGE>
SCHEDULE A
TO GILMER EMPLOYMENT AGREEMENT
Employee shall be entitled to a target bonus in the amount of $125,000 per
annum (the "Incentive Bonus").
75% of the Employee's Incentive Bonus ("EBITDA Bonus") shall be payable
based upon achievement of the following targets:
(i) If the Company achieves 80% of its budgeted EBITDA, the
Employee shall receive 50% of the EBITDA Bonus.
(ii) If the Company achieves 90% of its budgeted EBITDA, the
Employee shall receive 75% of the EBITDA Bonus.
(iii) If the Company achieves 100% of its budgeted EBITDA, the
Employee shall receive 100% of the EBITDA Bonus.
(iv) If the Company achieves 110% of its budgeted EBITDA, the
Employee shall receive 125% of the EBITDA Bonus.
(v) The EBITDA Bonus will be paid on a sliding scale on a pro rated
basis. For example, if 95% of budgeted EBITDA is achieved, the Employee
is entitled to 87.5% of the EBITDA Bonus. No EBITDA Bonus will be paid if
the Company achieves less than 80% of the budgeted EBITDA and in no event
will the Company pay in excess of 125% of the EBITDA Bonus.
(vi) For purposes of the EBITDA Bonus, EBITDA shall be defined as
earnings from operations before interest, taxes, depreciation,
amortization and extraordinary gains or losses of the Company and all of
its subsidiaries on a consolidated basis. Budgeted EBITDA shall be such
amount as is set by the Board of Directors annually as adjusted from
time to time to reflect acquisitions by the Company or its subsidiaries.
15% of the Employee's Incentive Bonus shall be payable based upon
achievement of management objectives to be set from year to year by the Board of
Directors.
10% of the Employee's Incentive Bonus shall be payable based upon
achievement of the target return on equity for the Company the target amount and
method of calculation to be set by the Board of Directors in its sole
discretion.
<PAGE>
SCHEDULE B
Stock Options:
Effective as of the date of this Agreement the Employee shall be granted
options to purchase 1,183,842 shares of common stock of the Company pursuant to
the D and W Holdings, Inc. 1998 Stock Option Plan (the "Plan"). Such options
shall provide the following:
EXERCISE PRICE: $1.00 per share subject to adjustment as set forth in the Plan.
VESTING: Annually in equal installments over four years from the date of grant,
subject to continued employment as set forth in the Plan, in accordance with the
following schedule:
<TABLE>
<CAPTION>
Vesting Schedule
----------------
Anniversary of
Grant Date Vested Shares
-------------- -------------
<S> <C> <C>
1st 295,960.5 shares
2nd 295,960.5 shares
3rd 295,960.5 shares
4th 295,960.5 shares
Total 1,183,842 shares
</TABLE>
<PAGE>
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
as of this 8th day of January, 1998 by and between DOOR HOLDINGS, INC., a
Delaware corporation (the "Buyer"), and CLIFF DARBY, an employee of the Buyer
(the "Employee").
RECITALS:
WHEREAS, as of the date hereof, Buyer is purchasing, pursuant to a
Stock Purchase Agreement among, Buyer, R.G. Darby Company, Inc., an Alabama
corporation ("Darby"), Total Trim, Inc., an Alabama corporation and R.G. Darby,
dated December 12, 1997, all the outstanding capital stock of Darby (the
"Stock");
WHEREAS, Darby is in the business of prehanging interior and exterior
door units primarily for multi-family housing communities and distributing
ancillary products for the building materials industry such as locks, windows,
mirrors, wire shelving, bathroom accessories and other complementary specialty
items (the "Business");
WHEREAS, Employee is a stockholder and employee of Darby;
WHEREAS, Buyer desires to retain Employee to render services to Buyer
following its purchase of the Stock and the Employee desires to render such
services;
WHEREAS, in order to fully protect the Buyer's confidential
information and the goodwill of the Business which the Buyer has acquired by
virtue of the stock purchase described above and to ensure that the Buyer enjoys
the benefits of such goodwill and Business, the Buyer and the Employee desire to
provide for Employee's agreement not to compete with the Buyer for a period of
five (5) years from the date hereof as specified herein;
WHEREAS, the execution of this Agreement is a condition to, and a
material inducement of, the Buyer's consummation of the stock purchase as set
forth in the Stock Purchase Agreement; and
WHEREAS, the Buyer and the Employee desire to set forth herein the
terms and conditions on which the Buyer will employ the Employee, and the
Employee will accept employment with the Buyer, including the terms of
Employee's agreement not to compete.
<PAGE>
NOW, THEREFORE, in consideration of the mutual promises, agreements
and mutual covenants set forth herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending legally to be bound, hereby agree as follows:
1. EMPLOYMENT. The Buyer hereby employs the Employee, and the
Employee hereby accepts employment with the Buyer, upon the terms and subject to
the conditions set forth in this Agreement.
2. POSITION AND DUTIES. The Employee shall be employed as the
President and Chief Executive Officer of the Buyer. The Employee shall also
serve in such additional capacities as may be assigned to him from time to time
by the Board of Directors of the Buyer (the "Board"). The Employee shall devote
substantially all of his business time, attention, skill and best efforts to the
diligent performance of his duties hereunder. Subject to the authority of the
Board, the Employee shall be responsible for the day to day general management,
administration and operation of all present and future business of the Buyer and
its subsidiaries, if any, including, without limitation, as set forth in the
By-laws of the Buyer. Employee acknowledges that the performance of his job
duties will involve him in managing all aspects of the Buyer's operational
efforts. On all matters not delegated to the Employee, the Employee shall
report to the Board.
3. TERM. The term of employment hereunder shall commence as of
the date hereof (the "Commencement Date") and shall continue through and
including December 31, 2001 (the "Initial Term") unless earlier terminated in
accordance with the provisions hereof. This Agreement shall be renewable for
successive one (1) year terms following the Initial Term, unless either party
provides notice of intent not to renew to the other party at least thirty (30)
days prior to the end of the then existing term. Notwithstanding the above, the
covenants set forth in Section 6 hereof shall survive for a period of five (5)
years from the date hereof notwithstanding any termination of employment
hereunder including any termination pursuant to this Section 3 upon the
expiration of the Initial Term or any renewal term.
4. COMPENSATION. As compensation for all services rendered by the
Employee under this Agreement, the Buyer shall pay the Employee compensation as
follows:
(a) ANNUAL COMPENSATION. For all services rendered by the
Employee during his employment under this Agreement, beginning on the
Commencement Date, the Buyer shall pay the Employee an annual salary in an
amount not less than $150,000, payable in substantially equal [monthly]
installments on the first day of each month. The Employee's annual salary
shall be subject to annual review on or before February 1 of each year by
<PAGE>
the Board for possible merit increases, in the Board's sole discretion.
Any merit increases would be effective February 1st of each year.
(b) BENEFITS. Except as set forth on SCHEDULE A attached
hereto, the Employee shall be entitled to participate in those perquisites
and benefits generally available to senior level employees of the Buyer in
accordance with the Buyer's regular policies. In addition, the Employee
shall be entitled to those rights and benefits described in SCHEDULE A
attached hereto, which is hereby incorporated herein and made a part of
this Agreement.
(c) TAXES AND WITHHOLDINGS. All taxes and governmentally
required withholdings shall be deducted from any amount paid by the Buyer
to the Employee hereunder in conformity with applicable laws.
(d) STOCK OPTIONS. The Employee shall also be eligible to
receive grants of options to purchase shares of common stock of the Buyer
in accordance with the Option Plan attached hereto.
5. CONFIDENTIALITY. The Employee acknowledges and agrees that the
Trade Secrets (as defined below) and the Confidential Information (as defined
below) of the Buyer and its parent and subsidiaries and all physical embodiments
thereof (collectively referred to as the "Proprietary Information") are
valuable, special and unique assets of the Business and have been developed by
Darby and will continue to be developed by Buyer following its purchase of the
Business at considerable time and expense. Employee further acknowledges that
access to such Proprietary Information is essential to performance of Employee's
duties and responsibilities under this Agreement. Therefore, in order to obtain
access to such Proprietary Information, Employee agrees that except with respect
to those duties assigned to him by the Buyer, Employee shall hold in strictest
confidence all Proprietary Information and will not reproduce, use, distribute,
disclose, publish or otherwise disseminate any Proprietary Information, in whole
or in part, and will take no action causing, or fail to take any action
necessary to prevent causing, any Proprietary Information to lose its character
as Proprietary Information, nor wilfully make use of such information for
Employee's own purposes or for the benefits of any person, firm, corporation,
association or other entity (except the Buyer) under any circumstances, except
that Employee may disclose such Proprietary Information pursuant to a court
order, subpoena or other legal process, provided that, at least ten (10) days in
advance of any legal disclosure, the Employee shall furnish the Buyer with a
copy of the judicial or administrative order requiring that such information be
disclosed together with a written description of the information to be disclosed
(which description shall be in sufficient detail to allow the Buyer and its
affiliates to determine the nature and scope of the information proposed to be
disclosed), and the Employee covenants and agrees to cooperate with the Buyer
<PAGE>
and its affiliates to deliver the minimum amount of information necessary to
comply with such order.
For purposes of this Agreement, the term "Trade Secrets" means
information, including but not limited to, any technical or nontechnical data,
formula, pattern, compilation, program, device, method, technique, drawing,
process, financial data, financial plan, product plan, list of actual or
potential customers or suppliers, or other information similar to any of the
foregoing, which derives economic value, actual or potential, from not being
generally known to, and not being readily ascertainable by proper means by,
other persons who can derive economic value from its disclosure or use. For
purposes of this Agreement, the term "Trade Secrets" does not include
information that Employee can show by competent proof (i) was known to Employee
and reduced to writing prior to disclosure by the Buyer or by Darby (but only if
Employee promptly notifies the Buyer of Employee's prior knowledge); (ii) was
generally known to the public at the time the Buyer or Darby disclosed the
information to Employee; (iii) became generally known to the public after
disclosure to the Employee through no act or omission of Employee; or (iv) was
disclosed to Employee by a third party having a bona fide right both to possess
the information and to disclose the information to Employee.
The term "Confidential Information" means any data or information of
the Buyer, other than Trade Secrets, regarding the Business or Buyer's policies
and operations which is valuable to the Buyer and not generally known to
competitors of the Buyer. For purposes of this Agreement, the term
"Confidential Information" does not include information that Employee can show
by competent proof (i) was known to Employee and reduced to writing prior to
disclosure by the Buyer or Darby (but only if Employee promptly notifies the
Buyer of Employee's prior knowledge); (ii) was generally known to the public at
the time Buyer or Darby disclosed the information to Employee; (iii) became
generally known to the public after disclosure to the Employee through no act or
omission of Employee; or (iv) was disclosed to Employee by a third party having
a bona fide right both to possess the information and to disclose the
information to Employee.
The provisions of this Section 5 will apply to Trade Secrets for so
long as such information remains a Trade Secret and to Confidential Information
during Employee's employment with the Buyer and for a period of three (3) years
following any termination of Employee's employment with the Buyer for whatever
reason.
6. COVENANT NOT TO COMPETE.
(a) AGREEMENT NOT TO COMPETE. In order to fully protect the
Buyer's Confidential Information and the goodwill of the Business purchased by
Buyer on the date hereof, and to ensure that Buyer enjoys the benefits of that
Business, for a
<PAGE>
period of five (5) years following the date of this Agreement (the
"Non-competition Period"), whether or not Employee's employment by the Buyer
terminates prior to the expiration of such five (5) year period (provided that
this covenant shall apply for one year following termination without cause
pursuant to Section 10 hereof regardless of the date of termination), Employee
shall not, except as authorized in writing by Buyer, directly or indirectly, be
employed by, render services to, assist, participate in the affairs of, invest
in, or otherwise be connected with, any person or enterprise which person or
enterprise is engaged in, or is planning to engage in, and shall not personally
engage in, any business that is in any respect competitive with the Business,
with respect to any products or services of the Business, within the continental
United States; provided that Employee may hold investments representing a less
than 5% interest in any publicly held entity competing with Buyer. In
furtherance of such covenant not to compete, Employee hereby acknowledges that
Darby currently does business, and following the stock purchase described
herein, the Buyer shall continue to do business throughout the United States and
that in his capacity as President of Darby and as President and Chief Executive
Officer of the Buyer his responsibilities have involved and will continue to
involve the conduct of business throughout the United States.
(b) NON-SOLICITATION. The Employee agrees that for a period
of five (5) years following the date of this Agreement he will not, and will not
assist any of his affiliates to, directly or indirectly, recruit or otherwise
solicit or induce any present or future employee, customer, subscriber or
supplier of Buyer or any of its subsidiaries to terminate its employment or
arrangement with Buyer or any of its subsidiaries, otherwise change its
relationship with the Buyer or any of its subsidiaries, or establish any
relationship with the Employee or any of his affiliates for any business purpose
deemed materially competitive with the Business.
(c) REMEDIES. The parties recognize, acknowledge and agree
that (i) any breach or threatened breach of the provisions of this Section 6
shall cause irreparable harm and injury to Buyer and that money damages alone
will not provide an adequate remedy for such breach or threatened breach, (ii)
the duration, scope and geographical application of this Section 6 are fair and
reasonable under the circumstances of the Business, and are reasonably required
to protect the legitimate business interests of Buyer and the goodwill of the
Business purchased by Buyer, (iii) the restrictions contained in this Section 6
will not prevent the Employee from earning or seeking a livelihood, and (iv) the
restrictions contained in this Section 6 shall apply in all areas where such
application is permitted by law. Accordingly, the Employee agrees that Buyer
shall be entitled to have the provisions of this Section 6 specifically enforced
by any court having jurisdiction, and that such a court may issue a temporary
restraining order, preliminary injunction or other appropriate equitable relief,
without having to prove the inadequacy of available remedies at law, having to
post any bond or any other undertaking. In addition, Buyer shall be entitled to
avail itself of all such
<PAGE>
other actions and remedies available to it or any of its affiliates under law or
in equity and shall be entitled to such damages as it sustains by reason of such
breach or threatened breach. It is the express desire and intent of the parties
that the provisions of this Section 6 be enforced to the full extent possible.
(d) SEVERABILITY. In light of the fact that the covenants
set forth in Section 6 are reasonably required to protect the legitimate
interests of Buyer as a purchaser of the assets of the Business, if any
provision of Section 6(a) hereof is held to be unenforceable because of the
duration of such provision, the area covered thereby or the scope of the
activity restrained, the parties hereby expressly agree that the court making
such determination shall have the power to reduce the duration and/or areas of
such provision and/or the scope of the activity to be restrained contained in
such provision and, in its reduced form, such provision shall then be
enforceable. The parties hereto intend and agree that the covenants contained
in Section 6(a) shall be construed as a series of separate covenants, one for
each municipality, community or county included within the area designated by
Section 6(a). Except for geographic coverage, the terms and conditions of each
such separate covenant shall be deemed identical to the covenant contained in
Section 6(a). Furthermore, if any court shall refuse to enforce any of the
separate covenants deemed included in Section 6(a), then such unenforceable
covenant shall be deemed eliminated from the provisions hereof to the extent
necessary to permit the remaining separate covenants to be enforced in
accordance with their terms. The prevailing party in any action arising out of
a dispute in respect of any provision of this Section 6 shall be entitled to
recover from the non-prevailing party reasonable attorneys' fees and costs and
disbursements incurred in connection with the prosecution or defense, as the
case may be, of any such action.
7. RESPONSIBILITIES UPON TERMINATION. Upon the termination of his
employment by the Buyer for whatever reason and irrespective of whether or not
such termination is voluntary on his part:
(a) The Employee shall advise the Buyer of the identity of
his new employer within ten (10) days after accepting new employment and
further agrees to keep the Buyer so advised of any change in employment
during the Non-competition Period;
(b) The Buyer in its sole discretion may notify any new
employer of the Employee that he has an obligation not to compete with the
Buyer during the Non-competition Period;
(c) The Employee shall deliver to the Buyer immediately upon
termination of his employment all Proprietary Information and all other
records, forms, contracts, memoranda, work papers, customer data and any
other proprietary documents of the Buyer which have come into his
<PAGE>
possession by reason of his employment with the Buyer, whether or not
containing Trade Secrets or Confidential Information, and any other
documents necessary for the consistent operation by the Buyer of its
business, irrespective of whether or not any of said documents were
prepared for him, and he shall not retain memoranda in respect of or copies
of any of said documents; and
(d) The Employee shall participate in an exit interview with
the Buyer.
8. SEPARATE AGREEMENTS. The covenants of the Employee contained
in Sections 5, 6 and 7 of this Agreement shall be construed as separate
agreements independent of any other agreement, claim, or cause of action of the
Employee against the Buyer, whether predicated on this Agreement or otherwise.
The covenants contained in this Agreement are necessary to protect the
legitimate business interests of the Buyer.
9. TERMINATION FOR CAUSE. The Buyer shall have the right at any
time to terminate the employment of the Employee for cause by delivering to him
a written notice specifying such cause, subject to Employee's right to appear
before the Board of Directors, with appropriate counsel, to discuss such notice
prior to the effective date of such termination. If the Buyer exercises such
right, the Buyer's obligation under this Agreement to make any further payments
to the Employee shall thereupon cease and terminate. This Section 9 of this
Agreement in no way limits the Buyer's right to terminate Employee's employment
without cause pursuant to Section 10 of this Agreement. As used herein, the
term "cause" shall include:
(a) misappropriating any funds or any material property of
the Buyer;
(b) obtaining or attempting to obtain any material personal
profit from any transaction, other than as contemplated by this Agreement,
in which the Employee has an interest which is adverse to the interest of
the Buyer unless the Buyer shall first give its written consent to such
transaction;
(c) (i) neglecting or refusing to perform the duties
contemplated by this Agreement, (ii) the willful taking of actions which
directly impair the Employee's ability to perform his duties contemplated
by this Agreement; (iii) breaching any term of this Agreement; or (iv)
taking any action detrimental to the Buyer's goodwill or damaging to the
Buyer's relationships with its customers, suppliers or employees; provided
that such neglect or refusal, action or breach shall have continued for a
period of
<PAGE>
twenty (20) days following written notice thereof;
(d) being convicted of or pleading guilty or NOLO CONTENDERE
to any crime or offense constituting a felony under applicable law or any
crime or offense involving fraud or moral turpitude;
(e) acting or refraining from acting in respect of any of
the duties contemplated by this Agreement and the Board determines in good
faith that such action or inaction constituted gross negligence or a
willful act of malfeasance or misfeasance; or
(f) any material intentional failure to comply with laws or
governmental regulations applicable to Buyer or the conduct of Buyer's
business.
10. TERMINATION WITHOUT CAUSE. The Buyer shall have the right at
any time to terminate the employment of the Employee and this Agreement without
cause effective upon thirty (30) days prior written notice to the Employee.
Upon termination of this Agreement pursuant to this Section 10, the Employee
shall be entitled to receive, in full settlement and discharge of the Buyer's
obligation to the Employee, (i) a lump sum amount equal to all compensation
accrued and unpaid as of the date of termination; and (ii) in equal semi-monthly
installments an amount equal to the compensation to which Employee would have
been entitled under Section 4(a) for a period of one (1) year if this Agreement
had not been terminated. Upon such termination, the covenant not to compete set
forth in Section 6 hereof shall apply to Employee for one year as set forth in
Section 6 above.
11. TERMINATION UPON DEATH OR DISABILITY. The Buyer may terminate
the employment of the Employee and this Agreement effective upon notice to the
Employee (or his heirs or legal representatives, as the case may be) if the
Employee either dies or is incapacitated or disabled by accident, sickness or
otherwise and has been rendered mentally or physically incapable with or without
reasonable accommodation of performing the services and duties required to be
performed by him under this Agreement for a period of at least ninety (90)
consecutive days or one-hundred and twenty (120) days within any twelve (12)
month period. Upon termination of this Agreement pursuant to this Section 11,
the Employee (or his heirs or legal representatives, as the case may be) shall
be entitled to receive, in full settlement and discharge of the Buyer's
obligation to the Employee, a lump sum amount equal to all compensation accrued
and unpaid as of the date of termination.
12. TERMINATION BY THE EMPLOYEE. The Employee may terminate this
Agreement and his services under this Agreement in his discretion at any time
upon sixty (60) days prior written notice to the Buyer. Upon termination of
this Agreement
<PAGE>
pursuant to this Section 12, the Employee shall be entitled to receive, in full
settlement and discharge of the Buyer's obligation to the Employee, a lump sum
amount equal to all compensation accrued and unpaid as of the date of
termination.
13. SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws, 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 part 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.
14. MISCELLANEOUS.
(a) COUNTERPARTS. This Agreement may be executed in several
counterparts each of which is an original. This Agreement and any
counterpart so executed shall be deemed to be one and the same instrument.
It shall not be necessary in making proof of this Agreement or any
counterpart hereof to produce or account for any of the other counterparts.
(b) CONTENTS OF AGREEMENT; PARTIES IN INTEREST, ETC. This
Agreement sets forth the entire understanding of the parties. Any previous
agreements or understandings between the parties regarding the subject
matter hereof are merged into and superseded by this Agreement. All
representations, warranties, covenants, terms, conditions and provisions of
this Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective heirs, legal representatives, successors and
permitted assigns of the Buyer and the Employee. Neither this Agreement
nor any rights, interests or obligations hereunder may be assigned by any
party without the prior written consent of the other party hereto.
(c) ALABAMA LAW TO GOVERN. THIS AGREEMENT IS BEING
DELIVERED AND IS IN INTENDED TO BE PERFORMED IN THE STATE OF ALABAMA AND
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS THEREOF WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS.
(d) SECTION HEADINGS. The section headings herein have been
inserted for convenience of reference only and shall in no way modify or
restrict any of the terms or provisions hereof.
(e) NOTICES. All notices, requests, demands and other
<PAGE>
communications which are required or permitted hereunder shall be
sufficient if given in writing and delivered personally or by registered or
certified mail, postage prepaid, by a nationally recognized overnight
courier service, or by facsimile transmission (with a copy simultaneously
sent by registered or certified mail, postage prepaid), as follows (or to
such other address as shall be set forth in a notice given in the same
manner):
(1) If to the Buyer, to:
Door Holdings, Inc.
c/o Ardshiel, Inc.
230 Park Avenue - Suite 2527
New York, New York 10169
Facsimile: (212) 972-1809
Attn: Daniel T. Morley
Copies to:
Paul Hastings Janofsky & Walker LLP
399 Park Avenue
New York, New York 10022-4697
Facsimile: (212) 319-4090
Attn: Joel M. Simon, Esq.
(2) If to the Employee, to:
Cliff Darby
----------------------
----------------------
(f) MODIFICATION AND WAIVER. Any of the terms or conditions
of this Agreement may be waived in writing at any time by the party which
is entitled to the benefits thereof, and this Agreement may be modified or
amended at any time by the Buyer and the Employee. No supplement,
modification or amendment of this Agreement shall be binding unless
executed in writing by each of the parties hereto. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver
of any other provision hereof nor shall such waiver constitute a continuing
waiver.
<PAGE>
(g) THIRD PARTY BENEFICIARIES. Except as otherwise
expressly set forth herein, no individual or entity shall be a third-party
beneficiary of the representations, warranties, covenants and agreements
made by any party hereto.
(h) MEDIATION. The Buyer and the Employee shall mediate any
claim or controversy arising out of or relating to this Agreement or any
breach thereof if either of them requests mediation and gives written
notice to the other (the "Mediation Notice"). Any notice given pursuant to
the preceding sentence shall include a brief statement of the claim or
controversy. If the Buyer and the Employee do not resolve the claim or
controversy within five (5) days after the date of the Mediation Notice,
the Buyer and the Employee shall then use reasonable efforts to agree upon
an independent mediator. If the Buyer and the Employee do not agree upon
an independent mediator within ten (10) days after the date of the
Mediation Notice, either party may request that JAMS/Endispute ("JAMS"), or
a similar mediation service of a similar national scope if JAMS no longer
then exists, appoint an independent mediator. The Buyer and the Employee
shall share the costs of mediation equally and shall pay such costs in
advance upon the request of the mediator or any party. Within ten (10)
days after selection of the mediator, the mediator shall set the mediation.
If the Buyer and the Employee do not resolve the dispute within thirty (30)
days after the date of the Mediation Notice, the dispute shall be decided
by arbitration as set forth in Section 14(i) hereof.
(i) ARBITRATION. Any claim or controversy arising out of or
relating to this Agreement or any breach thereof shall be settled by
arbitration if such claim or controversy is not settled pursuant to Section
14(h) hereof. The venue for any such arbitration shall be Atlanta,
Georgia, or such other location as the parties may mutually agree. Except
as expressly set forth herein, all arbitration proceedings under this
Section 14(i) shall be undertaken in accordance with the Commercial
Arbitration Rules of the American Arbitration Association (the "AAA") then
in force. Only individuals who are (i) lawyers engaged full-time in the
practice of law and (ii) on the AAA register of arbitrators shall be
selected as an arbitrator. There shall be one arbitrator who shall be
chosen in accordance with the rules of the AAA. Within twenty (20) days of
the conclusion of the arbitration hearing, the arbitrator shall prepare
written findings of fact and conclusions of law. Judgment on the written
award may be entered and enforced in any court of competent jurisdiction.
It is mutually agreed that the written decision of the arbitrator shall be
valid, binding, final and non-appealable; provided however, that the
parties hereto agree that the arbitrator shall not be empowered to award
punitive damages against any
<PAGE>
party to such arbitration. The arbitrator shall require the non-prevailing
party to pay the arbitrator's full fees and expenses or, if in the
arbitrator's opinion there is no prevailing party, the arbitrator's fees
and expenses will be borne equally by the parties thereto. In the event
action is brought to enforce the provisions of this Agreement pursuant to
this Section 14(i), the non-prevailing parties shall be required to pay the
reasonable attorneys' fees and expenses of the prevailing parties, except
that if in the opinion of the court or arbitrator deciding such action
there is no prevailing party, each party shall pay its own attorneys' fees
and expenses.
IN WITNESS WHEREOF, the parties hereto have executed or have caused
this Agreement to be duly executed as of the date first above written.
EMPLOYEE
-----------------------------------
Cliff Darby
EMPLOYER/BUYER
Attest: DOOR HOLDINGS, INC.
By:
- ----------------------------- --------------------------------
Name:
------------------------------
Its:
-------------------------------
<PAGE>
SCHEDULE A
Except as otherwise provided herein, the
capitalized terms in this Schedule shall have the same meaning as such terms
have in the Employment Agreement of which this Schedule is a part.
Bonus Plan: The Employee will be entitled to receive a
bonus based on the Company achieving certain
EBITDA goals. If the Company achieve's 90% of the
EBITDA budget in a given year, then Employee shall
be entitled to a bonus equal to 25% of Employee's
base salary. For every percentage point above 90%
(rounded to the nearest whole percent) of the
EBITDA budget in a given year, the Employee shall
be entitled to an additional $1,000 in
compensation. Additionally, Employee shall be
entitled to a bonus equal to 5% of the excess over
the EBITDA budget in a given year, with a maximum
bonus equal to 150% of the Employee's salary. The
table below summarizes key aspects of the plan.
<TABLE>
<CAPTION>
1998 Budget Actual Bonus
% of Budget EBITDA EBITDA Amount
-------------------------------------------------------------------------------
<S> <C> <C> <C>
90% $4,521,000 $4,068,900 $37,500
-------------------------------------------------------------------------------
92% $4,521,000 $4,159,320 $39,500
-------------------------------------------------------------------------------
94% $4,521,000 $4,249,740 $41,500
-------------------------------------------------------------------------------
100% $4,521,000 $4,521,000 $47,500
-------------------------------------------------------------------------------
110% $4,521,000 $4,973,100 $70,105
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<CAPTION>
1999 Budget Actual Bonus
% of Budget EBITDA EBITDA Amount
-------------------------------------------------------------------------------
<S> <C> <C> <C>
90% $4,958,000 $4,462,200 $37,500
-------------------------------------------------------------------------------
92% $4,958,000 $4,561,360 $39,500
-------------------------------------------------------------------------------
94% $4,958,000 $4,660,520 $41,500
-------------------------------------------------------------------------------
100% $4,958,000 $4,958,000 $47,500
-------------------------------------------------------------------------------
110% $4,958,000 $5,453,800 $72,290
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<CAPTION>
2000 Budget Actual Bonus
% of Budget EBITDA EBITDA Amount
-------------------------------------------------------------------------------
<S> <C> <C> <C>
90% $5,434,000 $4,890,600 $37,500
-------------------------------------------------------------------------------
92% $5,434,000 $4,999,280 $39,500
-------------------------------------------------------------------------------
94% $5,434,000 $5,107,960 $41,500
-------------------------------------------------------------------------------
100% $5,434,000 $5,434,000 $47,500
-------------------------------------------------------------------------------
110% $5,434,000 $5,977,400 $74,670
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<PAGE>
<CAPTION>
2001 Budget Actual Bonus
% of Budget EBITDA EBITDA Amount
-------------------------------------------------------------------------------
<S> <C> <C> <C>
90% $5,841,000 $5,256,900 $37,500
-------------------------------------------------------------------------------
92% $5,841,000 $5,373,720 $39,500
-------------------------------------------------------------------------------
94% $5,841,000 $5,490,540 $41,500
-------------------------------------------------------------------------------
100% $5,841,000 $5,841,000 $47,500
-------------------------------------------------------------------------------
110% $5,841,000 $6,425,100 $76,705
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<CAPTION>
2002 Budget Actual Bonus
% of Budget EBITDA EBITDA Amount
-------------------------------------------------------------------------------
<S> <C> <C> <C>
90% $6,280,000 $5,652,000 $37,500
-------------------------------------------------------------------------------
92% $6,280,000 $5,777,600 $39,500
-------------------------------------------------------------------------------
94% $6,280,000 $5,903,200 $41,500
-------------------------------------------------------------------------------
100% $6,280,000 $6,280,000 $47,500
-------------------------------------------------------------------------------
110% $6,280,000 $6,908,000 $78,900
-------------------------------------------------------------------------------
</TABLE>
As used herein, EBITDA means earnings from
operations before interest, taxes, depreciation,
amortization and extraordinary gains or losses of
the Company and all of its subsidiaries on a
consolidated basis.
The bonus amount will be calculated and paid
within ten (10) business days after preparation of
the Company's final year-end audited financial
statements prepared in respect of the relevant
year.
Benefit Plans: The Employee will be entitled to participate in
various benefit plans which the Board will establish for executive
management.
Purchased Common Stock: The Employee agrees to purchase shares of common
stock of Buyer equal in value to $550,000, at the Founder's Per
Share Cost pursuant to a contribution to Buyer of stock of Darby
with an aggregate value of $550,000. For purposes of this SCHEDULE
A, Founder's Per Share Cost means the price per share paid by the
investors for the common stock of Buyer purchased under the
Subscription Agreement dated as of ____________ ___, 1997 among
Buyer and such investors.
Restricted Common Stock: Employee will receive as of the date of this
Agreement shares of common stock (subject to certain restrictions)
equal to 2.5% of the total common stock of Buyer (calculated as of the
closing of the
<PAGE>
acquisition of Darby and subject to dilution in the future) at a
price of $.01 per share. These shares will be subject to forfeiture
in a variety of events and may be sold only upon the happening of a
Value Event.
Stock Options: In addition to the common stock of Buyer referred
to above, the Employee will be entitled to participate in a stock
option plan.
Options to purchase common stock of Buyer will, by
contract, be granted to the Employee as set forth
below. Options will be deemed fully vested upon
the occurrence of a Value Event (as defined
below). For purposes hereof, a Value Event shall
be deemed to have occurred at such time as (i)
Buyer sells common stock in an offering registered
with the Securities and Exchange Commission which
results in a Change of Control; (ii) Buyer is
merged or consolidated with another corporation in
a merger in which the surviving corporation has
freely tradeable common stock; or (iii)
substantially all of the assets of Buyer and its
subsidiaries, if any, taken as a whole, are sold
or otherwise transferred.
15% Options: The Employee will receive options to purchase an
additional 2.5% of the total common stock of Buyer (calculated as of
the closing of the acquisition of Darby and subject to dilution in
the future) at the strike price equal to the Founder's Cost which
escalates 15% annually.
These options vest over three (3) years in
accordance with the following schedule:
VESTING SCHEDULE
<TABLE>
<CAPTION>
Anniversary of
the Closing Date
----------------
<S> <C>
1st 33 1/3% of shares
2nd 33 1/3% of shares
3rd 33 1/3% of shares
Total 100% of shares
</TABLE>
<PAGE>
30% Options: The Employee will receive options to purchase an
additional 5.0% of the total common stock of Buyer (calculated as of
the closing of the acquisition of Darby and subject to dilution in the
future) at the strike price equal to the Founder's Cost which
escalates 30% annually.
These options vest over three (3) years in accordance
with the following schedule:
VESTING SCHEDULE
---------------------------------------------------
Anniversary of
the Closing Date
----------------
1st 33 1/3% of shares
2nd 33 1/3% of shares
3rd 33 1/3% of shares
Total 100% of shares
Termination: In the event that Employee is terminated "for
cause" or resigns, all unexercised options shall lapse and expire, and
all restricted stock shall be forfeited, immediately. In the event
that the Employee is no longer employed by Buyer because of the
Employee's death or disability or because of termination other than
"for cause," all of the Employee's options shall immediately vest and
become exercisable and then expire after thirty (30) days. With
regard to the restricted stock, in the event that the Employee is no
longer employed by Buyer because of the Employee's death or disability
or because of termination other than "for cause," such stock will
continue to be held by Employee (or his beneficiaries, heirs or
designees) and shall only be transferable upon the occurrence of a
Value Event.
Stock Buyback Provisions: Buyer will have the right (and the obligation
under certain circumstances) to repurchase any common stock of Buyer
the Employee now owns or hereafter acquires as set forth in the
Management Contribution and Subscription Agreement.
Subscription Agreement: The Employee and Buyer will enter into a
Management Contribution and Subscription Agreement.
<PAGE>
Insurance: In the event of the disability of the Employee,
the Employee shall have the right to purchase from the Company or
Buyer, as the case may be, the key man life insurance policy relating
to him in exchange for the cash surrender value of such policy.
<PAGE>
BUY-SELL AGREEMENT
This BUY-SELL AGREEMENT (this "AGREEMENT") is dated as of October 2, 1998,
by and among D and W Holdings, Inc., a Delaware corporation (the "COMPANY"),
R.L. Gilmer (the "STOCKHOLDER"), and for the purposes of agreeing to and
acknowledging the provisions of Section 3.4 of this Agreement, GE Investment
Private Placement Partners II, a Limited Partnership, a Delaware limited
partnership ("GEIPPPII").
WHEREAS, pursuant to that certain Contribution and Subscription Agreement
between, among others, the Stockholder and the Company, of even date herewith,
the Stockholder is acquiring 335,866 shares of the Common Stock, par value $0.01
per share, of the Company (the "SHARES") and options to purchase 539,682 shares
of Common Stock in exchange for options to purchase common stock of Wing
Industries Holdings, Inc. (the "ROLLOVER OPTIONS"); and
WHEREAS, in connection with the execution of the Contribution and
Subscription Agreement, the Company and the Stockholder have agreed to enter
into a Buy-Sell Agreement in the form hereof with respect to the Shares, the
Rollover Options, shares of Common Stock received upon exercise of Rollover
Options ("Option Shares") and any Common Stock or Common Stock Equivalents
otherwise held by the Stockholder;
NOW, THEREFORE, in consideration of the mutual promises and agreements set
forth herein, the Company and the Stockholder agree as follows:
1. DEFINITIONS. As used herein, the following terms shall have the
meanings specified below:
"ACT" has the meaning specified in Section 4.1(a) hereof.
"AFFILIATE" means, as to any Person, a Person that directly, or
indirectly through one or more intermediaries, controls or is controlled
by, or is under common control with, such Person.
"BOARD" means the Board of Directors of the Company.
"CALL NOTICE" has the meaning specified in Section 2.2 hereof.
<PAGE>
"CAUSE" means termination by action of the Board of Directors because
of: (a) the Stockholder's conviction of, or plea of nolo contendere to, a
felony or a crime involving moral turpitude; (b) the Stockholder's personal
dishonesty, incompetence, willful misconduct, willful violation of any law,
rule or regulation (other than minor traffic violations or similar
offenses) or breach of fiduciary duty which involves personal profit; (c)
the Stockholder's commission of material mismanagement in the conduct of
his duties as assigned to him by the Board of Directors or the
Stockholder's supervising officer or officers of the Company or any Related
Entity; (d) the Stockholder's willful failure to execute or comply with the
policies of the Company or any Related Entity or his stated duties as
established by the Board of Directors or the Stockholder's supervising
officer or officers of the Company or any Related Entity, or the
Stockholder's intentional failure to perform the Stockholder's stated
duties; or (e) substance abuse or addiction on the part of the Stockholder.
Notwithstanding the foregoing, in the event that the Stockholder is at any
time subject to an employment agreement with the Company or any Related
Entity that contains a definition of "Cause" (or any similar definition),
then during the term of such employment agreement the definition contained
in such employment agreement shall, for all purposes of this Agreement, be
the applicable definition of "Cause" hereunder.
"CHANGE OF CONTROL" means the first to occur of the following events:
(i) any sale, lease, exchange or other transfer (in one transaction or
series of related transactions) of all or substantially all of the assets
of the Company (including the capital stock or assets of its operating
subsidiaries) to any Person or group of related Persons for purposes of
Section 13(d) of the Exchange Act (a "Group"), (ii) a majority of the Board
shall consist of Persons who are not nominated collectively by Ardshiel,
Inc. and its Affiliates and GEIPPPII; or (iii) the acquisition by any
Person or Group (other than GEIPPPII, Ardshiel and their Affiliates),
together with their associates and Affiliates, of the power, directly or
indirectly, to vote or direct the voting of securities having more than 50%
of the ordinary voting power for the election of directors of the Company.
"COMMON STOCK" means the Company's authorized Common Stock, $0.01 par
value per share, and any other stock of the Company which is (a) not
preferred as to dividends or assets over any class of stock of the
Company, (b) not subject to redemption, and (c) issued to the holders of
shares of Common Stock upon any reclassification thereof.
"COMMON STOCK EQUIVALENTS" means, without duplication with any other
Common Stock or common stock equivalents, any rights, warrants, options,
<PAGE>
convertible securities or indebtedness, exchangeable securities or
indebtedness, or other rights, exercisable for or convertible or
exchangeable into, directly or indirectly, Common Stock of the Company and
securities convertible or exchangeable into Common Stock of the Company,
whether at the time of issuance or upon the passage of time or the
occurrence of some future event.
"COMPANY" has the meaning specified in the preamble hereto.
"DELAYED CLOSING DATE" has the meaning specified in Section 5.2
hereof.
"DISPOSITION EVENT" means (a) the completion of any voluntary or
involuntary liquidation or dissolution of the Company, (b) the completion
of a Qualifying Public Offering or (c) a Change in Control.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FAMILY MEMBERS" means, with respect to any individual, any Related
Person or Family Trust of such individual.
"FAMILY TRUST" means, with respect to any individual, any trust
created for the benefit of one or more of such individual's Related Persons
and controlled by such individual.
"FULLY-DILUTED COMMON STOCK" means, at any time, the then outstanding
Common Stock of the Company plus (without duplication) all shares of Common
Stock issuable, whether at such time or upon the passage of time or the
occurrence of future events, upon the exercise, conversion, or exchange of
all then outstanding Common Stock Equivalents.
"GEIPPPII" has the meaning specified in the preamble hereto.
"IMPUTED RATE" means the lowest per annum rate necessary to avoid the
imputation of interest under the Internal Revenue Code of 1986, as amended.
"MARKET VALUE PER SHARE" means, with respect to any date, the quotient
obtained by dividing (a) the fair market value (as determined by the Board
of Directors in good faith, or, if the Board's determination is disputed by
the Stockholder within ten (10) days following notice of determination by
the Board of Directors to Stockholder, by an independent investment
banking, accounting firm or independent appraiser of nationally recognized
standing or regional prominence selected in good faith by the Board) of the
entire common equity of
<PAGE>
the Company (without premium for control or discounts for minority
interests, restrictions on transfer or lack of voting rights), calculated
as of such date, plus the aggregate consideration to be paid to the Company
upon the exercise, conversion or exchange of all then outstanding and
exercisable, convertible or exchangeable Common Stock Equivalents, by (b)
the sum of the number of shares of Common Stock then outstanding, plus the
number of shares of Common Stock then issuable upon exercise, conversion or
exchange of then outstanding and exercisable, convertible or exchangeable
Common Stock Equivalents.
"OPTION SHARES" has the meaning specified in the preamble hereto.
"PERMITTED TRANSFEREE" means the Stockholder's Family Members and
Personal Representative.
"PERSON" means any person or entity of any nature whatsoever,
specifically including an individual, a firm, a company, a corporation, a
partnership, a trust or other entity.
"PERSONAL REPRESENTATIVE" means with respect to any individual, any
executor, administrator, trustee, guardian or other legal representative of
such individual.
"PURCHASE PRICE PER SHARE" means $1.00.
"QUALIFYING PUBLIC OFFERING" means a firm commitment underwritten
public offering of Common Stock for cash which, when aggregated with all
prior public offerings, constitutes an offering of more than 30% of the
Common Stock registered under the Securities Act.
"RELATED ENTITY" means, with respect to any entity, such entity's
direct and indirect parents and subsidiaries.
"RELATED PERSONS" means, with respect to any individual, such
individual's parents, spouse, children and grandchildren.
"REPURCHASE NOTICE" has the meaning specified in Section 3.3 hereof.
"ROLLOVER OPTIONS" has the meaning specified in the preamble hereto.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" has the meaning specified in the preamble hereto.
<PAGE>
"STOCKHOLDER" has the meaning specified in the introductory paragraph
hereof.
"SUBSIDIARY" means any corporation, association, trust, or other
business entity, of which the designated parent shall at any time own or
control directly or indirectly through a Subsidiary or Subsidiaries at
least a majority (by number of votes) of the outstanding shares of capital
stock (or other shares of beneficial interest) entitled ordinarily to vote
for the election of such business entity's directors (or in the case of a
business entity that is not a corporation, for those persons exercising
functions similar to directors of a corporation).
"TERMINATION OF EMPLOYMENT" means the termination of the Stockholder's
employment with the Company and all of its Related Entities for any reason,
including without limitation for retirement, death or disability of the
Stockholder, and whether or not for "Cause".
"TRANSFER" has the meaning specified in Section 3.1 hereof.
2. REPURCHASE OF SHARES.
2.1 CALL. Upon the Termination of Employment at any time, the Company
may, at its option, repurchase from the Stockholder, and the Stockholder will at
the request of the Company sell to the Company, all or any portion of the
Shares, the Rollover Options, the Option Shares, and other Common Stock and
Common Stock Equivalents otherwise held (unless such Common Stock Equivalents
are subject to a repurchase option in favor of the Company pursuant to any other
documentation) specified in the Call Notice (hereinafter defined) at a purchase
price per share determined pursuant to paragraphs (a) and (b) below:
(a) in the event that such Termination of Employment is for Cause, at
a purchase price per share equal to the lesser of (i) the Purchase Price
Per Share and (ii) the Market Value Per Share as of the date of such
Termination of Employment (and, in the case of a Common Stock Equivalent,
including the Rollover Options, minus any exercise or conversion price);
and
(b) in the event that such Termination of Employment is for any
reason other than for Cause, including, without limitation, retirement or
failure to renew an expired employment agreement, at a purchase price per
share equal to the greater of (i) the Purchase Price Per Share and (ii) the
Market Value Per Share as of the date of such Termination of Employment
(and, in the case of a Common Stock Equivalent, including the Rollover
Options, minus any exercise or
<PAGE>
conversion price).
2.2 CALL CLOSING. The Company's call rights under Section 2 hereof shall
be exercisable by the Company at any time within ninety (90) days following the
Termination of Employment by notice (the "CALL NOTICE") to the Stockholder
specifying the number of Shares or other securities being repurchased, the
aggregate purchase price payable therefor and the date, time and place of a
closing for the repurchase, such closing to be held not earlier than five (5)
days nor later than thirty (30) days after delivery of the Call Notice to the
Stockholder. The Company's call rights under Section 2.1 above shall lapse if
not exercised within the time periods specified above in accordance with the
provisions hereof except as otherwise provided in Section 5 hereof. Upon tender
by the Company of the purchase price for the securities being repurchased
hereunder in accordance with Section 5 hereof, all of the securities being so
repurchased shall no longer be deemed to be outstanding, all of the
Stockholder's rights with respect to such securities shall terminate with the
exception of the right of the Stockholder to receive the repurchase price in
exchange therefor pursuant to this Section 2.2, and the Stockholder hereby
appoints the Company as its attorney-in-fact to take all actions necessary and
sign all documents required to cancel such securities on its books and records.
2.3 PUT. If, in the event of Termination of Employment for any reason
other than for Cause, the Company does not exercise its option to purchase
Shares, Rollover Options, Option Shares or any other shares of Common Stock or
Common Stock Equivalents held by the Stockholder, the Stockholder or his
personal representative may require the Company to purchase all the Shares,
Rollover Options, Option Shares and other shares of Common Stock and Common
Stock Equivalents, but not less than all, that are owned by the Stockholder as
of the effective date of such Termination of Employment. In such event, the
purchase price shall be as set forth in Section 2.1(b) above.
2.4 PUT CLOSING. If the Stockholder or his personal representative elects
to exercise his put option as described in Section 2.3 above, the Stockholder or
his personal representative shall give written notice to the Company of such
intention not later than ninety (90) days after his Termination of Employment.
The Closing of such repurchase shall otherwise be effected in accordance with
the provisions set forth in Section 2.2 hereof for a call closing.
3. RESTRICTIONS ON TRANSFER; DRAG-ALONG RIGHTS.
3.1 RESTRICTIONS ON TRANSFER OF SHARES. Except as otherwise expressly
provided herein, the Stockholder may not sell, assign, transfer, pledge or
otherwise dispose of ("TRANSFER") any of the Shares, Rollover Options, Option
Shares, or other Common Stock or Common Stock Equivalents held by Stockholder,
either voluntarily or involuntarily or by operation of law; PROVIDED, HOWEVER,
the Stockholder may Transfer
<PAGE>
any such securities to the Company pursuant to Section 2 hereof and may Transfer
any shares to Permitted Transferees of the Stockholder, so long as any such
transferee agrees to be bound by the provisions hereof.
3.2 DISPOSITIONS IN BREACH OF THIS AGREEMENT. Any disposition or
attempted disposition of any shares in breach of the provisions of Section 3.1
hereof shall be void, shall constitute a breach of this Agreement and shall
entitle the Company to repurchase all of the shares, pursuant to the procedures
set forth in Section 3.3 hereof, at a purchase price per share equal to the
lower of the Market Value Per Share or the Purchase Price Per Share as of the
date of such disposition or attempted disposition. The repurchase rights of the
Company under this Section 3.2 will lapse if not exercised pursuant to Section
3.3 hereof within 90 days of the date on which the Board of Directors of the
Company first receives actual notice of the disposition or attempted disposition
giving rise to such repurchase rights, but such failure to exercise shall in no
event constitute a waiver of any breach of this Agreement.
3.3 REPURCHASE PROCEDURE. The Company may exercise its repurchase rights
under Section 3 hereof by giving notice (the "REPURCHASE NOTICE") to the
Stockholder within ninety (90) days after the Board of Directors of the Company
obtains actual knowledge of the breach giving rise to such repurchase rights.
The Repurchase Notice shall specify the aggregate purchase price for the Shares
and the date, time and place for a closing of the repurchase, such closing to be
held not earlier than five (5) days nor later than thirty (30) days after
delivery of the Repurchase Notice by the Company to the Stockholder.
The Company's repurchase rights under Section 3.2 hereof shall lapse with
respect to any event giving rise thereto if not exercised within the foregoing
time periods in accordance with the procedures specified in this Section 3.3
except as otherwise provided in Section 5 hereof. Upon tender by the Company of
the purchase price for the Shares being repurchased hereunder in accordance with
Section 5, all of the Shares being so repurchased shall no longer be deemed to
be outstanding, all of the Stockholder's rights with respect to such Shares
shall terminate with the exception of the right of the Stockholder to receive
the repurchase price in exchange therefor pursuant to Section 3.2, and the
Stockholder hereby appoints the Company as its attorney-in-fact to take all
actions necessary and sign all documents required to cancel such Shares on the
Company's books and records.
3.4 DRAG-ALONG RIGHTS.
(a) If, at any time, GEIPPPII proposes to transfer in a bona fide
arm's length sale all of the Common Stock and Common Stock Equivalents
owned by GEIPPPII to any person or persons who are not Affiliates of
GEIPPPII (the "PROPOSED TRANSFEREE"), GEIPPPII shall have the right (the
"DRAG ALONG RIGHT"),
<PAGE>
subject to applicable law and compliance with any other restrictions
applicable to such transfer, to require the Stockholder to sell, pursuant
to this Section 3.4, to the Proposed Transferee, on the same terms and
conditions as applicable to GEIPPPII except as limited in Section 3.4(b),
all (but not less than all) of the Common Stock and Common Stock
Equivalents then held by the Stockholder; provided that the exercise or
conversion price of any Common Stock Equivalents will be subtracted from
any purchase price otherwise paid therefor.
(b) To exercise a Drag Along Right, GEIPPPII shall give the
Stockholder at least 15 days prior to the proposed transfer to the Proposed
Transferee, a written notice (the "DRAG ALONG NOTICE") containing (i) the
name and address of the Proposed Transferee and (ii) the proposed purchase
price, the terms of payment and other material terms and conditions of the
Proposed Transferee's offer. The Stockholder shall thereafter be obligated
to sell all of its Common Stock and Common Stock Equivalents to the
Proposed Transferee. The Stockholder shall agree to enter into a purchase
agreement in form and substance approved by GEIPPPII to the extent such
agreement shall contain customary representations as to ownership of the
shares to be purchased and the absence of liens thereon and customary
indemnification provisions, including indemnification from the Stockholder.
If the sale is not consummated within a period of 180 days following the
date of the Drag Along Notice, then the Stockholder shall no longer be
obligated to sell such Stockholder's shares of Common Stock and Common
Stock Equivalents pursuant to such Drag Along Right but shall have the
rights under, and remain subject to, the provisions of this Section 3.4
with respect to any subsequent proposed transfer described in this Section
3.4. The Stockholder shall not be required to participate in a proposed
transfer pursuant to the exercise of a Drag Along Right unless its
liability for breaches of representations and warranties made in connection
with the sale thereunder is limited to no more than the total sale price
received by the Stockholder in such sale.
4. LEGENDS; STOP TRANSFER.
4.1 Each certificate representing the Shares shall bear legends in or
substantially in the following form:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER
APPLICABLE STATE SECURITY LAWS. NO TRANSFER, SALE OR OTHER
DISPOSITION OF THESE SHARES MAY BE MADE UNLESS A
<PAGE>
REGISTRATION STATEMENT WITH RESPECT TO THESE SHARES HAS BECOME
EFFECTIVE UNDER THE ACT AND UNDER APPLICABLE STATE SECURITIES LAWS, OR
THE COMPANY HAS BEEN FURNISHED WITH AN OPINION OF COUNSEL SATISFACTORY
TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
THE SHARES EVIDENCED BY THIS CERTIFICATE ARE ALSO SUBJECT TO CERTAIN
REPURCHASE AND OTHER RIGHTS IN FAVOR OF THE COMPANY AND PROVISIONS
RESTRICTING TRANSFER CONTAINED IN A BUY-SELL AGREEMENT, DATED AS OF
OCTOBER 2, 1998, A COPY OF WHICH WILL BE FURNISHED BY THE COMPANY TO
THE HOLDER OF THE SHARES EVIDENCED BY THIS CERTIFICATE UPON WRITTEN
REQUEST AND WITHOUT CHARGE."
4.2 In addition, the Company shall make a notation regarding the
restrictions on transfer of securities in the stock books of the Company, and
such shares shall be transferred on the books of the Company only if and when
transferred or sold in compliance with all of the terms and conditions of this
Agreement.
5. REPURCHASE RESTRICTIONS.
5.1 CONTRACTUAL RESTRICTIONS ON REPURCHASE. Notwithstanding any provision
to the contrary in Sections 2 or 3 hereof, in the event that any payment by the
Company of any portion of the purchase price for any securities that the Company
is obligated or has elected to repurchase is, at the time such payment would
otherwise be due hereunder, prohibited by the terms of any of the Company's or
any of its Subsidiaries' financing agreements with its lenders or any other
contract to which the Company or any of its Subsidiaries is bound, the Company
shall be entitled to complete the repurchase of such securities by tendering to
the Stockholder (or any permitted transferee pursuant to Section 3.1 hereof) (a)
a check for that portion (if any) of the purchase price the payment of which is
not so prohibited, and (b) a promissory note for the balance of the purchase
price. Each such promissory note shall (i) bear interest at the Imputed Rate,
(ii) provide for the payment of the principal evidenced thereby in annual
installments commencing one (1) year after such repurchase in such amounts as
are satisfactory to the Company's and its Subsidiaries' lenders, (iii) be
subordinated to the Company's or any of its Subsidiaries' indebtedness to its
lenders on terms satisfactory to such lenders and (iv) provide that the Company
will prepay the principal plus accrued interest under such note, or such portion
thereof as can then be prepaid, at such time as (x) cash is available or can
then be borrowed under the Company's then lending facility and (y) such payment
will not result in a default under any obligation for borrowed money.
<PAGE>
5.2 IMPAIRMENT OF CAPITAL. If, even after giving effect to the provisions
of Section 5.1 above, the Company is prohibited by law from repurchasing any
securities which it is obligated or has elected to repurchase hereunder due to
any existing or prospective impairment of its capital, the closing of such
repurchase shall be delayed until the first date on which the Company has
sufficient capital to lawfully repurchase such securities (the "DELAYED CLOSING
DATE"). In the event of any such delay, (a) the Company will be obligated to
pay, on the Delayed Closing Date, interest on the repurchase price for such
securities, at the Imputed Rate from the date on which the closing of the
repurchase of such securities was originally scheduled to occur to the Delayed
Closing Date, and (b) the Stockholder shall remain bound by the restrictions on
Transfer contained herein during such delay.
6. PAYMENT FOR SHARES. At any closing held to consummate any repurchase
of securities hereunder, the Stockholder shall deliver to the Company all stock
certificates representing such securities, duly endorsed in blank or with duly
executed stock powers attached, and the Company shall deliver to the Stockholder
a check in the amount of the repurchase price and/or a promissory note as
provided in Section 5.1 above.
7. TERM. This Agreement, and, except as provided in the following
sentence, the repurchase rights and obligations and all of the restrictions on
transfer contained herein (including, without limitation, the repurchase rights
of the Company pursuant to Sections 2 and 3 hereof), shall terminate upon the
earliest of (a) the completion of any voluntary or involuntary liquidation or
dissolution of the Company, (b) the completion of a Qualifying Public Offering
or (c) a Change of Control. The termination of this Agreement shall not affect
any repurchase rights or obligations which have arisen hereunder prior to such
termination.
8. ADJUSTMENT OF REPURCHASE PRICE. Upon any stock split, reverse stock
split, recombination of shares or other similar reorganization of the capital
structure of the Company, the repurchase price otherwise payable to the
Stockholder upon the repurchase of any Shares pursuant to Sections 2 and 3
hereof shall be proportionally adjusted to reflect such reorganization.
9. GENERAL.
9.1 NOTICES. All notices, demands and other communications hereunder
shall be in writing or by written telecommunication, and shall be deemed to have
been duly given if delivered personally or if mailed by certified mail, return
receipt requested, postage prepaid, or if sent by overnight courier or by
written telecommunication, to the relevant address set forth below, or to such
other address as the recipient of such notice or
<PAGE>
communication shall have specified to the other party hereto in accordance with
this Section 9.1:
If to the Company, to:
D and W Holdings, Inc.
c/o Ardshiel, Inc.
230 Park Avenue, Suite 2527
New York, New York 10169
Attention: Daniel T. Morley
With a copy sent contemporaneously to:
Joel M. Simon and Marie Censoplano
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue, 31st Floor
New York, New York 10022-4697
If to the Stockholder, to the address set forth below his or her signature
hereto.
Any such notice shall be effective (a) if delivered personally, when
received, (b) if sent by overnight courier, when receipted for, (c) if mailed,
three (3) days after being mailed as described above, and (d) if sent by written
telecommunication, when dispatched.
9.2 EQUITABLE REMEDIES. Each of the parties hereto acknowledges and
agrees that upon any breach by the Stockholder of his or her obligations under
Sections 2, 3 or 6 hereof, the Company will have no adequate remedy at law, and
accordingly will be entitled to specific performance and other appropriate
injunctive and equitable relief.
9.3 SEVERABILITY. If any provision of this Agreement is or becomes
invalid, illegal or unenforceable in any respect under any law, the validity,
legality and enforceability of the remaining provisions hereof shall not in any
way be affected or impaired.
9.4 WAIVERS. No delay or omission by either party hereto in exercising
any right, power or privilege hereunder shall impair such right, power or
privilege, nor shall any single or partial exercise of any such right, power or
privilege preclude any further exercise thereof or the exercise of any other
right, power or privilege.
9.5 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE>
9.6 ASSIGNS. This Agreement shall be binding upon and inure to the
benefit of the heirs, successors and Permitted Transferees of each of the
parties hereto. It is expressly agreed that the Company may from time to time
assign any of its repurchase rights hereunder to one or more of the holders of
the Common Stock.
9.7 ENTIRE AGREEMENT. This Agreement, together with any employment
agreement or stock option agreement to which the Stockholder is a party,
contains the entire understanding of the parties hereto with respect to the
subject matter contained herein, supersedes all prior agreements and
understandings relating to the subject matter hereof and shall not be amended
except by a written instrument hereafter signed by each of the parties hereto.
Nothing in this Agreement shall be construed as a grant to the Stockholder of
any right to continuing employment with the Company or any of its Subsidiaries
or to restrict in any way the Company's or any of its Subsidiaries' right to
terminate the Stockholder's employment at any time.
9.8 THIRD PARTIES. GEIPPPII is an intended third party beneficiary of the
provisions of Section 3.4 of this Agreement.
9.9 GOVERNING LAW. This Agreement and the obligations of the parties
hereunder shall be deemed to be a contract under seal and shall for all purposes
be governed by and construed in accordance with the internal laws of the State
of New York without reference to principles of conflicts of law.
<PAGE>
IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties
hereto have caused this Buy-Sell Agreement to be duly executed as of the date
and year first above written.
THE COMPANY: D AND W HOLDINGS, INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
THE STOCKHOLDER:
By:
-------------------------------------
Address:
--------------------------------
GEIPPPII: GE INVESTMENT PRIVATE PLACEMENT PARTNERS II, a
Limited Partnership
By: GE INVESTMENT MANAGEMENT INCORPORATED, its
general partner
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
<PAGE>
BUY-SELL AGREEMENT
This BUY-SELL AGREEMENT (this "AGREEMENT") is dated as of October 2,
1998, by and among D and W Holdings, Inc., a Delaware corporation (the
"COMPANY"), Cliff Darby (the "STOCKHOLDER"), and for the purposes of agreeing
to and acknowledging the provisions of Section 3.4 of this Agreement, GE
Investment Private Placement Partners II, a Limited Partnership, a Delaware
limited partnership ("GEIPPPII").
WHEREAS, pursuant to that certain Contribution and Subscription Agreement
between, among others, the Stockholder and the Company, of even date herewith,
the Stockholder is acquiring 1,059,153 shares of the Common Stock,
par value $0.01 per share, of the Company (the "SHARES") and options to purchase
832,314 shares of Common Stock in exchange for options to purchase common stock
of Door Holdings, Inc. (the "ROLLOVER OPTIONS"); and
WHEREAS, in connection with the execution of the Contribution and
Subscription Agreement, the Company and the Stockholder have agreed to enter
into a Buy-Sell Agreement in the form hereof with respect to the Shares, the
Rollover Options, shares of Common Stock received upon exercise of Rollover
Options ("Option Shares") and any Common Stock or Common Stock Equivalents
otherwise held by the Stockholder;
NOW, THEREFORE, in consideration of the mutual promises and agreements set
forth herein, the Company and the Stockholder agree as follows:
DEFINITIONS. As used herein, the following terms shall have the meanings
specified below:
"ACT" has the meaning specified in Section 4.1(a) hereof.
"AFFILIATE" means, as to any Person, a Person that directly, or
indirectly through one or more intermediaries, controls or is controlled
by, or is under common control with, such Person.
"BOARD" means the Board of Directors of the Company.
"CALL NOTICE" has the meaning specified in Section 2.2 hereof.
<PAGE>
"CAUSE" means termination by action of the Board of Directors because
of: (a) the Stockholder's conviction of, or plea of nolo contendere to, a
felony or a crime involving moral turpitude; (b) the Stockholder's personal
dishonesty, incompetence, willful misconduct, willful violation of any law,
rule or regulation (other than minor traffic violations or similar
offenses) or breach of fiduciary duty which involves personal profit; (c)
the Stockholder's commission of material mismanagement in the conduct of
his duties as assigned to him by the Board of Directors or the
Stockholder's supervising officer or officers of the Company or any Related
Entity; (d) the Stockholder's willful failure to execute or comply with the
policies of the Company or any Related Entity or his stated duties as
established by the Board of Directors or the Stockholder's supervising
officer or officers of the Company or any Related Entity, or the
Stockholder's intentional failure to perform the Stockholder's stated
duties; or (e) substance abuse or addiction on the part of the Stockholder.
Notwithstanding the foregoing, in the event that the Stockholder is at any
time subject to an employment agreement with the Company or any Related
Entity that contains a definition of "Cause" (or any similar definition),
then during the term of such employment agreement the definition contained
in such employment agreement shall, for all purposes of this Agreement, be
the applicable definition of "Cause" hereunder.
"CHANGE OF CONTROL" means the first to occur of the following events:
(i) any sale, lease, exchange or other transfer (in one transaction or
series of related transactions) of all or substantially all of the assets
of the Company (including the capital stock or assets of its operating
subsidiaries) to any Person or group of related Persons for purposes of
Section 13(d) of the Exchange Act (a "Group"), (ii) a majority of the Board
shall consist of Persons who are not nominated collectively by Ardshiel,
Inc. and its Affiliates and GEIPPPII; or (iii) the acquisition by any
Person or Group (other than GEIPPPII, Ardshiel and their Affiliates),
together with their associates and Affiliates, of the power, directly or
indirectly, to vote or direct the voting of securities having more than 50%
of the ordinary voting power for the election of directors of the Company.
"COMMON STOCK" means the Company's authorized Common Stock,
$0.01 par value per share, and any other stock of the Company which is (a)
not preferred as to dividends or assets over any class of stock of the
Company, (b) not subject to redemption, and (c) issued to the holders of
shares of Common Stock upon any reclassification thereof.
"COMMON STOCK EQUIVALENTS" means, without duplication with any other
Common Stock or common stock equivalents, any rights, warrants, options,
<PAGE>
convertible securities or indebtedness, exchangeable securities or
indebtedness, or other rights, exercisable for or convertible or
exchangeable into, directly or indirectly, Common Stock of the Company and
securities convertible or exchangeable into Common Stock of the Company,
whether at the time of issuance or upon the passage of time or the
occurrence of some future event.
"COMPANY" has the meaning specified in the preamble hereto.
"DELAYED CLOSING DATE" has the meaning specified in Section 5.2
hereof.
"DISPOSITION EVENT" means (a) the completion of any voluntary or
involuntary liquidation or dissolution of the Company, (b) the completion
of a Qualifying Public Offering or (c) a Change in Control.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FAMILY MEMBERS" means, with respect to any individual, any Related
Person or Family Trust of such individual.
"FAMILY TRUST" means, with respect to any individual, any trust
created for the benefit of one or more of such individual's Related Persons
and controlled by such individual.
"FULLY-DILUTED COMMON STOCK" means, at any time, the then outstanding
Common Stock of the Company plus (without duplication) all shares of Common
Stock issuable, whether at such time or upon the passage of time or the
occurrence of future events, upon the exercise, conversion, or exchange of
all then outstanding Common Stock Equivalents.
"GEIPPPII" has the meaning specified in the preamble hereto.
"IMPUTED RATE" means the lowest per annum rate necessary to avoid the
imputation of interest under the Internal Revenue Code of 1986, as amended.
"MARKET VALUE PER SHARE" means, with respect to any date, the quotient
obtained by dividing (a) the fair market value (as determined by the Board
of Directors in good faith, or, if the Board's determination is disputed by
the Stockholder within ten (10) days following notice of determination by
the Board of Directors to Stockholder, by an independent investment
banking, accounting firm or independent appraiser of nationally recognized
standing or regional prominence selected in good faith by the Board) of the
entire common equity of
<PAGE>
the Company (without premium for control or discounts for minority
interests, restrictions on transfer or lack of voting rights), calculated
as of such date, plus the aggregate consideration to be paid to the Company
upon the exercise, conversion or exchange of all then outstanding and
exercisable, convertible or exchangeable Common Stock Equivalents, by (b)
the sum of the number of shares of Common Stock then outstanding, plus the
number of shares of Common Stock then issuable upon exercise, conversion or
exchange of then outstanding and exercisable, convertible or exchangeable
Common Stock Equivalents.
"OPTION SHARES" has the meaning specified in the preamble hereto.
"PERMITTED TRANSFEREE" means the Stockholder's Family Members and
Personal Representative.
"PERSON" means any person or entity of any nature whatsoever,
specifically including an individual, a firm, a company, a corporation, a
partnership, a trust or other entity.
"PERSONAL REPRESENTATIVE" means with respect to any individual, any
executor, administrator, trustee, guardian or other legal representative of
such individual.
"PURCHASE PRICE PER SHARE" means $1.00.
"QUALIFYING PUBLIC OFFERING" means a firm commitment underwritten
public offering of Common Stock for cash which, when aggregated with all
prior public offerings, constitutes an offering of more than 30% of the
Common Stock registered under the Securities Act.
"RELATED ENTITY" means, with respect to any entity, such entity's
direct and indirect parents and subsidiaries.
"RELATED PERSONS" means, with respect to any individual, such
individual's parents, spouse, children and grandchildren.
"REPURCHASE NOTICE" has the meaning specified in Section 3.3 hereof.
"ROLLOVER OPTIONS" has the meaning specified in the preamble hereto.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" has the meaning specified in the preamble hereto.
<PAGE>
"STOCKHOLDER" has the meaning specified in the introductory paragraph
hereof.
"SUBSIDIARY" means any corporation, association, trust, or other
business entity, of which the designated parent shall at any time own or
control directly or indirectly through a Subsidiary or Subsidiaries at
least a majority (by number of votes) of the outstanding shares of capital
stock (or other shares of beneficial interest) entitled ordinarily to vote
for the election of such business entity's directors (or in the case of a
business entity that is not a corporation, for those persons exercising
functions similar to directors of a corporation).
"TERMINATION OF EMPLOYMENT" means the termination of the Stockholder's
employment with the Company and all of its Related Entities for any reason,
including without limitation for retirement, death or disability of the
Stockholder, and whether or not for "Cause".
"TRANSFER" has the meaning specified in Section 3.1 hereof.
2. REPURCHASE OF SHARES.
2.1 CALL. Upon the Termination of Employment at any time, the Company
may, at its option, repurchase from the Stockholder, and the Stockholder will at
the request of the Company sell to the Company, all or any portion of the
Shares, the Rollover Options, the Option Shares, and other Common Stock and
Common Stock Equivalents otherwise held (unless such Common Stock Equivalents
are subject to a repurchase option in favor of the Company pursuant to any other
documentation) specified in the Call Notice (hereinafter defined) at a purchase
price per share determined pursuant to paragraphs (a) and (b) below:
(a) in the event that such Termination of Employment is for Cause, at
a purchase price per share equal to the lesser of (i) the Purchase Price
Per Share and (ii) the Market Value Per Share as of the date of such
Termination of Employment (and, in the case of a Common Stock Equivalent,
including the Rollover Options, minus any exercise or conversion price);
and
(b) in the event that such Termination of Employment is for any
reason other than for Cause, including, without limitation, retirement or
failure to renew an expired employment agreement, at a purchase price per
share equal to the greater of (i) the Purchase Price Per Share and (ii) the
Market Value Per Share as of the date of such Termination of Employment
(and, in the case of a Common Stock Equivalent, including the Rollover
Options, minus any exercise or
<PAGE>
conversion price).
2.2 CALL CLOSING. The Company's call rights under Section 2 hereof shall
be exercisable by the Company at any time within ninety (90) days following the
Termination of Employment by notice (the "CALL NOTICE") to the Stockholder
specifying the number of Shares or other securities being repurchased, the
aggregate purchase price payable therefor and the date, time and place of a
closing for the repurchase, such closing to be held not earlier than five (5)
days nor later than thirty (30) days after delivery of the Call Notice to the
Stockholder. The Company's call rights under Section 2.1 above shall lapse if
not exercised within the time periods specified above in accordance with the
provisions hereof except as otherwise provided in Section 5 hereof. Upon tender
by the Company of the purchase price for the securities being repurchased
hereunder in accordance with Section 5 hereof, all of the securities being so
repurchased shall no longer be deemed to be outstanding, all of the
Stockholder's rights with respect to such securities shall terminate with the
exception of the right of the Stockholder to receive the repurchase price in
exchange therefor pursuant to this Section 2.2, and the Stockholder hereby
appoints the Company as its attorney-in-fact to take all actions necessary and
sign all documents required to cancel such securities on its books and records.
2.3 PUT. If, in the event of Termination of Employment for any reason
other than for Cause, the Company does not exercise its option to purchase
Shares, Rollover Options, Option Shares or any other shares of Common Stock or
Common Stock Equivalents held by the Stockholder, the Stockholder or his
personal representative may require the Company to purchase all the Shares,
Rollover Options, Option Shares and other shares of Common Stock and Common
Stock Equivalents, but not less than all, that are owned by the Stockholder as
of the effective date of such Termination of Employment. In such event, the
purchase price shall be as set forth in Section 2.1(b) above.
2.4 PUT CLOSING. If the Stockholder or his personal representative elects
to exercise his put option as described in Section 2.3 above, the Stockholder or
his personal representative shall give written notice to the Company of such
intention not later than ninety (90) days after his Termination of Employment.
The Closing of such repurchase shall otherwise be effected in accordance with
the provisions set forth in Section 2.2 hereof for a call closing.
3. RESTRICTIONS ON TRANSFER; DRAG-ALONG RIGHTS.
3.1 RESTRICTIONS ON TRANSFER OF SHARES. Except as otherwise expressly
provided herein, the Stockholder may not sell, assign, transfer, pledge or
otherwise dispose of ("TRANSFER") any of the Shares, Rollover Options, Option
Shares, or other Common Stock or Common Stock Equivalents held by Stockholder,
either voluntarily or involuntarily or by operation of law; PROVIDED, HOWEVER,
the Stockholder may Transfer
<PAGE>
any such securities to the Company pursuant to Section 2 hereof and may Transfer
any shares to Permitted Transferees of the Stockholder, so long as any such
transferee agrees to be bound by the provisions hereof.
3.2 DISPOSITIONS IN BREACH OF THIS AGREEMENT. Any disposition or
attempted disposition of any shares in breach of the provisions of Section 3.1
hereof shall be void, shall constitute a breach of this Agreement and shall
entitle the Company to repurchase all of the shares, pursuant to the procedures
set forth in Section 3.3 hereof, at a purchase price per share equal to the
lower of the Market Value Per Share or the Purchase Price Per Share as of the
date of such disposition or attempted disposition. The repurchase rights of the
Company under this Section 3.2 will lapse if not exercised pursuant to Section
3.3 hereof within 90 days of the date on which the Board of Directors of the
Company first receives actual notice of the disposition or attempted disposition
giving rise to such repurchase rights, but such failure to exercise shall in no
event constitute a waiver of any breach of this Agreement.
3.3 REPURCHASE PROCEDURE. The Company may exercise its repurchase rights
under Section 3 hereof by giving notice (the "REPURCHASE NOTICE") to the
Stockholder within ninety (90) days after the Board of Directors of the Company
obtains actual knowledge of the breach giving rise to such repurchase rights.
The Repurchase Notice shall specify the aggregate purchase price for the Shares
and the date, time and place for a closing of the repurchase, such closing to be
held not earlier than five (5) days nor later than thirty (30) days after
delivery of the Repurchase Notice by the Company to the Stockholder.
The Company's repurchase rights under Section 3.2 hereof shall lapse with
respect to any event giving rise thereto if not exercised within the foregoing
time periods in accordance with the procedures specified in this Section 3.3
except as otherwise provided in Section 5 hereof. Upon tender by the Company of
the purchase price for the Shares being repurchased hereunder in accordance with
Section 5, all of the Shares being so repurchased shall no longer be deemed to
be outstanding, all of the Stockholder's rights with respect to such Shares
shall terminate with the exception of the right of the Stockholder to receive
the repurchase price in exchange therefor pursuant to Section 3.2, and the
Stockholder hereby appoints the Company as its attorney-in-fact to take all
actions necessary and sign all documents required to cancel such Shares on the
Company's books and records.
3.4 DRAG-ALONG RIGHTS.
(a) If, at any time, GEIPPPII proposes to transfer in a bona fide
arm's length sale all of the Common Stock and Common Stock Equivalents
owned by GEIPPPII to any person or persons who are not Affiliates of
GEIPPPII (the "PROPOSED TRANSFEREE"), GEIPPPII shall have the right (the
"DRAG ALONG RIGHT"),
<PAGE>
subject to applicable law and compliance with any other restrictions
applicable to such transfer, to require the Stockholder to sell, pursuant
to this Section 3.4, to the Proposed Transferee, on the same terms and
conditions as applicable to GEIPPPII except as limited in Section 3.4(b),
all (but not less than all) of the Common Stock and Common Stock
Equivalents then held by the Stockholder; provided that the exercise or
conversion price of any Common Stock Equivalents will be subtracted from
any purchase price otherwise paid therefor.
(b) To exercise a Drag Along Right, GEIPPPII shall give the
Stockholder at least 15 days prior to the proposed transfer to the Proposed
Transferee, a written notice (the "DRAG ALONG NOTICE") containing (i) the
name and address of the Proposed Transferee and (ii) the proposed purchase
price, the terms of payment and other material terms and conditions of the
Proposed Transferee's offer. The Stockholder shall thereafter be obligated
to sell all of its Common Stock and Common Stock Equivalents to the
Proposed Transferee. The Stockholder shall agree to enter into a purchase
agreement in form and substance approved by GEIPPPII to the extent such
agreement shall contain customary representations as to ownership of the
shares to be purchased and the absence of liens thereon and customary
indemnification provisions, including indemnification from the Stockholder.
If the sale is not consummated within a period of 180 days following the
date of the Drag Along Notice, then the Stockholder shall no longer be
obligated to sell such Stockholder's shares of Common Stock and Common
Stock Equivalents pursuant to such Drag Along Right but shall have the
rights under, and remain subject to, the provisions of this Section 3.4
with respect to any subsequent proposed transfer described in this Section
3.4. The Stockholder shall not be required to participate in a proposed
transfer pursuant to the exercise of a Drag Along Right unless its
liability for breaches of representations and warranties made in connection
with the sale thereunder is limited to no more than the total sale price
received by the Stockholder in such sale.
4. LEGENDS; STOP TRANSFER.
4.1 Each certificate representing the Shares shall bear legends in or
substantially in the following form:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER
APPLICABLE STATE SECURITY LAWS. NO TRANSFER, SALE OR OTHER
DISPOSITION OF THESE SHARES MAY BE MADE UNLESS A
<PAGE>
REGISTRATION STATEMENT WITH RESPECT TO THESE SHARES HAS BECOME
EFFECTIVE UNDER THE ACT AND UNDER APPLICABLE STATE SECURITIES LAWS, OR
THE COMPANY HAS BEEN FURNISHED WITH AN OPINION OF COUNSEL SATISFACTORY
TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
THE SHARES EVIDENCED BY THIS CERTIFICATE ARE ALSO SUBJECT TO CERTAIN
REPURCHASE AND OTHER RIGHTS IN FAVOR OF THE COMPANY AND PROVISIONS
RESTRICTING TRANSFER CONTAINED IN A BUY-SELL AGREEMENT, DATED AS OF
_____________________, 1998, A COPY OF WHICH WILL BE FURNISHED BY THE
COMPANY TO THE HOLDER OF THE SHARES EVIDENCED BY THIS CERTIFICATE UPON
WRITTEN REQUEST AND WITHOUT CHARGE."
4.2 In addition, the Company shall make a notation regarding the
restrictions on transfer of securities in the stock books of the Company, and
such shares shall be transferred on the books of the Company only if and when
transferred or sold in compliance with all of the terms and conditions of this
Agreement.
5. REPURCHASE RESTRICTIONS.
5.1 CONTRACTUAL RESTRICTIONS ON REPURCHASE. Notwithstanding any provision
to the contrary in Sections 2 or 3 hereof, in the event that any payment by the
Company of any portion of the purchase price for any securities that the Company
is obligated or has elected to repurchase is, at the time such payment would
otherwise be due hereunder, prohibited by the terms of any of the Company's or
any of its Subsidiaries' financing agreements with its lenders or any other
contract to which the Company or any of its Subsidiaries is bound, the Company
shall be entitled to complete the repurchase of such securities by tendering to
the Stockholder (or any permitted transferee pursuant to Section 3.1 hereof) (a)
a check for that portion (if any) of the purchase price the payment of which is
not so prohibited, and (b) a promissory note for the balance of the purchase
price. Each such promissory note shall (i) bear interest at the Imputed Rate,
(ii) provide for the payment of the principal evidenced thereby in annual
installments commencing one (1) year after such repurchase in such amounts as
are satisfactory to the Company's and its Subsidiaries' lenders, (iii) be
subordinated to the Company's or any of its Subsidiaries' indebtedness to its
lenders on terms satisfactory to such lenders and (iv) provide that the Company
will prepay the principal plus accrued interest under such note, or such portion
thereof as can then be prepaid, at such time as (x) cash is available or can
then be borrowed under the Company's then lending facility and (y) such payment
will not result in a default under any obligation for borrowed money.
<PAGE>
5.2 IMPAIRMENT OF CAPITAL. If, even after giving effect to the provisions
of Section 5.1 above, the Company is prohibited by law from repurchasing any
securities which it is obligated or has elected to repurchase hereunder due to
any existing or prospective impairment of its capital, the closing of such
repurchase shall be delayed until the first date on which the Company has
sufficient capital to lawfully repurchase such securities (the "DELAYED CLOSING
DATE"). In the event of any such delay, (a) the Company will be obligated to
pay, on the Delayed Closing Date, interest on the repurchase price for such
securities, at the Imputed Rate from the date on which the closing of the
repurchase of such securities was originally scheduled to occur to the Delayed
Closing Date, and (b) the Stockholder shall remain bound by the restrictions on
Transfer contained herein during such delay.
6. PAYMENT FOR SHARES. At any closing held to consummate any repurchase
of securities hereunder, the Stockholder shall deliver to the Company all stock
certificates representing such securities, duly endorsed in blank or with duly
executed stock powers attached, and the Company shall deliver to the Stockholder
a check in the amount of the repurchase price and/or a promissory note as
provided in Section 5.1 above.
7. TERM. This Agreement, and, except as provided in the following
sentence, the repurchase rights and obligations and all of the restrictions on
transfer contained herein (including, without limitation, the repurchase rights
of the Company pursuant to Sections 2 and 3 hereof), shall terminate upon the
earliest of (a) the completion of any voluntary or involuntary liquidation or
dissolution of the Company, (b) the completion of a Qualifying Public Offering
or (c) a Change of Control. The termination of this Agreement shall not affect
any repurchase rights or obligations which have arisen hereunder prior to such
termination.
8. ADJUSTMENT OF REPURCHASE PRICE. Upon any stock split, reverse stock
split, recombination of shares or other similar reorganization of the capital
structure of the Company, the repurchase price otherwise payable to the
Stockholder upon the repurchase of any Shares pursuant to Sections 2 and 3
hereof shall be proportionally adjusted to reflect such reorganization.
9. GENERAL.
9.1 NOTICES. All notices, demands and other communications hereunder
shall be in writing or by written telecommunication, and shall be deemed to have
been duly given if delivered personally or if mailed by certified mail, return
receipt requested, postage prepaid, or if sent by overnight courier or by
written telecommunication, to the relevant address set forth below, or to such
other address as the recipient of such notice or
<PAGE>
communication shall have specified to the other party hereto in accordance with
this Section 9.1:
If to the Company, to:
D and W Holdings, Inc.
c/o Ardshiel, Inc.
230 Park Avenue, Suite 2527
New York, New York 10169
Attention: Daniel T. Morley
With a copy sent contemporaneously to:
Joel M. Simon and Marie Censoplano
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue, 31st Floor
New York, New York 10022-4697
If to the Stockholder, to the address set forth below his or her signature
hereto.
Any such notice shall be effective (a) if delivered personally, when
received, (b) if sent by overnight courier, when receipted for, (c) if mailed,
three (3) days after being mailed as described above, and (d) if sent by written
telecommunication, when dispatched.
9.2 EQUITABLE REMEDIES. Each of the parties hereto acknowledges and
agrees that upon any breach by the Stockholder of his or her obligations under
Sections 2, 3 or 6 hereof, the Company will have no adequate remedy at law, and
accordingly will be entitled to specific performance and other appropriate
injunctive and equitable relief.
9.3 SEVERABILITY. If any provision of this Agreement is or becomes
invalid, illegal or unenforceable in any respect under any law, the validity,
legality and enforceability of the remaining provisions hereof shall not in any
way be affected or impaired.
9.4 WAIVERS. No delay or omission by either party hereto in exercising
any right, power or privilege hereunder shall impair such right, power or
privilege, nor shall any single or partial exercise of any such right, power or
privilege preclude any further exercise thereof or the exercise of any other
right, power or privilege.
9.5 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE>
9.6 ASSIGNS. This Agreement shall be binding upon and inure to the
benefit of the heirs, successors and Permitted Transferees of each of the
parties hereto. It is expressly agreed that the Company may from time to time
assign any of its repurchase rights hereunder to one or more of the holders of
the Common Stock.
9.7 ENTIRE AGREEMENT. This Agreement, together with any employment
agreement or stock option agreement to which the Stockholder is a party,
contains the entire understanding of the parties hereto with respect to the
subject matter contained herein, supersedes all prior agreements and
understandings relating to the subject matter hereof and shall not be amended
except by a written instrument hereafter signed by each of the parties hereto.
Nothing in this Agreement shall be construed as a grant to the Stockholder of
any right to continuing employment with the Company or any of its Subsidiaries
or to restrict in any way the Company's or any of its Subsidiaries' right to
terminate the Stockholder's employment at any time.
9.8 THIRD PARTIES. GEIPPPII is an intended third party beneficiary of the
provisions of Section 3.4 of this Agreement.
9.9 GOVERNING LAW. This Agreement and the obligations of the parties
hereunder shall be deemed to be a contract under seal and shall for all purposes
be governed by and construed in accordance with the internal laws of the State
of New York without reference to principles of conflicts of law.
<PAGE>
IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties
hereto have caused this Buy-Sell Agreement to be duly executed as of the date
and year first above written.
THE COMPANY: D AND W HOLDINGS, INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
THE STOCKHOLDER:
By:
-------------------------------------
Address:
--------------------------------
GEIPPPII: GE INVESTMENT PRIVATE PLACEMENT PARTNERS II, a
Limited Partnership
By: GE INVESTMENT MANAGEMENT INCORPORATED, its
general partner
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
<PAGE>
D AND W HOLDINGS, INC.
1998 STOCK OPTION PLAN
1. PURPOSE.
D and W Holdings, Inc., a Delaware corporation (herein, together with its
successors, referred to as the "Company"), by means of this 1998 Stock Option
Plan (the "Plan"), desires to afford certain individuals and key employees of
the Company and any parent corporation or subsidiary corporation thereof now
existing or hereafter formed or acquired (such parent and subsidiary
corporations sometimes referred to herein as "Related Entities") who are
responsible for the continued growth of the Company an opportunity to acquire a
proprietary interest in the Company, and thus to create in such persons an
increased interest in and a greater concern for the welfare of the Company and
any Related Entities. As used in the Plan, the terms "parent corporation" and
"subsidiary corporation" shall mean, respectively, a corporation within the
definition of such terms contained in Sections 424(e) and 424(f), respectively,
of the Internal Revenue Code of 1986, as amended (the "Code").
The stock options described in Sections 6 and 7 (the "Options"), and the
shares of Common Stock (as hereinafter defined) acquired pursuant to the
exercise of such Options are a matter of separate inducement and are not in lieu
of any salary or other compensation for services.
2. ADMINISTRATION.
The Plan shall be administered by the Option Committee, or any successor
thereto, of the Board of Directors of the Company (the "Board of Directors"), or
by any other committee appointed by the Board of Directors to administer this
Plan (the "Committee"); PROVIDED, the entire Board of Directors may act as the
Committee if it chooses to do so. Unless otherwise directed by the Board of
Directors, the Compensation Committee of the Board of Directors shall serve as
the Committee. The number of individuals that shall constitute the Committee
shall be determined from time to time by a majority of all the members of the
Board of Directors, and, unless that majority of the Board of Directors
determines otherwise, shall be no less than two individuals; PROVIDED, however,
that if the members of the Board of Directors and the Company's executive
officers are subject to Rule 16b-3 (or any successor rule) under the Exchange
Act (or any successor law) the Committee shall be composed of either (a) the
entire Board of Directors or (b) persons who are "Non-Employee Directors" under
Rule 16b-3 or such other persons as shall then be eligible to serve in such
capacity under rule 16b-3. A majority of the Committee shall constitute a
quorum (or if the Committee consists of only two members, then both members
shall constitute a quorum), and subject to the
<PAGE>
provisions of Section 5, the acts of a majority of the members present at any
meeting at which a quorum is present, or acts approved in writing by all members
of the Committee, shall be the acts of the Committee.
The members of the Committee shall serve at the pleasure of the Board of
Directors, which shall have the power, at any time and from time to time, to
remove members from or add members to the Committee. Removal from the Committee
may be with or without cause. Any individual serving as a member of the
Committee shall have the right to resign from membership in the Committee by
written notice to the Board of Directors. The Board of Directors, and not the
remaining members of the Committee, shall have the power and authority to fill
vacancies on the Committee, however caused. The Board of Directors shall
promptly fill any vacancy that causes the number of members of the Committee to
be below two or, if the Company has a class of equity securities registered
pursuant to Section 12 of the Exchange Act, any other number that Rule 16b-3 may
require from time to time.
3. SHARES AVAILABLE.
Subject to the adjustments provided in Section 10, the maximum aggregate
number of shares of Common Stock, par value $0.01 per share, of the Company
("Common Stock") in respect of which Options may be granted for all purposes
under the Plan shall be 11,991,142 shares. If, for any reason, any shares as to
which Options have been granted cease to be subject to purchase thereunder,
including the expiration of such Option, the termination of such Option prior to
exercise, or the forfeiture of such Option, such shares shall thereafter be
available for grants under the Plan. Options granted under the Plan may be
fulfilled in accordance with the terms of the Plan with (i) authorized and
unissued shares of the Common Stock, (ii) issued shares of such Common Stock
held in the Company's treasury, or (iii) issued shares of Common Stock
reacquired by the Company, in each situation as the Board of Directors or the
Committee may determine from time to time.
4. ELIGIBILITY AND BASES OF PARTICIPATION.
Grants of Incentive Options (as hereinafter defined) and Non-Qualified
Options (as hereinafter defined) may be made under the Plan, subject to and in
accordance with Section 6, to Key Employees. As used herein, the term "Key
Employee" shall mean any employee of the Company or any Related Entity,
including officers and directors of the Company or any Related Entity who are
also employees of the Company or any Related Entity, who is regularly employed
on a salaried basis and who is so employed on the date of such grant, whom the
Committee identifies as having a direct and significant effect on the
performance of the Company or any Related Entity.
Grants of Non-Qualified Options may be made, subject to and in accordance
with
<PAGE>
Section 7, to any Eligible Non-Employee. As used herein, the term "Eligible
Non-Employee" shall mean any person or entity of any nature whatsoever,
specifically including an individual, a firm, a company, a corporation, a
partnership, a trust, or other entity (collectively, a "Person"), that the
Committee designates as eligible for a grant of Options pursuant to this Plan
because such Person performs bona fide consulting, advisory, or other services
for the Company or any Related Entity (other than services in connection with
the offer or sale of securities in a capital-raising transaction) and the Board
of Directors or the Committee determines that the Person has a direct and
significant effect on the financial development of the Company or any Related
Entity.
The adoption of this Plan shall not be deemed to give any Person a right to
be granted any Options.
Notwithstanding any other provision of this Plan to the contrary, with
respect to the grant of any Options to any Key Employee or Eligible
Non-Employee, the Committee shall first determine the number of shares in
respect of which Options are to be granted to such Key Employee or Eligible
Non-Employee and shall then cause to be granted to such Key Employee or Eligible
Non-Employee an Option exercisable for such shares. The exercise price per
share of Common Stock under each Option shall be fixed by the Committee at the
time of grant of the Option and, with respect to Incentive Options, shall equal
at least 100% of the Fair Market Value of a share of Common Stock on the date of
grant.
5. AUTHORITY OF COMMITTEE.
Subject to and not inconsistent with the express provisions of the Plan,
the Code and, if applicable, Rule 16b-3, the Committee shall have plenary
authority to:
a. determine the Key Employees and Eligible Non-Employees to whom Options
shall be granted, the time when such Options shall be granted, the
number of shares covered by such Options, the purchase price or
exercise price under each such Option, the period(s) during which such
Options shall be exercisable (whether in whole or in part, including
whether such Options shall become immediately exercisable upon the
consummation of a "Change of Control" or a "Qualifying Public
Offering"), the restrictions to be applicable to Options and all other
terms and provisions thereof (which need not be identical);
b. require, if determined necessary or appropriate by the Committee in
order to comply with Rule 16b-3, as a condition to the granting of any
Option, that the Person receiving such Option agree not to sell or
otherwise dispose of such Option, any Common Stock acquired pursuant
to such
<PAGE>
Option, or any other "derivative security" (as defined by Rule
16a-l(c) under the Exchange Act) for a period of six months following
the later of the date of the grant of such Option or (ii) the date
when the exercise price of such Option is fixed if such exercise price
is not fixed at the date of grant of such Option, or for such other
period as the Committee may determine;
c. provide an arrangement through registered broker-dealers whereby
temporary financing may be made available to an optionee by the
broker-dealer, under the rules and regulations of the Board of
Governors of the Federal Reserve, for the purpose of assisting the
optionee in the exercise of an Option, such authority to include the
payment by the Company of the commissions of the broker-dealer;
d. provide the establishment of procedures for an optionee (i) to have
withheld from the total number of shares of Common Stock to be
acquired upon the exercise of an Option that number of shares having a
Fair Market Value which, together with such cash as shall be paid in
respect of fractional shares, shall equal the aggregate exercise price
under such Option for the number of shares then being acquired
(including the shares to be so withheld), and (ii) to exercise a
portion of an Option by delivering that number of shares of Common
Stock already owned by such optionee having an aggregate Fair Market
Value which shall equal the partial Option exercise price and to
deliver the shares thus acquired by such optionee in payment of shares
to be received pursuant to the exercise of additional portions of such
Option, the effect of which shall be that such optionee can in
sequence utilize such newly acquired shares in payment of the exercise
price of the entire Option, together with such cash as shall be paid
in respect of fractional shares;
e. provide (in accordance with Section 13 or otherwise) the establishment
of a procedure whereby a number of shares of Common Stock or other
securities may be withheld from the total number of shares of Common
Stock or other securities to be issued upon exercise of an Option to
meet the obligation of withholding for income, social security and
other taxes incurred by an optionee upon such exercise or required to
be withheld by the Company or a Related Entity in connection with such
exercise;
f. prescribe, amend, modify and rescind rules and regulations relating to
the Plan; and
g. make all determinations permitted or deemed necessary, appropriate or
advisable for the administration of the Plan, interpret any Plan or
Option
<PAGE>
provision, perform all other acts, exercise all other powers, and
establish any other procedures determined by the Committee to be
necessary, appropriate, or advisable in administering the Plan or for
the conduct of the Committee's business. Any act of the Committee,
including interpretations of the provisions of the Plan or any Option
and determinations under the Plan or any Option shall be final,
conclusive and binding on all parties.
The Committee may delegate to one or more of its members, or to one or more
agents, such administrative duties as it may deem advisable, and the Committee
or any Person to whom it has delegated duties as aforesaid may employ one or
more Persons to render advice with respect to any responsibility the Committee
or such Person may have under the Plan. The Committee may employ attorneys,
consultants, accountants, or other Persons and the Committee, the Company, and
its officers and directors shall be entitled to rely upon the advice, opinions,
or valuations of any such Persons. No member or agent of the Committee shall be
personally liable for any action, determination or interpretation made in good
faith with respect to the Plan and all members and agents of the Committee shall
be fully protected by the Company in respect of any such action, determination
or interpretation.
6. STOCK OPTIONS FOR KEY EMPLOYEES.
Subject to the express provisions of this Plan, the Committee shall have
the authority to grant incentive stock options pursuant to Section 422 of the
Code ("Incentive Options"), to grant non-qualified stock options (options which
do not qualify under Section 422 of the Code) ("Non-Qualified Options"), and to
grant both types of Options to Key Employees. No Incentive Option shall be
granted pursuant to this Plan after the earlier of ten years from the date of
adoption of the Plan or ten years from the date of approval of the Plan by the
stockholders of the Company. Notwithstanding anything in this Plan to the
contrary, Incentive Options may be granted only to Key Employees. The terms and
conditions of the Options granted under this Section 6 shall be determined from
time to time by the Committee; PROVIDED, HOWEVER, that the Options granted under
this Section 6 shall be subject to all terms and provisions of the Plan (other
than Section 7), including the following:
a. OPTION EXERCISE PRICE. Subject to Section 4, the Committee shall
establish the Option exercise price at the time any Option is granted
at such amount as the Committee shall determine; PROVIDED, that in the
case of an Incentive Option granted to a person who, at the time such
Incentive Option is granted, owns shares of the Company or any Related
Entity which possess more than 10% of the total combined voting power
of all classes of shares of the Company or of any Related Entity, the
option
<PAGE>
exercise price shall not be less than 110% of the Fair Market Value
per share of Common Stock at the date the Option is granted. The
Option exercise price shall be subject to adjustment in accordance
with the provisions of Section 10 of the Plan.
b. PAYMENT. The price per share of Common Stock with respect to each
Option exercise shall be payable at the time of such exercise. Such
price shall be payable in cash or by any other means acceptable to the
Committee, including delivery to the Company of shares of Common Stock
owned by the optionee or by the delivery or withholding of shares
pursuant to a procedure created pursuant to Section 5.d. of the Plan.
Shares delivered to or withheld by the Company in payment of the
Option exercise price shall be valued at the Fair Market Value of the
Common Stock on the day preceding the date of the exercise of the
Option.
c. EXERCISABILITY OF STOCK OPTION. Subject to Section 8, each Option
shall be exercisable in one or more installments as the Committee may
determine at the time of the grant. The Committee shall have the
authority to set a schedule for vesting of each Option in its
discretion and may condition vesting on such criteria as it shall deem
appropriate. No Option by its terms shall be exercisable after the
expiration of ten years from the date of grant of the Option, unless,
as to any Non-Qualified Option, otherwise expressly provided in such
Option; PROVIDED, HOWEVER, that no Incentive Option granted to a
person who, at the time such Option is granted, owns stock of the
Company, or any Related Entity, possessing more than 10% of the total
combined voting power of all classes of stock of the Company, or any
Related Entity, shall be exercisable after the expiration of five
years from the date such Option is granted.
d. DEATH. If any optionee's employment with the Company or a Related
Entity terminates due to the death of such optionee, the estate of
such optionee, or a Person who acquired the right to exercise such
Option by bequest or inheritance or by reason of the death of the
optionee, shall have the right to exercise the vested portion of such
Option (and, if directed by the Committee at the date of grant, all or
any part of the unvested portion) in accordance with its terms at any
time and from time to time within 180 days after the date of death
unless a longer period is expressly provided in such Option or a
shorter period is established by the Committee pursuant to Section 8
(but in no event after the expiration date of such Option).
e. DISABILITY. If the employment of any optionee terminates because of
his Disability (as defined in Section 18), such optionee or his legal
<PAGE>
representative shall have the right to exercise the vested portion of
such Option (and, if directed by the Committee at the date of grant,
all or any part of the unvested portion) in accordance with its terms
at any time and from time to time within 180 days after the date of
such termination unless a longer period is expressly provided in such
Option or a shorter period is established by the Committee pursuant to
Section 8 (but not after the expiration date of the Option); PROVIDED,
HOWEVER, that in the case of an Incentive Option, the optionee or his
legal representative shall in any event be required to exercise the
Incentive Option within one year after termination of the optionee's
employment due to his Disability.
f. TERMINATION FOR CAUSE; VOLUNTARY TERMINATION. Unless an optionee's
Option expressly provides otherwise, such optionee shall immediately
forfeit all rights under his Option (including with respect to any
vested portion), except as to the shares of stock already purchased
thereunder, if the employment of such optionee with the Company or a
Related Entity is terminated by the Company or any Related Entity for
Good Cause (as defined below) or if such optionee voluntarily
terminates employment without the consent of the Company or any
Related Entity unless such termination occurs for Good Reason under
any employment agreement. The determination that there exists Good
Cause for termination shall be made by the Committee (unless otherwise
agreed to in writing by the Company and the optionee).
g. OTHER TERMINATION OF EMPLOYMENT. If the employment of an optionee
with the Company or a Related Entity terminates for any reason other
than those specified in subsections 6(d), (e) or (f) above, including,
without limitation, retirement, termination without cause (or with
Good Reason) or failure to renew an expired employment agreement, such
optionee shall have the right to exercise the vested portion of his
Option (and, in case the of termination without cause or with Good
Reason, if directed by the Committee at the date of grant all or any
part of the unvested portion) in accordance with its terms, within 30
days after the date of such termination, unless a longer period is
expressly provided in such Option or a shorter period is established
by the Committee pursuant to Section 8 (but not after the expiration
date of the Option); PROVIDED, that no Incentive Option shall be
exercisable more than three months after such termination.
h. MAXIMUM EXERCISE. The aggregate Fair Market Value of stock
(determined at the time of the grant of the Option) with respect to
which Incentive Options are exercisable for the first time by an
optionee during any calendar year under all plans of the Company and
any Related Entity shall not exceed $100,000.
<PAGE>
7. STOCK OPTION GRANTS TO ELIGIBLE NON-EMPLOYEES.
Subject to the express provisions of this Plan, the Committee shall have
the authority to grant Non-Qualified Options to Eligible Non-Employees. The
terms and conditions of the Options granted under this Section 7 shall be
determined from time to time by the Committee; PROVIDED, HOWEVER, that the
Options granted under this Section 7 shall be subject to all terms and
provisions of the Plan (other than Section 6), including the following:
a. OPTION EXERCISE PRICE. Subject to Section 4, the Committee shall
establish the Option exercise price at the time any Non-Qualified
Option is granted at such amount as the Committee shall determine.
The Option exercise price shall be subject to adjustment in accordance
with the provisions of Section 10 of the Plan.
b. PAYMENT. The price per share of Common Stock with respect to each
Option exercise shall be payable at the time of such exercise. Such
price shall be payable in cash or by any other means acceptable to the
Committee, including delivery to the Company of shares of Common Stock
owned by the optionee or by the delivery or withholding of shares
pursuant to a procedure created pursuant to Section 5.d. of the Plan.
Shares delivered to or withheld by the Company in payment of the
Option exercise price shall be valued at the Fair Market Value of the
Common Stock on the day preceding the date of the exercise of the
Option.
c. EXERCISABILITY OF STOCK OPTION. Subject to Section 8, each Option
shall be exercisable in one or more installments as the Committee may
determine at the time of the grant. The Committee shall have the
authority to set a schedule for vesting of each Option in its
discretion and may condition vesting on such criteria as it shall deem
appropriate. No Option shall be exercisable after the expiration of
ten years from the date of grant of the Option, unless otherwise
expressly provided in such Option.
d. DEATH. If the retention by the Company or any Related Entity of the
services of any Eligible Non-Employee terminates because of his death,
the estate of such optionee, or a Person who acquired the right to
exercise such Option by bequest or inheritance or by reason of the
death of the optionee, shall have the right to exercise the vested
portion of such Option (and, if directed by the Committee at the date
of grant, all or any part of the unvested portion) in accordance with
its terms, at any time and from time to time within 180 days after the
date of death unless a longer period
<PAGE>
is expressly provided in such Option or a shorter period is
established by the Committee pursuant to Section 8 (but in no event
after the expiration date of such Option).
e. DISABILITY. If the retention by the Company or any Related Entity of
the services of any Eligible Non-Employee terminates because of his
Disability, such optionee or his legal representative shall have the
right to exercise the vested portion of such Option (and, if directed
by the Committee at the date of grant, all or any part of the unvested
portion) in accordance with its terms at any time and from time to
time within 180 days after the date of the optionee's termination
unless a longer period is expressly provided in such Option or a
shorter period is established by the Committee pursuant to Section 8
(but not after the expiration of the Option).
f. TERMINATION FOR CAUSE; VOLUNTARY TERMINATION. If the retention by the
Company or any Related Entity of the services of any Eligible
Non-Employee is terminated (i) for Good Cause, (ii) as a result of
removal of the optionee from office as a director of the Company or of
any Related Entity for cause by action of the stockholders of the
Company or such Related Entity in accordance with the by-laws of the
Company or such Related Entity, as applicable, and the corporate law
of the jurisdiction of incorporation of the Company or such Related
Entity, or (iii) as a result of the voluntarily termination by
optionee of optionee's service without the consent of the Company or
any Related Entity, then such optionee shall immediately forfeit his
rights under his Option (including with respect to any vested portion)
except as to the shares of stock already purchased. The determination
that there exists Good Cause for termination shall be made by the
Committee (unless otherwise agreed to in writing by the Company and
the optionee).
g. OTHER TERMINATION OF RELATIONSHIP. If the retention by the Company or
any Related Entity of the services of any Eligible Non-Employee
terminates for any reason other than those specified in subsections
7(d), (e) or (f) above, such optionee shall have the right to exercise
the vested portion of his or its Option in accordance with its terms
within 30 days after the date of such termination, unless a longer
period is expressly provided in such Option or a shorter period is
established by the Committee pursuant to Section 8 (but not after the
expiration date of the Option).
h. INELIGIBILITY FOR OTHER GRANTS. Any Eligible Non-Employee who
receives an Option pursuant to this Section 7 shall, so long as such
Eligible Non-Employee remains a Non-Employee, be ineligible to receive
any
<PAGE>
Options under any other Section of the Plan. Any Eligible
Non-Employee who subsequently becomes an employee of the Company or
any Related Entity shall be eligible to be designated a Key Employee
pursuant to Section 4 hereof.
8. CHANGE OF CONTROL OF THE COMPANY.
If (i) a Change of Control of the Company shall occur, (ii) the Company
shall enter into an agreement providing for a Change of Control of the Company,
(iii) the stockholders of the Company as of the date of this Plan shall enter
into an agreement providing for a Change of Control of the Company or (iv) the
Company shall effect a Qualifying Public Offering, then the Committee may
declare any or all Options outstanding under the Plan to be exercisable in full
at such time or times as the Committee shall determine, notwithstanding the
express provisions of such Options. Each Option accelerated by the Committee
pursuant to the preceding sentence shall terminate, notwithstanding any express
provision thereof or any other provision of the Plan, on such date (not later
than the stated exercise date) as the Committee shall determine; PROVIDED,
HOWEVER, that such termination shall not occur prior to the date on which the
Option becomes fully exercisable pursuant to such acceleration.
9. PURCHASE OPTION.
a. Except as otherwise expressly provided in any specific Option, if (i)
any optionee's employment (or, in the case of any Option granted under
Section 7, the optionee's relationship) with the Company or a Related
Entity terminates for any reason at any time or (ii) a Change of
Control occurs, the Company (and/or its designees) shall have the
option (the "Purchase Option") to purchase, and the optionee (or the
optionee's executor or the administrator of the optionee's estate, in
the event of the optionee's death, or the optionee's legal
representative in the event of the optionee's incapacity)
(hereinafter, collectively with such optionee, the "Grantor") shall
sell to the Company and/or its assignee(s), all or any portion (at the
Company's option) of the Options, and if any Option has been
exercised, shares of Common Stock issued upon such exercise, held by
the Grantor (such shares of Common Stock and Options collectively
being referred to as the "Purchasable Shares"), subject to the
Company's compliance with the conditions hereinafter set forth.
b. The Company shall give notice in writing to the Grantor of the
exercise of the Purchase Option within one year following the date of
the termination of the optionee's employment or engagement or such
Change of Control.
<PAGE>
Such notice shall state the number of Purchasable Shares to be
purchased and the determination of the Board of Directors of the Fair
Market Value per share of such Purchasable Shares. The Company's
Purchase Option shall lapse if not exercised by the Company within the
time period specified above in accordance with the provisions hereof,
except as otherwise provided, in paragraph "e" below.
c. The purchase price to be paid for the Purchasable Shares purchased
pursuant to the Purchase Option shall be, (i) in the case of any
Common Stock, the Fair Market Value per share as of the date of the
notice of exercise of the Purchase Option times the number of shares
being purchased, and (ii) in the case of any Option, the Fair Market
Value per share times the number of vested shares subject to such
Option which are being purchased, less the applicable per share Option
exercise price; provided that, in the case of the exercise of the
Purchase Option upon the termination of an optionee's employment with
the Company or a Related Entity by the Company or Related Entity for
Good Cause, the lesser of (w) Fair Market Value or (x) original cost
of the shares shall be substituted for Fair Market Value in the above
described purchase price calculation. The Company shall pay such
purchase price by the tender of a check in the amount of the purchase
price to be paid for the Purchasable Shares or by the delivery of a
promissory note as provided in paragraph "e" below. The closing of
such purchase shall take place at the Company's principal executive
offices within ten days after the purchase price has been determined.
At such closing, the Grantor shall deliver or shall cause to be
delivered to the purchasers the certificates or instruments evidencing
the Purchasable Shares being purchased, duly endorsed (or accompanied
by duly executed stock powers) and otherwise in good form for
delivery, against payment of the purchase price by check of the
purchasers. In the event that, notwithstanding the foregoing, the
Grantor shall have failed to obtain the release of any pledge or other
encumbrance on any Purchasable Shares by or upon the scheduled closing
date (at the option of the purchasers), the closing shall nevertheless
occur on such scheduled closing date, with the cash purchase price
being reduced to the extent of all unpaid indebtedness for which such
Purchasable Shares are then pledged or encumbered. Upon tender by the
Company of a check in the amount of the purchase price for the
Purchasable Shares or a promissory note as provided in paragraph "e"
below, (y) the shares of Common Stock comprising a portion of the
Purchasable Shares, or the portion thereof so purchased, shall no
longer be deemed to be outstanding, and (z) the Options comprising a
portion of the Purchasable Shares, or the portion
<PAGE>
thereof so purchased, shall no longer be deemed to be
outstanding and all of the Grantor's rights with respect to such
Purchasable Shares shall terminate, with the exception of the right of
the Grantor to receive the purchase price in exchange therefore
pursuant to this paragraph "c".
d. To assure the enforceability of the Company's rights under this
Section 9, each certificate or instrument representing Common Stock or
an Option held by an optionee shall bear a conspicuous legend in
substantially the following form:
THE SHARES [REPRESENTED BY THIS CERTIFICATE] [ISSUABLE PURSUANT TO
THIS AGREEMENT] ARE SUBJECT TO AN OPTION TO REPURCHASE PROVIDED UNDER
THE PROVISIONS OF THE COMPANY'S 1998 STOCK OPTION PLAN AND A STOCK
OPTION AGREEMENT ENTERED INTO PURSUANT THERETO. A COPY OF SUCH OPTION
PLAN AND OPTION AGREEMENT ARE AVAILABLE UPON WRITTEN REQUEST TO THE
COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICES.
e. Notwithstanding any provision to the contrary in paragraph "c" above,
in the event that any payment by the Company of any portion of the
purchase price (or any remaining portion thereof for any portion of
the Purchasable Shares that the Company is obligated to purchase) is,
at the time such payment would otherwise be due hereunder, prohibited
by the terms of any of the Company's or any of its Subsidiaries'
financing arrangements with their lenders or any other contracts to
which the Company or any of its Subsidiaries is bound, the Company
shall be entitled to complete the exercise of the Purchase Option by
tendering to the Grantor (a) a check for that portion of the purchase
price the payment of which is not so prohibited, and (b) a promissory
note for the balance of the purchase price. Each such promissory note
shall (i) bear interest at the Imputed Rate, (ii) provide for the
payment of the principal evidenced thereby in annual installments
commencing one (1) year after such termination in such amounts as are
satisfactory to the Company's and its Subsidiaries' lenders, and (ii)
be subordinated to the Company's and its Subsidiaries' indebtedness to
its lenders on terms satisfactory to such lenders.
f. If, after giving effect to the provisions of paragraph "e" above, the
Company is prohibited by law from purchasing any Purchasable Shares
which it is obligated or has elected to repurchase hereunder due to
any
<PAGE>
existing or prospective impairment of its capital, the closing of such
purchase shall be delayed until the first date on which the Company
has sufficient capital to lawfully repurchase such Purchasable Shares
(the "Delayed Closing Date"). In the event of any such delay, the
Company will be obligated to pay, on the Delayed Closing Date,
interest on the purchase price for such Purchasable Shares, at the
Imputed Rate from the date on which the closing of the purchase of
such Purchasable Shares was originally scheduled to occur to the
Delayed Closing Date.
The Company's rights under this Section 9 shall terminate upon the
consummation of a Qualifying Public Offering.
10. ADJUSTMENT OF SHARES.
Unless otherwise expressly provided in a particular Option, in the event
that, by reason of any merger, consolidation, combination, liquidation,
reorganization, recapitalization, stock dividend, stock split, split-up,
split-off, spin-off, combination of shares, exchange of shares or other like
change in capital structure of the Company (collectively, a "Reorganization"),
the Common Stock is substituted, combined, or changed into any cash, property,
or other securities, or the shares of Common Stock are changed into a greater or
lesser number of shares of Common Stock, the number and/or kind of shares and/or
interests subject to an Option and the per share price or value thereof shall be
appropriately adjusted by the Committee to give appropriate effect to such
Reorganization, such that the Option shall thereafter be exercisable for such
securities, cash, and/or other property as would have been received in respect
of the Common Stock subject to the Option had the Option been exercised in full
immediately prior to such event. Any fractional shares or interests resulting
from such adjustment shall be eliminated. Notwithstanding the foregoing, (i)
each such adjustment with respect to an Incentive Option shall comply with the
rules of Section 424(a) of the Code, and (ii) in no event shall any adjustment
be made which would render any Incentive Option granted hereunder to be other
than an "incentive stock option" for purposes of Section 422 of the Code.
In the event the Company is not the surviving entity of a Reorganization
and, following such Reorganization, any optionee will hold Options issued
pursuant to this Plan which have not been exercised, cancelled, or terminated in
connection therewith, the Company shall cause such Options to be assumed (or
cancelled and replacement Options of equivalent value issued) by the surviving
entity or a Related Entity.
11. ASSIGNMENT OR TRANSFER.
<PAGE>
a. Except as otherwise expressly provided in any Non-Qualified Option, no
Option granted under the Plan or any rights or interests therein shall
be assignable or transferable by an optionee except by will or the
laws of descent and distribution, and during the lifetime of an
optionee, Options granted to him or her hereunder shall be exercisable
only by the optionee or, in the event that a legal representative has
been appointed in connection with the Disability of an optionee, such
legal representative.
b. At least ninety (90) days prior to selling, pledging, hypothecating,
transferring or otherwise disposing ("Transfer") of any interest in
Common Stock issued upon exercise of an Option, the optionee proposing
such Transfer shall deliver a written notice (the "Sale Notice") to
the Company. The Sale Notice will disclose in reasonable detail the
identity of the prospective transferee(s) and the terms and conditions
of the proposed transfer. Such optionee (and such optionee's
transferees) shall not consummate any such Transfer until ninety (90)
days after the Sale Notice has been delivered to the Company, unless
the Company has notified such optionee in writing that it will not
exercise its rights under this Section 11.b. (the date of the first to
occur of such events is referred to herein as the "Authorization
Date"). The Company or its designee may elect to purchase all (but
not less than all) of the shares of Common Stock to be Transferred
upon the same terms and conditions as those set forth in the Sale
Notice ("Right of First Refusal") by delivering a written notice of
such election to such optionee within thirty (30) days after the
receipt of the Sale Notice by the Company (the "Election Notice"). If
the Company has not elected to purchase all of the shares of Common
Stock specified in the Sale Notice, such optionee may Transfer the
shares of Common Stock to the prospective transferee(s) as specified
in the Sale Notice, at a price and on terms no more favorable to the
transferee(s) thereof than specified in the Sale Notice, during the
90-day period immediately following the Authorization Date and in the
event of any such Transfer of shares the provisions of the Plan
(including, without limitation, the provisions of this Section 11)
shall no longer apply to the shares thus transferred. Any Option
Shares not so transferred within such 90-day period must be reoffered
to the Company in accordance with the provisions of this Section 11.b.
The Right of First Refusal will not apply with respect to Transfers of
such shares of Common Stock (i) by will or pursuant to applicable laws
of descent and distribution or (ii) among the optionee's family group;
provided that the restrictions contained in this Section 1l.b. will
continue to be applicable to the shares of Common Stock after any such
Transfer and provided further that the transferees of such shares of
Common Stock have agreed in writing to be bound by the terms and
provisions of this Plan and the applicable Option Agreement as each
may
<PAGE>
be amended from time to time. In addition, upon any transfer to a
member of the optionee's family group (other than pursuant to clause
(i) of the preceding sentence), the optionee shall be required to give
notice to the Company and as a condition to such Transfer to a member
of the optionee's family group, the optionee will maintain all voting
control over all of the shares of Common Stock. The optionee's,
"family group" means the optionee's spouse and lineal descendants
(whether natural or adopted) and any trust solely for the benefit of
the optionee and/or the optionee's spouse and/or lineal descendants.
In addition, with the prior approval of the Committee, notwithstanding
the provisions of this Section 11.b., an optionee may pledge such
shares of Common Stock creating a security interest therein; provided,
that the pledgee agrees in writing to be bound, and that such shares
of Common Stock remain bound, by the terms and provisions of this Plan
and the applicable Option Agreement, as each may be amended from time
to time. The rights and obligations pursuant to this Section 11.b.
hereof will terminate upon the consummation of a Qualified Public
Offering.
To assure the enforceability of the Company's rights under this Section
11.b., each certificate or instrument representing Common Stock or an Option
held by an optionee shall bear a conspicuous legend in substantially the
following form:
THE SHARES [REPRESENTED BY THIS CERTIFICATE] [ISSUABLE PURSUANT TO
THIS AGREEMENT ARE SUBJECT TO A RIGHT OF FIRST REFUSAL PROVIDED UNDER
THE COMPANY'S 1998 STOCK OPTION PLAN AND A STOCK OPTION AGREEMENT
ENTERED INTO PURSUANT THERETO. A COPY OF SUCH OPTION PLAN AND OPTION
AGREEMENT ARE AVAILABLE UPON WRITTEN REQUEST TO THE COMPANY AT ITS
PRINCIPAL EXECUTIVE OFFICES.
12. COMPLIANCE WITH SECURITIES LAWS.
The Company shall not in any event be obligated to file any registration
statement under the Securities Act or any applicable state securities law to
permit exercise of any option or to issue any Common Stock in violation of the
Securities Act or any applicable state securities law. Each optionee (or, in
the event of his death or, in the event a legal representative has been
appointed in connection with his Disability, the Person exercising the Option)
shall, as a condition to his right to exercise any Option, deliver to the
Company an agreement or certificate containing such representations, warranties
and covenants as the Company may deem necessary or appropriate to ensure that
the issuance of shares of Common Stock pursuant to such exercise is not required
to be registered under the Securities Act or any applicable state securities
law.
<PAGE>
Certificates for shares of Common Stock, when issued, may have
substantially the following legend, or statements of other applicable
restrictions, endorsed thereon, and may not be immediately transferable:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS. THE SHARES MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED,
TRANSFERRED OR OTHERWISE DISPOSED OF UNTIL THE HOLDER HEREOF PROVIDES
EVIDENCE SATISFACTORY TO THE ISSUER (WHICH, IN THE DISCRETION OF THE
ISSUER, MAY INCLUDE AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER)
THAT SUCH OFFER, SALE, PLEDGE, TRANSFER OR OTHER DISPOSITION WILL NOT
VIOLATE APPLICABLE FEDERAL OR STATE LAWS.
This legend shall not be required for shares of Common Stock issued
pursuant to an effective registration statement under the Securities Act and in
accordance with applicable state securities laws.
13. WITHHOLDING TAXES.
By acceptance of the Option, the optionee will be deemed to (i) agree to
reimburse the Company or Related Entity by which the optionee is employed for
any federal, state, or local taxes required by any government to be withheld or
otherwise deducted by such corporation in respect of the optionee's exercise of
all or a portion of the Option; (ii) authorize the Company or any Related Entity
by which the optionee is employed to withhold from any cash compensation paid to
the optionee or in the optionee's behalf, an amount sufficient to discharge any
federal, state, and local taxes imposed on the Company or the Related Entity by
which the optionee is employed, and which otherwise has not been reimbursed by
the optionee, in respect of the optionee's exercise of all or a portion of the
Option; and (iii) agree that the Company may, in its discretion, hold the stock
certificate to which the optionee is entitled upon exercise of the Option as
security for the payment of the aforementioned withholding tax liability, until
cash sufficient to pay that liability has been accumulated, and may, in its
discretion, effect such withholding by retaining shares issuable upon the
exercise of the Option having a Fair Market Value on the date of exercise which
is equal to the amount to be withheld.
14. COSTS AND EXPENSES.
<PAGE>
The costs and expenses of administering the Plan shall be borne by the
Company and shall not be charged against any Option nor to any employee
receiving an Option.
15. FUNDING OF PLAN.
The Plan shall be unfunded. The Company shall not be required to make any
segregation of assets to assure the payment of any Option under the Plan.
16. OTHER INCENTIVE PLANS.
The adoption of the Plan does not preclude the adoption by appropriate
means of any other incentive plan for employees.
17. EFFECT ON EMPLOYMENT.
Nothing contained in the Plan or any agreement related hereto or referred
to herein shall affect, or be construed as affecting, the terms of employment of
any Key Employee except to the extent specifically provided herein or therein.
Nothing contained in the Plan or any agreement related hereto or referred to
herein shall impose, or be construed as imposing, an obligation on (i) the
Company or any Related Entity to continue the employment of any Key Employee,
and (ii) any Key Employee to remain in the employ of the Company or any Related
Entity.
18. DEFINITIONS.
In addition to the terms specifically defined elsewhere in the Plan, as
used in the Plan, the following terms shall have the respective meanings
indicated:
a. "AFFILIATE" shall mean, as to any Person, a Person that directly, or
indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such Person.
b. "AUTHORIZATION DATE" shall have the meaning set forth in Section 11.b.
hereof
c. "BOARD OF DIRECTORS" shall have the meaning set forth in Section 2
hereof
d. "CHANGE OF CONTROL" shall mean the first to occur of the following
events: (i) any sale, lease, exchange, or other transfer (in one
transaction or series of related transactions) of all or substantially
all of the assets of the Company (including the capital stock or
assets of its operating subsidiaries) to any Person or group of
related Persons for purposes of Section 13(d) of the Exchange Act (a
"Group"), (ii) a majority of the Board of Directors of the Company
shall consist of Persons who are not nominated collectively by
Ardshiel, Inc. and/or its Affiliates and GE
<PAGE>
Investment Private Placement Partners II, a Limited Partnership; or
(iii) the acquisition by any Person or Group (other than GE Investment
Private Placement Partners II, a Limited Partnership, Ardshiel, Inc.
and their Affiliates), together with their associates and Affiliates,
of the power, directly or indirectly, to vote or direct the voting of
securities having more than 50% of the ordinary voting power for the
election of directors of the Company.
e. "CODE" shall have the meaning set forth in Section 1 hereof.
f. "COMMITTEE" shall have the meaning set forth in Section 2 hereof.
g. "COMMON STOCK" shall have the meaning set forth in Section 3 hereof.
h. "COMPANY" shall have the meaning set forth in Section 1 hereof.
i. "DISABILITY" shall mean permanent disability as defined under the
appropriate provisions of the long-term disability plan maintained for
the benefit of employees of the Company or any Related Entity who are
regularly employed on a salaried basis unless another meaning shall be
agreed to in writing by the Committee and the optionee, or, to the
extent defined differently, shall have the meaning set forth in any
employment agreement between an optionee and the Company or any
Related Entity with respect to such optionee; PROVIDED, HOWEVER, that
in the case of an Incentive Option "disability" shall have the meaning
specified in Section 22(e)(3) of the Code.
j. "ELECTION NOTICE" shall have the meaning set forth in Section 11.b.
hereof.
k. "ELIGIBLE NON-EMPLOYEE" shall have the meaning set forth in Section 4
hereof.
l. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
m. "FAIR MARKET VALUE" shall, as it relates to the Common Stock, mean the
average of the high and low prices of such Common Stock as reported on
the principal national securities exchange on which the shares of
Common Stock are then listed on the date specified herein, or if there
were no sales on such date, on the next preceding day on which there
were sales, or if such Common Stock is not listed on a national
securities exchange, the last reported bid price in the
over-the-counter market, or if such shares are
<PAGE>
not traded in the over-the counter market, the per share cash price
for which all of the outstanding Common Stock could be sold to a
willing purchaser in an arms length transaction (without regard to
minority discount, absence of liquidity or transfer restrictions
imposed by any applicable law or agreement) at the date of the event
giving rise to a need for a determination. Except as may be otherwise
expressly provided in a particular Option, Fair Market Value shall be
determined in good faith by the Committee.
n. "GOOD CAUSE", with respect to any Key Employee, shall mean termination
by action of the Board of Directors because of: (A) the optionee's
conviction of, or plea of nolo contendere to, a felony or a crime
involving moral turpitude; (B) the optionee's personal dishonesty,
incompetence, willful misconduct, willful violation of any law, rule
or regulation (other than minor traffic violations or similar
offenses) or breach of fiduciary duty which involves personal profit;
(C) the optionee's commission of material mismanagement in the conduct
of his duties as assigned to him by the Board of Directors or the
optionee's supervising officer or officers of the Company or any
Related Entity; (D) the optionee's willful failure to execute or
comply with the policies of the Company or any Related Entity or his
stated duties as established by the Board of Directors or the
optionee's supervising officer or officers of the Company or any
Related Entity, or the optionee's intentional failure to perform the
optionee's stated duties; or (E) substance abuse or addiction on the
part of the optionee. "Good Cause", with respect to any Eligible
Non-Employee, shall mean (unless another definition is agreed to in
writing by the Company and the optionee) termination by action of the
Board of Directors because of: (A) the optionee's conviction of, or
plea of nolo contendere to, a felony or a crime involving moral
turpitude; (B) the optionee's personal dishonesty, incompetence,
willful misconduct, willful violation of any law, rule or regulation
(other than minor traffic violations or similar offenses) or breach of
fiduciary duty which involves personal profit; (C) the optionee's
commission of material mismanagement in providing services to the
Company or any Related Entity; (D) the optionee's willful failure to
comply with the policies of the Company in providing services to the
Company or any Related Entity, or the optionee's intentional failure
to perform the services for which the optionee has been engaged; (E)
substance abuse or addiction on the part of the optionee; or (F) the
optionee's willfully making any material misrepresentation or
willfully omitting to disclose any material fact to the board of
directors of the Company or any Related Entity with respect to the
business of the Company or any Related Entity. Notwithstanding the
<PAGE>
foregoing, in the case of any optionee who, at any time is subject to
an employment agreement with the Company or any Related Entity that
contains a definition of "Good Cause," "For Cause Termination" or any
similar definition, then during the term of such employment agreement
the definition contained in such employment agreement shall be the
applicable definition of "Good Cause" under the Plan as to such
optionee.
o. "GOOD REASON" shall mean any grounds stated in any employment
agreement with an optionee giving the optionee the right to terminate
his or her employment with the Company or any Related Entity as a
result of actions of the Company or such Related Entity.
p. "GRANTOR" has the meaning set forth in Section 9 hereof.
q. "IMPUTED RATE" shall mean the lowest per annum rate necessary to avoid
the imputation of interest under the Internal Revenue Code of 1986, as
amended.
r. "INCENTIVE OPTIONS" shall have the meaning set forth in Section 6
hereof.
s. The term "included" when used herein shall mean "including, but not
limited to".
t. "KEY EMPLOYEE" shall have the meaning set forth in Section 4 hereof.
u. "NON-QUALIFIED OPTIONS" shall have the meaning set forth in Section 6
hereof.
v. "OPTIONS" shall have the meaning set forth in Section 1 hereof.
w. "PERSON" shall have the meaning set forth in Section 4 hereof.
x. "PLAN" shall have the meaning set forth in Section 1 hereof.
y. "PURCHASABLE SHARES" shall have the meaning set forth in Section 9
hereof.
z. "PURCHASE OPTION" shall have the meaning set forth in Section 9
hereof.
aa. "QUALIFYING PUBLIC OFFERING" shall mean a firm commitment underwritten
public offering of Common Stock for cash which, when aggregated with
all prior public offerings, constitutes an offering of more than 30%
of the
<PAGE>
Common Stock registered under the Securities Act.
aa. "RELATED ENTITIES" shall have the meaning set forth in Section 1
hereof.
ab. "REORGANIZATION" shall have the meaning set forth in Section 10
hereof.
ac. "RIGHT OF FIRST REFUSAL" shall have the meaning set forth in Section
11.b. hereof.
ad. "RULE 16B-3" shall mean Rule 16b-3 as amended, or other applicable
rules, under Section 16(b) of the Exchange Act.
ae. "SALE NOTICE" shall have the meaning set forth in Section 11.b hereof
af. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
ag. "SUBSIDIARY" shall mean, with respect to any Person, any other Person
of which such first Person owns or has the power to vote, directly or
indirectly, securities representing a majority of the votes ordinarily
entitled to be cast for the election of directors or other governing
Persons.
ah. "TRANSFER" shall have the meaning set forth in Section 11.b. hereof.
19. AMENDMENT OF PLAN.
The Board of Directors shall have the right to amend, modify, suspend or
terminate the Plan at any time; provided, that no amendment shall be made which
shall increase the total number of shares of the Common Stock which may be
issued and sold pursuant to Options granted under the Plan or decrease the
minimum Option exercise price in the case of an Incentive Option, or modify the
provisions of the Plan relating to eligibility with respect to Incentive Options
unless such amendment is made by or with the approval of the stockholders. The
Board of Directors shall have the right to amend the Plan and the Options
outstanding thereunder, without the consent or joinder of any optionee or other
Person, in such manner as may be determined necessary or appropriate by the
Board of Directors in order to cause the Plan and the Options outstanding
thereunder (i) to qualify as "incentive stock options" within the meaning of
Section 422 of the Code, (ii) to comply with Rule 16b-3 (or any successor rule)
under the Exchange Act (or any successor law) and the regulations (including any
temporary regulations) promulgated thereunder, or (iii) to comply with Section
162(m) of the Code (or any successor section) and the regulations (including any
temporary regulations) promulgated thereunder. Except as provided above, no
amendment, modification, suspension or termination of the Plan shall alter or
<PAGE>
impair any Options previously granted under the Plan, without the consent of the
holder thereof.
20. EFFECTIVE DATE.
The Plan shall become effective on the date of consummation of the
transactions contemplated in the Agreement and Plan of Merger dated August 3,
1998, by and among the Company, D and W Acquisition Corp., Atrium Corporation
and the stockholders of Atrium Corporation therein. The Plan was approved by the
Board of Directors of the Company and the stockholders of the Company on
____________, 1998.
<PAGE>
D AND W HOLDINGS, INC.
REPLACEMENT STOCK OPTION PLAN
1. PURPOSE
This Plan is intended to encourage ownership of Stock by employees of
the Company and its Affiliates and to provide additional incentives for them to
promote the success of the Company's business. Options granted hereunder are
not intended to qualify as incentive stock options within the meaning of Section
422 of the Code.
2. DEFINITIONS
As used in this Plan the following terms shall have the following
meanings:
2.1 ACT means the Securities Act of 1933, as amended.
2.2 AFFILIATE means a parent or subsidiary corporation of the
Company, as defined in Sections 424(e) and (f), respectively, of the Code.
2.3 BOARD means the Company's Board of Directors.
2.4 BUY-BACK AGREEMENT means an agreement between the Company and the
Optionee in such form as the Committee may prescribe in connection with the
grant or exercise of any Option, setting forth certain restrictions upon the
transfer of shares of Stock.
2.5 CODE means the Internal Revenue Code of 1986, as amended from
time to time, or any statute successor thereto, and any regulations issued from
time to time thereunder.
2.6 COMMITTEE means a committee appointed by the Board, responsible
for the administration of the Plan, as provided in Section 5 of the Plan. For
any period during which no such committee is in existence all authority and
responsibility assigned the Committee under the Plan shall be exercised, if at
all, by the Board, and the Board shall be deemed to be the Committee for all
purposes of the Plan.
2.7 COMPANY means D and W Holdings, Inc., a corporation organized
under the laws of the State of Delaware and any corporation which shall succeed
to or assume the rights and obligations of the Company hereunder.
2.8 EMPLOYMENT AGREEMENT means an agreement relating to employment,
if any, between the Company and an Optionee.
<PAGE>
2.9 FAIR MARKET VALUE means the value of a share of Stock on any date
as determined by the Committee.
2.10 GRANT DATE means the date as of which an Option is granted, as
determined under Section 7.
2.11 OPTION means an option to purchase shares of Stock granted under
the Plan.
2.12 OPTION AGREEMENT means an agreement between the Company and an
Optionee, setting forth the terms and conditions of an Option.
2.13 OPTION PRICE means the price paid by an Optionee for a share of
Stock upon exercise of an Option.
2.14 OPTIONEE means a person eligible to receive an Option, as
provided in Section 6, to whom an Option shall have been granted under the Plan.
2.15 PLAN means this Replacement Stock Option Plan of the Company, as
amended from time to time.
2.16 RELATED ENTITY means any parent corporation or subsidiary
corporation of the Company.
2.17 STOCK means the Common Stock, par value $.01 per share, of the
Company.
3. TERM OF THE PLAN
Options may be granted hereunder at any time in the period commencing
on the adoption of the Plan by the Board and ending immediately prior to the
tenth anniversary of the earlier of the adoption of the Plan by the board or
approval of the Plan by the Company's shareholders. Options granted prior to
shareholder approval of the Plan are hereby expressly conditioned upon such
approval, and shall be void AB INITIO in the event the shareholders of the
Company shall fail to approve the Plan within twelve (12) months of the Board's
approval of the Plan.
4. STOCK SUBJECT TO THE PLAN
At no time shall the number of shares of Stock then outstanding which
are attributable to the exercise of Options granted under the Plan, plus the
number of shares then issuable upon exercise of outstanding Options granted
under the Plan, exceed 1,575,000 shares,
<PAGE>
subject, however, to the provisions of Section 17 of the Plan. Shares to be
issued upon the exercise of Options granted under the Plan may be either
authorized but unissued shares or shares held by the Company in its treasury.
If any Option expires, terminates, or is cancelled for any reason without having
been exercised in full, the shares not purchased thereunder shall again be
available for Options thereafter to be granted.
5. ADMINISTRATION
The Plan shall be administered by the Committee. Subject to the
provisions of the Plan, the Committee shall have complete authority, in its
discretion, to make or to select the manner of making the following
determinations with respect to each Option to be granted by the Company in
addition to any other determination allowed the Committee under the Plan: (a)
the employee to receive the Option; (b) the time of granting the Option; (c) the
number of shares subject to the Option; (d) the Option Price; (e) the Option
period; (f) the Option exercise date or dates and any terms of vesting; (g) the
effect of termination of employment or other association with the Company and
its Affiliates on the subsequent exercisability of the Option; and (h) any other
terms not inconsistent with the terms of this Plan. In making such
determination, the Committee may take into account the nature of the services
rendered by the respective employees, their present and potential contributions
to the success of the Company and its subsidiaries, and such other factors as
the Committee in its discretion shall deem relevant. Subject to the provisions
of the Plan, the Committee shall also have complete authority to interpret the
Plan, to prescribe, amend and rescind rules and regulations relating to it, to
determine the terms and provisions of the respective Option Agreements (which
need not be identical), and to make all other determinations necessary or
advisable for the administration of the Plan. The Committee's determinations
made in good faith on matters referred to in this Plan shall be conclusive.
6. ELIGIBILITY: MAXIMUM GRANT PER INDIVIDUAL
An Option shall be granted only to an employee of one or more of the
Company or an Affiliate. A director of one or more of the Company or any
Affiliate who is not also an employee of one or more of the Company or an
Affiliate shall not be eligible to receive an Option.
7. TIME OF GRANTING OPTIONS
The granting of an Option shall take place at the time specified in
the Option Agreement. Only if expressly so provided in the Option Agreement
shall the Grant Date be the date on which an Option Agreement shall have been
duly executed and delivered by the Company and the Optionee.
8. OPTION PRICE
<PAGE>
The Option Price shall be set by the Committee and may be less than,
equal to or greater than the Fair Market Value of Stock on the Grant Date.
9. OPTION PERIOD
The Option Period under each Option shall be determined by the
Committee. An Option may be immediately exercisable or become exercisable in
such installments, cumulative or non-cumulative, as the Committee may determine.
In the case of an Option not otherwise immediately exercisable in full, the
Committee may accelerate the exercisability of such Option in whole or in part
at any time.
10. GRANT OF OPTIONS IN REPLACEMENT OF EXISTING OPTIONS
The Committee may in its discretion grant Options in exchange for
outstanding options of the Company or any Related Entity, or other entity that
in connection with any such grant will become a Related Entity. The Committee
may condition any such grant on the termination of the existing option.
11. EXERCISE OF OPTION
An Option may be exercised by the Optionee giving written notice, in
the manner provided in Section 22, specifying the number of shares with respect
to which the Option is then being exercised. The notice shall be accompanied by
payment in the form of cash, or certified or bank check payable to the order of
the Company in an amount equal to the option price of the shares to be
purchased. Receipt by the Company of such notice and payment shall constitute
the exercise of the Option. Within 30 days thereafter but subject to the
remaining provisions of the Plan, the Company shall deliver or cause to be
delivered to the Optionee or his agent a certificate or certificates for the
number of shares then being purchased. Such shares shall be fully paid and
nonassessable. Nothing herein shall be construed to preclude the Company from
participating in a so-called "cashless exercise", provided the Optionee or other
person exercising the Option and each other party involved in any such exercise
shall comply with such procedures, and enter into such agreements, of indemnity
or otherwise, as the Company shall specify.
12. RESTRICTIONS ON ISSUES OF SHARES
12.1 VIOLATION OF LAW. Notwithstanding any other provision of the
Plan, if, at any time, in the reasonable opinion of the Company the issuance of
shares of Stock covered by the exercise of any Option may constitute a violation
of law, then the Company may delay such issuance and the delivery of a
certificate for such shares until (i) approval shall have been obtained from
such governmental agencies, other than the Securities and Exchange Commission,
as may be required under any applicable law, rule, or regulation; and (ii) in
the case where such issuance would constitute a violation of a law administered
by or a regulation of the Securities
<PAGE>
and Exchange Commission, one of the following conditions shall have been
satisfied:
(a) the shares with respect to which such Option has been exercised
are at the time of the issue of such shares effectively
registered under the Act; or
(b) the Company shall have received an opinion, in form and substance
satisfactory to the Company, from the Company's legal counsel to
the effect that the sale, transfer, assignment, pledge,
encumbrance or other disposition of such shares or such
beneficial interest, as the case may be, does not require
registration under the Act or any applicable state securities
laws.
The Company shall make all reasonable efforts to bring about the occurrences of
said events.
12.2 EXECUTION OF BUY-BACK AGREEMENT; INTERPRETATION. Whenever shares
are to be issued pursuant to an Option, the Company shall be under no obligation
to issue such shares until such time, if ever, as the person who exercises such
Option, in whole or in part, shall have executed and delivered to the Company
the Buy-Back Agreement as specified by the Committee in connection with the
grant of such Option, if any. In the event of any conflict between the
provisions of this Plan and provisions of a Buy-Back Agreement or Employment
Agreement, the provisions of the Buy-Back Agreement or Employment Agreement
shall control, but insofar as possible the provisions of the Plan and any such
Agreement shall be construed so as to give full force and effect to all such
provisions.
12.3 PLACEMENT OF LEGENDS. Each certificate representing shares
issued upon the exercise of an Option will bear restrictive legends which may
refer to applicable restrictions under the Buy-Back Agreement and Employment
Agreement, if any.
13. PURCHASE FOR INVESTMENT; SUBSEQUENT REGISTRATION
13.1 INVESTMENT REPRESENTATION. Unless the shares to be issued upon
exercise of an Option granted under the Plan have been effectively registered
under the Act, the Company shall be under no obligation to issue any shares
covered by any Option unless the person who exercises such Option, in whole or
in part, shall give written representations to the Company which are
satisfactory in form and substance to its counsel and upon which the Company may
reasonably rely, including a representation that he or she is acquiring the
shares issued pursuant to such exercise of the Option on his or her own account
for the purpose of investment and not with a view to, or for sale in connection
with, the distribution of any such shares.
13.2 REGISTRATION. If the Company shall deem it necessary or
desirable to register under the Act or other applicable statutes any shares with
respect to which an Option shall have been granted, or to qualify any such
shares for exemption from the Act or other applicable statutes, then the Company
shall take such action at its own expense. The Company
<PAGE>
may require from each Optionee, or each holder of shares of Stock acquired
pursuant to the Plan, such information in writing for use in any registration
statement, prospectus, preliminary prospectus or offering circular as is
reasonably necessary for such purpose and may require reasonable indemnity to
the Company and its officers and directors from such holder against all losses,
claims, damage and liabilities arising from such use of the information so
furnished and caused by an untrue statement of any material fact therein or
caused by the omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances under which they are made. In addition, the Company may require
of any such person that he or she agree that, without the prior written consent
of the Company or such managing underwriter, he or she will not sell, make any
short sale of, loan, grant any option for the purchase of, pledge or otherwise
encumber, or otherwise dispose of, any shares of Stock during the 180 day period
commencing on the effective date of the registration statement relating to such
underwritten public offering of securities.
13.3 PLACEMENT OF LEGENDS; STOP ORDERS; ETC. Each share of Stock
issued pursuant to an Option granted under this Plan may bear a reference to the
investment representation made in accordance with Section 13.1 in addition to
any other applicable restriction under the Plan and the terms of the Option and
to the fact that no registration statement has been filed with the Securities
and Exchange Commission in respect to said Stock. All certificates for shares
of Stock or other securities delivered under the Plan shall be subject to such
stock-transfer orders and other restrictions as the Committee may deem advisable
under the rules, regulations, and other requirements of any stock exchange upon
which the Stock is then listed, and any applicable federal or state securities
law, and the Committee may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions.
14. WITHHOLDING.
Whenever shares are to be issued in satisfaction of an Option granted
hereunder, the Company shall have the right to require the Optionee to remit to
the Company an amount sufficient to satisfy federal, state, local or other
withholding tax requirements if and to the extent required by law (whether so
required to secure for the Company an otherwise available tax deduction or
otherwise) prior to the delivery of any certificate or certificates for such
shares.
15. TERMINATION OF ASSOCIATION WITH THE COMPANY
Unless the Committee shall provide otherwise in the grant of a
particular Option under the Plan, if the Optionee's employment or other
association with the Company is terminated, whether voluntarily or otherwise,
the Option shall immediately cease to be exercisable in any respect. Military
or sick leave shall not be deemed a termination of employment or other
association, provided that it does not exceed the longer of 90 days or the
period during which the absent Optionee's reemployment rights, if any, are
guaranteed by statute or by contract.
<PAGE>
16. TRANSFERABILITY OF OPTIONS
Options shall not be transferable, other than as set forth in any
Option Agreement and by will or the laws of descent and distribution, and may
be exercised during the life of the Optionee only by the Optionee and such
permitted transferees.
17. ADJUSTMENTS FOR CORPORATE TRANSACTIONS
17.1 ADJUSTMENT OF SHARES. Unless otherwise expressly provided in a
particular Option, in the event that, by reason of any merger, consolidation,
combination, liquidation, reorganization, recapitalization, stock dividend,
stock split, split-off, spin-off, combination of shares, exchange of shares or
other like change in capital structure of the Company (collectively, a
"Reorganization"), the Stock is substituted, combined, or changed into any cash,
property, or other securities, or the shares of Stock are changed into a greater
or lesser number of shares of Stock, the number and/or kind of shares and/or
interests subject to an Option and the per share price or value thereof shall be
appropriately adjusted by the Committee to give appropriate effect to such
Reorganization, such that the Option shall thereafter be exercisable for such
securities, cash, and/or other property as would have been received in respect
of the Stock subject to the Option had the Option been exercised in full
immediately prior to such event; PROVIDED, HOWEVER, that the per share price, as
adjusted shall never be less than the par value of such share of Stock. Any
fractional shares or interests resulting from such adjustment shall be
eliminated.
In the event the Company is not the surviving entity of a
Reorganization and, following such Reorganization, any Optionee will hold
Options issued pursuant to this Plan which have not been exercised, canceled, or
terminated in connection therewith, the Company shall cause such Options to be
assumed (or canceled and replacement Options of equivalent value issued) by the
surviving entity or a Related Entity.
17.2 DISSOLUTION OR LIQUIDATION. Upon dissolution or liquidation of
the Company, the Option shall terminate, but the Optionee (if at the time of the
employ of or otherwise associated with the Company or any of its Affiliates)
shall have the right, immediately prior to such dissolution or liquidation, to
exercise the Option to the extent exercisable on the date of such dissolution or
liquidation.
17.3 RELATED MATTERS. Any adjustment required by this Section 17
shall be determined and made by the Committee. No fraction of a share shall be
purchasable or deliverable upon exercise, but in the event any adjustment
hereunder of the number of shares covered by the Option shall cause such number
to include a fraction of a share, such number of shares shall be adjusted to the
nearest smaller whole number of shares. In the event of changes in the
outstanding Stock by reason of any stock dividend, split-up, construction,
reclassification, or change of outstanding shares of Stock of the nature
contemplated by this Section 17, the number of shares of Stock available for the
purposes of the Plan as stated in Section 4 shall be
<PAGE>
correspondingly adjusted.
18. RESERVATION OF STOCK
The Company shall at all times during the term of the Plan and any
outstanding Options granted hereunder reserve or otherwise keep available such
number of shares of Stock as will be sufficient to satisfy the requirements of
the Plan (if then in effect) and such Options and shall pay all fees and
expenses necessarily incurred by the Company in connection therewith.
<PAGE>
19. LIMITATION OF RIGHTS IN STOCK;
NO SPECIAL EMPLOYMENT OR OTHER RIGHTS
The Optionee shall not be deemed for any purpose to be a stockholder
of the Company with respect to any of the shares of Stock covered by an Option,
except to the extent that the Option shall have been exercised with respect
thereto and, in addition, a certificate shall have been issued therefor and
delivered to the Optionee or his agent. Any Stock issued pursuant to the Option
shall be subject to all restrictions upon the transfer thereof which may be now
or hereafter imposed by the Certificate of Incorporation, the by-laws of the
Company, a Buy-Back Agreement and an Employment Agreement. Nothing contained in
the Plan or in any Option shall confer upon any Optionee any right with respect
to the continuation of his or her employment or other association with the
Company (or any Affiliate), or interfere in any way with the right of the
Company (or any Affiliate), subject to the terms of any separate employment or
consulting agreement or provision of law or corporate articles or by-laws to the
contrary, at any time to terminate such employment or consulting agreement or to
increase or decrease the compensation of the Optionee from the rate in existence
at the time of the grant of an Option.
20. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan by the Board nor the submission of
the Plan to the shareholders of the Company shall be construed as creating any
limitations on the power of the Board to adopt such other incentive arrangements
as it may deem desirable, including without limitation, the granting of stock
options other than under the Plan, and such arrangements maybe either applicable
generally or only in specific cases.
21. TERMINATION AND AMENDMENT OF THE PLAN
The Board may at any time terminate the Plan or make such
modifications of the Plan as it shall deem advisable. No termination or
amendment of the Plan may, without the consent of the Optionee to whom any
Option shall theretofore have been granted, adversely affect the rights of such
Optionee under such Option.
22. NOTICES AND OTHER COMMUNICATIONS
Any notice, demand, request or other communication hereunder to any
party shall be deemed to be sufficient if contained in a written instrument
delivered in person or duly sent by first class registered, certified or
overnight mail, postage prepaid, or telecopied with a confirmation copy by
regular, certified or overnight mail, addressed or telecopied, as the case may
be, (i) to the Optionee, at his or her residence address last filed with the
Company and (ii) if to the Company, c/o Ardshiel, Inc., 230 Park Avenue, Suite
527, New York, New York 10169, Attn: Daniel T. Morley, with copies as directed
pursuant to the relevant Option Agreement (if any), or to such other address, as
the addressee may have designated by notice to the
<PAGE>
addressor. All such notices, requests, demands and other communications shall
be deemed to have been received: (i) in the case of personal delivery, on the
date of such delivery; (ii) in the case of facsimile transmission, when
confirmed by facsimile machine report.
23. GOVERNING LAW
The Plan and all Options and actions taken thereunder shall be
governed, interpreted and enforced in accordance with the laws of the State of
Delaware, without regard to the conflict of laws principles thereof.
*___________*___________*___________
The following does not form part of this Plan but is included solely for
informational purposes:
Date of Initial Board Approval: _______________, 1998
Date of Shareholder Approval: _______________, 1998
<PAGE>
D AND W HOLDINGS, INC.
REPLACEMENT STOCK OPTION PLAN
TABLE OF CONTENTS
PAGE
1. PURPOSE. . . . . . . . . . . . . . . . . . . . . . . .
2. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . .
3. TERM OF THE PLAN . . . . . . . . . . . . . . . . . . .
4. STOCK SUBJECT TO THE PLAN. . . . . . . . . . . . . . .
5. ADMINISTRATION . . . . . . . . . . . . . . . . . . . .
6. ELIGIBILITY: MAXIMUM GRANT PER INDIVIDUAL. . . . . . .
7. TIME OF GRANTING OPTIONS . . . . . . . . . . . . . . .
8. OPTION PRICE . . . . . . . . . . . . . . . . . . . . .
9. OPTION PERIOD. . . . . . . . . . . . . . . . . . . . .
10. GRANT OF OPTIONS IN REPLACEMENT OF EXISTING OPTIONS. .
11. EXERCISE OF OPTION . . . . . . . . . . . . . . . . . .
12. RESTRICTIONS ON ISSUES OF SHARES . . . . . . . . . . .
12.1 Violation of Law. . . . . . . . . . . . . . . . .
12.2 Execution of Buy-Back Agreement; Interpretation..
12.3 Placement of Legends. . . . . . . . . . . . . . .
13. PURCHASE FOR INVESTMENT; SUBSEQUENT REGISTRATION . . .
13.1 Investment Representation.. . . . . . . . . . . .
13.2 Registration. . . . . . . . . . . . . . . . . . .
<PAGE>
13.3 Placement of Legends; Stop Orders; etc. . . . . .
14. WITHHOLDING. . . . . . . . . . . . . . . . . . . . . .
15. TERMINATION OF ASSOCIATION WITH THE COMPANY. . . . . .
16. TRANSFERABILITY OF OPTIONS . . . . . . . . . . . . . .
TABLE OF CONTENTS
PAGE
17. ADJUSTMENTS FOR CORPORATE TRANSACTIONS . . . . . . . .
17.1 Adjustment of Shares. . . . . . . . . . . . . . .
17.2 Dissolution or Liquidation. . . . . . . . . . . .
17.3 Related Matters.. . . . . . . . . . . . . . . . .
18. RESERVATION OF STOCK . . . . . . . . . . . . . . . . .
19. LIMITATION OF RIGHTS IN STOCK;
NO SPECIAL EMPLOYMENT OR OTHER RIGHTS. . . . . . . . .
20. NONEXCLUSIVITY OF THE PLAN . . . . . . . . . . . . . .
21. TERMINATION AND AMENDMENT OF THE PLAN. . . . . . . . .
22. NOTICES AND OTHER COMMUNICATIONS . . . . . . . . . . .
23. GOVERNING LAW. . . . . . . . . . . . . . . . . . . . .
<PAGE>
TERMINATION AGREEMENT
This TERMINATION AGREEMENT (this "Agreement") is made and entered into as
of October 2, 1998, between Atrium Corporation, a Delaware corporation ("Atrium
Corp."), Atrium Companies, Inc., a Delaware corporation ("Atrium Co."), Hicks,
Muse & Co. Partners, L.P., a Texas limited partnership ("HM LP"), and Hicks,
Muse, Tate & Furst Incorporated, a Texas corporation ("HMTF Inc."). This
Agreement is being entered into in connection with that certain Agreement and
Plan of Merger dated as of August 3, 1998 (the "Merger Agreement") by and among
Atrium Corp., D and W Holdings, Inc., a Delaware corporation ("Parent"), D and W
Acquisition Corp., a Delaware corporation ("Sub") and the securityholders named
therein.
RECITALS
A. Atrium Corp., Atrium Co. and HM LP are parties to that certain
Monitoring and Oversight Agreement made and entered into effective as of
November 27, 1996 (the "Monitoring and Oversight Agreement").
B. Atrium Corp., Atrium Co. and HM LP are parties to that certain
Financial Advisory Agreement made and entered into effective as of November 27,
1996 (the "Financial Advisory Agreement").
C. Atrium Corp., HMTF Inc. and the persons listed on SCHEDULE 1 hereto
are parties to that certain Stockholders Agreement, dated November 27, 1996 (the
"Stockholders Agreement").
D. Atrium Corp., HMTF Inc. and the persons listed on SCHEDULE 2 hereto
are parties to certain Buy-Sell Agreements, identified by date on SCHEDULE 2
hereto (collectively, the "Buy-Sell Agreements").
E. Atrium Corp., Atrium Co. and HM LP desire to terminate certain
provisions of (i) the Monitoring and Oversight Agreement, and (ii) the Financial
Advisory Agreement.
F. The Merger Agreement provides that the Stockholders Agreement and the
Buy-Sell Agreements shall be terminated effective as of the Closing and, to
effect such termination, HMTF Inc. is willing to execute, deliver and enter into
this Agreement.
AGREEMENTS
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Atrium Corp., Atrium Co. and HM LP hereby terminate all of the terms
and provisions set forth in the Monitoring and Oversight Agreement other than
Section 5 (to the extent such section would otherwise survive following the
closing of the transactions
<PAGE>
contemplated in the Merger Agreement), such termination to be effective as of
the date hereof. Atrium Corp., Atrium Co. and HM LP hereby agree that no
party has breached any provision of the Monitoring and Oversight Agreement
and that from and after its termination hereunder, each of Atrium Corp.,
Atrium Co. and HM LP hereby release each other from any liability they would
otherwise have under the Monitoring and Oversight Agreement, except for any
liability that Atrium Corp. and Atrium Co. have to HM LP with respect to any
amounts owed under the Monitoring and Oversight Agreement as of the date
hereof.
2. Atrium Corp., Atrium Co. and HM LP hereby terminate all of the terms
and provisions set forth in the Financial Advisory Agreement other than Section
5 (to the extent such section would otherwise survive following the closing of
the transactions contemplated in the Merger Agreement), such termination to be
effective as of the date hereof. Atrium Corp., Atrium Co. and HM LP hereby
agree that no party has breached any provision of the Financial Advisory
Agreement and that from and after its termination hereunder, each of Atrium
Corp., Atrium Co. and HMLP hereby release each other from any liability they
would otherwise have under the Financial Advisory Agreement.
3. HMTF Inc. hereby consents to the termination of the Stockholders
Agreement, such termination to be effective as of the date hereof. HMTF Inc.
hereby agrees that no party has breached any term or provision of the
Stockholders Agreement and that from and after its termination hereunder, HMTF
hereby releases each other party to the Stockholders Agreement from any
liability they would otherwise have to HMTF under the Stockholders Agreement.
4. HMTF Inc. hereby consents to the termination of the Buy-Sell
Agreements, such termination to be effective as of the date hereof. HMTF
Inc. hereby agrees that no party to the Buy-Sell Agreements has breached any
term or provision of his, her or its Buy-Sell Agreement and that from and
after its termination hereunder, HMTF hereby releases each other party to
each Buy-Sell Agreement from any liability they would otherwise have to HMTF
under such Buy-Sell Agreement.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK]
<PAGE>
IN WITNESS WHEREOF, Atrium Corp., Atrium Co., HM LP and HMTF Inc. have
caused this Agreement to be signed, all as of the date first written above.
ATRIUM CORPORATION
By:
-----------------------------------------------
Randall S. Fojtasek,
President and Chief Executive Officer
ATRIUM COMPANIES, INC.
By:
-----------------------------------------------
Randall S. Fojtasek,
President and Chief Executive Officer
HICKS, MUSE & CO. PARTNERS, L.P.
By: HM PARTNERS INC.,
its General Partner
By:
-----------------------------------------------
Name:
------------------------------------------
Title:
-----------------------------------------
HICKS, MUSE, TATE & FURST
INCORPORATED
By:
-----------------------------------------------
Jeffry S. Fronterhouse,
Vice President
<PAGE>
SCHEDULE 1
Heritage Fund I, L.P.
Joe Fojtasek
Randall S. Fojtasek,
Russell S. Fojtasek
Hicks, Muse, Tate & Furst Equity Fund III, L.P.
HM3 Coinvestors, L.P.
O. Haynes Morris, Jr., Trustee of the Jack Martin Fojtasek Trust
O. Haynes Morris, Jr., Trustee of the Joe Fojtasek II Trust
O. Haynes Morris, Jr., Trustee of the P. Michael Fojtasek Trust
Joe Fojtasek, as custodian for Phillip Michael Fojtasek
<PAGE>
SCHEDULE 2
<TABLE>
<CAPTION>
NAME DATE OF AGREEMENT
---- -----------------
<S> <C>
Kevin Schumacher 11/27/96
Edwin Beachly 11/27/96
Thomas Bowen 11/27/96
John Craine 11/27/96
James Gresham 11/27/96
Michael Hillmeyer 11/27/96
Jeff Hull 11/27/96
Richard Kettle 11/27/96
Dow Pointer 11/27/96
James Wright 11/27/96
James McGlinn 09/19/97
Fred Bengtson 03/27/98
Robert Deakin 03/27/98
Michael Easterly 03/27/98
</TABLE>
<PAGE>
THIS WARRANT AND THE SHARES OF COMMON STOCK PURCHASABLE HEREUNDER HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES
LAWS OF ANY STATE OR OTHER JURISDICTION AND MAY NOT BE SOLD, OFFERED FOR SALE OR
OTHERWISE TRANSFERRED UNLESS REGISTERED OR QUALIFIED UNDER SAID ACT AND
APPLICABLE STATE SECURITIES LAWS OR UNLESS THE COMPANY RECEIVES AN OPINION OF
COUNSEL IN FORM AND SCOPE REASONABLY SATISFACTORY TO THE COMPANY THAT
REGISTRATION, QUALIFICATION OR OTHER SUCH ACTIONS ARE NOT REQUIRED UNDER ANY
SUCH LAWS. THE OFFERING OF THIS SECURITY HAS NOT BEEN REVIEWED OR APPROVED BY
ANY STATE'S SECURITIES ADMINISTRATOR. THIS WARRANT AND THE SHARES OF COMMON
STOCK PURCHASABLE HEREUNDER ARE ALSO SUBJECT TO A STOCKHOLDERS AGREEMENT, DATED
AS OF OCTOBER 2, 1998, BY AND AMONG THE COMPANY AND THE OTHER PARTIES LISTED
THEREIN, COPIES OF WHICH ARE ON FILE WITH THE COMPANY AND WILL BE FURNISHED UPON
WRITTEN REQUEST AND WITHOUT CHARGE. THIS WARRANT IS ALSO SUBJECT TO AN
EXECUTIVE EMPLOYMENT AGREEMENT DATED AS OF OCTOBER 2, 1998 BY AND BETWEEN THE
COMPANY AND RANDALL S. FOJTASEK, A COPY OF WHICH IS ON FILE WITH THE COMPANY
AND WILL BE FURNISHED UPON WRITTEN REQUEST AND WITHOUT CHARGE TO THE REGISTERED
HOLDER OF THIS WARRANT.
Dated: October 2, 1998
WARRANT
To Purchase 4,735,369 Shares of Common Stock
D AND W HOLDINGS, INC.
EXPIRING October 2, 2008.
THIS IS TO CERTIFY THAT, for value received, Randall S. Fojtasek, or
registered assigns as a holder of this Warrant (the "Holder") is entitled to
purchase from D and W Holdings, Inc., a Delaware corporation (the "Company"),
at any time or from time to time prior to 5:00 p.m., Dallas, Texas time,
October 2, 2008 at the place where the
<PAGE>
Warrant Agency (as hereinafter defined) is located, (i) at the A Exercise
Price (as hereinafter defined) 2,841,221 shares of common stock, par value
$.01 per share (the "Common Stock"), of the Company (the "A Warrant"), and
(ii) at the B Exercise Price (as hereinafter defined) a number of shares of
Common Stock equal to the product obtained when 1,894,148 is multiplied by a
fraction, the numerator of which is the number of days prior to October 2,
2001 which have elapsed after (and excluding) the date hereof and the
denominator of which is 1095 (the "B Warrant", and, collectively with the A
Warrant, the "Warrant"), all subject to adjustment and upon the terms and
conditions as hereinafter provided; provided, however, in no event may the B
Warrant be exercised by the Holder prior to the occurrence of a Triggering
Event (as hereinafter defined). The Holder shall designate at the time of
exercise whether the Holder is exercising an A Warrant or a B Warrant and the
number of shares of Common Stock to be purchased respectively thereunder.
Certain terms used in this Warrant are defined in Article V.
ARTICLE I
EXERCISE OF WARRANTS
1.1 METHOD OF EXERCISE. To exercise this Warrant in whole or in
part, the Holder shall deliver to the Company, at the Warrant Agency, (a)
this Warrant, (b) a written notice, in substantially the form of the
Subscription Notice attached hereto as Annex A, of such Holder's election to
exercise this Warrant, which notice shall specify (i) whether the Holder is
exercising an A Warrant and/or a B Warrant, (ii) the number of shares of
Common Stock to be purchased under an A Warrant and/or a B Warrant, as
applicable, (iii) the denominations of the share certificate or certificates
desired, (iv) the name or names in which such certificate or certificates are
to the registered, and (v) with respect to the exercise of a B Warrant, that
Holder requests the Board of Directors to determine whether a Triggering
Event has occurred, (c) if the Common Stock to be received upon the exercise
of this Warrant has not been registered under the Securities Act, a written
certification in substantially the form of the Certification attached hereto
as Annex B, and (d) payment of the Exercise Price with respect to such
shares. Such payment may be made, at the option of the Holder, by cash,
money order, certified or bank cashier's check or wire transfer.
If the Holder delivers to the Company a written notice of exercise of
any vested portion of the B Warrant as contemplated in the first paragraph of
this Section 1.1, the Company's Board of Directors (the "Board") shall,
within thirty (30) days of the date
<PAGE>
such notice of exercise is received by the Company, deliver to Holder a
written notice stating whether a Triggering Event had occurred as of the date
the written exercise notice is received by the Company. If Holder disagrees
with such determination, Holder and the Board shall proceed diligently and in
good faith to agree on whether a Triggering Event had occurred as of the date
the written exercise notice was received by the Company. If such an
agreement has not been reached within fifteen (15) days from the date the
written notice of determination was delivered by the Board to the Executive,
the determination of whether a Triggering Event had occurred as of the date
the written exercise notice was received by the Company shall be made by a
"Big Five" accounting firm selected by the Board of Directors of the Company,
and reasonably acceptable to Holder, within forty-five (45) days from the
date written notice was delivered by the Board to the Executive that no
Triggering Event had occurred. If such Big Five accounting firm determines
that a Triggering Event had occurred as of the date the exercise notice was
received, the fees and expenses of such accounting firm incurred in making
such determination shall be paid by the Company. If such Big Five accounting
firm determines that a Triggering Event had not occurred as of the date the
exercise notice was received, the fees and expenses of such accounting firm
shall be paid by Holder. In no event shall the Holder be entitled to deliver
a notice of exercise for all or any portion of the B Warrant more than twice
in any twelve month period which begins on October 2 of any year prior to
2008.
With respect to the exercise of the A Warrant, the Company shall, as
promptly as practicable and in any event within five Business Days after receipt
of such written notice of exercise, execute and deliver or cause to be executed
and delivered, in accordance with such notice, a certificate or certificates
representing the aggregate number of shares of Common Stock specified in said
notice. With respect to the exercise of the B Warrant, the Company shall, as
promptly as practicable, and in any event within five Business Days after the
final determination that a Triggering Event had occurred as contemplated in the
second paragraph of this Section 1.1, execute and deliver or cause to be
executed and delivered, in accordance with such notice, a certificate or
certificates representing the aggregate number of shares of Common Stock
specified in said notice. The share certificate or certificates so delivered
shall be in such denominations as may be specified in such notice or, if such
notice shall not specify denominations, shall be in the amount of the number of
shares of Common Stock for which the Warrant is being exercised, and shall be
issued in the name of the Holder or such other name or names as shall be
designated in such notice. Such certificate or certificates shall be deemed to
have been issued, and such Holder or any other Person so designated to be named
therein shall be deemed for all purposes to have become a holder of record of
such shares, as of the date the aforementioned notice is received by the
Company. If this Warrant shall have been exercised only in part, the Company
shall, at the time of delivery of the certificate or
<PAGE>
certificates, deliver to the Holder a new Warrant evidencing the rights to
purchase the remaining shares of Common Stock which may be purchased under
the A Warrant and/or the B Warrant, as applicable, which new Warrant shall in
all other respects be identical with this Warrant, or, at the request of the
Holder, appropriate notation may be made on this Warrant which shall then be
returned to the Holder. The Company shall pay all expenses, taxes (if any)
and other charges payable in connection with the preparation, issuance and
delivery of share certificates and a new Warrant, except that, if share
certificates or a new Warrant shall be registered in a name or names other
than the name of the Holder, funds sufficient to pay all transfer taxes
payable as a result of such transfer shall be paid by the Holder at the time
of delivery of the aforementioned notice of exercise or promptly upon receipt
of a written request of the Company for payment.
1.2 SHARES TO BE FULLY PAID AND NONASSESSABLE. All shares of Common
Stock issued upon the exercise of this Warrant shall be validly issued, fully
paid and nonassessable and free from all preemptive rights of any stockholder,
and from all taxes.
1.3 NO FRACTIONAL SHARES TO BE ISSUED. The Company shall not be
required to issue fractions of shares of Common Stock upon exercise of this
Warrant. If any fraction of a share would, but for this Section, be issuable
upon any exercise of this Warrant, in lieu of such fractional share the
Company shall pay to the Holder, in cash, an amount equal to such fraction of
the Fair Market Value per share of Common Stock of the Company on the
Business Day immediately prior to the date of such exercise.
1.4 SHARE LEGEND. Each certificate for shares of Common Stock
issued upon exercise of this warrant, unless at the time of exercise such
shares are registered under the Securities Act, shall bear the following
legend:
"This security has not been registered under the Securities Act of
1933, as amended, or under the securities laws of any state or
other jurisdiction and may not be sold, offered for sale or
otherwise transferred unless registered or qualified under said
Act and applicable state securities laws or unless the Company
receives an opinion of counsel in form and scope reasonably
satisfactory to the Company that registration, qualification or
other such actions are not required under any such laws. The
offering of this security has not been reviewed or approved by any
state securities administrator. This security is subject to a
Stockholders Agreement, dated as of October 2, 1998, between the
Company and the other parties listed therein, copies of which are
on file with the Company and will be furnished upon written
request and without charge."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public
<PAGE>
distribution pursuant to a registration statement under the
Securities Act) shall also bear such legend unless, in the opinion of counsel
selected by the holder of such certificate and reasonably acceptable to the
Company, the secunties represented thereby are no longer subject to restrictions
on resale under the Securities Act.
1.5 RESERVATION; AUTHORIZATION. The Company has reserved and will
keep available for issuance upon exercise of this Warrant the total number of
shares of Common Stock deliverable upon exercise of this Warrant from time to
time outstanding. The issuance of such shares has been duly and validly
authorized and, when issued and sold in accordance with this Warrant, such
shares will be duly and validly issued, fully paid and nonassessable.
ARTICLE II
WARRANT AGENCY; TRANSFER, EXCHANGE
AND REPLACEMENT OF WARRANTS
2.1 WARRANT AGENCY. At any time after a public offering of Common
Stock registered under the Securities Act, the Company may promptly appoint
and thereafter maintain, at its own expense, an agency in New York, New York,
which agency may be the Company's then existing transfer agent (the "Warrant
Agency"), for certain purposes specified herein, and shall give prompt notice
of such appointment (and appointment of any successor Warrant Agency) to the
Holder. Until an independent Warrant Agency is so appointed, the Company
shall perform the obligations of the Warrant Agency provided herein at its
address as specified on the signature page hereto or such other address as
the Company shall specify by notice to the Holder.
2.2 OWNERSHIP OF WARRANT. The Company may deem and treat the
Person in whose name this Warrant is registered as the Holder and owner
hereof (notwithstanding any notations of ownership or writing hereon made by
any Person other than the Warrant Agency) for all purposes and shall not be
affected by any notice to the contrary, until presentation of this Warrant
for registration of transfer as provided in this Article II.
2.3 TRANSFER OF WARRANT. Holder may not sell, assign, transfer,
pledge or otherwise dispose of ("Transfer") all or any portion of this
Warrant, either voluntarily or involuntarily or by operation of law, other
than by will or the laws of descent and distribution; provided, that Holder
may Transfer all or any portion of the Warrant to Holder's Personal
Representative, so long as such Personal Representative agrees to be bound by
the provisions hereof.
<PAGE>
2.4 DIVISION OF WARRANT. This Warrant may be divided upon
surrender hereof to the Warrant Agency, together with a written notice
specifying the names and denominations in which the new Warrants are to be
issued, signed by the Holder. Subject to compliance with Section 2.3 as to
any Transfer which may be involved in the division, the Company shall execute
and deliver new Warrants in exchange for the Warrant or Warrants to be
divided in accordance with such notice.
2.5 LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANTS. Upon
receipt of evidence satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant and, in the case of any such loss,
theft or destruction, upon receipt of indemnity or security reasonably
satisfactory to the Company, or, in the case of any such mutilation, upon
surrender and cancellation of such Warrant, the Company will make and
deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant, a new
Warrant of like tenor and representing the right to purchase the same
aggregate number of shares of Common Stock as provided for in such lost,
stolen, destroyed or mutilated Warrant.
2.6 EXPENSES OF DELIVERY OF WARRANTS. The Company shall pay all
expenses, taxes (other than transfer taxes) and other charges payable in
connection with the preparation, issuance and delivery of this Warrant and
the Common Stock issuable hereunder.
ARTICLE III
CERTAIN RIGHTS
3.1 STOCKHOLDERS AGREEMENT. This Warrant and the Common Stock
issuable upon exercise of this Warrant are subject to a Stockholders
Agreement dated as of October 2, 1998, by and among the Company and the other
parties listed therein (the "Stockholders Agreement"). The Company shall
keep a copy of the Stockholders Agreement, and any amendments thereto, at the
Warrant Agency and shall furnish copies thereof to the Holder upon request.
3.2 NOTICE OF FAIR MARKET VALUE. Upon each determination of Fair
Market Value hereunder (other than a determination relating solely to setting
the value of fractional shares), the Company shall promptly give notice
thereof to the Holder.
ARTICLE IV
ANTIDILUTION PROVISIONS
<PAGE>
4.1 ADJUSTMENTS GENERALLY. The Exercise Price and the number of
shares of Common Stock (or other securities or property) issuable upon
exercise of this Warrant shall be subject to adjustment from time to time
upon the occurrence of certain events, as provided in this Article IV.
4.2 COMMON STOCK REORGANIZATION. If the Company shall after the
date of issuance of this Warrant subdivide its outstanding shares of Common
Stock into a greater number of shares or consolidate its outstanding shares
of Common Stock into a smaller number of shares (any such event being called
a "Common Stock Reorganization"), then (a) the A Exercise Price and the B
Exercise Price shall each be adjusted, effective immediately after the record
date at which the holders of shares of Common Stock are determined for
purposes of such Common Stock Reorganization, to a price determined by
multiplying the applicable Exercise Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding on such record date before giving effect
to such Common Stock Reorganization and the denominator of which shall be the
number of shares of Common Stock outstanding after giving effect to such
Common Stock Reorganization, and (b) the number of shares of Common Stock
subject to purchase upon exercise of the A Warrant and the B Warrant shall
each be adjusted, effective at such time, to a number determined by
multiplying the number of shares of Common Stock subject to purchase
immediately before such Common Stock Reorganization by a fraction, the
numerator of which shall be the number of shares outstanding after giving
effect to such Common Stock Reorganization and the denominator of which shall
be the number of shares of Common Stock outstanding immediately before such
Common Stock Reorganization.
4.3 CAPITAL REORGANIZATION. If after the date of issuance of this
Warrant there shall be any consolidation or merger to which the Company is a
party, other than a consolidation or a merger in which the Company is a
continuing corporation and which does not result in any reclassification of,
or change (other than a Common Stock Reorganization or a change in par value)
in, outstanding shares of Common Stock, or any sale or conveyance of the
property of the Company as an entirety or substantially as an entirety (any
such event being called a "Capital Reorganization"), then, effective upon the
effective date of such Capital Reorganization, the Holder shall have the
right to purchase, upon exercise of this Warrant, the kind and amount of
shares of stock and other securities and property (including cash) which the
Holder would have owned or have been entitled to receive after such Capital
Reorganization if this Warrant had been exercised as permitted herein
immediately prior to such Capital Reorganization. As a condition to
effecting any Capital Reorganization, the Company or the successor or
surviving corporation, as the case may be, shall execute and deliver to the
Holder an agreement as to the Holder's rights in accordance with this Section
4.2, providing for subsequent adjustments as nearly equivalent as may be
practicable to the adjustments provided for in this Article IV. The
provisions of this Section 4.2 shall similarly apply to successive
<PAGE>
Capital Reorganizations.
4.4 CERTAIN OTHER EVENTS. If any event occurs after the date of
issuance of this Warrant as to which the foregoing provisions of this Article
IV are not strictly applicable or, if strictly applicable, would not, in the
good faith judgment of the Board of Directors of the Company (the "Board"),
fairly protect the purchase rights of the Holder in accordance with the
essential intent and principles of such provisions, then the Board shall make
such adjustments in the application of such provisions, in accordance with
such essential intent and principles, as shall be reasonably necessary, in
the good faith opinion of the Board, to protect such purchase rights as
aforesaid.
4.5 ADJUSTMENT RULES.
(a) Any adjustments pursuant to this Article IV shall be made
successively whenever an event referred to herein shall occur.
(b) If the Company shall set a record date to determine the holders
of shares of Common Stock for purposes of a Common Stock Reorganization or
Capital Reorganization, and shall legally abandon such action prior to
effecting such action, then no adjustment shall be made pursuant to this
Article IV in respect of such action.
(c) No adjustment in the amount of shares purchasable upon exercise
of this Warrant or in either of the Exercise Prices shall be made hereunder
unless such adjustment increases or decreases such amount or price by one
percent or more, but any such lesser adjustment shall be carried forward and
shall be made at the time and together with the next subsequent adjustment
which together with any adjustments so carried forward shall serve to adjust
such amount or price by one percent or more.
(d) No adjustment in the Exercise Price shall be made hereunder if
such adjustment would reduce the exercise price to an amount below par value
of the Common Stock, which par value shall initially be $.01 per share of
Common Stock.
4.6 NOTICE OF ADJUSTMENT. The Company shall give the Holder
reasonable notice of the record date or effective date, as the case may be,
of any action which requires or might require an adjustment or readjustment
pursuant to this Article IV. Such notice shall describe such event in
reasonable detail and specify the record date or effective date, as the case
may be, and, if determinable, the required adjustment and the computation
thereof. If the required adjustment is not determinable at the time of such
notice, the Company shall give reasonable notice to the Holder of such
adjustment and computation promptly after such adjustment becomes
determinable.
<PAGE>
ARTICLE V
DEFINITIONS
The following terms, as used in this Warrant, have the following
respective meanings:
"A Exercise Price" means for a particular exercise of the A Warrant, a
per share price of $0.01, as such per share price may be adjusted from time to
time pursuant to Article IV hereof.
"B Exercise Price" means for a particular exercise of the B Warrant, a
per share price of $1.00, as such per share price may be adjusted from time to
time pursuant to Article IV hereof.
"Business Day" shall mean (a) if any class of Common Stock is listed or
admitted to trading on a national securities exchange, a day on which the
principal national securities exchange on which such class of Common Stock is
listed or admitted to trading is open for business or (b) if no class of Common
Stock is so listed or admitted to trading, a day on which the New York Stock
Exchange is open for business.
"Capital Reorganization" shall have the meaning set forth in Section 4.3.
"Closing Price" with respect to any security on any day means (a) if such
security is listed or admitted for trading on a national securities exchange,
the reported last sales price regular way or, if no such reported sale occurs on
such day, the average of the closing bid and asked prices regular way on such
day, in each case as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which such class of security is listed or admitted to
trading, or (b) if such security is not listed or admitted to trading on any
national securities exchange, the last quoted sales price, or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market
on such day as reported by NASDAQ or any comparable system then in use or, if
not so reported, as reported by any New York Stock Exchange member firm
reasonably selected by the Company for such purpose.
"Common Stock" shall have the meaning set forth in the first paragraph of
this Warrant.
"Common Stock Reorganization" shall have the meaning set forth in Section
4.2.
<PAGE>
"Company" shall have the meaning set forth in the first paragraph of this
Warrant.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
any similar or successor federal statute, and the rules and regulations of the
Securities and Exchange Commission (or its successor) thereunder, all as the
same shall be in effect at the time.
"Exercise Price" shall mean the A Exercise Price and/or the B Exercise
Price, as applicable.
"Fair Market Value" means the fair market value of the business or
property in question, as determined in good faith by the Board, provided,
however, that the Fair Market Value of any security for which a Closing Price is
available shall be the Market Price of such security.
"Holder" shall have the meaning set forth in the first paragraph of this
Warrant. The term Holders shall refer to all Holders of Warrants.
"Initial Investment Amount" means the $50,000,000 equity investment paid
to the Company as of the date hereof.
"Market Price", with respect to any security on any day means the average
of the daily Closing Prices of a share or unit of such secunty for the 20
consecutive Business Days ending on the most recent Business Day for which a
Closing Price is available; provided, however, that in the event that, in the
case of Common Stock, the Market Price is determined during a period following
the announcement by the Company of any subdivision, combination or
reclassification of Common Stock or the record date for such subdivision,
combination or reclassification, then, and in each such case, the Market Price
shall be appropriately adjusted to reflect the current market price per share
equivalent of Common Stock.
"NASD" means The National Association of Securities Dealers, inc.
"NASDAQ" means The National Association of Secunties Dealers, Inc.
Automated Quotation System.
"Person" means an individual, corporation, limited liability company,
partnership, limited partnership, syndicate, person (including, vrithout
limitation, a "person" as defined in Section 1 3(d)(3) of the Exchange Act),
trust, association or other legal entity
<PAGE>
or government, political subdivision, agency or instrumentality of a
govemrnent.
"Personal Representative" means, with respect to any individual, any
executor, administrator, trustee, guardian or other legal representative of
such individual.
"Securities Act" shall mean the Securities Act of 1933, as amended,
and any similar or successor federal statute, and the rules and regulations
of the Securities and Exchange Commission (or its successor) thereunder, all
as the same shall be in effect at the time.
"Stockholders Agreement" shall have the meaning set forth in Section
3.1.
"Target IRR" means an internal rate of return of at least 8%, as
determined in good faith by the Board and calculated in accordance with
generally accepted financial practice, on the Initial Investment Amount
determined commencing as of the date of this Warrant.
"Triggering Event" means a date upon which the Board of Directors of
the Company determines that the Target IRR has been reached.
"Warrant Agency" shall have the meaning set forth in Section 2.1.
"Warrant" shall have the meaning set forth in the first paragraph of
this Warrant. The term "Warrants" shall also refer to the Warrants resulting
in any subdivision of this Warrant.
ARTICLE VI
MISCELLANEOUS
6.1 NOTICES. All notices, requests, consents and other
communications provided for herein shall be in writing and shall be effective
upon delivery in person, faxed or telecopied, or mailed by certified or
registered mail, return receipt requested, postage pre-paid, to the addresses
specified on the signature pages hereto or, in any case, at such other
address or addresses as shall have been furnished in writing to the Company
(in the case of a Holder) or to the Holder (in the case of the Company) in
accordance with the provisions of this paragraph.
6.2 WAIVERS; AMENDMENTS. No failure or delay of the Holder in
exercising any power or right hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Holder are
<PAGE>
cumulative and not exclusive of any rights or remedies which it would
otherwise have. The provisions of this Warrant may be amended, modified or
waived with (and only with) the written consent of the Company and Holders
who collectively hold Warrants to purchase a majority of the Common Stock
subject to purchase upon exercise of such Warrants at the time outstanding.
Any such amendment, modification or waiver effected pursuant to this
Section 6.2 shall be binding upon the Holders, upon each future Holder thereof
and upon the Company. In the event of any such amendment, modification or
waiver the Company shall give prompt notice thereof to all Holders and, if
appropriate, notation thereof shall be made on all Warrants thereafter
surrendered for registration of transfer or exchange.
No notice or demand on the Company in any case shall entitle the
Company to any other or further notice or demand in similar or other
circumstances.
6.3 GOVERNING LAW. This Warrant shall be construed in accordance
with and governed by the laws of the State of Delaware.
6.4 SEVERABILITY. In case any one or more of the provisions
contained in this Warrant shall be invalid, illegal or unenforceable in any
respect, the validity, legality or enforceability of the remaining provisions
contained herein and therein shall not in any way be affected or impaired
thereby. The parties shall endeavor in good faith negotiations to replace
the invalid, illegal or unenforceable provisions with valid provisions the
economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
6.5 SECTION HEADINGS. The section headings used herein are for
convenience of reference only, are not part of this Warrant and are not to
affect the construction of or be taken into consideration in interpreting
this Warrant.
6.6 NO RIGHTS AS STOCKHOLDER. This Warrant shall not entitle the
Holder to any rights as a stockholder of the Company.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
in its corporate name by one of its officers thereunto duly authorized, all
as of the day and year first above wntten.
D and W Holdings, Inc.
Address: By:
c/o Ardshiel, Inc. -----------------------------------
230 Park Avenue, Suite 2527 Name:
New York, New York 10169 ---------------------------------
Attention: Daniel T. Morley Title:
--------------------------------
ACCEPTED AND AGREED TO:
Name: Randall S. Fojtasek
Address: 3801 Maplewood Avenue
Dallas, TX 75205
<PAGE>
ANNEX A
SUBSCRIPTION NOTICE
(To be executed upon exercise of Warrant)
TO D AND W HOLDINGS, INC.:
The undersigned hereby irrevocably elects to exercise the attached
Warrant, and to purchase thereunder, in exercise of the / / A Warrant,
________ shares of Common Stock, and/or in exercise of the / / B Warrant,
________ shares of Common Stock in exchange for payment of an Exercise Price
in an aggregate amount equal to $________. With respect to the exercise of
the B Warrant, if applicable, the undersigned hereby requests that the Board
of Directors determine whether a Triggering Event has occurred.
Please issue a certificate or certificates for such shares of Common
Stock in the following name or names and denominations:
If said number of shares shall not be all the shares issuable upon
exercise of the attached Warrant, a new Warrant is to be issued in the name
of the undersigned for the balance remaining of such shares less any fraction
of a share paid in cash.
Dated: _________________, 19____
Note: The above signature
should correspond exactly
with the name on the face
of the attached Warrant
or with the name of the
assignee appearing in the
assignment form below.
<PAGE>
ANNEX B
CERTIFICATION
The undersigned hereby certifies to Atrium Corporation that he, she or
it is:
a. an "accredited investor" as that term is defined in
Regulation D promulgated pursuant to the Securities Act or
any successor regulation, as such provisions may be in
effect on the date hereof, and is an "accredited investor"
pursuant to Section 501 of such provision; and
b. is knowledgeable, sophisticated and experienced in business
and financial matters and in securities similar to the
Common Stock; is aware of the limitation on the transfer of
the Common Stock imposed by applicable securities laws and
any limitations on transfer imposed by contracts with the
Company or others; and has had access to, or been furnished
with, all information about the Common Stock and the Company
deemed necessary to conclude that he, she or it has the
ability to bear the economic risk of the investment in the
Common Stock and to afford the complete loss of such
investment.
IN WITNESS WHEREOF, the undersigned has executed this CERTIFICATION this
____ day of _______________, 199__.
For Individuals: For Entities:
--------------------------------------
Signature Printed Name of Entity
By:
-----------------------------------
Printed Name Name:
---------------------------------
Title:
--------------------------------
<PAGE>
THIS WARRANT AND THE SHARES OF COMMON STOCK PURCHASABLE HEREUNDER HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES
LAWS OF ANY STATE OR OTHER JURISDICTION AND MAY NOT BE SOLD, OFFERED FOR SALE OR
OTHERWISE TRANSFERRED UNLESS REGISTERED OR QUALIFIED UNDER SAID ACT AND
APPLICABLE STATE SECURITIES LAWS OR UNLESS THE COMPANY RECEIVES AN OPINION OF
COUNSEL IN FORM AND SCOPE REASONABLY SATISFACTORY TO THE COMPANY THAT
REGISTRATION, QUALIFICATION OR OTHER SUCH ACTIONS ARE NOT REQUIRED UNDER ANY
SUCH LAWS. THE OFFERING OF THIS SECURITY HAS NOT BEEN REVIEWED OR APPROVED BY
ANY STATE'S SECURITIES ADMINISTRATOR. THIS WARRANT AND THE SHARES OF COMMON
STOCK PURCHASABLE HEREUNDER ARE ALSO SUBJECT TO A STOCKHOLDERS AGREEMENT, DATED
AS OF OCTOBER 2, 1998, BY AND AMONG THE COMPANY AND THE OTHER PARTIES LISTED
THEREIN, COPIES OF WHICH ARE ON FILE WITH THE COMPANY AND WILL BE FURNISHED UPON
WRITTEN REQUEST AND WITHOUT CHARGE. THIS WARRANT IS ALSO SUBJECT TO AN
EXECUTIVE EMPLOYMENT AGREEMENT DATED AS OF OCTOBER 2, 1998 BY AND BETWEEN THE
COMPANY AND RANDALL S. FOJTASEK, A COPY OF WHICH IS ON FILE WITH THE COMPANY
AND WILL BE FURNISHED UPON WRITTEN REQUEST AND WITHOUT CHARGE TO THE REGISTERED
HOLDER OF THIS WARRANT.
Dated: October 2, 1998
EXCHANGE WARRANT
To Purchase 1,000,000 Shares of Common Stock
D AND W HOLDINGS, INC.
EXPIRING OCTOBER 2, 2018.
THIS IS TO CERTIFY THAT, for value received, Randall S. Fojtasek, or
registered assigns as a holder of this Exchange Warrant (the "Holder") is
entitled to purchase from D and W Holdings, Inc., a Delaware corporation (the
"Company"), at any time or from time to time prior to 5:00 p.m., Dallas, Texas
time, October 2, 2018 at the place where the Warrant Agency (as hereinafter
defined) is located, at the Exercise
<PAGE>
Price (as hereinafter defined) 1,000,000 shares of common stock, par value
$.01 per share (the "Common Stock"), of the Company (the "Exchange Warrant")
all subject to adjustment and upon the terms and conditions as hereinafter
provided. This Exchange Warrant is being issued by the Company in partial
exchange for a Warrant to purchase stock of Atrium Corporation, which has
become a wholy owned subsidiary of the Company on the date hereof.
Certain terms used in this Exchange Warrant are defined in Article V.
ARTICLE I
EXERCISE OF EXCHANGE WARRANTS
1.1 METHOD OF EXERCISE. To exercise this Exchange Warrant in whole or
in part, the Holder shall deliver to the Company, at the Warrant Agency, (a)
this Exchange Warrant, (b) a written notice, in substantially the form of the
Subscription Notice attached hereto as Annex A, of such Holder's election to
exercise this Exchange Warrant, which notice shall specify (i) the number of
shares of Common Stock to be purchased under the Exchange Warrant, (ii) the
denominations of the share certificate or certificates desired, (iii) the name
or names in which such certificate or certificates are to the registered, (c) if
the Common Stock to be received upon the exercise of this Exchange Warrant has
not been registered under the Securities Act, a written certification in
substantially the form of the Certification attached hereto as Annex B, and (d)
payment of the Exercise Price with respect to such shares. Such payment may be
made, at the option of the Holder, by cash, money order, certified or bank
cashier's check or wire transfer.
The Company shall, as promptly as practicable and in any event within
five Business Days after receipt of a written notice of exercise, execute and
deliver or cause to be executed and delivered, in accordance with such notice, a
certificate or certificates representing the aggregate number of shares of
Common Stock specified in said notice. The share certificate or certificates so
delivered shall be in such denominations as may be specified in such notice or,
if such notice shall not specify denominations, shall be in the amount of the
number of shares of Common Stock for which the Exchange Warrant is being
exercised, and shall be issued in the name of the Holder or such other name or
names as shall be designated in such notice. Such certificate or certificates
shall be deemed to have been issued, and such Holder or any other Person so
designated to be named therein shall be deemed for all purposes to have become a
holder of record of such shares, as of the date the aforementioned notice is
received by the Company. If this Exchange Warrant shall have been exercised
only in part, the Company shall, at the time of delivery of the certificate or
certificates, deliver to the Holder a new Exchange Warrant
<PAGE>
evidencing the rights to purchase the remaining
shares of Common Stock which may be purchased under the Exchange Warrant, as
applicable, which new Exchange Warrant shall in all other respects be
identical with this Exchange Warrant, or, at the request of the Holder,
appropriate notation may be made on this Exchange Warrant which shall then be
returned to the Holder. The Company shall pay all expenses, taxes (if any)
and other charges payable in connection with the preparation, issuance and
delivery of share certificates and a new Exchange Warrant, except that, if
share certificates or a new Exchange Warrant shall be registered in a name or
names other than the name of the Holder, funds sufficient to pay all transfer
taxes payable as a result of such transfer shall be paid by the Holder at the
time of delivery of the aforementioned notice of exercise or promptly upon
receipt of a written request of the Company for payment.
1.2 SHARES TO BE FULLY PAID AND NONASSESSABLE. All shares of Common
Stock issued upon the exercise of this Exchange Warrant shall be validly issued,
fully paid and nonassessable and free from all preemptive rights of any
stockholder, and from all taxes.
1.3 NO FRACTIONAL SHARES TO BE ISSUED. The Company shall not be
required to issue fractions of shares of Common Stock upon exercise of this
Exchange Warrant. If any fraction of a share would, but for this Section, be
issuable upon any exercise of this Exchange Warrant, in lieu of such fractional
share the Company shall pay to the Holder, in cash, an amount equal to such
fraction of the Fair Market Value per share of Common Stock of the Company on
the Business Day immediately prior to the date of such exercise.
1.4 SHARE LEGEND. Each certificate for shares of Common Stock issued
upon exercise of this Exchange Warrant, unless at the time of exercise such
shares are registered under the Securities Act, shall bear the following legend:
"This security has not been registered under the Securities Act of
1933, as amended, or under the securities laws of any state or
other jurisdiction and may not be sold, offered for sale or
otherwise transferred unless registered or qualified under said
Act and applicable state securities laws or unless the Company
receives an opinion of counsel in form and scope reasonably
satisfactory to the Company that registration, qualification or
other such actions are not required under any such laws. The
offering of this security has not been reviewed or approved by any
state securities administrator. This security is subject to a
Stockholders Agreement, dated as of October 2, 1998, between the
Company and the other parties listed therein, copies of which are
on file with the Company and will be furnished upon written
request and without charge."
Any certificate issued at any time in exchange or substitution for any
certificate
<PAGE>
bearing such legend (except a new certificate issued upon completion of a
public distribution pursuant to a registration statement under the Securities
Act) shall also bear such legend unless, in the opinion of counsel selected
by the holder of such certificate and reasonably acceptable to the Company,
the secunties represented thereby are no longer subject to restrictions on
resale under the Securities Act.
1.5 RESERVATION; AUTHORIZATION. The Company has reserved and will
keep available for issuance upon exercise of this Exchange Warrant the total
number of shares of Common Stock deliverable upon exercise of this Exchange
Warrant from time to time outstanding. The issuance of such shares has been
duly and validly authorized and, when issued and sold in accordance with this
Exchange Warrant, such shares will be duly and validly issued, fully paid and
nonassessable.
ARTICLE II
WARRANT AGENCY; TRANSFER, EXCHANGE
AND REPLACEMENT OF WARRANTS
2.1 WARRANT AGENCY. At any time after a public offering of Common
Stock registered under the Securities Act, the Company may promptly appoint and
thereafter maintain, at its own expense, an agency in New York, New York, which
agency may be the Company's then existing transfer agent (the "Warrant Agency"),
for certain purposes specified herein, and shall give prompt notice of such
appointment (and appointment of any successor Warrant Agency) to the Holder.
Until an independent Warrant Agency is so appointed, the Company shall perform
the obligations of the Warrant Agency provided herein at its address as
specified on the signature page hereto or such other address as the Company
shall specify by notice to the Holder.
2.2 OWNERSHIP OF EXCHANGE WARRANT. The Company may deem and treat the
Person in whose name this Exchange Warrant is registered as the Holder and owner
hereof (notwithstanding any notations of ownership or writing hereon made by any
Person other than the Warrant Agency) for all purposes and shall not be affected
by any notice to the contrary, until presentation of this Exchange Warrant for
registration of transfer as provided in this Article II.
2.3 TRANSFER OF EXCHANGE WARRANT. Holder may not sell, assign,
transfer, pledge or otherwise dispose of ("Transfer") all or any portion of this
Exchange Warrant, either voluntarily or involuntarily or by operation of law,
other than by will or the laws of descent and distribution; provided, that
Holder may Transfer all or any portion of the
<PAGE>
Exchange Warrant to Holder's Personal Representative, so long as such
Personal Representative agrees to be bound by the provisions hereof.
2.4 DIVISION OF EXCHANGE WARRANT. This Exchange Warrant may be
divided upon surrender hereof to the Warrant Agency, together with a written
notice specifying the names and denominations in which the new Exchange Warrants
are to be issued, signed by the Holder. Subject to compliance with Section 2.3
as to any Transfer which may be involved in the division, the Company shall
execute and deliver new Exchange Warrants in exchange for the Exchange Warrant
or Warrants to be divided in accordance with such notice.
2.5 LOSS, THEFT, DESTRUCTION OR MUTILATION OF EXCHANGE WARRANTS.
Upon receipt of evidence satisfactory to the Company of the loss, theft,
destruction or mutilation of this Exchange Warrant and, in the case of any such
loss, theft or destruction, upon receipt of indemnity or security reasonably
satisfactory to the Company, or, in the case of any such mutilation, upon
surrender and cancellation of such Exchange Warrant, the Company will make and
deliver, in lieu of such lost, stolen, destroyed or mutilated Exchange Warrant,
a new Exchange Warrant of like tenor and representing the right to purchase the
same aggregate number of shares of Common Stock as provided for in such lost,
stolen, destroyed or mutilated Exchange Warrant.
2.6 EXPENSES OF DELIVERY OF EXCHANGE WARRANTS. The Company shall pay
all expenses, taxes (other than transfer taxes) and other charges payable in
connection with the preparation, issuance and delivery of this Exchange Warrant
and the Common Stock issuable hereunder.
ARTICLE III
CERTAIN RIGHTS
3.1 STOCKHOLDERS AGREEMENT. This Exchange Warrant and the Common
Stock issuable upon exercise of this Exchange Warrant are subject to a
Stockholders Agreement dated as of October 2, 1998, by and among the Company
and the other parties listed therein (the "Stockholders Agreement"). The
Company shall keep a copy of the Stockholders Agreement, and any amendments
thereto, at the Warrant Agency and shall furnish copies thereof to the Holder
upon request.
3.2 NOTICE OF FAIR MARKET VALUE. Upon each determination of Fair
Market Value hereunder (other than a determination relating solely to setting
the value of fractional shares), the Company shall promptly give notice thereof
to the Holder.
<PAGE>
ARTICLE IV
ANTIDILUTION PROVISIONS
4.1 ADJUSTMENTS GENERALLY. The Exercise Price and the number of
shares of Common Stock (or other securities or property) issuable upon exercise
of this Exchange Warrant shall be subject to adjustment from time to time upon
the occurrence of certain events, as provided in this Article IV.
4.2 COMMON STOCK REORGANIZATION. If the Company shall after the date
of issuance of this Exchange Warrant subdivide its outstanding shares of Common
Stock into a greater number of shares or consolidate its outstanding shares of
Common Stock into a smaller number of shares (any such event being called a
"Common Stock Reorganization"), then (a) the Exercise Price shall each be
adjusted, effective immediately after the record date at which the holders of
shares of Common Stock are determined for purposes of such Common Stock
Reorganization, to a price determined by multiplying the applicable Exercise
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding on
such record date before giving effect to such Common Stock Reorganization and
the denominator of which shall be the number of shares of Common Stock
outstanding after giving effect to such Common Stock Reorganization, and (b) the
number of shares of Common Stock subject to purchase upon exercise of this
Exchange Warrant shall be adjusted, effective at such time, to a number
determined by multiplying the number of shares of Common Stock subject to
purchase immediately before such Common Stock Reorganization by a fraction, the
numerator of which shall be the number of shares outstanding after giving effect
to such Common Stock Reorganization and the denominator of which shall be the
number of shares of Common Stock outstanding immediately before such Common
Stock Reorganization.
4.3 CAPITAL REORGANIZATION. If after the date of issuance of this
Exchange Warrant there shall be any consolidation or merger to which the Company
is a party, other than a consolidation or a merger in which the Company is a
continuing corporation and which does not result in any reclassification of, or
change (other than a Common Stock Reorganization or a change in par value) in,
outstanding shares of Common Stock, or any sale or conveyance of the property of
the Company as an entirety or substantially as an entirety (any such event being
called a "Capital Reorganization"), then, effective upon the effective date of
such Capital Reorganization, the Holder shall have the right to purchase, upon
exercise of this Exchange Warrant, the kind and amount of shares of stock and
other securities and property (including cash) which the Holder would have owned
or
<PAGE>
have been entitled to receive after such Capital Reorganization if this
Exchange Warrant had been exercised as permitted herein immediately prior to
such Capital Reorganization. As a condition to effecting any Capital
Reorganization, the Company or the successor or surviving corporation, as the
case may be, shall execute and deliver to the Holder an agreement as to the
Holder's rights in accordance with this Section 4.2, providing for subsequent
adjustments as nearly equivalent as may be practicable to the adjustments
provided for in this Article IV. The provisions of this Section 4.2 shall
similarly apply to successive Capital Reorganizations.
4.4 CERTAIN OTHER EVENTS. If any event occurs after the date of
issuance of this Exchange Warrant as to which the foregoing provisions of this
Article IV are not strictly applicable or, if strictly applicable, would not, in
the good faith judgment of the Board of Directors of the Company (the "Board"),
fairly protect the purchase rights of the Holder in accordance with the
essential intent and principles of such provisions, then the Board shall make
such adjustments in the application of such provisions, in accordance with such
essential intent and principles, as shall be reasonably necessary, in the good
faith opinion of the Board, to protect such purchase rights as aforesaid.
4.5 ADJUSTMENT RULES.
(a) Any adjustments pursuant to this Article IV shall be made
successively whenever an event referred to herein shall occur.
(b) If the Company shall set a record date to determine the holders of
shares of Common Stock for purposes of a Common Stock Reorganization or Capital
Reorganization, and shall legally abandon such action prior to effecting such
action, then no adjustment shall be made pursuant to this Article IV in respect
of such action.
4.6 No adjustment in the amount of shares purchasable upon exercise of
this Exchange Warrant or in either of the Exercise Prices shall be made
hereunder unless such adjustment increases or decreases such amount or price by
one percent or more, but any such lesser adjustment shall be carried forward and
shall be made at the time and together with the next subsequent adjustment which
together with any adjustments so carried forward shall serve to adjust such
amount or price by one percent or more.
4.7 No adjustment in the Exercise Price shall be made hereunder if
such adjustment would reduce the exercise price to an amount below par value of
the Common Stock, which par value shall initially be $.01 per share of Common
Stock.
<PAGE>
4.8 NOTICE OF ADJUSTMENT. The Company shall give the Holder
reasonable notice of the record date or effective date, as the case may be, of
any action which requires or might require an adjustment or readjustment
pursuant to this Article IV. Such notice shall describe such event in
reasonable detail and specify the record date or effective date, as the case may
be, and, if determinable, the required adjustment and the computation thereof.
If the required adjustment is not determinable at the time of such notice, the
Company shall give reasonable notice to the Holder of such adjustment and
computation promptly after such adjustment becomes determinable.
ARTICLE V
DEFINITIONS
The following terms, as used in this Exchange Warrant, have the following
respective meanings:
"Business Day" shall mean (a) if any class of Common Stock is listed or
admitted to trading on a national securities exchange, a day on which the
principal national securities exchange on which such class of Common Stock is
listed or admitted to trading is open for business or (b) if no class of Common
Stock is so listed or admitted to trading, a day on which the New York Stock
Exchange is open for business.
"Capital Reorganization" shall have the meaning set forth in Section 4.3.
"Closing Price" with respect to any security on any day means (a) if such
security is listed or admitted for trading on a national securities exchange,
the reported last sales price regular way or, if no such reported sale occurs on
such day, the average of the closing bid and asked prices regular way on such
day, in each case as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which such class of security is listed or admitted to
trading, or (b) if such security is not listed or admitted to trading on any
national securities exchange, the last quoted sales price, or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market
on such day as reported by NASDAQ or any comparable system then in use or, if
not so reported, as reported by any New York Stock Exchange member firm
reasonably selected by the Company for such purpose.
"Common Stock" shall have the meaning set forth in the first paragraph of
this Exchange Warrant.
"Common Stock Reorganization" shall have the meaning set forth in Section
4.2.
<PAGE>
"Company" shall have the meaning set forth in the first paragraph of this
Exchange Warrant.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
any similar or successor federal statute, and the rules and regulations of the
Securities and Exchange Commission (or its successor) thereunder, all as the
same shall be in effect at the time.
"Exercise Price" means for a particular exercise of the Exchange
Warrant, a per share price of $0.01, as such per share price may be adjusted
from time to time pursuant to Article IV hereof.
"Fair Market Value" means the fair market value of the business or
property in question, as determined in good faith by the Board, provided,
however, that the Fair Market Value of any security for which a Closing Price is
available shall be the Market Price of such security.
"Holder" shall have the meaning set forth in the first paragraph of this
Exchange Warrant. The term Holders shall refer to all Holders of Exchange
Warrants.
"Market Price", with respect to any security on any day means the average
of the daily Closing Prices of a share or unit of such secunty for the 20
consecutive Business Days ending on the most recent Business Day for which a
Closing Price is available; provided, however, that in the event that, in the
case of Common Stock, the Market Price is determined during a period following
the announcement by the Company of any subdivision, combination or
reclassification of Common Stock or the record date for such subdivision,
combination or reclassification, then, and in each such case, the Market Price
shall be appropriately adjusted to reflect the current market price per share
equivalent of Common Stock.
"NASD" means The National Association of Securities Dealers, inc.
"NASDAQ" means The National Association of Secunties Dealers, Inc.
Automated Quotation System.
"Person" means an individual, corporation, limited liability company,
partnership, limited partnership, syndicate, person (including, vrithout
limitation, a "person" as defined in Section 13(d)(3) of the Exchange Act),
trust, association or other legal entity or government, political subdivision,
agency or instrumentality of a govemrnent.
<PAGE>
"Personal Representative" means, with respect to any individual, any
executor, administrator, trustee, guardian or other legal representative of such
individual.
"Securities Act" shall mean the Securities Act of 1933, as amended, and
any similar or successor federal statute, and the rules and regulations of the
Securities and Exchange Commission (or its successor) thereunder, all as the
same shall be in effect at the time.
"Stockholders Agreement" shall have the meaning set forth in Section 3.1.
"Warrant Agency" shall have the meaning set forth in Section 2.1.
ARTICLE VI
MISCELLANEOUS
6.1 NOTICES. All notices, requests, consents and other communications
provided for herein shall be in writing and shall be effective upon delivery in
person, faxed or telecopied, or mailed by certified or registered mail, return
receipt requested, postage pre-paid, to the addresses specified on the signature
pages hereto or, in any case, at such other address or addresses as shall have
been furnished in writing to the Company (in the case of a Holder) or to the
Holder (in the case of the Company) in accordance with the provisions of this
paragraph.
6.2 WAIVERS; AMENDMENTS. No failure or delay of the Holder in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Holder are cumulative and not
exclusive of any rights or remedies which it would otherwise have. The
provisions of this Exchange Warrant may be amended, modified or waived with (and
only with) the written consent of the Company and Holders who collectively hold
Exchange Warrants to purchase a majority of the Common Stock subject to purchase
upon exercise of such Exchange Warrants at the time outstanding.
Any such amendment, modification or waiver effected pursuant to this
Section 6.2 shall be binding upon the Holders, upon each future Holder thereof
and upon the Company. In the event of any such amendment, modification or
waiver the Company shall give prompt notice thereof to all Holders and, if
appropriate, notation thereof shall be made on all Exchange Warrants thereafter
surrendered for registration of transfer or exchange.
<PAGE>
No notice or demand on the Company in any case shall entitle the Company
to any other or further notice or demand in similar or other circumstances.
6.3 GOVERNING LAW. This Exchange Warrant shall be construed in
accordance with and governed by the laws of the State of Delaware.
6.4 SEVERABILITY. In case any one or more of the provisions contained
in this Exchange Warrant shall be invalid, illegal or unenforceable in any
respect, the validity, legality or enforceability of the remaining provisions
contained herein and therein shall not in any way be affected or impaired
thereby. The parties shall endeavor in good faith negotiations to replace the
invalid, illegal or unenforceable provisions with valid provisions the economic
effect of which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
6.5 SECTION HEADINGS. The section headings used herein are for
convenience of reference only, are not part of this Exchange Warrant and are not
to affect the construction of or be taken into consideration in interpreting
this Exchange Warrant.
6.6 NO RIGHTS AS STOCKHOLDER. This Exchange Warrant shall not entitle
the Holder to any rights as a stockholder of the Company.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Exchange Warrant to be
executed in its corporate name by one of its officers thereunto duly authorized,
all as of the day and year first above wntten.
D and W Holdings, Inc.
Address: By:
c/o Ardshiel, Inc. -----------------------------------
230 Park Avenue, Suite 2527 Name:
New York, New York 10169 ---------------------------------
Attention: Daniel T. Morley Title:
--------------------------------
ACCEPTED AND AGREED TO:
Name: Randall S. Fojtasek
Address: 3801 Maplewood Avenue
Dallas, TX 75205
<PAGE>
ANNEX A
SUBSCRIPTION NOTICE
(To be executed upon exercise of Exchange Warrant)
TO D AND W HOLDINGS, INC.:
The undersigned hereby irrevocably elects to exercise the attached
Exchange Warrant, and to purchase thereunder, in exercise of the Exchange
Warrant, shares of Common Stock _______ shares of Common Stock in exchange for
payment of an Exercise Price in an aggregate amount equal to $________.
Please issue a certificate or certificates for such shares of Common
Stock in the following name or names and denominations:
If said number of shares shall not be all the shares issuable upon
exercise of the attached Exchange Warrant, a new Exchange Warrant is to be
issued in the name of the undersigned for the balance remaining of such shares
less any fraction of a share paid in cash.
Dated: _________________, 19____
Note: The above signature
should correspond exactly
with the name on the face
of the attached Exchange
Warrant or with the name
of the assignee appearing
in the assignment form
below.
<PAGE>
ANNEX B
CERTIFICATION
The undersigned hereby certifies to D and W Holdings, Inc. that he, she
or it is:
a. an "accredited investor" as that term is defined in
Regulation D promulgated pursuant to the Securities Act or
any successor regulation, as such provisions may be in
effect on the date hereof, and is an "accredited investor"
pursuant to Section 501 of such provision; and
b. is knowledgeable, sophisticated and experienced in
business and financial matters and in securities similar
to the Common Stock; is aware of the limitation on the
transfer of the Common Stock imposed by applicable
securities laws and any limitations on transfer imposed by
contracts with the Company or others; and has had access
to, or been furnished with, all information about the
Common Stock and the Company deemed necessary to conclude
that he, she or it has the ability to bear the economic
risk of the investment in the Common Stock and to afford
the complete loss of such investment.
IN WITNESS WHEREOF, the undersigned has executed this CERTIFICATION this
____ day of _______________, 199__.
For Individuals: For Entities:
--------------------------------------
Signature Printed Name of Entity
By:
-----------------------------------
Printed Name Name:
---------------------------------
Title:
--------------------------------
<PAGE>
AMENDMENT
THIS AMENDMENT is entered into as of October 2, 1998 (this "Amendment")
by and among Atrium Corporation, a Delaware corporation (the "Company"), and
Randall S. Fojtasek ("Securityholder").
R E C I T A L S:
A. The Company and Securityholder are parties to that certain Warrant
dated as of November 27, 1996 (the "Warrant"). All capitalized terms used
herein, not defined herein and defined in the Warrant shall have the meanings
set forth in the Warrant.
B. The Company and the Securityholder, among others, have entered into
that certain Agreement and Plan of Merger dated as of August 3, 1998 (the
"Merger Agreement").
C. In connection with the consummation of the transactions contemplated
in the Merger Agreement, the Company and the Securityholder desire to amend the
Warrant as set forth in this Amendment.
NOW, THEREFORE, in exchange for the covenants, agreements and other
promises set forth in this Amendment, the Warrant and the Merger Agreement, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Company and the Securityholder, intending to be
legally bound, hereby amend the Warrant as follows:
A G R E E M E N T S:
A. The definition of "B Exercise Price" included in Article V of the
Warrant shall be amended and restated in its entirety to read as follows:
" 'B Exercise Price' means, for a particular exercise of the B Warrant, a
per share price of $0.01, as such per share price may be adjusted from time to
time pursuant to Article IV hereof."
B. This Agreement shall become effective at the Effective Time (as
defined in the Merger Agreement) and shall be of no force or effect if the
Merger Agreement is terminated.
C. The terms of the Warrant shall be unchanged other than the above
provision specifically amended hereby.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment in
one or more counterparts (all of which shall constitute one and the same
agreement) as of the day and year first above written.
SECURITYHOLDER
/s/ Randall S. Fojtasek
----------------------------------------
Randall S. Fojtasek
ATRIUM CORPORATION
By: /s/ Jeff L. Hull
-------------------------------------
Jeff L. Hull
Chief Financial Officer
<PAGE>
AGREEMENT AND RELEASE
Randall S. Fojtasek (hereinafter "Executive"), D and W Holdings, Inc.,
Atrium Corporation, Atrium Companies, Inc., Wing Industries Holdings, Inc.,
Door Holdings, Inc., Wing Industries, Inc., Atrium Door and Window Company of
Arizona, Atrium Door and Window Company - West Coast, Atrium Door and Window
Company of the Northeast, Atrium Door and Window Company of New York, Inc.,
Atrium Door and Window Company of New England, Inc., R.G. Darby Company,
Inc., Total Trim, Inc. and their subsidiaries and affiliates (collectively
the "Company"), Ardshiel, Inc. ("Ardshiel"), GE Investment Management
Incorporated ("GEIM") and GE Investment Private Placement Partners II, a
Limited Partnership ("GEIPP") hereby enter into this Agreement and Release
(hereinafter the "Agreement") on April 1, 1999. In exchange for the
consideration listed below and on Attachment A, Executive promises to comply
fully with the terms of this Agreement. In exchange for Executive's promise,
the Company agrees to provide Executive with the consideration listed below
and on Attachment A to this Agreement, incorporated herein by reference.
1. TERMINATION OF EMPLOYMENT. Executive's last day of employment with
the Company shall be March 31, 1999. This shall be considered Executive's
termination date ("Termination Date"). Executive agrees to submit concurrently
with this Agreement a letter of resignation as an officer and director of D and
W Holdings, Inc., and any of its direct or indirect affiliates or subsidiaries,
in accordance with this Agreement and effective as of the Termination Date.
Executive agrees to vacate the space he currently occupies as an employee of the
Company ("Option Space") at Mockingbird Towers Office Building,
1341 W. Mockingbird Lane, Dallas, Texas 75247 (the "Building")
2
<PAGE>
within 180 days after the Termination Date. Executive further agrees to cause
Fojtasek Interests, Inc. to vacate the space Fojtasek Interests, Inc. currently
occupies in the Building ("Fojtasek Subleased Premises") within 180 days after
the Termination Date, and to terminate the Sublease Agreement entered into on
February 1, 1997 between Atrium Companies, Inc. and Fojtasek Interests, Inc. In
consideration for the promises contained in this paragraph 2, the Company agrees
to pay $50,000 to Fojtasek Interests, Inc. on the date Fojtasek Interests, Inc.
vacates the Fojtasek Subleased Premises. Utilization of the Option Space and
the Fojtasek Subleased Premises prior to vacating shall be on the same terms and
conditions as the day before the Termination Date, except that Executive agrees
to utilize the Fojtasek Interests, Inc. door for all ingress and egress of the
Option Space and the Fojtasek Subleased Premises, and Executive further agrees
to limit his presence in the Building to the Option Space, the Fojtasek
Subleased Premises, common areas of the Building, and necessary rights of way.
2. CONSIDERATION UPON TERMINATION. As of the Termination Date, Executive
shall no longer be employed by the Company. In consideration of the Executive's
performance of his obligations under this Agreement and in satisfaction of all
claims and benefits under any employee benefit plans maintained by the Company,
the Company shall pay Executive the amounts and provide Executive the benefits
listed on Attachment A. Executive understands that, except for the benefits to
which Executive may be entitled under the express terms of the Company's
employee benefit plans and policies (in form and substance as in effect on the
date this Agreement is signed, subject to any subsequent amendments applicable
generally to all participants under such plans and policies), that certain
warrant dated October 2, 1998 entitling Executive to purchase 4,735,369 shares
of common stock of D and W Holdings, Inc., and amendments thereto
3
<PAGE>
(the "Executive Warrant"), that certain exchange warrant dated October 2, 1998
entitling Executive to purchase 1,000,000 shares of common stock of D and W
Holdings, Inc., and amendments thereto (the "Exchange Warrant"), that certain
Stockholders Agreement dated as of October 2, 1998, by and among D and W
Holdings, Inc. and the stockholders signatory thereto (including Executive), and
amendments thereto (the "Stockholders Agreement"), and the consideration listed
on Attachment A and in this Agreement, Executive will receive no other wage,
benefit, or other payments from the Company.
3. NON-DISPARAGEMENT. The Company and Executive agree that there will be
no press release concerning this Agreement or the termination of Executive's
employment following the signing of this Agreement, unless required by law or
agreed to by both parties. Executive agrees not to disparage the Company,
Ardshiel, GEIM, GEIPP, or any of the affiliates, directors, officers, employees,
agents or representatives of any of them, or any of their products or practices,
either orally or in writing. GEIM, GEIPP, the officers and members of the Board
of Directors of the Company, and principals of Ardshiel agree not to disparage
Executive or any of his practices, either orally or in writing.
4. RELEASE. (a) Except for claims solely to enforce his rights under
this Agreement (subject to paragraph 5 of this Agreement) and claims to enforce
rights arising under the Age Discrimination in Employment Act of 1967 ("ADEA")
after Executive has signed this Agreement, Executive promises to and hereby does
release the Company, Ardshiel, GEIM, GEIPP, their parents, subsidiaries,
affiliates, related companies, and their employees, officers, directors,
attorneys, agents, shareholders, partners, and representatives, as well as the
trustees of any of their employee benefit plans (collectively, the "Releasees"),
from any and all actions, causes of action, suits, debts, claims, complaints,
charges, contracts, controversies, agreements, promises,
4
<PAGE>
damages, counterclaims, cross-claims, claims for contribution and/or indemnity,
claims for costs and/or attorney's fees, judgments and demands whatsoever, in
law or equity, known or unknown, he ever had, now has, or may have in the future
based on the Releasees' conduct prior to the Termination Date. Executive
understands that this includes, but is not limited to, the release of any rights
or claims Executive may have under the ADEA, which prohibits age discrimination,
Title VII of the Civil Rights Act of 1964 ("Title VII"), which prohibits
discrimination based on race, color, national origin, religion or sex, the
Americans with Disabilities Act ("ADA"), which prohibits disability
discrimination, the Family and Medical Leave Act, which imposes requirements for
leave related to a serious health condition or the birth, adoption or placement
of a child, claims pursuant to any other federal, state or local law regarding
discrimination based on age, race, sex, pregnancy, religion, national origin,
marital status or disability or any other unlawful basis, claims for alleged
violation of any other local, state or federal law, regulation, ordinance,
public policy or common-law duty having any bearing whatsoever upon the terms
and conditions of, and/or the cessation of Executive's employment with any of
the Releasees. Executive understands that this also includes a release by
Executive of claims for breach of express or implied contract, wrongful
discharge, constructive discharge, breach of an implied covenant of good faith
and fair dealing, negligent or intentional infliction of emotional distress, and
any claims under the Employee Retirement Income Security Act of 1974 ("ERISA").
This release is intended to cover all claims in existence as of the date of
Executive's signature on this Agreement, including both claims about which
Executive knows and about which Executive does not know. Executive further
represents that he has not filed any claims against the Releasees, or any of the
individuals covered by this Agreement with any governmental
5
<PAGE>
agency or any court, and promises that Executive will not do so at any time
hereafter regarding any matter covered by this Agreement. Nothing in this
Agreement shall prohibit Executive from filing a charge of discrimination with
the U.S. Equal Employment Opportunity Commission, provided that Executive agrees
to waive any relief with respect to such charge of discrimination. Further,
notwithstanding the foregoing, Executive does not release the Company, Ardshiel,
GEIM and GEIPP from (i) any claim related to real estate transactions involving
Fojtasek Interests, Inc. and/or its affiliates; or (ii) any claim involving
fraud, willful misconduct, intentional misconduct or criminal activity.
(b) Except for claims solely to enforce their rights under this Agreement
(subject to paragraph 5 of this Agreement) the Company, Ardshiel, GEIM, and
GEIPP each promise to and hereby do release Executive from any and all causes of
action, suits, debts, claims, complaints, charges, contracts, controversies,
agreements, promises, damages, counterclaims, cross-claims, claims for
contribution and/or indemnity, claims for costs and/or attorney's fees,
judgments and demands whatsoever, in law or equity, known or unknown, the
Company, Ardshiel, GEIM or GEIPP ever had, now has, or may have in the future
based on Executive's conduct prior to the Termination Date. This release is
intended to cover all claims in existence as of the date of Executive's
signature on this Agreement, including both claims about which the Company,
Ardshiel, GEIM or GEIPP know and about which the Company, Ardshiel, GEIM or
GEIPP do not know. The Company, Ardshiel, GEIM and GEIPP each further represent
that it has not filed any claims against Executive with any governmental agency
or any court. Notwithstanding the foregoing, the Company, Ardshiel, GEIM and
GEIPP do not release Executive from (i) any claim arising in connection with the
Merger Agreement dated August 3, 1998, as amended (the "Merger Agreement") (A)
to the extent of Executive's Maximum Security
6
<PAGE>
Escrow Amount (as defined in the Merger Agreement) thereunder; (B) related to a
Title Claim (as defined in the Merger Agreement); or (C) under Section 13.16 of
the Merger Agreement; (ii) any claim related to real estate transactions
involving Fojtasek Interests, Inc. and/or its affiliates; and (iii) any claim
involving fraud, willful misconduct, intentional misconduct, or criminal
activity.
(c) Notwithstanding anything to the contrary contained in this Section 4,
Executive shall not be deemed to have released any rights relating to the
Exchange Warrant, Executive Warrant and Stockholders Agreement.
5. MEDIATION; ARBITRATION. (a) With the exception of matters for which a
dispute resolution mechanism is prescribed in the Exchange Warrant, the
Executive Warrant, and the Stockholders Agreement, the Company, Ardshiel, GEIM,
GEIPP and Executive agree to submit to mediation any claim or controversy
arising out of or relating to this Agreement or any breach thereof if any of
them requests mediation and gives written notice to the other (the "Mediation
Notice"). Any notice given pursuant to the preceding sentence shall include a
brief statement of the claim or controversy. If the parties do not resolve the
claim or controversy within five (5) days after the date of the Mediation
Notice, the parties shall then use reasonable efforts to agree upon an
independent mediator. If the parties do not agree upon an independent mediator
within ten (10) days after the date of the Mediation Notice, either party may
request that JAMS/Endispute ("JAMS"), or a similar mediation service of a
similar national scope if JAMS no longer then exists, appoint an independent
mediator. The parties shall share the costs of mediation equally and shall pay
such costs in advance upon the request of the mediator or any party. Within ten
(10) days after selection of the mediator, the mediator shall set the mediation.
The pendency of a mediation, or the failure to initiate a
7
<PAGE>
mediation, shall not delay or prevent an action to enforce this Agreement
pursuant to paragraph 5(b) below.
(b) The parties hereto agree that any dispute regarding any aspect of this
Agreement or any act that allegedly has or would violate any provision of this
Agreement (except for claims for violation of paragraphs 3, 8, 9, 10 or
Attachment B hereof) will be submitted to arbitration in Dallas, Texas, or such
other location as the parties may mutually agree, in accordance with the
Commercial Arbitration Rules of the American Arbitration Association ("AAA"), as
the exclusive remedy for such claim or dispute.
Only individuals who are (i) lawyers engaged full-time in the practice of
law and (ii) on the AAA register of arbitrators shall be selected as an
arbitrator. Within twenty (20) days of the conclusion of the arbitration
hearing, the arbitrator shall prepare written findings of fact and conclusions
of law. Judgment on the written award may be entered and enforced in any court
of competent jurisdiction. It is mutually agreed that the written decision of
the arbitrator shall be valid, binding, final and non-appealable; provided
however, that the parties hereto agree that the arbitrator shall not be
empowered to award punitive damages against any party to such arbitration. The
arbitrator shall require the non-prevailing party to pay the arbitrator's full
fees and expenses or, if in the arbitrator's opinion there is no prevailing
party, the arbitrator's fees and expenses will be borne equally by the parties
thereto. In the event an action is brought to enforce the provisions of this
Agreement pursuant to this paragraph 5(b), the non-prevailing party shall be
required to pay the reasonable and necessary attorney's fees and expenses of the
prevailing party, except that if in the opinion of the court or arbitrator
deciding such action there is no prevailing party, each party shall pay its own
attorney's fees and expenses.
The parties hereto agree that such arbitration will be confidential and no
details,
8
<PAGE>
descriptions, settlements or other facts concerning such arbitration shall be
disclosed or released to any third party without the specific written consent of
the other party or parties unless required by law or court order or in
connection with enforcement of any decision in such arbitration.
Notwithstanding the foregoing, Executive, the Company, Ardshiel, GEIM and
GEIPP recognize that a violation of the non-competition and/or non-disclosure
provisions of this Agreement and in Attachment B would cause irreparable harm to
the Company and the Company is entitled to seek relief in court for any alleged
violations of such provisions. Executive, the Company, Ardshiel, GEIM and GEIPP
further recognize that a violation of the non-disparagement provisions, and/or
confidentiality provisions of this Agreement would cause irreparable harm and
each party is entitled to seek relief in court for any alleged violations of
such provisions. Nothing in this Agreement shall be construed to limit the
power of a court in appropriate circumstances under applicable rules or statutes
to award sanctions or costs in any such action.
6. ESCROW RELEASE. Upon receipt of written instructions satisfactory to
Ardshiel from each of the parties to the Merger Agreement, the Company will sign
and deliver to Executive a letter instructing Norwest Bank Texas, N.A. to
release to Executive his applicable percentage of the Escrow Amount established
by the Indemnification Escrow Agreement entered into on October 2, 1998,
provided that an amendment to the Merger Agreement is adopted in substantially
the form as attached hereto as Attachment D.
7. BREACH OF PROMISES. If Executive breaks his promises in paragraphs 4
or 5 of this Agreement and files a lawsuit based on a claim that Executive has
released pursuant to this Agreement or files in court a claim subject to the
exclusive arbitration
9
<PAGE>
provisions hereof, Executive agrees that he will pay for all costs incurred by
the Releasees, including reasonable attorney's fees, in defending against
Executive's claim. If the Company, Ardshiel, GEIM or GEIPP breaks its promises
in paragraph 4 or 5 of this Agreement and files a lawsuit based on a claim that
the Company, Ardshiel, GEIM or GEIPP has released pursuant to this Agreement or
files in court a claim subject to the exclusive arbitration provisions hereof,
the Company agrees that it will pay for all costs incurred by Executive,
including reasonable attorney's fees, in defending against any such claim.
8. CONFIDENTIALITY OF AGREEMENT. The Company, Ardshiel, GEIM, GEIPP and
Executive promise to keep the negotiation and terms of this Agreement completely
confidential except as may be required by law. Notwithstanding the foregoing,
the Company, Ardshiel, GEIM, GEIPP and Executive agree that (a) the Company,
Ardshiel, GEIM and GEIPP may disclose such information that is a part of this
Agreement as they deem necessary in a Form 8-K or in connection with any
financing transaction, including an offering of securities; (b) the Company,
Ardshiel, GEIM and GEIPP may disclose such information as they deem necessary to
their professional representatives, including, but not limited to, investment
bankers and attorneys so long as these individuals are informed of, and agree to
be bound by, this confidentiality clause; and (c) the Executive may disclose
such information as he deems necessary to his immediate family and professional
representatives, so long as these individuals are informed of, and agree to be
bound by, this confidentiality clause.
9. NON-COMPETITION. (a) Executive agrees not to compete with the
Company for the period beginning on the Termination Date and ending on a date
which is eighteen months after the Termination Date ("Term of Non-Competition").
For the purposes of this paragraph 9, "compete" shall mean directly or
indirectly working or
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serving, individually or as an officer, director, employee, shareholder, equity
owner, consultant, contractor, partner, joint venturer, agent, equity owner or
in any capacity whatsoever (1) in the business of manufacturing, marketing or
distributing aluminum, wood or vinyl windows or doors or (2) in any other
business activity that the Company (i) is conducting on the Termination Date
that was within Executive's management responsibility within the year
immediately prior to his termination, or (ii) has notified the Executive as of
the Termination Date that it proposes to conduct in the United States (a
"Competing Business"). Additionally, "compete" also means Executive's hire,
attempt to hire, or contact or solicitation with respect to hiring any employee
of the Company, or any effort to divert or take away any customers or suppliers
of the Company. Notwithstanding the foregoing, the Company agrees that
Executive 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
Executive does not otherwise participate in such Competing Business in any way
prohibited by this paragraph 9. Executive is prohibited from competing in any
state in which the Company did business within the last two years. Executive
expressly agrees that the restrictions set forth in this paragraph 9 have been
designed to be reasonable and are no greater than are required for the
protection of the Company.
(b) The Executive 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
confidentiality and the goodwill of the Company's proprietary information, plans
and services and to protect the other legitimate business interests of the
Company.
10. NON-DISCLOSURE. Executive hereby acknowledges and agrees to comply
with the agreement regarding confidential materials of the Company in Attachment
B,
11
<PAGE>
attached hereto, except as required by law or by order of a court or government
agency, or pursuant to written consent given by a duly authorized officer of the
Company.
11. FINANCIAL INFORMATION. The Company agrees to provide Executive with
the entire quarterly Board of Directors package, and, in any event, the
consolidated financial statements (including the balance sheet and income
statements), comparisons of EBTIDA for the relevant periods to EBTIDA for prior
comparable periods, and comparisons of EBTIDA to any part of the budget, prior
to each quarterly Board of Directors meeting, as long as Executive holds the
Exchange Warrant, Executive Warrant, or is a shareholder of the Company. In the
event that no quarterly Board of Directors meeting is scheduled or held, the
Company agrees to promptly deliver financial information to Executive that would
otherwise be included in the quarterly Board of Directors package upon written
request from Executive. The Company agrees to promptly deliver to Executive
copies of financial statements and other financial information that are required
to be made available to shareholders of the Company pursuant to the Stockholders
Agreement as long as Executive holds the Exchange Warrant, Executive Warrant, or
is a shareholder of the Company.
12. RESPONSIBILITIES UPON TERMINATION. (a) Executive shall advise
the Company of the identity of his new employer within ten (10) days after
accepting new employment and further agrees to keep the Company so advised of
any change in employment during the Term of Non-Competition set forth in
paragraph 9. Notwithstanding the foregoing, Executive shall not be required to
provide the identity of his new employer to the Company if his new employer is
Fojtasek Interests, Inc., or an affiliate of Fojtasek Interests, Inc.;
(b) The Company in its sole discretion may notify any new employer of
12
<PAGE>
Executive that he has an obligation not to compete with the Company during such
term; and
(c) Executive shall deliver to the Company any and all original records,
forms, contracts, memoranda, work papers, customer data and any other documents
which have come into his possession by reason of his employment with the
Company, irrespective of whether or not any of said documents were prepared for
him, within 30 days after the Termination Date. Without limiting his duty to
preserve confidentiality set forth in paragraph 8 above and in Attachment B,
Executive may retain copies of any of said documents. From this day forward,
Executive agrees not to remove any originals or copies of any documents from the
Company's premises without the written consent of the Board of Directors of the
Company. Should Executive find any original Company documents at his home or
other location, Executive agrees to return all original documents to the Company
within 48 hours of the discovery.
13. PERSONAL PROPERTY. The furniture, lighting equipment, computer
equipment, office utensils and other personal property listed on Attachment C
hereto that were purchased by the Company ("Company Property") are hereby
conveyed to Executive by the Company. To the extent permitted under equipment
leases applicable to the items listed on Attachment C, the Company agrees to
assign the applicable equipment leases to Executive.
14. ADMINISTRATIVE ASSISTANT. Executive's administrative assistant shall
report to Executive through April 30, 1999. If Executive does not offer his
administrative assistant employment with Fojtasek Interests, Inc. or one of its
affiliates, or if his administrative assistant does not accept employment with
Fojtasek Interests, Inc. or one of its affiliates, the Company will offer
continued employment to Executive's administrative assistant after April 30,
1999 in an appropriate capacity with the
13
<PAGE>
Company.
15. INVENTIONS; ASSIGNMENT. All rights to discoveries, inventions,
improvements and innovations (including all data and records pertaining thereto)
related to Executive's business, whether or not patentable, copyrightable,
registrable as a trademark, or reduced to writing, that Executive may discover,
invent or originate during his employment with the Company, 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. Executive 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. Executive 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.
16. ACKNOWLEDGMENTS. Executive acknowledges that (a) Executive received a
copy of this Agreement and was offered a period of twenty-one (21) days to
review and consider it; (b) Executive understands that he can use as much of the
21-day period as he wishes prior to signing and if the full 21-day period is not
used, Executive knowingly waives the remainder of the period; (c) Executive
consulted with and was advised by independent counsel of his choosing before
signing this Agreement; (d) no promise or inducement for this Agreement has been
made except as set forth in this Agreement; (e) this Agreement is executed by
Executive without reliance upon any statement or representation, written or
oral, by the Company or any of the Releasees or their employees, officers,
directors, agents or representatives, except as set forth herein; and
14
<PAGE>
(f) Executive is legally competent to execute this Agreement and to accept full
responsibility therefor. The Company acknowledges that this Agreement has been
duly authorized and executed by the Company, and is a legal, valid and binding
obligation of the Company, enforceable in accordance with its terms.
17. REVOCATION PERIOD AND TERMINATION OF AGREEMENTS. Executive
acknowledges that he understands that he may revoke this Agreement within seven
(7) days of the date of signing of this Agreement by delivering a written notice
of revocation to the Company, no later than the close of business on the seventh
(7th) day after the Agreement is signed. If no such revocation is received, (1)
this Agreement is effective and irrevocable as of the eighth (8th) day following
the signing of this Agreement; (2) the Executive Employment Agreement dated
October 2, 1998 between the Company and Executive shall automatically be
terminated and of no further force or effect; and (3) the Expense Reimbursement
Agreement dated October 2, 1998 between the Company and Executive shall
automatically be terminated and of no further force or effect, and no sums shall
be due thereunder.
18. PROVISION DETERMINED INVALID. If any court determines that any
portion of this Agreement is invalid or unenforceable, the remainder of this
Agreement 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 Agreement, or any part thereof, to be unreasonable and unenforceable
because of the duration, scope, restrictions or burdens of such provision, such
court shall have the power to reduce the duration, scope, restrictions or
burdens of such provision and to enforce such provision as so reduced.
19. WAIVER. The waiver by any party of a breach of any provision herein
shall not operate or be construed as a waiver of any subsequent breach by any
party.
15
<PAGE>
20. SUCCESSORS. This Agreement shall be binding upon and inure to the
benefit of Executive, his heirs, beneficiaries, successors and assigns, and the
Company, Ardshiel, GEIM, GEIPP and their respective successors, employees,
officers, directors, agents and representatives in their capacity as such.
21. COMPLETE AGREEMENT. This Agreement (including the Attachments
thereto) sets forth the entire agreement between Executive, the Company,
Ardshiel, GEIM and GEIPP and may not be modified, altered, changed or terminated
except upon the express prior written consent of Executive, the Company,
Ardshiel, GEIM and GEIPP. Except as expressly set forth in Attachment A hereto,
nothing contained in this Agreement shall be construed to modify or amend the
Exchange Warrant, Executive Warrant, Stockholders Agreement, or Merger
Agreement.
22. GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Texas, without giving effect to its conflict of law rules.
23. MISCELLANEOUS. (a) Whenever the terms "hereof", "hereby", "herein",
or words of similar import are used in this Agreement they shall be construed as
referring to this Agreement in its entirety rather than to a particular section
or provision, unless the context specifically indicates to the contrary. Any
reference to a particular "paragraph" or "section" shall be construed as
referring to the indicated paragraph or section of this Agreement unless the
context specifically indicates to the contrary. The use of the term "including"
herein shall be construed as meaning "including without limitation."
24. HEADINGS. The headings herein contained are for reference only and
shall not affect the meaning or interpretation of any provision of this
Agreement.
25. 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
16
<PAGE>
mail, return receipt requested, postage prepaid, addressed as follows:
IF TO EXECUTIVE: Randall S. Fojtasek
3801 Maplewood Avenue
Dallas, Texas 75205
with a copy to:
O. Haynes Morris, Jr.
1341 W. Mockingbird Lane
Suite 1212W
Dallas, Texas 75247
Facsimile: (214) 630-5013
IF TO THE COMPANY OR ARDSHIEL: D and W Holdings, Inc.
c/o Ardshiel, Inc.
230 Park Avenue, Suite 2527
New York, New York 10169
Facsimile: (212) 972-1809
Attention: Daniel T. Morley
with a copy to:
Joel M. Simon
Marie Censoplano
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue
Thirty-First Floor
New York, New York 10022-4697
IF TO GEIM OR GEIPP: General Electric Investment Corporation
3003 Summer Street
P.O. Box 7900
Stamford, CT 06904-7900
Attention: Andreas T. Hildebrand
with a copy to:
William J. Phillips
Dewey Ballantine LLP
17
<PAGE>
1301 Avenue of the Americas
New York, New York 10019-6092
or to such other address as any party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
26. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
I ACKNOWLEDGE THAT I HAVE READ AND UNDERSTOOD ALL OF THE PROVISIONS OF THIS
AGREEMENT AND RELEASE, THAT I HAVE CONSULTED COUNSEL TO THE EXTENT I DEEM
NECESSARY AND THAT I AM VOLUNTARILY ENTERING INTO THIS AGREEMENT AND RELEASE.
- ------------------------------ -----------------------------
Randall S. Fojtasek
Name:
-----------------------
Title:
----------------------
For D and W Holdings, Inc.
-----------------------------
Name:
-----------------------
Title:
----------------------
For Ardshiel, Inc.
-----------------------------
Name:
-----------------------
Title:
----------------------
For GE Investment Management
Incorporated
-----------------------------
Name:
-----------------------
Title:
------------------------
18
<PAGE>
For GE Investment Private
Placement Partners II, a Limited
Partnership
Dated: April 1, 1999
19
<PAGE>
ATTACHMENT A
CONSIDERATION TO BE PAID TO RANDALL S. FOJTASEK
Subject to the terms of the foregoing Agreement, Randall S. Fojtasek
("Executive") will receive the following consideration. All payments and
benefits under the Agreement and this Attachment A are subject to applicable
federal withholding tax and any other taxes as required by law. Amounts payable
under the Agreement and this Attachment A shall be reduced by any amounts
Executive owes to D and W Holdings, Inc., Atrium Corporation, Atrium Companies,
Inc., Wing Industries Holdings, Inc., Door Holdings, Inc., Wing Industries,
Inc., Atrium Door and Window Company of Arizona, Atrium Door and Window Company
- - West Coast, Atrium Door and Window Company of the Northeast, Atrium Door and
Window Company of New York, Inc., Atrium Door and Window Company of New England,
Inc., R.G. Darby Company, Inc., Total Trim, Inc. and their subsidiaries and
affiliates (collectively, the "Company"). All capitalized terms in this
Attachment A are defined in the Agreement.
END OF EMPLOYMENT PAYMENT. After the expiration of the 7-day revocation period
in paragraph 17 of the Agreement, provided Executive has not revoked the
Agreement pursuant to paragraph 17, the Company shall pay to Executive (i) in a
lump sum in cash $1,625,000; (ii) in a lump sum in cash within thirty days of
the Termination Date, the Accrued Obligations; (1) and (iii) the Accrued
Investments,(2) which amounts shall be payable in accordance with the terms and
conditions of the Investment Plans. (3) Further, notwithstanding the terms or
conditions of the Exchange Warrant, Executive Warrant or any other warrant,
stock option, stock appreciation right or similar agreements between the Company
and the Executive, the Executive shall vest, as of the Termination Date, in
- ---------
(1) ACCRUED OBLIGATIONS means the sum of (i) Executive's annual base salary
earned or accrued through the Termination Date to the extent not theretofore
paid; (ii) reimbursement for any and all monies advanced by Executive in
connection with Executive's employment for reasonable and necessary expenses
incurred by Executive through the Termination Date for which Executive timely
requested reimbursement and submitted appropriate receipts and documentation,
but only to the extent that such expenses exceed any advances received by
Executive from the Company; and (iii) any unpaid accrued vacation pay.
(2) ACCRUED INVESTMENTS means any amount arising from Executive's participation
in, or benefits under, any Investment Plans.
(3) INVESTMENT PLANS means all incentive, savings and retirement plans,
practices, policies and programs applicable generally to other executives of the
Company in which Executive participates.
20
<PAGE>
all rights under such agreements (I.E., the Executive Warrant and any other
stock options that would otherwise vest after the Termination Date) and
thereafter he or his legal representative shall be permitted to exercise any and
all such vested rights until the expiration of such Exchange Warrant, Executive
Warrant, or such other warrant, stock option, stock appreciation right or
similar agreement pursuant to its terms. The Exchange Warrant and Executive
Warrant shall be subject to no agreements other than the Stockholders Agreement
and this Agreement. GEIPP and Ardshiel and its affiliates agree not to take any
action under Section 6.04 of the Stockholders Agreement to modify Sections
3.02, 3.05, 4.01, 4.02 and 5.07 of the Stockholders Agreement in any way that
would be adverse to the rights of Executive without Executive's consent.
MEDICAL AND DENTAL BENEFITS. Executive may continue to participate in the
Company's group medical and dental benefit plans in accordance with the
Consolidated Omnibus Budget Reconciliation Act ("COBRA"). The Company will
provide Executive with the form(s) necessary to elect continuation of benefits
pursuant to COBRA. Premiums for continuation of Executive's group medical and
dental insurance will be paid by the Company for 18 months from the Termination
Date.
I UNDERSTAND THE TERMS OF THIS ATTACHMENT A AND ACKNOWLEDGE THAT, OTHER THAN THE
PAYMENT AND BENEFITS DESCRIBED IN THE AGREEMENT AND RELEASE AND THIS ATTACHMENT
A, EXCHANGE WARRANT, EXECUTIVE WARRANT AND STOCKHOLDERS AGREEMENT, I AM NOT
ENTITLED TO ANY OTHER PAYMENT OR BENEFITS FROM THE COMPANY.
Dated: April 1, 1999
-------------------------------
Randall S. Fojtasek
21
<PAGE>
ATTACHMENT B
ACKNOWLEDGMENT CONCERNING CONFIDENTIAL INFORMATION
In connection with his employment by D and W Holdings, Inc., Atrium
Corporation, Atrium Companies, Inc., Wing Industries Holdings, Inc., Door
Holdings, Inc., Wing Industries, Inc., Atrium Door and Window Company of
Arizona, Atrium Door and Window Company - West Coast, Atrium Door and Window
Company of the Northeast, Atrium Door and Window Company of New York, Inc.,
Atrium Door and Window Company of New England, Inc., R.G. Darby Company, Inc.,
Total Trim, Inc. and their subsidiaries and affiliates (collectively the
"Company"), Executive had access to proprietary and confidential information of
the Company, such as confidential business information, trade secrets, and
financial information (collectively "Confidential Information"). Executive
agrees that the Company's confidential and proprietary information are valuable
corporate assets and it is imperative that such information not be disclosed.
Executive will perform all reasonably necessary actions to assure protection of
Confidential Information, and for good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, does hereby specifically agree
to the following:
(1) Executive agrees not to disclose, use or exploit Confidential
Information after his employment ends, unless a court of lawful jurisdiction
directs otherwise. Any request for or attempt to subpoena Confidential
Information shall be reported directly to the Company as soon as possible after
receiving it.
(2) Confidential Information within the meaning and scope of this
Acknowledgment means all information (including a formula, pattern, compilation,
program, device, method, technique, or process) that: (i) is not generally known
to, and
22
<PAGE>
not readily ascertainable by proper means by other persons, and (ii) is the
subject of efforts that are reasonable under the circumstances to maintain its
confidentiality. Confidential Information includes, but is not limited to, the
following:
- BUSINESS PROCEDURES: All information concerning or relating to the
way the Company conducts its business, which is not generally known to the
public or within the industry or trade in which the Company competes (such as
Company contracts, internal business procedures, controls, plans, licensing
techniques and practices, supplier, subcontractor and prime contractor names and
contacts and other vendor information, computer system passwords and other
computer security controls, financial information, distributor information, and
employee data) and the physical embodiments of such information (such as check
lists, samples, services and operational manuals, contracts, proposals,
printouts, correspondence, forms, listings, ledgers, financial statements,
financial reports, financial and operational analyses, financial and operational
studies, management reports of every kind, databases, employment or personnel
records, and any other written or machine-readable expression of such
information as are filed in any tangible media).
- MARKETING PLANS AND CUSTOMER LISTS: All information not generally
known to the public or within the industry or trade in which the Company
competes pertaining to the Company's marketing plans and strategies; forecasts
and projections; marketing practices, procedures and policies; financial data;
discounts; margins; costs; credit terms; pricing practices, procedures and
policies; goals and objectives; quoting practices, procedures and policies; and
customer data including the customer lists, contracts, representatives,
requirements and needs, specifications, data provided by or about prospective
customers, and the physical embodiments of such information.
23
<PAGE>
- BUSINESS VENTURES: All information not generally known to the public
or within the industry or trade in which the Company operates concerning new
product development, negotiations for new business ventures, future business
plans, and similar information and the physical embodiments of such information.
- SOFTWARE: All information relating to the Company's software or
hardware in operation or various stages of research and development, which are
not generally known to the public or within the industry or trade in which the
Company competes and the physical embodiments of such information.
- LITIGATION: Information which is not a public record and is not
generally known to the public or within the industry or trade in which the
Company competes regarding litigation and potential litigation matters and the
physical embodiments of such information.
- INFORMATION NOT GENERALLY KNOWN: Any information which (i) is not
generally known to the public or within the industry or trade in which the
Company competes; (ii) gives the Company a significant advantage over its
competitors; (iii) may be harmful to the Company; or (iv) has significant
economic value or potentially significant economic value to the Company,
including the physical embodiments of such information.
(3) Nothing in this Acknowledgment shall prohibit or limit Executive's use
of information (i) known previously to him prior to his employment with the
Company; (ii) independently developed by him without use of Confidential
Information; (iii) lawfully obtained from a third party that is not under an
obligation to the Company not to disclose such information; or (iv) that is, or
becomes, publicly available or generally known in the industry or trade in which
the Company competes through no breach by Executive of this Acknowledgment.
These exceptions (i) through (iv) shall not be interpreted by
24
<PAGE>
Executive as justification to disregard the obligations of confidence set forth
in this Agreement merely because individual portions of the Confidential
Information may be found to be within the exceptions, or because the
Confidential Information is implied by, but not specifically disclosed in,
information falling within the exceptions.
I UNDERSTAND AND AGREE TO ABIDE BY THE TERMS OF THIS ACKNOWLEDGMENT AND I
UNDERSTAND THAT DISTRIBUTION OF CONFIDENTIAL INFORMATION TO UNAUTHORIZED
PERSONS OR ORGANIZATIONS IS PROHIBITED.
Dated: April 1, 1999
------------------------
Randall S. Fojtasek
25
<PAGE>
INDEMNIFICATION ESCROW AGREEMENT
THIS INDEMNIFICATION ESCROW AGREEMENT (this "Agreement") is made and
entered into as of October 2, 1998 by and among Hicks, Muse Fund III
Incorporated, a Texas corporation, as the true and lawful agent and
attorney-in-fact for each of the Securityholders (as defined in the Merger
Agreement referred to below) (the "Representative"), D and W Holdings, Inc., a
Delaware corporation ("Buyer"), and Norwest Bank Texas, N.A., a national banking
association with its headquarters in Dallas, Texas (the "Escrow Agent").
RECITALS
Pursuant to the Agreement and Plan of Merger, dated as of August 3, 1998
(the "Merger Agreement"), by and between Buyer, D and W Acquisition Corp.
("Sub"), Atrium Corporation, a Delaware corporation ("Atrium"), and the
securityholders named therein (the "Securityholders"), the parties have agreed
that Sub shall be merged with and into Atrium upon the terms and subject to the
conditions set forth in the Merger Agreement (the "Merger"). Unless otherwise
defined herein, capitalized terms used herein shall have the meanings assigned
to them in the Merger Agreement.
The Securityholders have appointed, authorized and empowered Hicks, Muse
Fund III Incorporated to act as the Representative pursuant to Article 12 of the
Merger Agreement in connection with, and to facilitate the consummation of the
transactions contemplated by, the Merger Agreement and in connection with the
activities to be performed on behalf of the Securityholders under this
Agreement.
It is a condition precedent to the consummation of the Merger that Buyer,
the Representative and the Escrow Agent execute and deliver this Agreement.
AGREEMENTS
NOW, THEREFORE, in consideration of the recitals and of the respective
agreements and covenants contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties, intending to be legally bound hereby, hereby agree as follows:
SECTION 1. ESTABLISHMENT OF ESCROW ACCOUNT. Concurrently with the
execution hereof and pursuant to the Merger Agreement, Buyer will deliver to the
Escrow Agent by wire transfer of immediately available funds to an account
designated by the Escrow Agent as the "Atrium Indemnity Account" the sum of
$15,000,000 (as such amount may be reduced in accordance with Section 6, the
"Escrow Amount"). The Escrow Amount is being delivered to the Escrow Agent to
be held under the terms of this Agreement as security for the indemnification
obligations of the Securityholders to Buyer Indemnified Parties (as defined in
the Merger Agreement) in accordance with Article 11 of the Merger Agreement.
The Escrow Amount, together with any Interest (as defined below) earned thereon,
is hereinafter referred to as the "Escrowed Property." The Escrowed Property
and any interest, dividends, income or other
<PAGE>
proceeds earned thereon from and after the Closing Date (the "Interest") shall
be held, administered and disposed of by the Escrow Agent in accordance with the
terms and conditions hereinafter set forth.
<PAGE>
SECTION 2. INVESTMENT OF PROCEEDS OF ESCROWED PROPERTY.
(a) The Escrow Agent shall from time to time invest and reinvest the
Escrowed Property, if any, in such of the following investments as Buyer and the
Representative may from time to time elect by joint notice in writing
("Permitted Investments"):
(i) Any U.S. Government or U.S. Government Agency security;
(ii) Any commercial paper rated A1/P1 or better;
(iii) Any certificate of deposit or time deposit in any bank with a
long-term debt rating of A or better from Moody's Investor
Services, Inc. or Standard & Poor's Corporation;
(iv) The Norwest Treasury Fund; or
(v) The following institutional money market funds:
(A) Dreyfus Treasury Cash Management Fund
(B) Provident T-Fund Dollar Account
(C) Federated Treasury Obligations Fund
(D) AIM Treasury Portfolio
In the absence of written instructions to the contrary from Buyer and the
Representative, the Escrow Agent shall invest the Escrowed Property in Permitted
Investments set forth in clause (iv) of this Section 2(a).
(b) Any Interest shall be set aside and distributed as provided in Section
2(d).
(c) The Escrow Agent will act upon investment instructions the Business
Day after such instructions are received, provided the requests are communicated
within a sufficient amount of time to allow the Escrow Agent to make the
specified investment. Instructions received after an applicable investment
cutoff deadline will be treated as being received by the Escrow Agent on the
next Business Day, and the Escrow Agent shall not be liable for any loss arising
directly or indirectly, in whole or in part, from the inability to invest
Escrowed Property on the day the instructions are received. The Escrow Agent
shall not be liable for any loss incurred by the actions of third parties or by
any loss arising by error, failure or delay in the making of an investment or
reinvestment, and the Escrow Agent shall not be liable for any loss of principal
or income in connection therewith, unless such error, failure or delay results
from the Escrow Agent's gross negligence or willful misconduct. As and when the
Escrowed Property or any Interest or any portion thereof is to be released under
this Agreement, the Escrow Agent shall cause the Permitted Investments to be
converted into cash, and the Escrow Agent shall not be liable for any loss of
principal or income due to the choice of Permitted Investments in which the
Escrowed Property is invested or the choice of Permitted Investments that are
converted into
<PAGE>
cash pursuant to this Section 2(c).
(d) All Interest shall be distributed to the Securityholders on a
quarterly basis as of the last day of each March, June, September and December
hereafter, in accordance with written instructions received by the Escrow Agent
and executed by the Representative. In the absence of such written
instructions, all Interest shall be paid at the end of the term of this
Agreement to the Representative. Notwithstanding anything to the contrary
contained herein, any provision hereof requiring the disbursement of Interest by
the Escrow Agent shall be construed to refer only to Interest which has accrued
and been paid to the Escrow Agent. Any Interest which has accrued and, except
for the fact that it has not been paid to the Escrow Agent, would be required to
be disbursed, shall be disbursed within three Business Days of being paid.
(e) For tax purposes, the Escrowed Property shall be deemed property of
the Securityholders and all Interest earned thereon shall be the income of the
Securityholders. Buyer and each of the Securityholders shall file Tax Returns
and the Escrow Agent shall file a Form 1099 consistent with such treatment.
SECTION 3. RELEASE OF THE ESCROWED PROPERTY TO INDEMNITEES. The Escrow
Agent shall disburse to Buyer (for its own account or for the account of any
other Indemnitee, as defined in Section 8) any portion of the Escrow Amount with
respect to which the Escrow Agent receives instructions pursuant to this Section
3 to pay Buyer Indemnified Costs (as defined in the Merger Agreement). Payment
shall be made not more than three Business Days after (a) the delivery to the
Escrow Agent of joint written instructions signed by Buyer and the
Representative specifying an amount to be paid to an Indemnitee, or (b) the
delivery to the Escrow Agent and the Representative of a copy of a Final
Determination (as defined below) establishing the Indemnitee's right to
reimbursement under this Agreement and Article 11 of the Merger Agreement with
respect to such Buyer Indemnified Costs. A "Final Determination" shall mean a
final, non-appealable judgment of a court of competent jurisdiction and shall be
accompanied by a written opinion of counsel for the presenting party reasonably
satisfactory to the Escrow Agent to the effect that such judgment is a final,
non-appealable judgment of a court of competent jurisdiction.
SECTION 4. NO DISTRIBUTION OF EXPENSES. Except as set forth in Section 8
of this Agreement, neither the Representative nor Buyer shall be entitled to
reimbursement out of the Escrowed Property for any costs and expenses incurred
by them in connection with exercising their rights or performing their duties
under this Agreement.
SECTION 5. SEGREGATION OF THE FUND. (a) Notwithstanding any other
provision of this Agreement to the contrary, from and after such time as the
Escrow Agent shall receive notification from either of Buyer or the
Representative that the aggregate amount of Buyer Indemnified Costs with respect
to all Claims (as defined in Section 8) asserted by Indemnitees exceeds the
Minimum Loss (as defined in the Merger Agreement), the Escrow Agent shall
segregate from the Atrium Indemnity Account and transfer into a separate account
(the "Pending Claims Account") maintained by the Escrow Agent for the benefit of
Buyer and the Securityholders the portion of the Escrow Amount equal to the
amount of all Buyer Indemnified
<PAGE>
Costs in excess of the Minimum Loss which any Indemnitee asserts, in any Claims
Notices, that it may suffer, and shall hold such portion in accordance with this
Section 5. "Pending Claims" shall mean unresolved Claims (as defined in Section
8) that are the subject of Claims Notices delivered under Section 8(b). Such
segregated portion of the Escrow Amount will be invested pursuant to Section 2.
(b) Any portion of the Escrow Amount segregated under Section 5(a) shall
continue to be segregated by the Escrow Agent until the Escrow Agent is directed
to release such portion of the Escrow Amount by (i) written instructions signed
by Buyer and the Representative instructing the Escrow Agent how to pay all or
any portion of such segregated amount or (ii) a copy of a Final Determination
establishing the Indemnitee's or the Representative's right to reimbursement
under Section 8. The Escrow Agent shall be entitled to rely conclusively on the
written advice of counsel to Buyer or the Representative, as the case may be,
that the judgment delivered to the Escrow Agent pursuant to this Section 5(b) is
a Final Determination.
SECTION 6. DISTRIBUTION OF ESCROWED PROPERTY TO THE SECURITYHOLDERS.
(a) Not later than the second Business Day after October 2, 1999 (the "First
Release Date"), the Escrow Agent shall distribute from the Escrowed Property, in
accordance with written instructions received by the Escrow Agent and executed
by the Representative, an amount equal to the excess, if any, of $10,000,000
over the sum of (x) all amounts previously disbursed from the Escrow Amount
pursuant to Section 3, and (y) the aggregate amount that is then being
segregated with respect to Pending Claims under Section 5. Any amounts
segregated with respect to Pending Claims shall be released as provided in
Section 5(b). From and after the First Release Date, the portion of the Escrow
Amount that continues to be held by the Escrow Agent pursuant to this Agreement
shall, for all purposes of this Agreement, be the "Escrow Amount."
(b) Not later than the second Business Day after April 3, 2000 (the "Final
Release Date"), the Escrow Agent shall distribute to the Securityholders the
excess of the Escrowed Property over the aggregate portion of the Escrow Amount
that is then being segregated with respect to Pending Claims under Section 5.
Any amounts segregated with respect to Pending Claims shall be released as
provided in Section 5(b).
SECTION 7. TAXPAYER IDENTIFICATION NUMBERS. The parties acknowledge that
payment of any Interest earned on the Escrowed Property invested in this escrow,
or the distribution of any other amounts under this escrow, will be subject to
backup withholding penalties unless a properly completed Internal Revenue
Service Form W-8 or W-9 certification is submitted to the Escrow Agent by the
party entitled to receive such payment. Any Form W-8 or W-9 certification shall
be submitted to the Escrow Agent on or before the date hereof.
SECTION 8. CLAIMS AGAINST THE ESCROW AMOUNT. From and after the Closing,
but subject to the conditions and limitations set forth in this Agreement and
the Merger Agreement, the Buyer Indemnified Parties (collectively with their
respective successors and assigns, the "Indemnitees") and the Indemnifying
Parties shall be entitled to reimbursement out of the Escrow Amount for any and
all (i) Buyer Indemnified Costs, with respect to the Buyer Indemnified
<PAGE>
Parties, and (ii) court costs and reasonable attorneys' fees and expenses
incurred, or for which an invoice or similar request for payment has been
received, by a Buyer Indemnified Party or an Indemnifying Party who controls the
defense of any third-party action for Buyer Indemnified Costs (other than a
Buyer Indemnified Party in respect of a Buyer Controlled Claim) in investigating
and preparing for any litigation proceedings relating to such third-party action
pursuant to, and as provided in, Article 11 of the Merger Agreement
(collectively, the "Claims"). Notwithstanding any of the provisions of the
Merger Agreement, the Escrow Agent shall be entitled to conclusively rely upon
the provisions of Sections 8(a)-(d) hereof in determining whether a Claim for
indemnification shall be paid out of the Escrow Amount.
(a) Claims against the Escrow Amount may be made by Buyer, on its own
behalf or on behalf of any other Buyer Indemnified Party, for indemnification of
any Buyer Indemnified Cost. No person other than Buyer shall be permitted to
make a Claim on behalf of Buyer Indemnified Parties against the Escrow Amount
for Buyer Indemnified Costs under this Section 8 unless Buyer provides written
notice to the Escrow Agent and the Representative that Buyer has authorized
another Buyer Indemnified Party to make such claims.
(b) Buyer shall promptly notify the Representative and the Escrow Agent in
writing of any sums which Buyer claims are subject to indemnification (a "Claims
Notice"). Failure of Buyer to exercise promptness in such notification shall
not amount to a waiver of such Claim unless, and only to the extent that, the
resulting delay materially and adversely prejudices the Securityholders. Each
Claims Notice shall consist of a description of the Claim and specify each Buyer
Indemnified Party and the amount (which may be estimated) of the Claim in United
States dollars.
(c) The Representative may contest any Claim (or any portion thereof)
specified in any Claims Notice by giving the Escrow Agent and Buyer written
notice of such contest within 15 Business Days after receipt by the
Representative and the Escrow Agent of such Claims Notice, which notice of
contest shall include a statement of the grounds of such contest and shall state
the amount of any such Claim by Buyer that the Representative does not dispute.
(d) Payment of any Claim for indemnification (or portion thereof) shall
become due and payable as follows:
(i) If, notwithstanding Section 3 of this Agreement, at 5:00 p.m.
(Dallas time) on the fifteenth Business Day after receipt by the
Representative and the Escrow Agent of a Claims Notice pursuant to Section
8(b) above, the Escrow Agent has not received written notice from the
Representative that the Representative contests the Claim (or portion
thereof) pursuant to Section 8(c) above, the amount of the Claim (or the
uncontested portion thereof) shall be promptly paid by the Escrow Agent to
Buyer;
(ii) If the Representative contests a Claim (or portion thereof)
pursuant to Section 8(c) and the Claim (or portion thereof) is thereafter
settled by a written agreement
<PAGE>
of the Representative and Buyer, the amount provided in such written
agreement shall, upon receipt by the Escrow Agent of a copy of such written
agreement, be promptly paid by the Escrow Agent pursuant to the terms of
such written agreement; and
(iii) If the Representative contests the Claim (or portion thereof)
pursuant to Section 8(c) hereof and a Final Determination is thereafter
obtained, the amount set forth in such Final Determination shall be
promptly paid by the Escrow Agent pursuant to the terms of such Final
Determination.
SECTION 9. EXPIRATION OF INDEMNIFICATION CLAIMS. Any claim for Buyer
Indemnified Costs to be reimbursed from the Atrium Indemnity Account must be
asserted by Buyer or any Buyer Indemnified Party designated pursuant to Section
8(a) by delivery of a Claims Notice which must be received by the Representative
and the Escrow Agent prior to 5:00 p.m. (Dallas time) on the Final Release Date.
SECTION 10. THE ESCROW AGENT. To induce the Escrow Agent to act
hereunder, it is further agreed by Buyer and the Representative that:
(a) The Escrow Agent shall not be under any duty to give the Escrowed
Property held by it hereunder any greater degree of care than it gives its own
similar property and shall not be required to invest any Escrowed Property held
hereunder except as directed in this Agreement. Uninvested Escrowed Property
held hereunder shall not earn or accrue interest.
(b) This Agreement expressly sets forth all the duties of the Escrow Agent
with respect to any and all matters pertinent hereto. No implied duties or
obligations shall be read into this Agreement against the Escrow Agent. The
Escrow Agent shall not be bound by the provisions of any agreement among the
other parties hereto except this Agreement.
(c) The Escrow Agent shall not be liable, except for its own gross
negligence or willful misconduct and, except with respect to claims based upon
such gross negligence or willful misconduct that are successfully asserted
against the Escrow Agent, Buyer and the Representative shall jointly and
severally indemnify and hold harmless the Escrow Agent (and any successor escrow
agent) from and against any and all losses, liabilities, claims, actions,
damages and expenses, including reasonable attorneys' fees and disbursements,
arising out of and in connection with this Agreement. Without limiting the
foregoing, the Escrow Agent shall in no event be liable in connection with its
investment or reinvestment of any cash held by it hereunder in good faith, in
accordance with the terms hereof, including without limitation, any liability
for any delays (not resulting from its gross negligence or willful misconduct)
in the investment or reinvestment of the Escrowed Property or any loss of
interest incident to any such delays. This Section 10(c) shall survive
notwithstanding any termination of this Agreement or the resignation of the
Escrow Agent.
(d) The Escrow Agent shall be entitled to rely in good faith upon any
order, judgment, certification, demand, notice, instrument or other writing
delivered to it hereunder in accordance with the terms hereof without being
required to determine the authenticity or the
<PAGE>
correctness of any fact stated therein or the propriety or validity or the
service thereof. The Escrow Agent may act in reliance upon any instrument or
signature believed by it in good faith to be genuine and may assume that any
person purporting to give receipt or advice or make any statement or execute any
document in connection with the provisions hereof has been duly authorized to do
so.
(e) The Escrow Agent may act pursuant to the advice of counsel with
respect to any matter relating to this Agreement and shall not be liable for any
action taken or omitted in good faith in accordance with such advice.
(f) The Escrow Agent does not have any interest in the Escrowed Property
deposited hereunder but is serving as escrow holder only and having only
possession thereof. Buyer and the Representative shall on a 50%/50% basis pay
or reimburse the Escrow Agent upon request for any transfer taxes or other taxes
relating to the Escrowed Property incurred in connection herewith and shall
indemnify and hold harmless the Escrow Agent from any amounts that it is
obligated to pay in the way of such taxes. Any payments of income from the
Atrium Indemnity Account shall be subject to withholding regulations then in
force with respect to United States taxes. It is understood that the Escrow
Agent shall be responsible for income reporting only with respect to income
earned on investment of the Escrowed Property and is not responsible for any
other reporting. This Section 10(f) shall survive notwithstanding any
termination of this Agreement or the resignation of the Escrow Agent.
(g) The Escrow Agent makes no representation as to the validity, value,
genuineness or the collectability of any security or other document or
instrument held by or delivered to it.
(h) The Escrow Agent shall not be called upon to advise any party as to
the wisdom in selling or retaining or taking or refraining from taking any
action with respect to any securities or other property deposited hereunder.
(i) The Escrow Agent (and any successor escrow agent) may at any time
resign as such by delivering the Escrowed Property to any successor escrow agent
jointly designated by the other parties hereto in writing or to any court of
competent jurisdiction, whereupon the Escrow Agent shall be discharged of and
from any and all further obligations arising in connection with this Agreement.
The resignation of the Escrow Agent will take effect on the date (the
"Resignation Date") which is the earlier to occur of: (i) the date a successor
is appointed (including a court of competent jurisdiction) or (ii) the date
which is 30 days after the date of delivery of its written notice of resignation
to the other parties hereto. Upon the appointment of a successor escrow agent,
such successor escrow agent shall deliver written notice to Buyer and the
Representative on the appointment of such successor escrow agent. If, at the
Resignation Date, the Escrow Agent has not received a designation of a successor
escrow agent, the Escrow Agent's sole responsibility after the Resignation Date
shall be to safekeep the Escrowed Property until receipt of a designation of
successor escrow agent or a joint written disposition instruction by the other
parties hereto or a Final Determination to the effect that the Escrow Agent may
transfer the Escrowed Property to another party without incurring liability
under this Agreement.
<PAGE>
(j) The Escrow Agent shall have no responsibility for the contents of any
writing of any third party contemplated herein as a means to resolve disputes
and may rely without any liability upon the contents thereof.
(k) In the event of any disagreement between Buyer and the Securityholders
resulting in adverse claims or demands being made in connection with the
Escrowed Property, or in the event that the Escrow Agent in good faith is in
doubt as to what action it should take hereunder, the Escrow Agent shall be
entitled to retain the Escrowed Property until the Escrow Agent shall have
received (i) a Final Determination (accompanied by the opinion of counsel
referred to in Section 3) directing delivery of the Escrowed Property or (ii) a
written agreement executed by Buyer and the Representative directing delivery of
the Escrowed Property, in which event the Escrow Agent shall disburse the
Escrowed Property in accordance with such Final Determination or agreement. The
Escrow Agent shall act on such Final Determination or agreement without further
question.
(l) The compensation of the Escrow Agent (as payment in full except for
the establishment, if necessary, of the Pending Claims Account) for the services
to be rendered by the Escrow Agent hereunder shall be the amount of $2,500 paid
by Buyer and the Securityholders on a 50%/50% basis at the time of execution of
this Agreement, together with reimbursement for all reasonable expenses,
disbursements and advances incurred or made by the Escrow Agent in performance
of its duties hereunder (including reasonable fees, expenses and disbursements
of its counsel) not to exceed $1,000 absent any litigation or other dispute
arising under this Agreement. All fees and expenses of the Escrow Agent
hereunder shall be paid by Buyer and the Securityholders on a 50%/50% basis.
Any fees or expenses of the Escrow Agent or its counsel which are not paid as
provided for herein may be taken from any property held by the Escrow Agent
hereunder. The Escrow Agent's fee may be adjusted from time to time to conform
to its then current guidelines. If the Escrow Agent establishes the Pending
Claims Account under Section 5 of this Agreement, Buyer and the Securityholders
shall pay the amount of $1,500 annually on a 50%/50% basis to the Escrow Agent
for the set-up and administration of such Pending Claims Account.
(m) No prospectuses, press releases, reports and promotional material, or
other similar materials which mention in any language the Escrow Agent's name or
the rights, powers or duties of the Escrow Agent shall be issued by the other
parties hereto or on such parties' behalf unless the Escrow Agent shall first
have given its specific written consent thereto.
(n) The other parties hereto authorize the Escrow Agent, for any
securities held hereunder, to use the services of any United States central
securities depository it deems appropriate, including, but not limited to, the
Depositary Trust Company and the Federal Reserve Book Entry System.
SECTION 11. NOTICES. All notices, requests, consents, waivers and other
communications required or permitted to be given hereunder shall be in writing
and shall be deemed to have been duly given if: (a) transmitted by facsimile,
upon acknowledgment of receipt thereof in writing by facsimile or otherwise;
(b) personally delivered, upon delivery or refusal of
<PAGE>
delivery; (c) mailed by registered or certified United States mail, return
receipt requested, postage prepaid, upon delivery or refusal of delivery; or
(d) if sent by a nationally recognized overnight delivery service, upon delivery
or refusal of delivery. All notices, consents, waivers or other communications
required or permitted to be given hereunder shall be addressed to the respective
party to whom such notice, consent, waiver or other communication relates at the
following addresses:
(i) if to Buyer or to any Buyer Indemnified Party:
D and W Holdings, Inc.
c/o Ardshiel, Inc.
230 Park Avenue
New York, New York 10169
Attn: David T. Morley
Telephone: (212) 697-8570
Facsimile: (212) 972-1809
with copies to:
Paul, Hasting, Janofsky & Walker LLP
399 Park Avenue, 31st Floor
New York, New York 10022-4697
Attn: Joel M. Simon
Marie Censoplano
Telephone: (212) 318-6000
Facsimile: (212) 319-4090
and
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019-6092
Attn: William J. Phillips
Telephone: (212) 259-8000
Facsimile: (212) 259-6333
(ii) if to the Representative, to:
Hicks, Muse Fund III Incorporated
c/o Hicks, Muse, Tate & Furst Incorporated
200 Crescent Court, Suite 1600
Dallas, Texas 75201
Attn: Jeffry S. Fronterhouse
Telephone: (214) 740-7336
Facsimile: (214) 740-7355
with copies to:
Vinson & Elkins L.L.P.
3700 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attn: Michael D. Wortley
Telephone: (214) 220-7732
Facsimile: (214) 999-7732
(iii) if to the Escrow Agent, to:
Norwest Bank Texas, N.A.
777 West Rosedale
Suite 360
Fort Worth, Texas 76104
Attn: Pat Aston
Telephone: (817) 348-4946
Facsimile: (817) 348-4959
Any party by written notice to the other parties pursuant to this Section
11 may change the address or the persons or party to whom
<PAGE>
notices or copies thereof shall be directed.
SECTION 12. WAIVERS; AMENDMENTS. Any waiver by any party hereto of any
breach of or failure to comply with any provision of this Agreement by any other
party hereto shall be in writing and shall not be construed as, or constitute, a
continuing waiver of such provision, or a waiver of any other breach of, or
failure to comply with, any other provision of this Agreement. This Agreement
may only be modified by a writing signed by all of the parties hereto.
SECTION 13. CONSTRUCTION. The headings in this Agreement are solely for
convenience of reference and shall not be given any effect in the construction
or interpretation of this Agreement. Unless otherwise stated, references to
Sections are references to Sections of this Agreement.
SECTION 14. ASSIGNMENT; THIRD PARTIES. Neither this Agreement nor any of
the rights, interests, or obligations hereunder shall be assigned by any of the
parties hereto, whether by operation of law or otherwise; provided, however,
that (a) upon notice to the Representative and without releasing Buyer from any
of its obligations or liabilities hereunder, Buyer may assign or delegate any or
all of its rights or obligations under this Agreement to any Affiliate of Buyer,
and (b) nothing in this Agreement shall limit Buyer's ability to make a
collateral assignment of its rights under this Agreement without the consent of
the Representative to any institutional lender that provides funds to Buyer or
Buyer's designee; PROVIDED, HOWEVER, that unless written notice is given to the
Representative that any such collateral assignment has been foreclosed upon, the
Representative shall be entitled to deal exclusively with Buyer as to any
matters arising under this Agreement or any of the other agreements delivered
pursuant hereto. In the event of such an assignment, the provisions of this
Agreement shall inure to the benefit of and be binding on Buyer's assigns.
SECTION 15. TERMINATION. This Agreement shall terminate at the time of
the final distribution by the Escrow Agent of all Escrowed Property in
accordance with the provisions of this Agreement.
SECTION 16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute a single instrument.
SECTION 17. GOVERNING LAW; SEVERABILITY. This Agreement shall be
construed in accordance with and governed by the internal law of the state of
Delaware (without reference to its rules as to conflicts of law). The
invalidity, legality or enforceability of any provisions of this Agreement shall
in no way affect the validity, legality or enforceability of any other
provision; and if any provision is held to be unenforceable as a matter of law,
the other provisions shall not be affected thereby and shall remain in full
force and effect.
SECTION 18. CONSENT TO SERVICE. Buyer and the Representative hereby
irrevocably submit to the jurisdiction of any Texas State or federal court in
any action or proceeding to which the Escrow Agent is a party arising out of or
relating to this Agreement, and the parties hereby
<PAGE>
irrevocably agree that all claims in respect of such action or proceeding
shall be heard and determined in such a Texas State or federal court. The
parties hereby consent to and grant to any such court jurisdiction over the
person of such parties and over the subject matter of any such dispute and
agree that delivery or mailing of any process or other papers in the manner
provided herein above, or in such other manner as may be permitted by law,
shall be valid and sufficient service thereof.
SECTION 19. WAIVER OF OFFSET RIGHTS. The Escrow Agent hereby waives any
and all rights to offset that it may have against the Escrowed Property
including, without limitation, claims arising as a result of any claims,
amounts, liabilities, costs, expenses, Buyer Indemnified Costs or other losses
(collectively, "Escrow Agent Claims") that the Escrow Agent may be otherwise
entitled to collect from any party to this Agreement or any Indemnitee, other
than Escrow Agent Claims arising under this Agreement.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first written above.
D AND W HOLDINGS, INC.
By:
--------------------------------------------
Name:
------------------------------------------
Title:
-----------------------------------------
HICKS, MUSE FUND III INCORPORATED
as Representative
By:
--------------------------------------------
Name:
------------------------------------------
Title:
-----------------------------------------
NORWEST BANK TEXAS, N.A.
By:
--------------------------------------------
Name:
------------------------------------------
Title:
-----------------------------------------
[SIGNATURE PAGE TO INDEMNIFICATION ESCROW AGREEMENT]
S-1
<PAGE>
AMENDMENT NO. 1 TO INDEMNIFICATION ESCROW AGREEMENT
THIS AMENDMENT NO. 1 TO INDEMNIFICATION ESCROW AGREEMENT (this
"Amendment"), is made and entered into as of April 14, 1999 by and among
Hicks, Muse Fund III Incorporated, a Texas corporation, as the true and
lawful agent and attorney-in-fact for each of the Securityholders (as defined
in the Merger Agreement referred to below) (the "Representative"), D and W
Holdings, Inc., a Delaware corporation ("Buyer"), and Norwest Bank Texas,
N.A., a national banking association with its headquarters in Dallas, Texas
(the "Escrow Agent").
RECITALS
Pursuant to the Agreement and Plan of Merger dated as of August 3, 1998
(as subsequently amended, the "Merger Agreement"), by and among Buyer, D and
W Acquisition Corp., a Delaware corporation, Atrium Corporation, a Delaware
corporation, and the Securityholders named therein (the "Securityholders"),
the Representative, Buyer and the Escrow Agent entered into an
Indemnification Escrow Agreement as of October 2, 1998 (the "Escrow
Agreement"). Capitalized terms used and not defined herein shall have the
respective meanings ascribed to them in the Escrow Agreement.
The Securityholders have appointed, authorized and empowered Hicks, Muse
Fund III Incorporated to act as the Representative pursuant to Article 12 of
the Merger Agreement in connection with, and to facilitate the consummation
of the transaction contemplated by, the Merger Agreement and in connection
with the activities to be performed on behalf of the Securityholders under
the Escrow Agreement.
The parties hereto wish to amend the Escrow Agreement as set forth herein.
AGREEMENTS
NOW, THEREFORE, in consideration of the recitals and the respective
agreements and covenants contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto, intending to be legally bound, hereby agree as follows:
1. SUBSTITUTION OF ESCROWED PROPERTY. At the time the parties entered
into the Escrow Agreement, the Escrow Amount was deposited with the Escrow
Agent to be held under the terms of the Escrow Agreement as security for the
indemnification obligations of the Securityholders to Buyer Indemnified
Parties (as defined in the Merger Agreement) in accordance with Article 11 of
the Merger Agreement. Simultaneously with the execution and
<PAGE>
delivery of this Amendment, to secure the indemnity obligations of Randall S.
Fojtasek ("Fojtasek") to Buyer Indemnified Parties in accordance with
Article 11 of the Merger Agreement, Fojtasek has delivered to the Escrow
Agent a Letter of Credit issued by Bankers Trust Company (the "LC Agent"),
naming the Escrow Agent as beneficiary (the "Letter of Credit") issued in the
original amount of $1,566,625. Upon receipt by the Escrow Agent of the
Letter of Credit, the Escrow Agent is hereby authorized and instructed by
Buyer and the Representative to distribute a portion of the Escrow Amount
equal to $1,566,625 in accordance with the instructions set forth in Appendix
I hereto. Each of Buyer, the Representative and the Escrow Agent hereby
covenant and agree that the Escrow Agreement is hereby amended to the extent
required to allow the substitution of the Letter of Credit for the portion of
the Escrowed Property which is distributed in accordance with this Section 1,
and hereby irrevocably waive any breach or default under the Escrow Agreement
that would otherwise result from such substitution.
2. LETTER OF CREDIT. The Escrow Agreement is hereby amended by inserting
the following Section 1A immediately following Section 1 to the Escrow
Agreement:
"Section 1A LETTER OF CREDIT. The Letter of Credit shall be
deemed "Escrowed Property" for all purposes under the Escrow
Agreement. If the Escrow Agent receives (i) written instructions
executed by the Representative requesting the Escrow Agent to draw
funds under the Letter of Credit, or (ii) joint written
instructions executed by Buyer and the Representative requesting
the Escrow Agent to draw funds under the Letter of Credit, or (iii)
a Final Determination setting forth an amount to be drawn under the
Letter of Credit, or (iv) written instructions executed by Buyer
requesting the Escrow Agent to draw funds under the Letter of
Credit in connection with a Claim made pursuant to Section 8 of the
Escrow Agreement, then within two (2) Business Days after receipt
of such written instructions or Final Determination, as applicable,
the Escrow Agent shall present to the LC Agent a Drawing
Certificate in the form attached hereto as Appendix II (the
"Drawing Certificate") duly executed by an officer of the Escrow
Agent and requesting payment under the Letter of Credit in an
amount equal to the amount set forth in such written instructions
or Final Determination, as applicable. The Escrow Agent shall then
deposit into the Atrium Indemnity Account any funds received upon
the draw under the Letter of Credit and, if less than the full
amount of the Letter of Credit is drawn, the Escrow Agent shall
continue to hold the Letter of Credit pursuant to the terms of this
Agreement, including those set forth in this Section 1A. Any funds
drawn under the Letter of Credit and deposited into the Atrium
Indemnity Account shall be deemed a part of the "Escrow Amount" for
all purposes under the Escrow Agreement and shall be held,
administered and disposed of by the Escrow Agent in accordance with
the terms and conditions set forth in the Escrow Agreement. If the
Letter of Credit has not been fully drawn at or prior to the second
Business Day after the Final Release Date, not later than the
fourth Business Day after the Final Release Date, the Escrow Agent
shall deliver the Letter of Credit to the Representative."
<PAGE>
3. CONSTRUCTION. The headings in this Amendment are solely for
convenience of reference and shall not be given any effect in the
construction or interpretation of this Amendment or the Escrow Agreement.
Unless otherwise stated, references to Sections are references to Sections of
this Amendment.
4. COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute a single instrument.
5. GOVERNING LAW. This Amendment shall be construed in accordance with
and governed by the internal law of the state of Delaware (without reference
to its rules as to conflicts of law).
6. Effect of Amendment. Except as amended hereby, the terms and
provisions of the Escrow Agreement shall remain in full force and effect, and
are hereby in all respects ratified and confirmed by the parties hereto.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment as of the date first written above.
D AND W HOLDINGS, INC.
By:
------------------------------
Name:
Title:
HICKS, MUSE FUND III INCORPORATED,
as Representative
By:
------------------------------
Name:
Title:
NORWEST BANK TEXAS, N.A.
By:
------------------------------
Name:
Title:
<PAGE>
APPENDIX I
DISTRIBUTION INSTRUCTIONS
<PAGE>
EXHIBIT 12.1
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
1998 1997 1996
------------ --------- ---------
<S> <C> <C> <C>
FIXED CHARGES:
Interest expense.............................................................. $ 9,081 $ 2,953 $ 883
Implicit interest in rent..................................................... 954 396 288
Amortization of deferred financing costs...................................... 732 390 30
------------ --------- ---------
Total fixed charges........................................................... 10,767 3,739 1,201
Earnings before provision for income taxes.................................... (2,329) 1,391 2,321
Fixed charges................................................................. 10,767 3,739 1,201
Earnings, as defined.......................................................... 8,438 5,130 3,522
Ratio of earnings to fixed charges............................................ (2,329)(a) 1.4x 2.9x
</TABLE>
(a) --Earnings, as defined, would have been insufficient to cover fixed charges.
<PAGE>
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.) (direct subsidiary
of Atrium Door and Window Company of the Northeast, indirect subsidiary of
Atrium Companies, Inc.)
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)
Atrium Door and Window Company of Arizona, a Delaware corporation (direct
subsidiary)
Wing Industries Holdings, Inc., a Delaware corporation (direct subsidiary)
Wing Industries, Inc., a Texas corporation (direct subsidiary of Wing Industries
Holdings, Inc., indirect subsidiary of Atrium Companies, Inc.)
Door Holdings, Inc., a Delaware corporation (direct subsidiary)
R.G. Darby Company, Inc., a Delaware corporation (direct subsidiary of Door
Holdings, Inc., indirect subsidiary of Atrium Companies, Inc.)
Total Trim, Inc., a Delaware corporation, (direct subsidiary of Door Holdings,
Inc., indirect subsidiary of Atrium Companies, Inc.)
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned hereby
constitutes and appoints Jeff L. Hull, the true and lawful attorney-in-fact,
with full power of substitution and resubstitution, to sign on behalf of Atrium
Companies, Inc., a Delaware corporation (the "Company"), and on behalf of the
undersigned in my capacity as an officer and/or a director of the Company, the
Company's Annual Report on Form 10-K for the year ended December 31, 1998, and
to sign any or all amendments thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended,
and the regulations promulgated thereunder, granting unto said attorney-in-fact,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises in order to
effectuate the same as fully to all intents and purposes as the undersigned may
or could in person, hereby ratifying and confirming all that said
attorney-in-fact or substitute, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, I have executed this Power of Attorney effective as of
April 15, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Executive Vice President,
Chief Financial Officer,
/s/ JEFF L. HULL Secretary, Treasurer and
- ------------------------------ Director (co-Principal April 15, 1999
Jeff L. Hull Executive Officer and
Principal Financial
Officer)
/s/ R.L. GILMER
- ------------------------------ Director (co-Principal April 15, 1999
R.L. Gilmer Executive Officer)
/s/ ERIC W. LONG Corporate Controller
- ------------------------------ (Principal Acounting April 15, 1999
Eric W. Long Officer)
/s/ DANIEL T. MORLEY
- ------------------------------ Director April 15, 1999
Daniel T Morley
/s/ ROGER G. KNIGHT
- ------------------------------ Director April 15, 1999
Roger G. Knight
/s/ SAM A. WING, JR.
- ------------------------------ Director April 15, 1999
Sam A. Wing, Jr.
/s/ JAMES G. TURNER
- ------------------------------ Director April 15, 1999
James G. Turner
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ NIMROD NATAN
- ------------------------------ Director April 15, 1999
Nimrod Natan
/s/ JOHN DETERDING
- ------------------------------ Director April 15, 1999
John Deterding
/s/ ANDREAS HILDEBRAND
- ------------------------------ Director April 15, 1999
Andreas Hildebrand
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001029336
<NAME> ATRIUM COMPANIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 0
<SECURITIES> 137
<RECEIVABLES> 47,191
<ALLOWANCES> 725
<INVENTORY> 46,289
<CURRENT-ASSETS> 101,897
<PP&E> 30,007
<DEPRECIATION> 3,247
<TOTAL-ASSETS> 359,869
<CURRENT-LIABILITIES> 42,994
<BONDS> 179,227
0
0
<COMMON> 0
<OTHER-SE> 133,056
<TOTAL-LIABILITY-AND-EQUITY> 359,869
<SALES> 211,059
<TOTAL-REVENUES> 211,059
<CGS> 159,140
<TOTAL-COSTS> 159,140
<OTHER-EXPENSES> (571)
<LOSS-PROVISION> 227
<INTEREST-EXPENSE> 9,081
<INCOME-PRETAX> (2,329)
<INCOME-TAX> (149)
<INCOME-CONTINUING> (2,180)
<DISCONTINUED> 0
<EXTRAORDINARY> 639
<CHANGES> 0
<NET-INCOME> (2,819)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
