FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 29, 1997
---------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------------- ---------------------
Commission File No. 1-6112
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NORTEK, INC.
- ---------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 05-0314991
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 Kennedy Plaza, Providence, RI 02903-2360
- ---------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(401) 751-1600
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year
if changed since last year)
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
---------- -----------
The number of shares of Common Stock outstanding as of April 25, 1997 was
9,102,133. The number of shares of Special Common Stock outstanding as of
April 25, 1997 was 491,846.
NORTEK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollar Amounts in Thousands)
March 29, Dec. 31,
1997 1996
---- ----
(Unaudited)
ASSETS
------
Current Assets:
Unrestricted--
Cash and cash equivalents $ 85,520 $ 41,042
Marketable securities available for
sale 137,894 51,051
Restricted--
Cash and marketable securities at
cost which approximates market 5,756 5,681
Accounts receivable, less allowances
of $5,004 and $4,356 134,116 122,176
Inventories:
Raw materials 34,219 36,765
Work in process 12,093 12,717
Finished goods 59,674 48,176
------- -------
105,986 97,658
------- -------
Prepaid expenses 5,802 5,031
Other current assets 15,204 9,909
Prepaid income taxes 20,000 20,000
------- -------
Total Current Assets 510,278 352,548
------- -------
Property and Equipment, at cost:
Land 7,039 7,046
Buildings and improvements 72,199 72,954
Machinery and equipment 176,120 174,064
------- -------
255,358 254,064
Less--Accumulated depreciation 115,602 112,645
------- -------
Total Property and Equipment,
net 139,756 141,419
------- -------
Other Assets:
Goodwill, less accumulated amortiza-
tion of $27,622 and $26,948 89,501 91,578
Deferred debt expense 11,308 6,647
Other 20,224 16,924
------- -------
121,033 115,149
------- -------
$771,067 $609,116
======= =======
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements
NORTEK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Continued)
(Dollar Amounts in Thousands)
March 29, Dec. 31,
1997 1996
LIABILITIES AND STOCKHOLDERS' INVESTMENT ---- ----
- ---------------------------------------- (Unaudited)
Current Liabilities:
Notes payable and other short-
term obligations $ 24,219 $ 25,334
Current maturities of long-term debt 19,316 11,230
Accounts payable 83,299 74,945
Accrued expenses and taxes, net 89,426 97,565
------- -------
Total Current Liabilities 216,260 209,074
------- -------
Other Liabilities:
Deferred income taxes 17,821 17,637
Other 19,882 19,649
------- -------
37,703 37,286
------- -------
Notes, Mortgage Notes and
Obligations Payable, less current
maturities 402,134 243,961
------- -------
Stockholders' Investment:
Preference stock, $1 par value;
authorized 7,000,000 shares,
none issued --- ---
Common Stock, $1 par value; authorized
40,000,000 shares, 16,020,570 shares
and 15,965,585 shares issued 16,021 15,966
Special Common Stock, $1 par value;
authorized 5,000,000 shares, 779,311
shares and 784,169 shares issued 779 784
Additional paid-in capital 135,311 135,028
Retained earnings 41,466 37,766
Cumulative translation, pension and
other adjustments (4,536) (3,212)
Less - treasury common stock at cost,
6,872,470 shares and 6,599,645
shares (72,142) (65,805)
- treasury special common stock
at cost, 284,985 shares and
276,910 shares (1,929) (1,732)
------- -------
Total Stockholders' Investment 114,970 118,795
------- -------
$771,067 $609,116
======= =======
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
NORTEK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In Thousands Except Per Share Amounts)
For The
Three Months Ended
------------------
March 29, March 30,
1997 1996
---- ----
(Unaudited)
Net Sales $219,627 $220,985
------- -------
Costs and Expenses:
Cost of products sold 160,070 165,587
Selling, general and
administrative expense 47,218 45,410
------- -------
207,288 210,997
------- -------
Operating earnings 12,339 9,988
Interest expense (7,800) (7,809)
Interest income 1,286 1,921
Net gain on investments and
marketable securities 175 ---
------- -------
Earnings before provision for
income taxes 6,000 4,100
Provision for income taxes 2,300 1,700
------- -------
Net Earnings $ 3,700 $ 2,400
======= =======
Net Earnings Per Share:
Primary $ 0.37 $ .20
======= =======
Fully diluted $ 0.37 $ .20
======= =======
Weighted Average Number of Shares:
Primary 9,964 11,841
====== =======
Fully diluted 9,964 11,867
====== =======
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
NORTEK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in Thousands)
For the
Three Months Ended
------------------
March 29, March 30,
1997 1996
---- ----
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 3,700 $ 2,400
------- -------
Adjustments to reconcile net earnings
to cash:
Depreciation and amortization 5,537 5,596
Non-cash interest expense, net 320 325
Net gain on investments and marketable
securities (175) ---
Deferred federal income tax provision 400 600
Changes in certain assets and liabilities,
net of effects from acquisitions
and dispositions:
Accounts receivable, net (12,662) (15,529)
Prepaids and other current assets (2,507) 308
Inventories (8,850) (6,127)
Accounts payable 10,243 11,026
Accrued expenses and taxes (9,809) (14,086)
Long-term assets, liabilities and
other, net (1,575) (436)
------- -------
Total adjustments to net earnings (19,078) (18,323)
------- -------
Net Cash Used in Operating
Activities (15,378) (15,923)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,774) (2,877)
Purchase of investments and marketable
securities (111,401) (10,173)
Proceeds from sale of investments and
marketable securities 20,940 22,677
Other, net (967) (303)
------- -------
Net Cash (Used in) Provided by
Investing Activities (96,202) 9,324
------- -------
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
NORTEK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in Thousands)
(Continued)
For the
Three Months Ended
------------------
March 29, March 30,
1997 1996
---- ----
(Unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of Notes $169,395 $ ---
Increase in borrowings 3,862 11,632
Payment of borrowings (11,035) (6,530)
Purchase of Nortek Common and Special
Common Stock (6,534) (8,235)
Other, net 370 7
------- -------
Net Cash Provided by (Used in)
Financing Activities 156,058 (3,126)
------- -------
Net increase (decrease) in
unrestricted cash and investments 44,478 (9,725)
Unrestricted cash and investments at
the beginning of the period 41,042 60,079
------- -------
Unrestricted cash and investments at the
end of the period $ 85,520 $ 50,354
======= =======
Interest paid $ 12,024 $ 13,316
======= =======
Income taxes paid, net $ 835 $ 3,211
======= =======
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
Nortek, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders' Investment
For the Three Months Ended March 29, 1997 and March 30, 1996
(Dollar Amounts in Thousands)
Cumulative
Addi- Translation,
Special tional Pension
Common Common Paid-in Retained and Other Treasury
Stock Stock Capital Earnings Adjustments Stock
----- ----- ------- --------- ---------- -----
(Unaudited)
Balance, December 31,
1995 $15,883 $774 $134,690 $15,766 $(2,742) $(33,080)
11,039 shares of
special common stock
converted into
11,039 shares of
common stock 11 (11) --- --- --- ---
3,000 shares of
common stock issued
upon exercise of
stock options 3 --- 4 --- --- ---
716,831 shares of
treasury stock acquired --- --- --- --- --- (8,046)
Translation adjustment --- --- --- --- 75 ---
Unrealized decline in
the value of
marketable securities --- --- --- --- (403) ---
Net earnings --- --- --- 2,400 --- ---
------ --- ------- ------ ------ -------
Balance, March 30,
1996 $15,897 $763 $134,694 $18,166 $(3,070) $(41,126)
====== === ======= ====== ====== =======
Balance, December 31,
1996 $15,966 $784 $135,028 $37,766 $(3,212) $(67,537)
10,666 shares of
special common stock
converted into
10,666 shares of
common stock 11 (11) --- --- --- ---
44,319 shares of
common stock and
5,808 shares of
special common stock
issued upon exercise
of stock options 44 6 283 --- --- ---
280,900 shares of
treasury stock acquired --- --- --- --- --- (6,534)
Translation adjustment --- --- --- --- (1,386) ---
Unrealized increase in
the value of market
able securities --- --- --- --- 62 ---
Net earnings --- --- --- 3,700 --- ---
Balance, March 29, ------- ---- -------- ------- ------- --------
1997 $16,021 $779 $135,311 $41,466 $(4,536) $(74,071)
======= ==== ======= ====== ====== =======
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
NORTEK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 29, 1997 AND MARCH 30, 1996
(A) The unaudited condensed consolidated financial statements presented
("Unaudited Financial Statements") have been prepared by Nortek,
Inc. and include all of its wholly-owned subsidiaries (the
"Company") after elimination of intercompany accounts and
transactions, without audit and, in the opinion of management,
reflect all adjustments of a normal recurring nature necessary for
a fair statement of the interim periods presented. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been omitted, although, the Company
believes that the disclosures included are adequate to make the
information presented not misleading. Certain amounts in the
Unaudited Financial Statements for the prior periods have been
reclassified to conform to the presentation at March 29, 1997. It
is suggested that these Unaudited Financial Statements be read in
conjunction with the financial statements and the notes included in
the Company's latest Annual Report on Form 10-K.
(B) In March 1997, the Company sold, in a private offering (under an
exemption pursuant to Securities and Exchange Commission ("SEC")
Rule 144A) to qualified institutional investors $175,000,000
principal amount of 9.25% Series A Senior Notes due March 2007
("9.25% Series A Notes") at a slight discount. The net proceeds
will be used to refinance approximately $47,200,000 of outstanding
indebtedness of the Company's subsidiaries and for acquisitions and
other general corporate purposes, including investment in plant and
equipment. In connection with the sale of the 9.25% Series A
Notes, such qualified investors received registration rights.
On April 30, 1997, the Company filed a registration statement with
the SEC, which was declared effective on May 2, 1997, and the
Company has commenced an offer to exchange the 9.25% Series A Notes
for an equal principal amount of 9.25% Series B Senior Notes due
March 2007 ("9.25% Series B Notes"). The terms of the 9.25% Series
B Notes are similar to the terms of the 9.25% Series A Notes,
except that the 9.25% Series B Notes have been registered with the
SEC.
The Company's Board of Directors has authorized a number of
programs to purchase shares of the Company's Common and Special
Common Stock since November 16, 1995. The most recent of these
programs was announced on April 30, 1997, to purchase up to 500,000
shares of the Company's Common and Special Common Stock in open
market or negotiated transactions, subject to market conditions,
cash availability and provisions of the Company's outstanding
debt instruments. As of May 5, 1997, no purchases have been made
under this latest program. For the period from November 16,
1995 to April 25, 1997, the Company purchased approximately
2,800,000 shares of its Common and Special Common Stock for
approximately $43,831,000 and accounted for such share purchases
as Treasury Stock.
NORTEK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 29, 1997 AND MARCH 30, 1996
(Continued)
At April 25, 1997, approximately $1,518,900 was available for the
payment of cash dividends or stock purchases under the terms of the
Company's most restrictive Indenture.
The following presents the approximate unaudited pro forma net
earnings and fully diluted earnings per share of the Company for
the three months ended March 29, 1997 and March 30, 1996, and the
year ended December 31, 1996, as adjusted for the pro forma effect
of the Treasury Stock purchases, the debt offering and the debt
refinancing, assuming these transactions occurred at January 1,
1996:
Three Months Ended Year Ended
March 29, March 30, Dec. 31,
1997 1996 1996
------------- ---------- ---------
(Amounts in Thousands except
per share amounts)
Net earnings $2,900 $1,100 $17,500
===== ===== ======
Fully diluted net
earnings per share $ .29 $ .11 $ 1.78
===== ===== ======
In computing the pro forma net earnings, interest expense on the
indebtedness refinanced with funds from the debt offering was
excluded at an average interest rate of approximately 9.6% for all
periods presented, net of the tax effect. Interest expense was
included on the 9.25% Series A Notes at a rate of approximately
9.25%, plus amortization of deferred debt expense and debt discount
for all periods presented, net of the tax effect. Interest income
on the excess cash from the offering was included at a rate of
5.5%.
(C) At March 29, 1997 and December 31, 1996, the reduction in the
Company's stockholders' investment for gross unrealized losses on
marketable securities was approximately $829,000 and $891,000,
respectively.
(D) The tax effect of temporary differences which gave rise to
significant portions of deferred income tax assets and liabilities
as of March 29, 1997 and December 31, 1996 is as follows:
NORTEK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 29, 1997 AND MARCH 30, 1996
(Continued)
March 29, Dec. 31,
1997 1996
---- ----
(Amounts in Thousands)
U. S. Federal Prepaid (Deferred)
Income Tax Assets Arising From:
Accounts receivable $ 1,507 $ 1,246
Inventory (301) (610)
Insurance reserves 4,985 4,985
Other reserves, liabilities
and assets, net 13,809 14,379
------ ------
$20,000 $20,000
====== ======
Deferred (Prepaid) Income Tax
Liabilities Arising From:
Property and equipment, net $15,435 $15,400
Prepaid pension assets 735 841
Other reserves, liabilities and
assets, net (357) (608)
Capital loss carryforward (6,400) (6,462)
Other, net (1,795) (1,772)
Valuation allowances 10,203 10,238
------ ------
$17,821 $17,637
====== ======
At March 29, 1997, the Company has a capital loss carryforward of
approximately $18,300,000, of which approximately $16,400,000 expires
in 1997. The Company has provided a valuation allowance equal to the
tax effect of capital loss carryforwards and certain other tax assets,
since realization of these tax assets cannot be reasonably assured.
The following reconciles the federal statutory income tax rate to the
effective tax rate from continuing operations of approximately 38.3%
and 41.5% in 1997 and 1996, respectively.
Three Months Ended
------------------
March 29, March 30,
1997 1996
---- ----
(Amounts in Thousands)
Income tax provision at the Federal
statutory rate $2,100 $1,435
Net Change from Statutory Rate:
Change in valuation reserve, net (126) (171)
State taxes, net of federal tax effect 65 162
Amortization not deductible for tax
purposes 267 246
Other nondeductible items 135 68
Product development tax credit from
foreign operations (82) (115)
Tax effect on foreign income (59) 75
----- -----
$2,300 $1,700
===== =====
NORTEK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 29, 1997 AND MARCH 30, 1996
(Continued)
(E) Net earnings per share ("EPS") amounts have been computed using the
weighted average number of common and common equivalent shares
outstanding during each year. Special common stock is treated as the
equivalent of common stock in determining earnings per share.
In March 1997, the FASB released SFAS No. 128, "Earnings Per Share,"
which will become effective December 31, 1997. As a result, the
Company's reported earnings per share for 1996 and 1997 will be
restated in the Company's annual report on Form 10-K for the year
ended December 31, 1997. The unaudited pro forma effect of this
accounting change on reported earnings per share is as follows:
Year
For the Three Months Ended Ended
-----------------------------------------
March 29, March 30, Dec. 31,
Per Share Amounts 1997 1996 1996
---- ---- ----
Primary EPS as reported $ .37 $ .20 $2.07
Effect of SFAS No. 128 .01 .01 .03
----- --------- ------
Basic EPS as restated $ .38 $ .21 $2.10
===== ========= ======
Fully diluted EPS as
reported $ .37 $ .20 $2.05
Effect of SFAS No. 128 --- --- .02
----- ----- ----
Diluted EPS as restated $ .37 $ .20 $2.07
===== ===== ====
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIRST QUARTER ENDED MARCH 29, 1997
AND THE FIRST QUARTER ENDED MARCH 30, 1996
The Company is a diversified manufacturer of residential and commercial
building products, operating within three principal product groups: the
Residential Building Products Group; the Air Conditioning and Heating
Products Group; and the Plumbing Products Group. Through these product
groups, the Company manufactures and sells, primarily in the United States,
Canada and Europe, a wide variety of products for the residential and
commercial construction, manufactured housing, and the do-it-yourself and
professional remodeling and renovation markets.
Results of Operations
The tables below and on the next page set forth, for the periods presented,
(a) certain consolidated operating results, (b) the change in the amount
and the percentage change of such results as compared to the prior
comparable period, (c) the percentage which such results bear to net sales
and (d) the change of such percentages as compared to the prior comparable
period. The results of operations for the first quarter ended March 29,
1997 are not necessarily indicative of the results of operations to be
expected for any other interim period or the full year.
Change in
First Quarter Ended First Quarter 1997
------------------- as Compared to 1996
March 29, March 30, ------------------
1997 1996 $ %
---- ---- ----- ------
(Dollar amounts in millions)
Net sales $219.6 $221.0 $(1.4) (.6)%
Cost of products sold 160.1 165.6 5.5 3.3
Selling, general and
administrative expense 47.2 45.4 (1.8) (4.0)
Operating earnings 12.3 10.0 2.3 23.0
Interest expense (7.8) (7.8) ---
Interest income 1.3 1.9 (.6) (31.6)
Net gain on investments and
marketable securities .2 --- .2 ---
Earnings before provision
for income taxes 6.0 4.1 1.9 46.3
Provision for income taxes 2.3 1.7 (.6) (35.3)
----- ----- ---- -----
Net earnings $ 3.7 $ 2.4 $ 1.3 54.2%
===== ===== ==== =====
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIRST QUARTER ENDED MARCH 29, 1997
AND THE FIRST QUARTER ENDED MARCH 30, 1996
(Continued)
Percentage of Net Sales Change in
First Quarter Ended Percentage
------------------- for the First
March 29, March 30, Quarter 1997
1997 1996 as compared to 1996
---- ---- -------------------
Net sales 100.0% 100.0% ---
Cost of products sold 72.9 74.9 2.0
Selling, general and
administrative expense 21.5 20.5 (1.0)
Operating earnings 5.6 4.6 1.0
Interest expense (3.6) (3.5) (.1)
Interest income .6 .8 (.2)
Net gain on investments and
marketable securities .1 --- .1
Earnings before provision
for income taxes 2.7 1.9 .8
Provision for income taxes 1.0 .8 (.2)
----- ---- ----
Net earnings 1.7% 1.1% .6
===== ==== ====
The following presents the net sales for the Company's principal product
groups for the first quarter ended March 29, 1997 as compared to the first
quarter ended March 30, 1996 and the amount and the percentage change of
such results as compared to the prior comparable period.
First Quarter Ended
-------------------
March 29, March 30, Increase/(Decrease)
l997 1996 $ %
---- ---- ----- -----
(000's omitted)
Net Sales:
Residential Building
Products $100,386 $ 98,643 $ 1,743 1.8%
Air Conditioning and
Heating Products 91,079 88,354 2,725 3.1
Plumbing Products 28,162 33,988 (5,826) (17.1)
------- ------- ------ -----
Total $219,627 $220,985 $(1,358) (.6)%
======== ======== ======== ======
Certain amounts in the table for the prior period have been reclassified to
conform to the classifications for the first quarter ended March 29, 1997.
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIRST QUARTER ENDED MARCH 29, 1997
AND THE FIRST QUARTER ENDED MARCH 30, 1996
(Continued)
Operating Results
- -----------------
Net sales decreased approximately $1,358,000, or approximately .6%, in the
first quarter of 1997 as compared to the first quarter of 1996, principally
as a result of lower sales volume of certain products including the
reduction of certain product line offerings (approximately $1,604,000 of
the decrease) in the Plumbing Products Group and by a one-week shorter
shipping period in the first quarter of 1997. This decrease was partially
offset by increased sales volume of residential air conditioning and
heating ("HVAC") products and residential building products and increased
shipments of new and replacement HVAC products to manufactured housing
customers.
Cost of products sold as a percentage of net sales decreased from
approximately 74.9% in the first quarter of 1996 to approximately 72.9% in
the first quarter of 1997. This decrease in the percentage principally
resulted from a reduction in cost in the first quarter of 1997 of certain
raw materials and components compared to the first quarter of 1996 and
decreased labor and overhead costs as a percentage of net sales in the Air
Conditioning and Heating Products Group due to the increased volume and
improved efficiency. These decreases were partially offset by increased
overhead costs in the Plumbing Products Group, in part, reflecting lower
sales levels. Overall, changes in cost of products sold as a percentage of
net sales for one period as compared to another period may reflect a number
of factors, including changes in the relative mix of products sold, the
effect of changes in sales prices, the unit cost of products sold and
changes in productivity levels.
Selling, general and administrative expense as a percentage of net sales
increased from approximately 20.5% in the first quarter of 1996 to
approximately 21.5% in the first quarter of 1997. The increase in the
percentage was primarily due to a one-week shorter shipping period, without
a proportionate decrease in expense, partially offset by higher sales
levels of residential HVAC products.
Segment earnings were approximately $15,500,000 for the first quarter of
1997 as compared to approximately $12,400,000 for the first quarter of
1996. Segment earnings have been reduced by depreciation and amortization
expense of approximately $5,500,000 for 1997 and 1996. The overall increase
in segment earnings was due principally to increased sales volume of
residential HVAC products and a reduction in the prices paid for certain
materials in each of the Company's operating groups and was affected by the
factors noted above.
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIRST QUARTER ENDED MARCH 29, 1997
AND THE FIRST QUARTER ENDED MARCH 30, 1996
(Continued)
Foreign segment earnings, consisting primarily of the results of operations
of the Company's Canadian and European subsidiaries, which manufacture
built-in ventilating products, decreased to approximately 10.5% of segment
earnings in the first quarter of 1997 from approximately 11.4% of such
earnings in the first quarter of 1996. Sales and earnings derived from the
international market are subject to the risk of currency fluctuations.
Operating earnings in the first quarter of 1997 increased approximately
$2,300,000, or approximately 23.0%, as compared to the first quarter of
1996, primarily as a result of the factors discussed above.
Interest expense in the first quarter of 1997 remained unchanged at
$7,800,000, or approximately 3.6% of net sales, as compared to the first
quarter of 1996.
Interest income in the first quarter of 1997 decreased approximately
$600,000, or approximately 31.6%, as compared to the first quarter of 1996,
principally due to lower average invested balances of short-term
investments and marketable securities.
The provision for income taxes was approximately $2,300,000 for the first
quarter of 1997, as compared to approximately $1,700,000 for the first
quarter of 1996. The income tax rates principally differed from the United
States Federal statutory rate of 35%, as a result of state income tax
provisions, nondeductible amortization expense (for tax purposes), changes
in valuation reserves, the effect of foreign income tax on foreign source
income and the effect of product development tax credits from foreign
operations. (See Note D of the Notes to the Unaudited Financial Statements
included elsewhere herein.)
Liquidity and Capital Resources
- -------------------------------
In March 1997, the Company sold $175,000,000 principal amount of 9.25%
Series A Notes due 2007 for approximately $169,395,000, net of a discount
of approximately $1,011,000 and approximately $4,594,000 of expenses
incurred in connection with the sale. The net proceeds of this offering
will be used to refinance approximately $47,200,000 of outstanding
indebtedness of the Company's subsidiaries and for acquisitions and other
general corporate purposes, including investment in plant and equipment
(see Note B of the Notes to the Unaudited Condensed Consolidated Financial
Statements included elsewhere herein). As of March 29, 1997, approximately
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIRST QUARTER ENDED MARCH 29, 1997
AND THE FIRST QUARTER ENDED MARCH 30, 1996
(Continued)
$11,000,000 of the net proceeds has been utilized to pay certain
outstanding subsidiary indebtedness, and the remaining $36,200,000
principal amount of indebtedness is included in current liabilities
in the Company's accompanying unaudited condensed consolidated balance
sheet at March 29, 1997. As of April 25, 1997, an additional $12,000,000
of indebtedness has been paid.
Unrestricted cash, investments and marketable securities were approximately
$223,414,000 at March 29, 1997 as compared to $92,093,000 at December 31,
1996, primarily as the result of the investment of the proceeds from the
sale of the 9.25% Series A Notes.
The Company's investment in marketable securities at March 29, 1997
consisted primarily of investments in bank issued money market instruments,
commercial paper and United States Treasury securities. At March 29, 1997,
approximately $5,756,000 of the Company's cash and investments were pledged
as collateral for insurance and other requirements and were classified as
restricted in current assets in the Company's accompanying unaudited
condensed consolidated balance sheet.
The Company's Board of Directors has authorized a number of programs to
purchase shares of the Company's Common and Special Common Stock since
November 16, 1995. The most recent program which was announced on April 30,
1997, to purchase up to 500,000 shares of the Company's Common and Special
Common Stock in open-market or negotiated transactions subject to market
conditions, cash availability and provisions of the Company's outstanding
debt instruments. As of May 5, 1997, no purchases have been made under
this latest program. From November 16, 1995 to April 25, 1997, the Company
purchased approximately 2,800,000 shares of its Common and Special Common
Stock for approximately $43,831,000 and accounted for such share purchases
as Treasury Stock. (See below and Note B of the Notes to the Unaudited
Condensed Consolidated Financial Statements included elsewhere herein.)
At April 25, 1997, approximately $1,518,900 was available for the payment
of cash dividends or stock payments under the terms of the Company's most
restrictive Indenture.
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIRST QUARTER ENDED MARCH 29, 1997
AND THE FIRST QUARTER ENDED MARCH 30, 1996
(Continued)
The Company's working capital and current ratio increased from
approximately $143,474,000 and 1.7:1, respectively, to approximately
$294,018,000 and 2.4:1, respectively, between December 31, 1996 and March
29, 1997, principally as a result of the investment of the proceeds
received from the sale of the 9.25% Series A Notes and the factors
described below. Working capital included approximately $92,093,000 at
December 31, 1996 and approximately $223,414,000 at March 29, 1997 of
unrestricted cash, investments and marketable securities.
Accounts receivable increased approximately $11,940,000, or approximately
9.8%, between December 31, 1996 and March 29, 1997, while net sales
decreased approximately 8.6% in the first quarter of 1997 as compared to
the fourth quarter of 1996. The rate of change in accounts receivable in
certain periods may be different than the rate of change in sales in such
periods principally due to the timing of net sales. Significant increases
or decreases in net sales near the end of any period generally result in
significant changes in the amount of accounts receivable on the date of the
balance sheet at the end of such period, as was the situation on March 29,
1997 as compared to December 31, 1996. The Company has not experienced any
significant changes in credit terms, collection efforts, credit utilization
or delinquency in accounts receivable in 1996 or 1997.
Inventories increased approximately $8,328,000 or approximately 8.5%,
between December 31, 1996 and March 29, 1997.
Accounts payable increased approximately $8,354,000 or approximately 11.1%
between December 31, 1996 and March 29, 1997.
Unrestricted cash and cash equivalents increased approximately $44,478,000
from December 31, 1996 to March 29, 1997, principally as a result of the
following:
Condensed
Consolidated
Cash Flows
Operating Activities-- --------------
Cash flow from operations, net $ 9,782,000
Increase in accounts receivable, net (12,662,000)
Increase in inventories (8,850,000)
Increase in prepaids and other current assets (2,507,000)
Increase in trade accounts payable 10,243,000
Decrease in accrued expenses and taxes (9,809,000)
Investing Activities--
Purchase of marketable securities (111,401,000)
Proceeds from the sale of marketable securities 20,940,000
Capital expenditures (4,774,000)
Financing Activities--
Sale of notes 169,395,000
Increase in borrowings 3,862,000
Payment of borrowings (11,035,000)
Purchase of Nortek Common and Special
Common Stock (6,534,000)
Other, net (2,172,000)
-----------
$ 44,478,000
===========
The net non-cash impact of changes in foreign currency exchange rates was
not material and has been included in other, net.
The Company's debt-to-equity ratio increased from approximately 2.4:1 at
December 31, 1996 to 3.9:1 at March 29, 1997, primarily as a result of the
sale of the 9.25% Series A Notes and the effect of the purchase of the
Company's Common and Special Common Stock (see Note B of the Notes to
Unaudited Condensed Consolidated Financial Statements), partially offset by
the payment of certain subsidiary indebtedness and by net earnings for the
first quarter of 1997. (See the Company's Unaudited Condensed Consolidated
Statement of Stockholders' Investment included elsewhere herein.)
The Company believes that its growth will be generated largely by internal
growth in each of its product groups, augmented by strategic acquisitions.
The Company regularly evaluates potential acquisitions which would increase
or expand the market penetration of, or otherwise complement, its current
product lines.
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIRST QUARTER ENDED MARCH 29, 1997
AND THE FIRST QUARTER ENDED MARCH 30, 1996
(Continued)
When used in this discussion, the words "believes," "anticipates," and
"expects" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and
uncertainties, over which the Company has no control, which could cause
actual results to differ materially from those presented. These risks and
uncertainties include increases in raw material costs (including, among
others, steel, copper, packaging material, plastics, resins and aluminum)
and purchased component costs, the level of domestic and foreign
construction and remodeling activity affecting residential and commercial
markets, interest rates, inflation, consumer spending levels, operating in
international economies, the rate of sales growth, price and product
competition, new product introduction, material shortages and product
liability claims. Readers are cautioned not to place undue reliance on
these forward-looking statements which speak only as of the date hereof.
The Company undertakes no obligation to republish revised forward-looking
statements to reflect events or circumstances after the date thereof or to
reflect the occurrence of unanticipated events. Readers are also urged to
carefully review and consider the various disclosures made by the Company,
in this report, as well as the Company's periodic reports on Forms 10-K,
10-Q and 8-K filed with the Securities and Exchange Commission.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a vote of Security Holders.
----------------------------------------------------
At the Annual Meeting of Stockholders held on March 27, 1997, the following
director was elected by the holders of Common Stock voting separately as a
class.
Name For Withheld
- ---- --- --------
Class II (for a term
expiring at the 2000
Annual Meeting)
Richard J. Harris 7,886,469 300,996
The other matters voted upon and the votes were as follows:
Proposal 2: Approval of 1997 Equity and Cash Incentive Plan
Broker
For Against Abstain Non-Vote
--- ------- ------- --------
10,525,104 1,462,811 69,682 96,908
Proposal 3: Approval of 1997 Stock Option Plan for Directors
For Against Abstain
--- ------- -------
11,318,053 756,908 79,544
Proposal 4: Approval of Employment Agreement between Richard L. Bready
and the Company
Broker
For Against Abstain Non-Vote
--- ------- ------- --------
10,856,264 1,221,475 76,566 200
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
4.1 Indenture dated as of March 17, 1997 between the
Company and State Street Bank and Trust Company,
as Trustee, relating to the 9.25% Series A and
Series B Senior Notes due March 15, 2007 (Exhibit
4.2 to Registration Statement No. 333-25505 filed
April 18, 1997).
PART II. OTHER INFORMATION
(Continued)
4.2 Registration Rights Agreement dated as of March
17, 1997 between the Company and the Initial
Purchasers (Exhibit 4.3 to Registration
Statement No. 333-25505 filed April 18, 1997).
10.1 1997 Equity and Cash Incentive Plan (filed
herewith).
10.2 1997 Stock Option Plan for Directors (filed
herewith).
10.3 Employment Agreement between Richard L. Bready
and the Company dated February 26, 1997 (filed
herewith).
11.1 Calculation of shares used in determining
earnings per share (filed herewith).
27 Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K.
The following reports on Form 8-K were filed by the
registrant during the period:
March 5, 1997, Item 5, Other Events and Item 7
Financial Statements Pro Forma Financial
Information and Exhibits.
March 12, 1997, Item 5, Other Events and Item 7
Financial Statements, Pro Forma Financial
Information and Exhibits.
SIGNATURE
Pursuant to the requirements 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.
NORTEK, INC.
(Registrant)
/s/Almon C. Hall
---------------------------------
Almon C. Hall, Vice President and
Controller and Chief Accounting
Officer
May 12, 1997
- -------------------------
(Date)
EXHIBIT 11.1
NORTEK, INC. AND SUBSIDIARIES
CALCULATION OF SHARES USED IN DETERMINING EARNINGS PER SHARE
For the Three Months Ended
--------------------------
March 29, March 30,
1997 1996
---- ----
Calculation of the number of shares to be
used in computing primary earnings per share:
Weighted average common and special common
shares issued during the period 16,784,991 16,987,686
Less average common and special common shares
held in the Treasury (7,062,171) (5,300,321)
---------- ----------
Weighted average number of common and special
common shares outstanding during the period 9,722,820 11,687,365
Dilutive effect of stock options computed
under the treasury stock method using
the average price during the period 241,322 153,381
---------- ----------
Weighted average number of common and common
equivalent shares outstanding during the
period 9,964,142 11,840,746
========== ==========
Calculation of the number of shares to be used
in computing fully diluted earnings per share:
Weighted average number of common and special
common shares outstanding during the period 9,722,820 11,687,365
Dilutive effect of stock options computed
under the treasury stock method using the
greater of the price at the end of the
period or the average price during the
period 241,322 179,666
---------- ----------
9,964,142 11,867,031
========== ==========
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-29-1997
<CASH> 85,520
<SECURITIES> 143,650
<RECEIVABLES> 139,120
<ALLOWANCES> 5,004
<INVENTORY> 105,986
<CURRENT-ASSETS> 510,278
<PP&E> 255,358
<DEPRECIATION> 115,602
<TOTAL-ASSETS> 771,067
<CURRENT-LIABILITIES> 216,260
<BONDS> 402,134
0
0
<COMMON> 16,800
<OTHER-SE> 98,170
<TOTAL-LIABILITY-AND-EQUITY> 771,067
<SALES> 219,627
<TOTAL-REVENUES> 219,627
<CGS> 160,070
<TOTAL-COSTS> 160,070
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,800
<INCOME-PRETAX> 6,000
<INCOME-TAX> 2,300
<INCOME-CONTINUING> 3,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,700
<EPS-PRIMARY> .37
<EPS-DILUTED> .37
</TABLE>
Exhibit 10.1
NORTEK, INC.
1997 EQUITY AND CASH INCENTIVE PLAN
1. Purpose
The purpose of this Equity and Cash Incentive Plan (the
"Plan") is to advance the interests of Nortek, Inc. (the
"Company") and its subsidiaries by enhancing their ability to
attract and retain employees and other persons or entities who
are in a position to make significant contributions to the
success of the Company and its subsidiaries through ownership of
shares of the Company's Common Stock and Special Common Stock and
cash incentives.
The Plan is intended to accomplish these goals by enabling
the Company to grant Awards in the form of Options, Stock
Appreciation Rights, Restricted Stock or Unrestricted Stock
Awards, Deferred Stock Awards or Performance Awards, or
combinations thereof, all as more fully described below.
2. Administration
Unless otherwise determined by the Board of Directors of the
Company (the "Board"), the Plan will be administered by a
Committee of the Board designated for such purpose (the
"Committee"). The Committee shall consist of at least two
directors. A majority of the members of the Committee shall
constitute a quorum, and all determinations of the Committee
shall be made by a majority of its members. Any determination of
the Committee under the Plan may be made without notice or
meeting of the Committee by a writing signed by a majority of the
Committee members. During such times as the Company's Common
Stock is registered under the Securities Exchange Act of 1934
(the "1934 Act"), all members of the Committee shall be "non-
employee directors" within the meaning of Rule 16b-3 promulgated
under the 1934 Act and "outside directors" within the meaning of
Section 162(m)(4)(C)(i) of the Internal Revenue Code of 1986, as
amended (the "Code").
The Committee will have authority, not inconsistent with the
express provisions of the Plan and in addition to other authority
granted under the Plan, to (a) grant Awards at such time or times
as it may choose; (b) determine whether the Award is with respect
to the Company's Common Stock, $1.00 par value, or its Special
Common Stock, $1.00 par value (together, the "Stock"), or a
combination thereof and the size of each Award, including the
number of shares of Stock subject to the Award; (c) determine the
type or types of each Award; (d) determine the terms and
conditions of each Award; (e) waive compliance by a holder of an
Award with any obligations to be performed by such holder under
an Award and waive any terms or conditions of an Award; (f) amend
or cancel an existing Award in whole or in part (and if an award
is canceled, grant another Award in its place on such terms and
conditions as the Committee shall specify), except that the
Committee may not, without the consent of the holder of an Award,
take any action under this clause with respect to such Award if
such action would adversely affect the rights of such holder; (g)
prescribe the form or forms of instruments that are required or
deemed appropriate under the Plan, including any written notices
and elections required of Participants (as defined below), and
change such forms from time to time; (h) adopt, amend and rescind
rules and regulations for the administration of the Plan; and (i)
interpret the Plan and decide any questions and settle all
controversies and disputes that may arise in connection with the
Plan. Such determinations and actions of the Committee, and all
other determinations and actions of the Committee made or taken
under authority granted by any provision of the Plan, will be
conclusive and will bind all parties. Nothing in this paragraph
shall be construed as limiting the power of the Committee to make
adjustments under Section 7.3 or Section 8.6.
3. Effective Date and Term of Plan
The Plan will become effective on the date on which it is
approved by the stockholders of the Company. Awards may be made
prior to such stockholder approval if made subject thereto. No
Award may be granted under the Plan after March 27, 2007, but
Awards previously granted may extend beyond that date.
4. Shares Subject to the Plan
Subject to adjustment as provided in Section 8.6, the
aggregate number of shares of Stock that may be delivered under
the Plan will be 450,000. If any Award requiring exercise by the
Participant for delivery of Stock terminates without having been
exercised in full, or if any Award payable in Stock or cash is
satisfied in cash rather than Stock, the number of shares of
Stock as to which such Award was not exercised or for which cash
was substituted will be available for future grants.
Subject to Section 8.6(a), the maximum number of shares of
Stock as to which Options or Stock Appreciation Rights may be
granted to any Participant in any one calendar year is 250,000,
which limitation shall be construed and applied consistently with
the rules under Section 162(m) of the Code.
Stock delivered under the Plan may be either authorized but
unissued Stock or previously issued Stock acquired by the Company
and held in treasury. No fractional shares of Stock will be
delivered under the Plan.
5. Eligibility and Participation
Each key employee of the Company or any of its subsidiaries
(an "Employee") and each other person or entity (including
without limitation non-Employee directors of the Company or a
subsidiary of the Company) who, in the opinion of the Committee,
is in a position to make a significant contribution to the
success of the Company or its subsidiaries will be eligible to
receive Awards under the Plan (each such Employee, person or
entity receiving an Award, "a Participant"). A "subsidiary" for
purposes of the Plan will be a corporation in which the Company
owns, directly or indirectly, stock possessing 50% or more of the
total combined voting power of all classes of stock.
6. Types of Awards
6.1. Options
(a) Nature of Options. An Option is an Award giving the
recipient the right on exercise thereof to purchase Stock.
Both "incentive stock options," as defined in Section 422(b)
of the Code (any Option intended to qualify as an incentive stock
option being hereinafter referred to as an "ISO"), and Options
that are not ISOs, may be granted under the Plan. ISOs shall be
awarded only to Employees. An Option awarded under the Plan shall
be a non-ISO unless it is expressly designated as an ISO at time
of grant.
(b) Exercise Price. The exercise price of an Option will
be determined by the Committee subject to the following:
(1) The exercise price of an ISO or an Option intended
to qualify as performance based compensation under Section
162(m) of the Code shall not be less than 100% of the fair
market value of the Stock subject to the Option, determined
as of the time the Option is granted.
(2) In no case may the exercise price paid for Stock
which is part of an original issue of authorized Stock be
less than the par value per share of the Stock.
(c) Duration of Options. The latest date on which an
Option may be exercised will be the tenth anniversary of the day
immediately preceding the date the Option was granted, or such
earlier date as may have been specified by the Committee at the
time the Option was granted.
(d) Exercise of Options. An Option will become exercisable
at such time or times, and on such conditions, as the Committee
may specify. The Committee may at any time and from time to time
accelerate the time at which all or any part of the Option may be
exercised. Any exercise of an Option must be in writing, signed
by the proper person and delivered or mailed to the Company,
accompanied by (1) any documents required by the Committee and
(2) payment in full in accordance with paragraph (e) below for
the number of shares for which the Option is exercised.
(e) Payment for Stock. Stock purchased on exercise of an
Option must be paid for as follows: (1) in cash or by check
(acceptable to the Company in accordance with guidelines
established for this purpose), bank draft or money order payable
to the order of the Company or (2) if so permitted by the
Committee at or after the grant of the Option or by the
instrument evidencing the Option, (i) through the delivery of
shares of Stock which have been held for at least six months
(unless the Committee approves a shorter period) and which have a
fair market value equal to the exercise price, (ii) by delivery
of an unconditional and irrevocable undertaking by a broker to
deliver promptly to the Company sufficient funds to pay the
exercise price, or (iii) by any combination of the foregoing
permissible forms of payment.
(f) Discretionary Payments. If (i) the market price of
shares of Stock subject to an Option (other than an Option which
is in tandem with a Stock Appreciation Right as described in
Section 6.2) exceeds the exercise price of the Option at the time
of its exercise, and (ii) the person exercising the Option so
requests the Committee in writing, the Committee may in its sole
discretion cancel the Option and cause the Company to pay in cash
or in shares of Common Stock (at a price per share equal to the
fair market value per share) to the person exercising the Option
an amount equal to the difference between the fair market value
of the Stock which would have been purchased pursuant to the
exercise (determined on the date the Option is canceled) and the
aggregate exercise price which would have been paid.
6.2. Stock Appreciation Rights.
(a) Nature of Stock Appreciation Rights. A Stock
Appreciation Right (or "SAR") is an Award entitling the holder on
exercise to receive an amount in cash or Stock or a combination
thereof (such form to be determined by the Committee) determined
in whole in part by reference to appreciation, from and after
the date of grant, in the fair market value of a share of Stock.
SARs may be based solely on appreciation in the fair market value
of Stock or on a comparison of such appreciation with some other
measure of market growth such as (but not limited) to
appreciation in a recognized market index. The date as of which
such appreciation or other measure is determined shall be the
exercise date unless another date is specified by the Committee.
(b) Grant of Stock Appreciation Rights. Stock Appreciation
Rights may be granted in tandem with, or independently of,
Options granted under the Plan.
(1) Rules Applicable to Tandem Awards. When Stock
Appreciation Rights are granted in tandem with Options, (a)
the Stock Appreciation Right will be exercisable only at
such time or times, and to the extent, that the related
Option is exercisable and will be exercisable in accordance
with the procedure required for exercise of the related
Option; (b) the Stock Appreciation Right will terminate and
no longer be exercisable upon the termination or exercise of
the related Option, except that a Stock Appreciation Right
granted with respect to less than the full number of shares
covered by an Option will not be reduced until the number of
shares as to which the related Option has been exercised or
has terminated exceeds the number of shares not covered by
the Stock Appreciation Right; (c) the Option will terminate
and no longer be exercisable upon the exercise of the
related Stock Appreciation Right; and (d) the Stock
Appreciation Right will be transferable only with the
related Option.
(2) Exercise of Independent Stock Appreciation Rights.
A Stock Appreciation Right not granted in tandem with an
Option will become exercisable at such time or times, and on
such conditions, as the Committee may specify. The Committee
may at any time accelerate the time at which all or any part
of the Right may be exercised.
Any exercise of an independent Stock Appreciation Right must
be in writing, signed by the proper person and delivered or
mailed to the Company, accompanied by any other documents
required by the Committee.
6.3. Restricted and Unrestricted Stock.
(a) Grant of Restricted Stock. Subject to the terms and
provisions of the Plan, the Committee may grant shares of
Restricted Stock in such amounts and upon such terms and
conditions as the Committee shall determine subject to the
restrictions described below.
(b) Restricted Stock Agreement. The Committee may require,
as a condition to an Award, that a recipient of a Restricted
Stock Award enter into a Restricted Stock Award Agreement,
setting forth the terms and conditions of the Award. In lieu of a
Restricted Stock Award Agreement, the Committee may provide the
terms and conditions of an Award in a notice to the Participant
of the Award, on the Stock certificate representing the
Restricted Stock, in the resolution approving the Award, or in
such other manner as it deems appropriate.
(c) Transferability and Other Restrictions. Except as
otherwise provided in this Section 6.3, the shares of Restricted
Stock granted herein may not be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated until the end of
the applicable period or periods established by the Committee and
the satisfaction of any other conditions or restrictions
established by the Committee (such period during which a share of
Restricted Stock is subject to such restrictions and conditions
is referred to as the "Restricted Period"). Except as the
Committee may otherwise determine under Section 7.1 or Section
7.2, if a Participant dies or suffers a Status Change (as defined
at Section 7.2(a)) for any reason during the Restricted Period,
the Company may purchase the shares of Restricted Stock subject
to such restrictions and conditions for the amount of cash paid
by the Participant for such shares; provided, that if no cash was
paid by the Participant such shares of Restricted Stock shall be
automatically forfeited to the Company.
During the Restricted Period with respect to any shares of
Restricted Stock, the Company shall have the right to retain in
the Company's possession the certificate or certificates
representing such shares.
(d) Removal of Restrictions. Except as otherwise provided
in this Section 6.3, a share of Restricted Stock covered by a
Restricted Stock grant shall become freely transferable by the
Participant upon completion of the Restricted Period, including
the passage of any applicable period of time and satisfaction of
any conditions to vesting. The Committee, in its sole discretion,
shall have the right at any time immediately to waive all or any
part of the restrictions and conditions with regard to all or any
part of the shares held by any Participant.
(e) Voting Rights, Dividends and Other Distributions.
During the Restricted Period, Participants holding shares of
Restricted Stock granted hereunder may exercise full voting
rights and shall receive all regular cash dividends paid with
respect to such shares. Except as the Committee shall otherwise
determine, any other cash dividends and other distributions paid
to Participants with respect to shares of Restricted Stock
including any dividends and distributions paid in shares shall be
subject to the same restrictions and conditions as the shares of
Restricted Stock with respect to which they were paid.
(f) Other Awards Settled with Restricted Stock. The
Committee may, at the time any Award described in this Section 6
is granted, provide that any or all the Stock delivered pursuant
to the Award will be Restricted Stock.
(g) Unrestricted Stock. Subject to the terms and
provisions of the Plan, the Committee may grant shares of Stock
free of restrictions under the Plan in such amounts and upon such
terms and conditions as the Committee shall determine.
(h) Notice of Section 83(b) Election. Any Participant
making an election under Section 83(b) of the Code with respect
to Restricted Stock must provide a copy thereof to the Company
within 10 days of filing such election with the Internal Revenue
Service.
6.4. Deferred Stock.
A Deferred Stock Award entitles the recipient to receive
shares of Stock to be delivered in the future. Delivery of the
Stock will take place at such time or times, and on such
conditions, as the Committee may specify. The Committee may at
any time accelerate the time at which delivery of all or any part
of the Stock will take place. At the time any Award described in
this Section 6.4 is granted, the Committee may provide that, at
the time Stock would otherwise be delivered pursuant to the
Award, the Participant will instead receive an instrument
evidencing the Participant's right to future delivery of Deferred
Stock.
6.5. Performance Awards; Performance Goals.
(a) Nature of Performance Awards. A Performance Award
entitles the recipient to receive, without payment, an amount in
cash or Stock or a combination thereof (such form to be
determined by the Committee) following the attainment of
Performance Goals (as hereinafter defined). Performance Goals may
be related to personal performance, corporate performance,
departmental performance or any other category of performance
established by the Committee. The Committee will determine the
Performance Goals, the period or periods during which performance
is to be measured and all other terms and conditions applicable
to the Award.
(b) Other Awards Subject to Performance Condition. The
Committee may, at the time any Award described in this Section
6.5 is granted, impose the condition (in addition to any
conditions specified or authorized in this Section 6 or any other
provision of the Plan) that Performance Goals be met prior to the
Participant's realization of any payment or benefit under the
Award. Any such Award made subject to the achievement of
Performance Goals (other than an Option or SAR) shall be treated
as a Performance Award for purposes of Section 6.5(c) below.
(c) Limitations and Special Rules. In the case of any
Performance Award intended to qualify for the performance-based
remuneration exception described in Section 162(m)(4)(C) of the
Code and the regulations thereunder (an "Exempt Award"), the
Committee shall in writing preestablish specific Performance
Goals. A Performance Goal must be established prior to passage of
25% of the period of time over which attainment of such goal is
to be measured. "Performance Goal" means criteria based upon any
one or more of the following (on a consolidated, divisional,
subsidiary, line of business or geographical basis or in
combinations thereof): (i) sales; revenues; assets; expenses;
earnings before or after deduction for all or any portion of
interest, taxes, depreciation or amortization, whether or not on
a continuing operations or an aggregate or per share basis;
return on equity, investment, capital or assets; inventory level
or turns; one or more operating ratios; borrowing levels,
leverage ratios or credit rating; market share; capital
expenditures; cash flow; stock price; stockholder return; or any
combination of the foregoing; or (ii) acquisitions and
divestitures (in whole or in part); joint ventures and strategic
alliances; spin-offs, split-ups and the like; reorganizations;
recapitalizations, restructurings, financings (issuance of debt
or equity) and refinancings; transactions that would constitute a
Change of Control; or any combination of the foregoing. A
Performance Goal and targets with respect thereto determined by
the Committee need not be based upon an increase, a positive or
improved result or avoidance of loss. The maximum Exempt Award
payable to any Participant in respect of any such Performance
Goal for any year shall not exceed $2,500,000. Payment of Exempt
Awards based upon a Performance Goal for calendar years 2003 and
thereafter is conditioned upon reapproval by Employer's
shareholders no later than Employer's first meeting of
shareholders in 2002.
7. Events Affecting Outstanding Awards
7.1. Death.
If a Participant dies, the following will apply:
(a) All Options and Stock Appreciation Rights held by
the Participant immediately prior to death, to the extent
then exercisable, may be exercised by the Participant's
executor or administrator or the person or persons to whom
the Option or Right is transferred by will or the applicable
laws of descent and distribution, at any time within the one
year period ending with the first anniversary of the
Participant's death (or such shorter or longer period as the
Committee may determine), and shall thereupon terminate. In
no event, however, shall an Option or Stock Appreciation
Right remain exercisable beyond the latest date on which it
could have been exercised without regard to this Section 7.
Except as otherwise determined by the Committee, all Options
and Stock Appreciation Rights held by a Participant
immediately prior to death that are not then exercisable
shall terminate at death.
(b) Except as otherwise determined by the Committee,
all Restricted Stock held by the Participant must be
transferred to the Company (and, in the event the
certificates representing such Restricted Stock are held by
the Company, such Restricted Stock will be so transferred
without any further action by the Participant) in accordance
with Section 6.3(c).
(c) Any payment or benefit under a Deferred Stock
Award or Performance Award to which the Participant was not
irrevocably entitled prior to death will be forfeited and
the Award canceled as of the time of death, except as
otherwise determined the Committee.
7.2. Termination of Service (Other Than By Death).
If a Participant who is an Employee ceases to be an Employee
for any reason other than death or retirement with consent of the
Company after attainment of age 65, or if there is a termination
(other than by reason of death) of the consulting, service or
similar relationship in respect of which a non-Employee
Participant was granted an Award hereunder (such termination of
the employment or other relationship being hereinafter referred
to as a "Status Change"), the following will apply:
(a) Except as otherwise determined by the Committee,
all Options and Stock Appreciation Rights held by the
Participant that were not exercisable immediately prior to
the Status Change shall terminate at the time of the Status
Change. Any Options or Rights that were exercisable
immediately prior to the Status Change will continue to be
exercisable for a period of three months (or such longer
period as the Committee may determine), and shall thereupon
terminate, unless the Award provides by its terms for
immediate termination in the event of a Status Change
(unless otherwise determined by the Committee) or unless the
Status Change results from a discharge for cause which in
the opinion of the Committee casts such discredit on the
Participant as to justify immediate termination of the
Award. In no event, however, shall an Option or Stock
Appreciation Right remain exercisable beyond the latest date
on which it could have been exercised without regard to this
Section 7. For purposes of this paragraph, in the case of a
Participant who is an Employee, a Status Change shall not be
deemed to have resulted by reason of (i) a sick leave or
other bona fide leave of absence approved for purposes of
the Plan by the Committee, so long as the Employee's right
to reemployment is guaranteed either by statute or by
contract, or (ii) a transfer of employment between the
Company and a subsidiary or between subsidiaries, or to the
employment of a corporation (or a parent or subsidiary
corporation of such corporation) issuing or assuming an
option in a transaction to which Section 424(a) of the Code
applies.
(b) Except as otherwise determined by the Committee,
all Restricted Stock held by the Participant at the time of
the Status Change must be transferred to the Company (and,
in the event the certificates representing such Restricted
Stock are held by the Company, such Restricted Stock will be
so transferred without any further action by the
Participant) in accordance with Section 6.3(c) above.
(c) Any payment or benefit under a Deferred Stock
Award or Performance Award to which the Participant was not
irrevocably entitled prior to the Status Change will be
forfeited and the Award cancelled as of the date of such
Status Change unless otherwise determined by the Committee.
7.3. Certain Corporate Transactions.
Except as otherwise provided by the Committee at the time of
grant, in the event of a consolidation or merger in which the
Company is not the surviving corporation or which results in the
acquisition of substantially all the Company's outstanding Stock
by a single person or entity or by a group of persons and/or
entities acting in concert, or in the event of the sale or
transfer of substantially all the Company's assets or a
dissolution or liquidation of the Company (a "covered
transaction"), the following rules shall apply:
(a) Subject to paragraph (b) below, all outstanding
Awards requiring exercise will cease to be exercisable, and
all other Awards to the extent not fully vested (including
Awards subject to conditions not yet satisfied or
determined) will be forfeited, as of the effective time of
the covered transaction, provided that the Committee may in
its sole discretion (but subject to Section 7.4), on or
prior to the effective date of the covered transaction, (1)
make any outstanding Option and Stock Appreciation Right
exercisable in full, (2) remove the restrictions from any
Restricted Stock, (3) cause the Company to make any payment
and provide any benefit under any Deferred Stock Award or
Performance Award, and (4) remove any performance or other
conditions or restrictions on any Award; or
(b) With respect to an outstanding Award held by a
participant who, following the covered transaction, will be
employed by or otherwise providing services to an entity
which is a surviving or acquiring entity in the covered
transaction or an affiliate of such an entity, the Committee
may at or prior to the effective time of the covered
transaction, in its sole discretion and in lieu of the
action described in paragraph (a) above, arrange to have
such surviving or acquiring entity or affiliate assume any
Award held by such participant outstanding hereunder or
grant a replacement award which, in the judgment of the
Committee, is substantially equivalent to any Award being
replaced.
7.4. Change of Control Provisions.
(a) Impact of Event. Notwithstanding any other provision
of the Plan to the contrary, in the event of a Change of Control:
(1) Acceleration of Options and SARs. Any Options and
SARs outstanding as of the date such Change of Control is
determined to have occurred and which are not then
exercisable shall become exercisable to the full extent of
the original grant, and all shares of Restricted Stock which
are not otherwise vested shall vest. Holders of Performance
Awards granted hereunder as to which the relevant
performance period has not ended as of the date such Change
of Control is determined to have occurred shall be entitled
at the time of such Change of Control to receive a cash
payment per Performance Award equal to the full value of the
cash component of such Award (if any) plus the fair market
value of shares of Stock included in such Award.
(2) Restriction on Application of Plan Provisions
Applicable in the Event of Termination of Employment. After
a Change of Control, Options and SARs shall remain
exercisable following a termination of employment other than
by reason of death, disability (as determined by the
Company) or retirement for seven months following such
termination or until expiration of the original terms of the
Option or SAR, whichever period is shorter.
(3) Restriction on Amendment. In connection with or
following a Change of Control, neither the Committee nor the
Board may impose additional conditions upon exercise or
otherwise amend or restrict an Option, SAR, share of
Restricted Stock or Performance Award, or amend the terms of
the Plan in any manner adverse to the holder thereof,
without the written consent of such holder.
Notwithstanding the foregoing, if any right granted pursuant
to this Section 7.4 would make a Change of Control transaction
ineligible for pooling of interests accounting under applicable
accounting principles that but for this Section 7.4 would
otherwise be eligible for such accounting treatment, the
Committee shall have the authority to substitute stock for the
cash which would otherwise be payable pursuant to this Section
7.4 having a fair market value equal to such cash.
(b) Definition of Change of Control. A "Change of Control"
shall be deemed to have occurred if (i) any corporation, person
or other entity (other than the Company, a majority-owned
subsidiary of the Company or any employee benefit plan maintained
by the Company or any of its subsidiaries or members of the Board
on the date the Plan is approved by the stockholders of the
Company), including a "group" as defined in Section 13(d) (3) of
the 1934 Act, becomes the beneficial owner of Stock representing
more than twenty-five percent of the voting power of the Company;
(ii) the stockholders of the Company approve a definitive
agreement to merge or consolidate the Company with or into
another corporation other than a majority-owned subsidiary of the
Company, to sell or otherwise dispose of all or substantially all
of the Company's assets or to liquidate the Company, or (iii)
within any 24 consecutive month period, persons who were members
of the Board immediately prior to such 24-month period, together
with any persons who were first elected as directors (other than
as a result of any settlement of a proxy or consent solicitation
contest or any action taken to avoid such a contest) during such
24-month period by or upon the recommendation of persons who were
members of the Board immediately prior to such 24-month period
and who constituted a majority of the Board at the time of such
election, cease to constitute a majority of the Board.
8. General Provisions
8.1. Documentation of Awards.
Awards will be evidenced by such written instruments, if
any, as may be prescribed by the Committee from time to time.
Such instruments may be in the form of agreements to be executed
by both the Participant and the Company, or certificates, letters
or similar instruments, which need not be executed by the
Participant but acceptance of which will evidence agreement to
the terms thereof.
8.2. Rights as a Stockholder, Dividend Equivalents.
Except as specifically provided by the Plan, the receipt of
an Award will not give a Participant rights as a stockholder; the
Participant will obtain such rights, subject to any limitations
imposed by the Plan or the instrument evidencing the Award, only
upon the issuance of Stock. However, the Committee may, on such
conditions as it deems appropriate, provide that a Participant
will receive a benefit in lieu of cash dividends that would have
been payable on any or all Stock subject to the Participant's
Award had such Stock been outstanding. Without limitation, the
Committee may provide for payment to the Participant of amounts
representing such dividends, either currently or in the future,
or for the investment of such amounts on behalf of the
Participant.
8.3. Conditions on Delivery of Stock.
The Company will not be obligated to deliver any shares of
Stock pursuant to the Plan or to remove restriction from shares
previously delivered under the Plan (a) until all conditions of
the Award have been satisfied or removed, (b) until, in the
opinion of the Company's counsel, all applicable federal and
state laws and regulation have been complied with, (c) if the
outstanding Stock is at the time listed on any stock exchange or
The Nasdaq National Market, until the shares to be delivered have
been listed or authorized to be listed on such exchange or market
upon official notice of notice of issuance, and (d) until all
other legal matters in connection with the issuance and delivery
of such shares have been approved by the Company's counsel. If
the sale of Stock has not been registered under the Securities
Act of 1933, as amended, the Company may require, as a condition
to exercise of the Award, such representations or agreements as
counsel for the Company may consider appropriate to avoid
violation of such Act and may require that the certificates
evidencing such Stock bear an appropriate legend restricting
transfer.
If an Award is exercised by the Participant's legal
representative, the Company will be under no obligation to
deliver Stock pursuant to such exercise until the Company is
satisfied as to the authority of such representative.
8.4. Tax Withholding.
The Company will withhold from any cash payment made
pursuant to an Award an amount sufficient to satisfy all federal,
state and local withholding tax requirements (the "withholding
requirements").
In the case of an Award pursuant to which Stock may be
delivered, the Committee will have the right to require that the
Participant or other appropriate person remit to the Company an
amount sufficient to satisfy the withholding requirements, or
make other arrangements satisfactory to the Committee with regard
to such requirements, prior to the delivery of any Stock or
removal of restrictions thereon. If and to the extent that such
withholding is required, the Committee may permit the Participant
or such other person to elect at such time and in such manner as
the Committee provides to have the Company hold back from the
shares to be delivered, or to deliver to the Company, Stock
having a value calculated to satisfy the withholding requirement.
The Committee may make such share withholding mandatory with
respect to any Award at the time such Award is made to a
Participant.
If at the time an ISO is exercised the Committee determines
that the Company could be liable for withholding requirements
with respect to the exercise or with respect to a disposition of
the Stock received upon exercise, the Committee may require as a
condition of exercise that the person exercising the ISO agree
(a) to provide for withholding under the preceding paragraph of
this Section 8.4, if the Committee determines that a withholding
responsibility may arise in connection with tax exercise, (b) to
inform the Company promptly of any disposition (within the
meaning of section 424(c) of the Code) of Stock received upon
exercise, and (c) to give such security as the Committee deems
adequate to meet the potential liability of the Company for the
withholding requirements and to augment such security from time
to time in any amount reasonably deemed necessary by the
Committee to preserve the adequacy of such security.
8.5. Transferability of Awards.
Unless otherwise permitted by the Committee, no Award (other
than an Award in the form of an outright transfer of cash or
Unrestricted Stock) may be transferred other than by will or by
the laws of descent and distribution.
8.6. Adjustments in the Event of Certain Transactions.
(a) In the event of a stock dividend, stock split or
combination of shares, recapitalization or other change in the
Company's capitalization, or other distribution to holders of
Stock other than normal cash dividends, after the effective date
of the Plan, the Committee will make any appropriate adjustments
to the maximum number of shares that may be delivered under the
Plan under the first paragraph of Section 4 above and to the
limits described in the second paragraph of Section 4 and in
Section 6.5(c).
(b) In any event referred to in paragraph (a), the Committee
will also make any appropriate adjustments to the number and kind
of shares of Stock or securities subject to Awards then
outstanding or subsequently granted, any exercise prices relating
to Awards and any other provision of Awards affected by such
change. The Committee may also make such adjustments to take into
account material changes in law or in accounting practices or
principles, mergers, consolidations, acquisitions, dispositions
or similar corporate transactions, or any other event, if it is
determined by the Committee that adjustments are appropriate to
avoid distortion in the operation of the Plan; provided, that
adjustments pursuant to this sentence shall not be made to the
extent it would cause any Award intended to be exempt under
Section 162(m)(4)(c) of the Code to fail to be so exempt.
(c) In the case of ISOs, the adjustments described in (a)
and (b) will be made only to the extent consistent with continued
qualification of the Option under Section 422 of the Code (in the
case of an ISO) or Section 162(m) of the Code.
8.7. Employment Rights, Etc.
Neither the adoption of the Plan nor the grant of Awards
will confer upon any person any right to continued retention by
the Company or any subsidiary as an Employee or otherwise, or
affect in any way the right of the Company or subsidiary to
terminate an employment, service or similar relationship at any
time. Except as specifically provided by the Committee in any
particular case, the loss of existing or potential profit in
Awards granted under the Plan will not constitute an element of
damages in the event of termination of an employment, service or
similar relationship even if the termination is in violation of
an obligation of the Company to the Participant.
8.8. Deferral of Payments.
The Committee may agree at any time, upon request of the
Participant, to defer the date on which any payment under an
Award will be made.
8.9. Past Services as Consideration.
Where a Participant purchases Stock under an Award for a
price equal to the par value of the Stock the Committee may
determine that such price has been satisfied by past services
rendered by the Participant.
9. Effect, Amendment and Termination
Neither adoption of the Plan nor the grant of Awards to a
Participant will affect the Company's right to grant to such
Participant awards that are not subject to the Plan, to issue to
such Participant Stock as a bonus or otherwise, or to adopt other
plans or arrangements under which Stock may be issued to
Employees.
The Committee may at any time or times amend the Plan or any
outstanding Award for any purpose which may at the time be
permitted by law, or may at any time terminate the Plan as to any
further grants of Awards, provided that (except to the extent
expressly required or permitted by the Plan) no such amendment
will, without the approval of the stockholders of the Company,
effectuate a change for which stockholder approval is required in
order for the Plan to continue to qualify for the award of ISOs
under Section 422 of the Code or for the award of performance-
based compensation under Section 162(m) of the Code.
Exhibit 10.2
NORTEK, INC.
1997 STOCK OPTION PLAN FOR DIRECTORS
1. Purpose
The purpose of this 1997 Stock Option Plan for Directors
(the "Plan") is to advance the interests of Nortek, Inc. (the
"Company") by enhancing the ability of the Company to attract and
retain directors who are in a position to make significant
contributions to the success of the Company and to reward
directors for such contributions through ownership of shares of
the Company's Common Stock, $1.00 par value, or Special Common
Stock, $1.00 par value.
2. Administration
The Plan shall be administered by the Stock Option Committee
(the "Committee") of the Board of Directors (the "Board") of the
Company. The Committee shall have authority, not inconsistent
with the express provisions of the Plan, (a) to grant options in
accordance with the Plan to such directors as are eligible to
receive options; (b) to prescribe the form or forms of
instruments evidencing options and any other instruments required
under the Plan and to change such forms from time to time; (c) to
adopt, amend and rescind rules and regulations for the
administration of the Plan; and (d) to interpret the Plan and
decide any questions and settle all controversies and disputes
that may arise in connection with the Plan. Such determinations
of the Committee shall be conclusive and shall bind all parties.
Subject to Section 7, the Committee shall also have the
authority, both generally and in particular instances, to waive
compliance by a director with any obligation to be performed by
him or her under an option and to waive any condition or
provision of an option.
3. Effective Date and Term of Plan
The Plan shall become effective on the date on which the
Plan is approved by the stockholders of the Company. No option
shall be granted under the Plan after the completion of ten years
from the date on which the Plan was adopted by the Board, but
options granted may extend beyond that date.
4. Shares Subject to the Plan
(a) Number of Shares. Subject to adjustment as provided in
Section 4(c), the aggregate number of shares of Stock that may be
delivered upon the exercise of options granted under the Plan
shall be 30,000. If any option granted under the Plan terminates
without having been exercised in full, the number of shares of
Stock as to which such option was not exercised shall be
available for future grants within the limits set forth in this
Section 4(a).
(b) Shares to Be Delivered. Shares delivered under the
Plan shall be authorized but unissued Stock or, if the Board so
determines, previously issued Stock acquired by the Company and
held in treasury. Stock shall be Common Stock or Special Common
Stock as determined by the Committee. No fractional shares of
Stock shall be delivered under the Plan.
(c) Changes in Stock. In the event of a stock dividend,
stock split or other change in corporate structure or
capitalization affecting the Stock, the number and kind of shares
of stock or securities of the Company to be subject to options
then outstanding or to be granted under the Plan, and the option
price, and other relevant provisions shall be appropriately
adjusted by the Committee, whose determination shall be binding
on all persons.
5. Eligibility for Options
Directors eligible to receive options under the Plan
("Eligible Directors") shall be those directors who are not
employees of the Company or its subsidiaries.
6. Terms and Conditions of Options
(a) Formula Options. Eligible Directors who are directors
on the date of stockholder approval of the Plan shall be awarded
options to purchase up to 200 shares of Stock. Following
stockholder approval of the Plan, each newly elected Eligible
Director shall be awarded options to purchase up to 200 shares of
Stock on the date of his or her first election. In addition, as
of the close of business on the day of the final adjournment of
each annual meeting of stockholders commencing with the 1998
annual meeting, each Eligible Director (other than an Eligible
Director first elected as a director at such meeting) shall be
awarded an option covering 200 shares of Stock.
(b) Discretionary Options. The Committee may also award
options to purchase shares of Stock to Eligible Directors on such
terms as it may determine not inconsistent with this Plan.
(c) Exercise Price. The exercise price of each formula
option shall be not less than the fair market value per share of
the Stock at the time of the grant. For this purpose "fair market
value" shall mean the last sale price of the shares of the
Company's Common Stock as reported on the New York Stock Exchange
on the date of the grant (based on The Wall Street Journal report
of composite transactions), or if such stock is no longer listed
on such Exchange, it shall have the same meaning as it does in
the provisions of the Internal Revenue Code of 1986 (the "Code")
and the regulations thereunder applicable to incentive options.
The exercise price of each discretionary option shall be as
determined by the Committee.
(d) Duration of options. The latest date on which an option
may be exercised (the "Final Exercise Date") shall be the date
which is ten years from the date the option was granted.
(e) Exercise of Options.
(1) Each formula option shall become exercisable in
increments of one half of the shares covered thereby on each
of the first and second anniversaries of the grant. Each
discretionary option shall become exercisable at such time
or times as the Committee shall determine.
(2) Any exercise of an option shall be in writing,
signed by the proper person and delivered or mailed to the
Company, accompanied by (i) an option exercise notice and
any other documents required by the Committee; and (ii)
payment in full in accordance with paragraph (f) below for
the number of shares for which the option is exercised.
(3) If any option is exercised by the executor or
administrator of a deceased director, or by the person or
persons to whom the option has been transferred by the
director's will or the applicable laws of descent and
distribution, the Company shall be under no obligation to
deliver Stock pursuant to such exercise until the Company is
satisfied as to the authority of the person or persons
exercising the option.
(4) The Company shall have the right to settle any
option, and to terminate the rights of the holder thereof,
by paying to the option holder the excess (if any) of the
fair market value of the Stock at the time of settlement
over the purchase price.
(f) Payment for and Delivery of Stock. Stock purchased
under the Plan shall be paid for as follows: (i) in cash (which
payment may be made by personal check payable to the order of the
Company); (ii) through the delivery of shares of Stock having a
fair market value on the last business day preceding the date of
exercise equal to the purchase price; or (ii) by a combination of
cash and Stock as provided in clauses (i) an (ii) above.
An option holder shall not have the rights of a stockholder
with regard to awards under the Plan except as to Stock actually
received by him or her under the Plan.
The Company shall not be obligated to deliver any shares of
Stock (i) until, in the opinion of the Company's counsel, all
applicable federal and state laws and regulations have been
complied with; (ii) if the outstanding Stock is at the time
listed on any stock exchange, until the shares to be delivered
have been listed or authorized to be listed on such exchange upon
official notice of issuance; and (iii) until all other legal
matters in connection with the issuance and delivery of such
shares have been approved by the Company's counsel. If the sale
of Stock has not been registered under the Securities Act of
1933, as amended, the Company may require, as a condition to
exercise of the option, such representations or agreements as
counsel for the Company may consider appropriate to avoid
violation of such Act and may require that the certificates
evidencing such Stock bear an appropriate legend restricting
transfer.
(g) Transferability of Options. Unless otherwise
determined by the Committee, options are transferable at any time
by a director.
(h) Death. If a director dies at a time he or she is
entitled to exercise an option, then the portion formerly
exercisable by the director may be exercised by the director's
executor or administrator, or by the person to whom the option is
transferred under the applicable laws of descent and
distribution, within three years of the death of the director,
subject to earlier termination upon the Final Exercise Date.
(i) Other Termination of Status of Director. All options
that are not then exercisable terminate and are forfeited
automatically upon the termination of the director's service with
the Company, unless the Committee or the Board of Directors
specifies otherwise. Options that are exercisable on the date of
termination shall continue to be exercisable until the earlier of
(i) the 18Oth day following the date of termination (or such
later date as is determined by the Committee or the Board) or
(ii) the Final Exercise Date.
7. Effect, Discontinuance, Cancellation, Amendment and
Termination
Neither adoption of the Plan nor the grant of options to a
director shall affect the Company's right to grant to such
director or any director options that are not subject to the
Plan, to issue to such directors Stock as a bonus or otherwise,
or to adopt other plans or arrangements under which Stock may be
issued, or payments made, to directors.
The Committee may at any time discontinue granting options
under the Plan. The Committee may at any time, or times, amend
the Plan for the purpose of satisfying any changes in applicable
laws or regulations or for any other purpose which may at the
time be permitted by law, or may at any time terminate the Plan
as to any further grants of options, provided that (except to the
extent expressly required or permitted herein above) no such
amendment shall, without the approval of the stockholders of the
Company, (a) increase the maximum number of shares available
under the Plan; (b) increase the number of options to be granted
to Eligible Directors; (c) amend the definition of Eligible
Directors so as to enlarge the group of director eligible to
receive options under the Plan; (d) reduce the price at which
options may be granted other than as permitted in the Plan; or
(e) amend the provisions of this Section 7.
Exhibit 10.3
NORTEK, INC. and RICHARD L. BREADY
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, effective as of the dates provided
below, between NORTEK, INC., a Delaware corporation ("hereinafter
called "Employer"), and RICHARD L. BREADY, a resident of Rhode
Island (hereinafter called "Employee").
Employer desires to assure that it will have the benefit of
the continued service and experience of Employee who is the chief
executive officer of the Employer and an integral part of its
management for a period of time and also seeks to assure itself
and Employee of the continuity of management of Employer in the
event of any actual or threatened change of control of Employer,
and Employee is willing to enter into an agreement to such ends
upon the terms and conditions set forth in this Agreement. In
consideration of the foregoing and the mutual agreements herein
contained, the parties mutually agree as follows:
1. Employment Period and Duties
(a) Commencing from January 1, 1998 and ending, unless
sooner terminated pursuant to the provisions hereof, five years
from said date or on the expiration date of any extension as
provided for herein ("hereinafter called the "Employment
Period"), Employer shall employ Employee, and Employee shall
serve as an employee of Employer.
(b) During the Employment Period, Employee shall serve as
chairman and chief executive officer of Employer, or in such
other executive capacity at a similar level of responsibility and
with such other duties as the board of directors of Employer and
Employee may from time to time mutually determine, and Employee
accepts employment on the terms and conditions contained herein
and agrees to devote a substantial part of his working time and
energies to the business of Employer and to faithfully and
diligently perform the customary duties of his office and such
other duties, reasonable vacations (of not less than four weeks
per year) and time devoted to charitable and community service,
and absences due to illness and holidays excepted. Such other
duties may include the performance of services for any of
Employer's subsidiaries and, without further remuneration (except
as otherwise agreed), may also include service as an officer or
director of one or more of Employer's subsidiaries. Nothing
herein shall prohibit Employee from managing or supervising his
personal investments or from devoting attention to his other
business interests that do not materially interfere with his
obligations to Employer hereunder or compete with Employer or its
subsidiaries. In the event that any person ("Person"), as that
term is defined or used in Section 13(d) or 14(d)(2) of the
Securities Exchange Act of 1934 ("Exchange Act"), begins a tender
or exchange offer, solicits proxies from Employer's security
holders or takes other actions to effect a "Change of Control"
(as defined in Section 6 hereof), Employee agrees not to
voluntarily terminate the Employment Period until such Person has
abandoned or terminated such efforts to effect a Change of
Control or until a Change of Control has occurred.
During the Employment Period, Employer shall maintain an
appropriately appointed executive office for Employee in
Providence, Rhode Island (or at such other location as Employee
shall approve) of not less than the size of Employee's current
office and associated administrative space from which Employee
shall perform his duties and shall provide Employee with
executive secretarial and other administrative staff and services
suitable to his offices and duties, staffed by persons approved
by Employee and with such staff members' salaries and benefits as
Employee shall approve.
(c) The Employment Period shall be extended for an
additional year at the end of each year of the Employment Period
until such time as Employee or Employer has given written notice
to the other that the Employment Period is not to be further
extended; such that the Employment Period as so extended shall
expire five years after January 1 of the year in which such
notice is given.
2. Compensation
(a) During the Employment Period, Employee shall receive a
basic annual salary of not less than $825,000 subject to increase
as hereinafter provided (hereinafter called the "Basic Salary"),
payable in equal monthly installments on the 15th day of each
month.
(b) During the Employment Period, Basic Salary shall be
increased as of the first day of each calendar year commencing
January 1, 1999 based upon percentage increases in the Consumer
Price Index (the "CPI") as first published in each year by the
Bureau of Labor Statistics of the United States Department of
Labor for all items for the nation as a whole as compared with
the CPI first published for calendar year 1998. In the event
that the CPI for any year shall be lower than the CPI for any
prior year, there shall be no reduction in Basic Salary.
(c) In addition to Basic Salary Employee shall be entitled
to receive the following incentive compensation ("Incentive
Compensation"):
(i) A payment in cash, stock or a combination thereof,
as determined by Employee, based upon the performance goal
denominated "Earnings Before Taxes" (as hereinafter defined)
for each calendar year during the Employment Period
determined as follows:
Earnings Before Taxes Incentive
Realized in a Calendar Year Compensation Payable
Up to $10,000,000 1% of such amount, plus
$10,000,000 up to $15,000,000 2% of such amount, plus
$15,000,000 up to $20,000,000 3% of such amount, plus
$20,000,000 or more 4% of such amount
subject to such maximum for any year of two and one-half
times Basic Salary for such year. For purposes of this
subsection (c), "Earnings Before Taxes" shall mean the
consolidated net earnings of Employer and its subsidiary
companies before provision for income taxes, domestic
(federal, state and municipal) and foreign. Incentive
Compensation payable in respect of such goal for a calendar
year shall be paid by the 15th day of March of the next
year.
Payments of Incentive Compensation in stock shall be in
shares of Employer's common stock or special common stock as
determined by the compensation committee of the board of
directors of Employer (the "Committee") with such shares
valued at fair market value as determined by the Committee.
(ii) As soon as practicable after the date hereof,
Employer shall make a ten-year loan to Employee in the
original principal amount of $3,000,000 bearing interest at
the applicable federal long-term rate (determined in
accordance with Section 1274 of the Internal Revenue Code of
1986, as amended (the "Code")) payable annually in arrears,
and repayable annually as of each anniversary of the making
of such loan in equal installments of principal of $300,000
plus accrued interest. If this Agreement is approved by
Employer's shareholders as contemplated by Section 16
hereof, payment of each installment of principal and
interest will be deferred until determination of Employer's
Operating Earnings for the prior fiscal year. If this
Agreement is so approved, and if Employee remains in the
employ of Employer on the date an installment is due and if
Employer has met the goal of Operating Earnings of
$35,000,000 or more for the prior year, such installment and
accrued interest shall be forgiven; and all remaining
installments and accrued interest shall be forgiven in the
event of termination of the Employment Period pursuant to
Sections 5, 7 or 8 hereof. Such loan shall be evidenced by a
promissory note of Employee in the form of Exhibit 1 hereto,
with appropriate insertions. For purposes of this subsection
(c), "Operating Earnings" shall mean Earnings Before Taxes
before provisions for interest income and expense, gain or
loss on investments (and marketable securities), gain or
loss on businesses sold and before write-up or write-down of
assets.
(iii) Prior to payment of Incentive Compensation, the
Committee must certify in writing that either the
performance goal Earnings Before Taxes or the Operating
Earnings goal has been met.
(d) Employee shall be eligible to participate in any
deferred compensation, supplemental executive retirement, pension
or other benefit plan in which executive personnel of Employer
are eligible to participate and shall be eligible for
discretionary bonuses. In addition, Employee shall be entitled to
receive all other benefits or participate in any employee benefit
plans generally available to executive personnel of Employer,
including without limitation, any hospital, medical, accident,
disability, life insurance, and dental coverages, any stock
option or savings plans (including, without limitation, the 1997
Equity and Cash Incentive Plan), or any pension or other
retirement benefit plans.
(e) Employer shall promptly reimburse Employee for all
business expenses incurred by Employee during the Employment
Period; shall promptly pay or reimburse Employee for club and
professional association dues, assessments and fees for at least
such clubs and associations as Employee was a member of and
Employer was making such payments or reimbursements on the date
of this Agreement; and shall provide to Employee for his
exclusive business and personal use an automobile of his
selection, pay all expenses of ownership, operation, repair and
maintenance of such vehicle, provide suitable substitute vehicle
in the event such automobile is not available for use by Employee
for any reason and replace such automobile not less often than
biannually with a new vehicle at the option of Employee.
3. Termination
(a) if Employee dies, the Employment Period or the
"Noncompete Period" (as hereinafter defined) shall end and his
employment hereunder shall be deemed to cease as of the date of
his death.
(b) If Employee is incapacitated by accident, sickness, or
otherwise so as to render him, for a period of 365 consecutive
days, mentally or physically incapable of performing the services
required of him under this Agreement and, if requested by
Employee, the basis for such incapacity is certified by a
licensed physician, Employer, acting through its board of
directors, may terminate the Employment Period.
(c) Employee shall have the right to terminate the
Employment Period at any time by written notice to the board of
directors of Employer.
(d) Employer, acting through its board of directors, shall
have the right to terminate the Employment Period for "cause" (as
hereinafter defined), without further obligation hereunder on the
part of Employer or Employee except payment to Employee of
amounts earned or accrued hereunder to the date of termination,
pursuant to the procedures specified in this Section 3(d);
provided that the Employment Period shall not be terminated for
cause after a Change of Control or if prior to the finding of the
board of directors with respect thereto, the Employment Period
shall have terminated for any other reason. For purposes of this
Agreement, "cause" shall mean: (i) the willful and continued
failure of Employee to perform substantially Employee's material
duties pursuant to Section 1(b) hereof (other than any such
failure resulting from, or contributed to by, incapacity due to
physical or mental illness), after a written demand for
substantial performance is delivered to Employee by the board of
directors which notice is adopted at an in-person meeting of the
board of directors called and held for such purpose (after
reasonable notice is provided to Employee and Employee is given
an opportunity, together with counsel, to be heard before the
board of directors) and which notice specifically identifies the
manner in which Employee has not substantially performed his
material duties, or (ii) because of conviction of Employee of a
crime involving theft, embezzlement or fraud against Employer or
a civil judgment in which Employer is awarded damages from
Employee in respect of a claim of loss of funds through fraud or
misappropriation by Employee, which in either case has become
final and is not subject to further appeal, continued employment
of Employee would be demonstrably injurious to Employer.
Performance by Employee of his duties under Section 1(b) hereof
shall be presumed to be substantially performed, and any act, or
failure or act, based upon authority given pursuant to a
resolution duly adopted by the board of directors or any
committee of the board of directors or based upon the advice of
counsel for Employer (including members of its legal staff) or
which has been acquiesced in by the board of directors shall be
conclusively presumed to be done, or omitted to be done, by
Employee consistent with his obligations under Section 1(b)
hereof. Termination of the Employment Period for cause shall not
occur unless and until there shall have been delivered to
Employee a copy of a resolution duly adopted by the affirmative
vote of all of the members of the board of directors excluding
Employee at an in-person meeting of the board of directors called
and held for such purpose (after notice of not less than 20
business days is provided to Employee and Employee is given an
opportunity, together with counsel, to be heard before the board
of directors), finding that, in the good faith opinion of the
board of directors, termination for cause is justified based
solely on information presented at such meeting.
(e) Employer, acting through its board of directors, shall
have the right to terminate Employee without cause, by written
notice to Employee, not less than 20 business days in advance of
such termination
(f) Any amounts due Employee hereunder in the event of
termination of the Employment Period shall be considered
severance pay in consideration of his past services and in
consideration of his continued services from the date hereof, are
considered reasonable by Employer and not in the nature of a
penalty, shall not be reduced by compensation or income received
by Employee from any other employment or other source and shall
not be offset by any claims Employer may have against Employee;
timely payment of such amounts is further agreed by the parties
hereto to be in full satisfaction and compromise of any claims
arising out of the performance or nonperformance of this
Agreement that either party might have against the other, other
than any claims Employee may have under the provisions of Section
11 hereof.
4. Noncompetition and Confidentiality
(a) If the Employment Period is terminated by reason of
voluntary termination by Employee pursuant to Section 3(c) hereof
or by reason of disability of Employee pursuant to Section 3(b)
hereof, then Employee agrees that he shall not for a period of
five years (the "Noncompete Period") compete with Employer as
hereinafter provided, and in consideration of Employee's
agreement not to compete during the Noncompete Period, Employer
shall pay to Employee a fee, payable in the manner set forth in
Section 2 hereof, at the annual rate of (i) 60 percent of the
Basic Salary at the date of such termination, plus (ii) 60
percent of the greater of (a) the average of the Incentive
Compensation earned pursuant to Section 2(c)(i) (irrespective of
any decision to defer any payment with respect thereto) for the
preceding three calendar years under this Agreement (or incentive
compensation earned under any prior agreement between Employee
and Employer relating to employment of Employee by Employer), or
(b) Incentive Compensation pursuant to Section 2(c)(i) which
would have been payable to Employee for the year in which the
Noncompete Period begins as if the Employment Period had not
terminated. In the event of a Change of Control occurring during
the period beginning 12 months prior to the commencement of the
Noncompete Period or at any time during the Noncompete Period,
Employee may elect to be paid in cash, within ten days after
giving notice of such election to Employer, an amount equal to
the balance of the fee payable under this Section 4 for the five-
year term of the Noncompete Period, with Incentive Compensation
for the purpose of such payment to be calculated on the basis of
the average of Incentive Compensation earned for the preceding
three calendar years under this Agreement (or any such prior
agreement).
In addition, during the Noncompete Period, Employee shall be
entitled to participate at the expense of Employer in all
employee benefits generally available to executive personnel of
Employer or available to him alone immediately prior to
termination of the Employment Period, including without
limitation, any hospital, accident, disability, life insurance or
dental coverages, provided that participation by Employee in any
such plan is not prohibited by the terms of any contract with any
provider of services under any such plan or prohibited by the
Code or the regulations thereunder or by any other applicable
legal requirements governing the qualification or administration
of such plans. Employer shall maintain an executive office for
Employee within Providence, Rhode Island for Employee's use
during the term of the Noncompete Period and shall provide
Employee with secretarial and other administrative services, all
reasonably suitable to his then current needs and consistent with
his former offices and duties during the Employment Period.
Employee's agreement not to compete with Employer during the
Noncompete Period shall be limited to prohibiting Employee from
owning a greater than 5% equity interest in, serving as a
director, officer, employee or partner of, or being a consultant
to or co-venturer with any business enterprise or activity that
competes in North America with any line of business conducted by
Employer or any of its subsidiaries at the termination of the
Employment Period and accounting for more than 5% of Employer's
gross revenues for its fiscal year ending immediately prior to
the year in which the Employment Period ends. During the
Noncompete Period, Employee agrees that he will not hire or
attempt to hire any person employed by Employer or any of its
subsidiaries during the 24 month period prior to the termination
of the Employment Period, assist such a hiring by any other
person or entity, encourage any such employee to terminate his
relationship with Employer (or any such subsidiary) or solicit or
encourage any customer or vendor of Employer to terminate its
relationship with Employer.
(b) Employee shall hold in a fiduciary capacity for the
benefit of Employer all secret or confidential information,
knowledge or data relating to Employer or any of its
subsidiaries, and their respective businesses, which shall have
been obtained by Employee during Employee's employment by
Employer and which shall not be or become public knowledge (other
than by acts by Employee or representatives of Employee in
violation of this Agreement). After termination of Employee's
employment with Employer, Employee shall not, without the prior
written consent of Employer or as may otherwise be required by
law or legal process, communicate or divulge any such
information, knowledge or data to anyone other than Employer and
those designated by it.
5. Severance Pay-Termination by Employer
If the Employment Period shall terminate by reason of
Employer's exercise of its right under Section 3(e) to terminate
without cause or in the event Employee elects to terminate the
Employment Period for "good reason" (as hereinafter defined),
Employer shall thereafter be obligated to pay and Employee shall
be entitled to receive as severance pay hereunder, for a period
of five years beginning as of the first day following such
termination, an amount for each year, payable in the manner set
forth in Section 2 hereof, equal to (i) 70 percent of the Basic
Salary as of the date of such termination, plus (ii) 70 percent
of the greater of (a) the average of the Incentive Compensation
earned pursuant to Section 2(c)(i) (irrespective of any decision
to defer any payment with respect thereto) for the preceding
three calendar years under this Agreement (or incentive
compensation earned under any prior agreement between Employee
and Employer relating to employment of Employee by Employer), or
(b) Incentive Compensation pursuant to Section 2(c)(i) which
would have been payable to Employee for the year in which
termination occurs as if the Employment Period had not
terminated. If there shall have occurred a Change of Control
within the 24 months preceding such a termination of the
Employment Period or during the 12 months following such a
termination of the Employment Period, Employee may elect to be
paid in cash, within ten days after giving notice of such
election to Employer, an amount equal to the balance of severance
pay to Employee under this Section 5 with Incentive Compensation
for the purpose of such payment to be calculated on the basis of
the average of the Incentive Compensation earned pursuant to
Section 2(c)(i) for the preceding three calendar years under this
Agreement as if the Employment Period had not terminated (or
incentive compensation earned under any such prior agreement).
For purposes of this Agreement, "good reason" shall mean:
(i) any reduction of, or failure to pay, Employee's
Basic Salary or Incentive Compensation as described in
Section 2(a), (b) and (c) hereof;
(ii) any failure to provide the benefits or payments
required by Sections 2(d) and (e), 9, 10, 11 and 12 hereof;
(iii) assignment to Employee of any duties
inconsistent in any respect with his position (including
status, offices and tides), authority, duties or
responsibilities as contemplated by Section 1(b) above or
any other action by Employer which results in a diminution
of such position, authority, duties or responsibilities;
(iv) failure after a Change of Control to comply with
and satisfy Section 6(b) hereof;
(v) relocation of Employer's principal executive
offices, or any event that causes Employee to have his
principal place of work changed, to any location outside
Providence, Rhode Island;
(vi) any requirement by Employer that Employee travel
away from his office in the course of his duties
significantly more than the number of consecutive days or
aggregate days in any calendar year than was required of him
prior to the date of this Agreement; and
(vii) without limiting the generality or effect of
the foregoing, any other material breach of this Agreement
by Employer or any successor thereto or transferee of
substantially all the assets thereof.
For purposes of this agreement, any good faith determination of
good reason made by Employee shall be conclusive.
In the event of such a termination of the Employment Period,
Employee shall continue for a period of 60 months after
termination of the Employment Period to be covered at the expense
of Employer by the same or equivalent hospital, medical,
accident, disability and life insurance coverages as he was
covered immediately prior to termination of the Employment
Period; provided, however, that Employee may elect to be paid in
cash, within 15 days after termination of the Employment Period,
an amount equal to Employer's cost of providing such coverages
during such period.
6. Change of Control
(a) For purposes of this Agreement, a "Change of Control"
shall be deemed to have occurred if and when:
(i) Employer ceases to be a publicly owned corporation
having at least 500 stockholders; or
(ii)There occurs any event or series of events that
would be required to be reported in response to Item 5(f) of
Schedule 14A of Regulation 14A promulgated under the
Exchange Act, in a Form 8-K filed under the Exchange Act or
in any other filing by Employer with the Securities and
Exchange Commission; or
(iii) Employer executes an agreement of
acquisition, merger, or consolidation which contemplates
that after the effective date provided for in the agreement,
all or substantially all of the business and/or assets of
Employer shall be controlled by another Person; provided,
however, for purposes of this clause (iii) that (x) if such
an agreement requires as a condition precedent approval by
Employer's shareholders of the agreement or transaction, a
Change of Control shall not be deemed to have taken place
unless and until such approval is secured and, (y) if the
voting shareholders of such other Person shall, immediately
after such effective date, be substantially the same as the
voting shareholders of Employer immediately prior to such
effective date, the execution of such agreement shall not,
by itself, constitute a "Change of Control"; or
(iv) Any Person which does not include Employee becomes
the beneficial owner, directly or indirectly (either as a
result of the acquisition of securities or as the result of
an arrangement or understanding, including the holding of
proxies, with or among security holders), of securities of
Employer representing 25% or more of the votes that could
then be cast in an election for members of Employer's board
of directors unless within 15 days of being advised that
such ownership level has been reached, Employer's board of
directors adopts a resolution approving the acquisition of
that level of securities ownership by such Person; or
(v) During any period of 24 consecutive months,
commencing after the effective date of this Agreement,
individuals who at the beginning of such 24-month period
were directors of Employer shall cease to constitute at
least a majority of Employer's board of directors, unless
the election of each director who was not a director at the
beginning of such period has been approved in advance by
directors representing at least two thirds of (x) the
directors then in office who were directors at the beginning
of the 24-month period, or (y) the directors specified in
clause (x) plus directors whose election has been so
approved by directors specified in clause (x).
(b) If Employer is at any time before or after a Change of
Control merged with or consolidated into or with any other Person
(whether or not Employer is the surviving entity), or if
substantially all of the assets of Employer are transferred to
another Person, the Person resulting from such merger or
consolidation, or the acquirer of such assets, shall (by
agreement in form and substance satisfactory to Employee)
expressly assume the obligations of Employer under this
Agreement. In any event, however, the provisions of this
Agreement shall be binding upon and inure to the benefit of the
Person resulting from such merger or consolidation or the
acquirer of such assets, and this Section 6(b) will apply in the
event of any subsequent merger or consolidation or transfer of
assets. In the event of any such merger, consolidation or sale of
assets, nothing contained in this Agreement will detract from or
otherwise limit Employee's right to or privilege of participation
in any stock option or purchase plan or any bonus, profit
sharing, pension, group insurance, hospitalization or other
incentive or benefit plan or arrangement which may be or become
applicable to executives of the Person from such merger or
consolidation or acquiring such assets of Employer. In the event
of any such merger, consolidation or sale of assets, references
to Employer in this Agreement shall unless the context suggests
otherwise be deemed to include the Person resulting from such
merger or consolidation or acquiring of such assets of Employer.
7. Death Benefit
If the Employment Period or the Noncompete Period shall
terminate by reason of Employee's death, his estate or designated
beneficiary shall thereafter be entitled to receive from Employer
a death benefit (i) in the case of such a termination of the
Employment Period, for a period of five years beginning as of the
first day following his death, in an amount equal to 60 percent
of the Basic Salary as of the date of his death, plus 60 percent
of the greater of (a) the average of the Incentive Compensation
earned pursuant to Section 2(c)(i) (irrespective of any decision
to defer any payment with respect thereto) for the preceding
three calendar years under this Agreement (or incentive
compensation earned under any prior agreement between Employee
and Employer relating to employment of Employee by Employer), or
(b) Incentive Compensation pursuant to Section 2(c)(i) which
would be payable to Employee if the Employment Period had not
terminated, such death benefit shall be payable in the manner set
forth in Section 2 hereof; or (ii) in the case of such a
termination of the Noncompete Period, for the remainder of the
Noncompete Period, an amount equal to the annual rate of the fee
payable to Employee at the date of such termination; such death
benefit shall be payable in the manner set forth in Section 2
hereof.
8. Disability Benefit
If the Employment Period shall terminate by reason of
Employee's physical or mental disability, Employee, or in the
event of his death, his estate, shall thereafter be entitled to
receive from Employer: (i) for a period of five years commencing
from the date of such termination, a disability benefit in an
amount equal to 60 percent of the Basic Salary as of the date of
such termination, plus 60 percent of the greater of (a) the
average of the Incentive Compensation earned pursuant to Section
2(c)(i) (irrespective of any decision to defer any payment with
respect thereto) for preceding three calendar years under this
Agreement (or incentive compensation earned under any prior
agreement between Employee and Employer relating to employment of
Employee by Employer), or (b) Incentive Compensation pursuant to
Section 2(c)(i) which would be payable to Employee if the
Employment Period had not terminated, payable in the manner set
forth in Section 2 hereof; and (ii) for what would have been the
duration of the Employment Period without such termination unless
Employee should earlier die, Employer will not terminate the
Insurance Agreements (as defined in Section 10 hereof).
9. Deferred Compensation
Employee may defer receipt of all or any part of the
Incentive Compensation pursuant to Section 2(c)(i) otherwise due
him under this Agreement in respect of any year of the Employment
Period, provided that prior to the end of such year for which
such Incentive Compensation would otherwise be payable, Employee
notifies Employer of his irrevocable election to so defer such
receipt, stating in such notice the period during which such
receipt is to be deferred and the period over which such
Incentive Compensation is to be paid once such deferral has
terminated. Any such deferred Incentive Compensation shall be a
general unsecured obligation of Employer to Employee and shall
bear interest at the interest rate per annum announced and made
effective from time to time by Fleet National Bank (or its
successor) as its prime rate (the "Rate") which shall accrue and
be paid in equal monthly increments over the period the Incentive
Compensation to which it relates is to be paid with the unpaid
amount of such Incentive Compensation and unpaid interest to bear
interest at the Rate which shall be paid in arrears as each such
installment of deferred Incentive Compensation is payable.
10. Split Dollar Life Insurance.
Employer and Employee or a trust established by him have
entered into the split dollar life insurance agreements listed on
Schedule 1 hereto (the "Insurance Agreements"). In the event of
a Change of Control during the Employment Period or the
Noncompete Period, Employer agrees not to terminate any of the
Insurance Agreements until the Employment Period or the
Noncompete Period, as the case may be, would have terminated,
provided that in such event Employer's obligation to pay premiums
pursuant to the Insurance Agreements shall be limited to applying
the cash value of the policies (including accumulated dividends
and the value of any paid-up additions) to premium payments. If
in such event such cash value is insufficient to pay all required
premiums, Employer shall consult with Employee and apply cash
value to payment of premiums as directed by Employee. As to
policies where such premiums are not to be paid by the
application of cash value, at the election of Employee Employer
will either permit Employee to pay premiums to the extent not
paid from the application of cash value or transfer such policies
to Employee, conditioned upon Employee's executing any additional
instruments reasonably necessary to preserve Employer's rights
under the Insurance Agreements.
11. Gross-up Payment
In the event that it is determined that any payment or
benefit provided by Employer to or for the benefit of Employee,
either under this Agreement or otherwise, will be subject to the
excise tax imposed by section 4999 of the Code or any successor
provision ("section 4999"), Employer will, prior to the date on
which any amount of the excise tax must be paid or withheld, make
an additional lump-sum payment (the "gross-up payment") to
Employee. The gross-up payment will be sufficient, after giving
effect to all federal, state and other taxes and charges
(including interest and penalties, if any) with respect to the
gross-up payment, to make Employee whole for all taxes (including
withholding taxes) and any associated interest and penalties,
imposed under or as a result of section 4999.
Determinations under this Section 11 will be made by Arthur
Anderson LLP unless Employee has reasonable objections to the use
of that firm, in which case the determinations will be made by a
comparable firm chosen by Employee after consultation with
Employer (the firm making the determinations to be referred to as
the "Firm"). The determinations of the Firm will be binding upon
Employer and Employee except as the determinations are
established in resolution (including by settlement) of a
controversy with the Internal Revenue Service to have been
incorrect. All fees and expenses of the Firm will be paid by
Employer.
If the Internal Revenue Service asserts a claim that, if
successful, would require Employer to make a gross-up payment or
an additional gross-up payment, Employer and Employee will
cooperate fully in resolving the controversy with the Internal
Revenue Service. Employer will make or advance such gross-up
payments as are necessary to prevent Employee from having to bear
the cost of payments made to the Internal Revenue Service in the
course of, or as a result of, the controversy. The Firm will
determine the amount of such gross-up payments or advances and
will determine after resolution of the controversy whether any
advances must be returned by Employee to Employer. Employer will
bear all expenses of the controversy and will gross Employee up
for any additional taxes that may be imposed upon Employee as a
result of its payment of such expenses.
12. Indemnification
Anything in this Agreement to the contrary notwithstanding,
Employer agrees to pay all costs and expenses incurred by
Employee in connection with the enforcement of this Agreement and
will indemnify and hold harmless Employee from and against any
damages, liabilities and expenses (including without limitation
fees and expenses of counsel) incurred by Employee in connection
with any litigation or threatened litigation, including any
regulatory proceedings, arising out of the making, performance or
enforcement of this Agreement or termination of the Employment
Period.
13. Notices
All notices or other Communications given hereunder shall be
in writing and shall be deemed to have been duly given if mailed
by certified mail or hand delivered, if to Employer, at 50
Kennedy Plaza, Providence, Rhode Island 02903-2360, or at such
other address as Employer shall have furnished to Employee in
writing, or if to Employee, at 166 President Avenue, Providence,
Rhode Island 02906, or at such other address as Employee shall
have furnished to Employer in writing.
14. Governing Law
This Agreement shall be governed by the laws of the State of
Rhode Island and Providence Plantations.
15. Severability
The provisions of this Agreement are severable, and in the
event that any one or more paragraphs are deemed illegal or
unenforceable, the remaining paragraphs shall remain in full
force and effect.
16. Shareholder Approval/Prior Agreements
This Agreement shall be submitted to Employer's shareholders
for approval at Employer's next annual meeting of shareholders
occurring after the date hereof. In the event this Agreement is
so approved by Employer's shareholders, this Agreement together
with the employment agreement dated as of January 1, 1984 between
Employer and Employee, as amended (the "1984 Agreement), will
constitute the entire agreement between Employee and Employer,
and as of January 1, 1998 this Agreement will supersede all prior
negotiations and written or oral agreements with respect to the
full time employment of Employee by Employer, except that no
rights arising under the 1984 Agreement prior to January 1, 1998,
including without limitation the right of Employee to incentive
compensation or other compensation or benefits under the 1984
Agreement, shall be affected hereby. In the event this Agreement
is not so approved, the 1984 Agreement shall continue in effect.
No changes, alterations or modifications hereof may be made,
except by a writing signed by each of the parties hereto.
17. Assignment
This agreement is personal to Employee and without the prior
written consent of Employer shall not be assignable by Employee
otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable
by Employer's legal representative. This Agreement shall inure to
the benefit of and be binding upon Employer and its successors
and assigns.
18. Counterparts
This Agreement may be executed simultaneously in one or more
counterparts, each of which shall be deemed to be an original,
but all of which together shall constitute one and the same
agreement.
IN WITNESS WHEREOF, the undersigned have duly executed this
Agreement as of February 26, 1997.
ATTEST: NORTEK, INC.
/s/Kevin W. Donnelly /s/Richard J. Harris
- -------------------- --------------------
Secretary Richard J. Harris
Vice President and Treasurer
WITNESS:
/s/William I. Kelly /s/Richard L. Bready
- ------------------- --------------------
Richard L. Bready, Employee
Exhibit 1
NOTE
February __, 1997
FOR VALUE RECEIVED, the undersigned Richard L. Bready
("Bready"), hereby promises to pay Nortek, Inc., a Delaware
corporation (the "Lender"), on or before February __ 2007, THREE
MILLION DOLLARS ($3,000,000), with interest accruing daily from
the date hereof on the aggregate principal amount of such loan
from time to time unpaid at the applicable federal long-term rate
(determined in accordance with Section 1274 of the Internal
Revenue Code of 1986) in effect on such day (the "Rate"), such
interest to be payable annually in arrears on the date provided
below for prepayments of principal or upon maturity or prepayment
in full hereof. Bready also promises to pay interest at the Rate
on overdue principal and, to the extent permitted by applicable
law, on overdue installments of interest. Interest shall be
computed on the basis of a 365-day year.
On the last business day of February in each year from 1998
through 2007 inclusive, Bready shall prepay, without premium, the
lesser of $300,000 of principal of this Note or the aggregate
amount of principal of this Note then outstanding; provided,
however, that the aggregate unpaid principal of the loan
represented by this Note, plus accrued interest thereon, shall,
without the requirement of any action on the part of the Lender,
become immediately due and payable if Bready shall: (i) commence
a voluntary case under Title 11 of the United States Code or any
successor statute (the "Bankruptcy Code") or authorize the
commencement of such a voluntary case; (ii) have filed against
him a petition commencing an involuntary case under the
Bankruptcy Code which shall not have been dismissed within 60
days after the date on which such petition is filed; (iii) file
an answer or other pleading in an involuntary case under the
Bankruptcy Code admitting or failing to deny the material
allegations of the petition commencing such involuntary case, or
seeking, consenting to or acquiescing in the relief requested by
such petition; (iv) have entered against him an order for relief
in any involuntary case commenced under the Bankruptcy Code; (v)
seek relief as a debtor under any applicable law, other than the
Bankruptcy Code, of any jurisdiction relating to the modification
or alteration of the rights of creditors, or consent to or
acquiesce in such relief; (vi) have entered against him an order
by a court of competent jurisdiction (a) finding him to be
bankrupt or insolvent, (b) ordering or approving any modification
or alteration of the rights of his creditors or (c) assuming
custody of, or appointing a receiver or other custodian for, all
or a substantial portion of his property; or (vii) make an
assignment for the benefit of, or enter into a composition with,
his creditors, or appoint, or consent to the appointment of, or
suffer to exist a receiver or other custodian for, all of his
property. The principal of this Note may be prepaid in whole or
in part without premium.
Payments hereunder shall be made to the Lender at its
principal offices at 50 Kennedy Plaza, Providence, Rhode Island
02903, or at such other location as the Lender shall have from
time to time designated to Bready in writing.
The parties hereto, including Bready and all guarantors and
endorsers, hereby waive presentment, demand, notice, protest and
all other demands and notices in connection with the delivery,
acceptance, performance and enforcement of this Note and assent
to extensions of time of payment, forbearance or other indulgence
without notice.
Bready agrees to pay all costs and expenses incurred by
Lender in connection with the enforcement of this Note and will
indemnify and hold harmless Lender from and against any damages,
liabilities and expenses (including without limitation fees and
expenses of counsel) incurred by Lender in connection with any
litigation or threatened litigation, including any regulatory
proceedings, arising out of the making, performance or
enforcement of this Note.
This Note shall be governed by and construed in accordance
with the laws of the State of Rhode Island and Providence
Plantations.
WITNESS:
_____________________________ ______________________________
Richard L. Bready
Schedule 1
SPLIT DOLLAR AGREEMENTS BENEFITING RICHARD L. BREADY
Agreement Policies Covered by
Agreement
New York Life
Policy No. Face Amount
------------- -----------
Split Dollar Agreement dated as of 45 954 985} $15,000,000
December 20, 1996 between Nortek 45 954 942} Combined
and Douglass N. Ellis, Jr., as
trustee of The Richard L. Bready
1996 Irrevocable Trust
Confirmatory Split Dollar Agreement 37 324 765 $ 150,000
No. 1 dated as of December 31, 1996 37 367 086 $ 97,000
between Nortek and Richard L. 37 679 014 $ 2,000,000
Bready
Confirmatory Split Dollar Agreement 38 977 829 $ 1,200,000
No. 2 dated as of December 31, 1996
between Nortek and Richard L.
Bready
