<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
FILED BY THE REGISTRANT [X] FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
- - --------------------------------------------------------------------------------
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
NORTEK, INC.
------------
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
- - --------------------------------------------------------------------------------
<PAGE> 2
[LOGO]
NORTEK, INC. 50 KENNEDY PLAZA, PROVIDENCE, RHODE ISLAND 02903-2360 401-751-1600
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH 27, 1997
The Annual Meeting of Stockholders of Nortek, Inc. (the "Company") will be
held at the Company's Broan Mfg. Co., Inc. facility located at 926 West State
Street, Hartford, Wisconsin, on March 27, 1997 at 11 o'clock a.m., local time,
for the following purposes:
1. To elect one director for a term expiring at the 2000 Annual Meeting of
Stockholders.
2. To consider the approval of the Company's 1997 Equity and Cash
Incentive Plan.
3. To consider the approval of the Company's 1997 Stock Option Plan for
Directors.
4. To consider the approval of an employment agreement between Richard L.
Bready and the Company.
5. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on February 21, 1997
as the record date of the Annual Meeting to determine the stockholders entitled
to notice of and to vote at the meeting or any adjournment or postponement
thereof. The Company's stock transfer books will not be closed prior to the
Annual Meeting.
By Order of the Board of Directors,
KEVIN W. DONNELLY
Secretary
Providence, Rhode Island
March 5, 1997
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE ANNUAL MEETING, PLEASE DATE, SIGN
AND PROMPTLY RETURN THE ENCLOSED FORM(S) OF PROXY IN THE ENCLOSED STAMPED AND
ADDRESSED ENVELOPE.
<PAGE> 3
NORTEK, INC.
50 KENNEDY PLAZA
PROVIDENCE, RHODE ISLAND 02903-2360
PROXY STATEMENT
The enclosed form(s) of proxy and this Proxy Statement have been mailed to
stockholders on or about March 5, 1997 in connection with the solicitation by
the Board of Directors of Nortek, Inc. (the "Company") of proxies for use at its
Annual Meeting of Stockholders to be held on March 27, 1997 or at any
adjournment or postponement thereof.
A copy of the Company's 1996 Annual Report to Stockholders, which includes
the Annual Report on Form 10-K, is being mailed herewith to each stockholder
entitled to vote at the meeting.
As of February 21, 1997 the Company had outstanding 9,142,703 shares of
Common Stock, $1.00 par value (the "Common Stock"), and 498,532 shares of
Special Common Stock, $1.00 par value (the "Special Common Stock"). Holders of
record at the close of business on February 21, 1997 are entitled to vote at the
meeting or any adjournment thereof. Holders of shares of Common Stock are
entitled to one vote for each share, and holders of shares of Special Common
Stock are entitled to ten votes per share. With respect to the election of the
director, holders of Common Stock shall be entitled to elect the one director
and the holders of Special Common Stock shall have no voting rights with respect
to such election. A plurality of votes properly cast by the holders of Common
Stock will elect the director. Approval of the 1997 Equity and Cash Incentive
Plan, the 1997 Stock Option Plan for Directors and the employment agreement with
Richard L. Bready will each require the affirmative vote of a majority of the
total votes of the outstanding shares of Common Stock and Special Common Stock
represented at and entitled to vote at the meeting voting as a single class.
It is the intention of the persons named as proxies to vote shares of
Common Stock represented by duly executed proxies for the election of the
nominee for director selected by the Board of Directors and to vote shares of
Common Stock and Special Common Stock represented by duly executed proxies for
the 1997 Equity and Cash Incentive Plan set forth as item 2, the 1997 Stock
Option Plan for Directors set forth as item 3 and the employment agreement with
Richard L. Bready set forth as item 4 unless authority to do so has been
withheld or a contrary specification made. If any other business is properly
brought before the Annual Meeting and on all matters incidental to the conduct
of the meeting, the proxies will be voted in accordance with the discretion of
the persons named as proxies. Any such proxy may be revoked by the stockholder
at any time prior to the voting of the proxy by a written revocation received by
the Secretary of the Company, by properly executing and delivering a later-dated
proxy, or by attending the meeting, requesting return of the proxy and voting in
person. Proxies will be tabulated by the Company's transfer agent, State Street
Bank and Trust Company. Abstentions from voting will have no effect on the
outcome of the election of directors, even though a person analyzing the results
of the voting may interpret such a vote differently. Abstentions from voting on
the 1997 Equity and Cash Incentive Plan, the 1997 Stock Option Plan for
Directors and the employment agreement with Richard L. Bready are the equivalent
of votes against the items while broker nonvotes will have no effect on the
outcome.
1. ELECTION OF DIRECTOR
The By-laws of the Company provide that the Board of Directors shall
consist of not less than three directors and that the number of directors at any
time shall be the number of directors fixed by resolution of the Board of
Directors. The Board of Directors has fixed the number of directors at five
which is the current
1
<PAGE> 4
number of directors. The Board of Directors is divided into three classes, with
each class to hold office for a term of three years. At the meeting, one
director is to be elected for a term of three years expiring at the 2000 Annual
Meeting and until his respective successor is elected and qualified. Holders of
Common Stock, voting separately as a class, are entitled to elect 25% or the
next highest whole number of directors to be elected at the Annual Meeting,
which in this case constitutes one director. Richard J. Harris has been
nominated to be elected by the holders of Common Stock voting separately as a
class for a term of three years expiring at the 2000 Annual Meeting. THE BOARD
RECOMMENDS A VOTE FOR THE NOMINEE.
The nominee has agreed to serve as a director, if elected. If, at the time
of the Annual Meeting, the nominee is unwilling or unable to serve (which is not
currently anticipated), the Board may fix the number of directors at less than
five, or the persons named as proxies may nominate and may vote for another
person in their discretion. The By-laws require nominations of directors, other
than by the Board of Directors, to be submitted to the Company's Chief Executive
Officer or Secretary at least 30 days before the meeting and be accompanied by a
petition signed by at least 100 stockholders of record, holding in the aggregate
at least 1% of the capital stock entitled to vote, and by certain other
information. No such nominations have been received by the Company.
Presented below is information regarding the nominee for director as well
as those directors continuing in office.
NOMINEE FOR THE BOARD OF DIRECTORS
<TABLE>
<CAPTION>
NOMINEE FOR TERM EXPIRING DIRECTOR
AT THE 2000 ANNUAL MEETING PRINCIPAL OCCUPATION AGE SINCE
- - ------------------------------------- ----------------------------------------- --- --------
<S> <C> <C> <C>
Richard J. Harris.................... Vice President and Treasurer of the 60 1984
Company
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
</TABLE>
<TABLE>
<CAPTION>
TERM EXPIRING AT THE
1998 ANNUAL MEETING
- - -------------------------------------
<S> <C> <C> <C>
Richard L. Bready.................... Chairman, President and Chief Executive 52 1976
Officer of the Company
Phillip L. Cohen..................... Financial Consultant; CPA 65 1996
</TABLE>
<TABLE>
<CAPTION>
TERM EXPIRING AT THE
1999 ANNUAL MEETING
- - -------------------------------------
<S> <C> <C> <C>
J. Peter Lyons....................... President of The Lyons Company 62 1991
(consulting services for employee
insurance benefits)
William I. Kelly..................... Director of Northeastern University 53 1996
Graduate School of Professional
Accounting
</TABLE>
Mr. Harris has been employed by the Company in his present capacities for
more than the past five years. Mr. Bready has been Chairman and Chief Executive
Officer of the Company for more than the past five years. He is also a director
of Lehigh Group, Inc. and Initial Acquisition Corp. Mr. Cohen was a partner with
the professional service firm Arthur Andersen LLP from 1965 until his retirement
in June 1994 and has been a financial consultant since that date. Mr. Lyons, for
more than the past five years, has been President of The Lyons Company which has
designed benefit plans and provides insurance services to the Company. Mr. Kelly
has been Director of the Graduate School of Professional Accounting of
Northeastern University for more than the past five years. He is a director of
Scituate Federal Savings Bank in Scituate, Massachusetts.
The Board of Directors held six meetings during 1996. Each director
attended more than 75% of the meetings and of the meetings of the committees of
the Board on which he served. The Board of Directors has
2
<PAGE> 5
a standing Audit Committee, consisting of Messrs. Kelly (Chairman of the
committee) and Cohen. The duties of the Audit Committee consist of reviewing
with the Company's independent auditors and its management, the scope and
results of the annual audit, the scope of other services provided by the
Company's auditors, proposed changes in the Company's financial and accounting
standards and principles, the Company's policies and procedures with respect to
its internal accounting, auditing and financial controls, and making
recommendations to the Board of Directors on the engagement of the independent
auditors. During 1996 the Audit Committee held one meeting. The Stock Option
Committee of the Board, consisting of Messrs. Cohen (Chairman of the committee)
and Kelly, which is authorized to administer the Company's stock option plans,
held one meeting in 1996. The Compensation Committee, comprised of Messrs. Kelly
(Chairman of the committee) and Cohen has authority to implement changes in the
compensation arrangements with the Chief Executive Officer and recommend changes
in compensation arrangements for certain other executive officers. It held two
meetings during 1996. The Board of Directors does not have a standing nominating
committee. Directors who are not officers or employees of the Company or its
subsidiaries receive directors' fees from the Company. The fees currently paid
to such directors are $1,250 per month and $1,000 per meeting ($500 if a
director participates by telephone). In addition, members of committees of the
Board of Directors receive $750 per committee meeting ($250 if held in
conjunction with a Board meeting or if a member participates by telephone).
Committee chairmen receive an additional $1,500 per year. During 1996 Mr. Lyons
as a member of a special committee of the Board received a fee of $7,000.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of equity
securities of the Company by the Company's directors (including the nominee for
director), by its executive officers named in the Summary Compensation Table, by
its directors and executive officers as a group, and by those known by the
Company to own beneficially more than 5% of its Common Stock or Special Common
Stock, all as of February 21, 1997 except for the number of shares held by
Gabelli Funds, Inc. as to which the date is January 30, 1997.
<TABLE>
<CAPTION>
COMMON STOCK SPECIAL COMMON STOCK
----------------------- -----------------------
AMOUNT AND AMOUNT AND
NATURE OF NATURE OF
BENEFICIAL PERCENT BENEFICIAL PERCENT
NAME(1) OWNERSHIP(2) OF CLASS OWNERSHIP(2) OF CLASS
- - ---------------------------------------------- ------------ -------- ------------ --------
<S> <C> <C> <C> <C>
Richard L. Bready(3).......................... 746,081 8.0 318,294 63.8
Phillip L. Cohen.............................. -- --
Kevin W. Donnelly............................. 26,500 * 10 *
Almon C. Hall................................. 40,404 * 160 *
Richard J. Harris(3).......................... 302,256 3.3 50,106 10.1
William I. Kelly.............................. -- --
J. Peter Lyons................................ 140 --
Kenneth J. Ortman............................. 33,875 * --
All directors and executive officers as a
group(3)(4)................................. 922,456 9.8 322,307 64.7
Gabelli Funds, Inc.,
One Corporate Center
Rye, NY 10580............................... 1,697,300 18.6 20,965 4.2
</TABLE>
- - ---------------
* Less than 1%
(1) The address of all such persons unless otherwise stated is c/o Nortek, Inc.,
50 Kennedy Plaza, Providence, Rhode Island 02903-2360. Certain of the shares
shown in the table are shares as to which the persons named in the table
have the right to acquire beneficial ownership, as specified in
3
<PAGE> 6
Rule 13d-3(d)(1) promulgated under the Securities Exchange Act of 1934 as
amended. Unless otherwise indicated, the persons or entities identified in
this table have sole voting and investment power with respect to all shares
shown as beneficially held by them, subject to community property laws where
applicable.
(2) Includes shares subject to currently exercisable options in the case of
Messrs. Bready (150,000 shares of Common Stock), Hall (40,000 shares of
Common Stock), Harris (45,400 shares of Common Stock), Ortman (26,900 shares
of Common Stock) and Donnelly (14,747 shares of Common Stock). Does not
include future rights to acquire shares upon the exercise of options in the
case of Mr. Bready (275,000 shares of Special Common Stock).
(3) Various defined benefit pension plans of the Company and certain of its
subsidiaries held approximately 2.6% of the outstanding Common Stock of the
Company and 9.3% of the outstanding Special Common Stock at February 21,
1997. Under the provisions of the trust agreement governing the plans, the
Company may instruct the trustee regarding the acquisition and disposition
of plan assets and the voting of securities held by the trust. Accordingly,
although the directors and officers disclaim beneficial ownership of such
shares, the shares are included in the table as being beneficially owned by
Messrs. Bready and Harris and are also included under shares held by
directors and executive officers as a group.
(4) Includes 277,047 shares of Common Stock that directors and executive
officers as a group have a right to acquire upon the exercise of currently
exercisable options. Does not include future rights of executive officers to
acquire shares upon exercise of options totalling 275,000 shares of Special
Common Stock. Except as set forth in the above table, the Company knows of
no persons who at February 21, 1997 beneficially owned more than 5% of the
shares of Common Stock or Special Common Stock of the Company outstanding on
that date.
4
<PAGE> 7
FIVE-YEAR SHAREHOLDER RETURN COMPARISON
The following graph compares the yearly percentage change for the last five
years in the cumulative total shareholder return of the Company's Common Stock
against the cumulative total return of the Russell 2000 Index and a group of
peer companies which are listed below.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG THE COMPANY, A PEER GROUP AND THE RUSSELL 2000 INDEX
12/91 12/92 12/93 12/94 12/95 12/96
Nortek, Inc. 100 280 480 633 627 1067
Peer Group 100 119 157 116 155 164
Russell 2000 100 116 141 139 178 207
* $100 invested on 12/31/91 in stock or index-including reinvestment of
dividends. Fiscal year ending December 31.
The peer group companies are:
<TABLE>
<S> <C>
Armstrong World Industries, Inc. The Stanley Works
Bird Corporation Maytag Corporation
Masco Corporation Fedders Corporation
Morgan Products Ltd. Whirlpool Corporation
Ply-Gem Industries, Inc.
</TABLE>
5
<PAGE> 8
REPORTS ON EXECUTIVE COMPENSATION
BOARD OF DIRECTORS
The compensation of the Chief Executive Officer, Mr. Bready, has been
governed by the terms of his employment agreement with the Company which was
last amended in November 1990. The terms of the agreement are set forth in a
footnote to the Summary Compensation Table. For the provisions of the proposed
new employment agreement which is being presented to the stockholders for
approval, see item 4. The Company's policy with respect to the compensation of
executive officers, other than the Chief Executive Officer, is primarily based
on the performance of the individual officer along with such other factors as
compensation paid by competitors of the Company, local geographical factors, the
terms of employment, salary surveys and the use of consultants when considered
necessary. Bonuses for executive officers are awarded on a discretionary basis
by the Chief Executive Officer based on individual goals derived from the
responsibilities of the individual and which are determined, in part, on Company
performance and to a greater extent on individual performance.
The executive officers named in the Summary Compensation Table other than
the Chief Executive Officer received salary increases in 1996 based on
competitive salary analyses prepared by an outside consultant and individual
performance of job goals and objectives. Bonuses awarded such executive officers
for the year reflected the achievement of certain cash flow objectives, the
operating performance of certain units and other factors.
By the Board of Directors:
<TABLE>
<S> <C>
Richard L. Bready William I. Kelly
Phillip L. Cohen J. Peter Lyons
Richard J. Harris
</TABLE>
COMPENSATION COMMITTEE
The Compensation Committee is authorized to approve changes in the
compensation arrangement with the Chief Executive Officer and recommend changes
with respect to certain other executive officers. Pursuant to his current
employment agreement, Mr. Bready received $343,000 in non-discretionary
incentive compensation for 1996 in excess of his basic salary. In addition, the
Compensation Committee authorized payment of an additional discretionary cash
bonus of $1,000,000. The discretionary portion of Mr. Bready's total
compensation for 1996 was awarded to Mr. Bready in recognition of his
performance as Chief Executive Officer and the performance of the Company as a
whole, including but not limited to (i) a 24.9% increase in net sales as
compared to 1995, (ii) a 46.7% increase in net earnings as compared to 1995, and
(iii) the successful integration with the Company of Rangaire, Inc., Venmar
Ventilation inc. and Best S.p.A., each of which was acquired in late 1995.
On February 26, 1997, the Compensation Committee approved an employment
agreement between the Company and Mr. Bready summarized below in item 4, subject
to stockholder approval (the "1998 Employment Agreement"). The purpose of the
1998 Employment Agreement is to advance the interests of the Company and its
subsidiaries by assuring that they will have the benefit of the continued
service and experience of Mr. Bready for a period of time and that there will be
continuity of management of the Company in the event of any actual or threatened
change of control of the Company. The Compensation Committee approved the 1998
Employment Agreement because it believes that the Agreement will help ensure
that Mr. Bready's compensation will include incentives that may qualify for
deduction by the Company in compliance with Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code"),
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<PAGE> 9
although the Company reserves the right to grant compensation to Mr. Bready that
would not be deductible to the Company as a result of the application of Section
162(m) of the Code.
By the Compensation Committee:
William I. Kelly Phillip L. Cohen
STOCK OPTION COMMITTEE
With respect to long-term incentive compensation, the Company believes that
stock options are an additional incentive for executive officers and other
selected key employees of the Company and its subsidiaries and upon whose
efforts the Company is largely dependent for the successful conduct of its
business. The award of stock options will encourage such persons to improve
operations and increase profits and to accept employment with or remain in the
employ of the Company or its subsidiaries. The Company's stock option plans are
administered by the Stock Option Committee of the Board. In 1996 the Committee
awarded options to Mr. Bready for 275,000 shares of Special Common Stock. In
making the award, the Committee considered stock options grants previously made
to him and exercised subjective judgment and discretion.
By the Stock Option Committee:
Phillip L. Cohen William I. Kelly
INTERLOCKS AND INSIDER PARTICIPATION
Mr. Bready, President and Chief Executive Officer of the Company, is
Chairman of the Board of Directors. Mr. Harris, Vice President and Treasurer of
the Company, is also a director. As directors they participate in Board
deliberations regarding executive compensation.
EXECUTIVE COMPENSATION
The following table sets forth, on an accrual basis, information concerning
the compensation for services to the Company and its subsidiaries for 1994, 1995
and 1996 of those persons who were, at December 31, 1996, the Chief Executive
Officer and the other four most highly compensated executive officers of the
Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION(1) SECURITIES
------------------------------ UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(2)
- - ----------------------------------- ---- -------- ---------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Richard L. Bready 1996 $790,980 $1,343,000 275,000 $19,584
Chairman, President, 1995 771,696 1,220,150 -0- 18,037
and Chief Executive Officer(3) 1994 751,404 259,525 -0- 47,931
Almon C. Hall 1996 248,062 225,000 -0- 403
Vice President, Controller and 1995 236,250 140,000 -0- 1,338
Chief Accounting Officer 1994 225,000 157,500 -0- 1,168
Richard J. Harris 1996 220,500 175,000 -0- 264
Vice President and 1995 210,000 125,000 -0- 877
Treasurer 1994 200,000 140,000 -0- 766
</TABLE>
7
<PAGE> 10
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION(1) SECURITIES
------------------------------ UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(2)
- - ----------------------------------- ---- -------- ---------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Kenneth J. Ortman 1996 194,250 85,000 -0- -0-
Senior Vice President -- 1995 185,000 60,000 -0- -0-
Group Operations 1994 175,000 70,000 -0- -0-
Kevin W. Donnelly 1996 185,000 85,000 -0- -0-
Vice President, General 1995 165,000 65,000 -0- -0-
Counsel and Secretary 1994 150,000 60,000 -0- -0-
</TABLE>
- - ---------------
(1) The aggregate amount of any compensation in the form of perquisites and
other personal benefits paid in each of the years based on the Company's
incremental cost, did not exceed the lesser of 10% of the executive
officer's annual salary and bonus or $50,000.
(2) For 1996 for Mr. Bready, represents the economic benefit to Mr. Bready of
the payment of premiums for split dollar life insurance by the Company
pursuant to agreements between Mr. Bready and the Company, of which $6,002
represents the term life portion of the premiums and $12,442 represents the
non-term portion. Pursuant to the split dollar life insurance agreements,
the Company will be reimbursed for premiums that it pays on the split dollar
life insurance policies upon the earlier of Mr. Bready's termination or
death. In addition, $1,140 of the amount for Mr. Bready and the total
amounts for the other executive officers are for premiums paid for
additional amounts of term life insurance over those provided to other
salaried employees.
(3) Mr. Bready's employment agreement with the Company provides for his
employment as President and Chief Executive Officer through December 31,
1998 (to be replaced effective January 1, 1998 by the 1998 Employment
Agreement if approved by the stockholders). As of November 1, 1990, his
annual base salary was $650,000 with adjustments based upon increases in the
cost of living. The agreement also provides for incentive compensation based
upon the Company's annual consolidated pre-tax earnings as follows: 0.7% of
the amount of such earnings up to $10,000,000, plus 1.05% of the amount of
such earnings in excess of $10,000,000 and provides that discretionary
bonuses may be awarded. For 1996, $343,000 of Mr. Bready's bonus was
incentive compensation based on this formula. The employment agreement may
be terminated at the election of Mr. Bready and in such event he is to be
retained by the Company for five years as a consultant at an annual rate of
60% of his then current annual salary, plus incentive compensation. The
Company may terminate the agreement at any time but in such event Mr. Bready
would receive severance pay in an amount equal to 60% of his then current
annual salary, plus incentive compensation, payable for five years following
termination. If there has been a Change in Control of the Company (as
defined in the agreement) within two years before or one year after his
termination, then Mr. Bready may elect to accelerate the receipt of his
severance pay. If he becomes disabled or dies while employed, the Company
will pay to Mr. Bready or his estate an amount equal to 60% of his then
current annual salary, plus incentive compensation for five years, or, if he
was performing consulting services at the time, an amount equal to 60% of
the consulting fee plus incentive compensation for the remainder of the
consulting period. Mr. Bready is entitled to receive bonuses and to
participate in any of the Company's corporate incentive and other benefit
plans.
The Company has established a severance plan for certain of its executive
officers, including Messrs. Donnelly, Hall, Harris and Ortman. The plan provides
that in consideration of each such employee's agreement not to voluntarily
terminate his employment if there is an attempted Change in Control (as that
term is defined in the plan) of the Company, if such an employee is terminated
within the 24-month period
8
<PAGE> 11
following a Change in Control (including termination by reason of a material
adverse change in the terms of employment as provided in the plan), such
employee will be entitled to severance pay for a period of 24 months following
such termination at a rate equal to his base salary plus bonus or incentive
compensation (at the highest rate in the previous three years) and to continued
medical, life insurance and other benefits for such 24-month period (or payment
of an amount equal to the cost of providing such benefits). If a Change in
Control were to have occurred as of February 1, 1997, and the above-named
executive officers were terminated as of such date, they would have been
entitled to receive, over the next succeeding 24-month period, an aggregate of
approximately $2,828,000. Mr. Ortman is entitled to a minimum of 15 months
severance pay if his employment is terminated without cause.
STOCK OPTIONS
The following table provides information regarding stock options granted to
named executive officers in 1996. Mr. Bready's options for Special Common Stock
are exercisable in full two years after the date of grant, May 8, 1996.
OPTION GRANT IN 1996
<TABLE>
<CAPTION>
% OF TOTAL
NO. OF SHARES OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION GRANT DATE
NAME GRANTED 1996 PRICE DATE PRESENT VALUE(1)
- - ----------------------------- ------------- ------------ -------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Richard L. Bready............ 275,000 100% $14.75 5/8/06 $1,691,250
</TABLE>
- - ---------------
(1) Based on Black-Scholes option pricing model with the following assumptions:
risk-free interest rate of 7%, expected life of 5 years, expected volatility
of 33% and dividend yield of 0%.
The following table contains information with respect to the value realized
(market value less exercise price) of options exercised in 1996 by those
executive officers listed in the Summary Compensation Table and the value of
their unexercised options at year-end.
AGGREGATED OPTION EXERCISES IN 1996 AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT YEAR-END AT YEAR-END
ACQUIRED --------------------------- ---------------------------
NAME ON EXERCISE VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - ------------------------------------- ------------ --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard L. Bready.................... 37,500(1) $ 339,063 150,000 275,000(1) $1,687,500 $ 1,443,750
Almon C. Hall........................ 8,000 88,000 40,000 -- 450,000 --
Richard J. Harris.................... 4,700 74,613 45,400 -- 542,475 --
Kenneth J. Ortman.................... 6,000 102,750 26,900 -- 372,538 --
Kevin W. Donnelly.................... 1,500 26,063 25,000 -- 281,250 --
</TABLE>
- - ---------------
(1) Shares of Special Common Stock; all other information relates to Common
Stock.
PENSION PLAN
As of December 31, 1995 the Company's qualified pension plan (the "Pension
Plan") was frozen and no increases in benefits will occur as a result of
increases in service or compensation. The benefit payable to a participant at
normal retirement equals the accrued benefit as of December 31, 1995. The
headquarters employees are effected by this change. The vested annual retirement
benefits payable under the Pension Plan
9
<PAGE> 12
at age 65 as a straight-life annuity to the executive officers listed in the
Summary Compensation Table are as follows: Mr. Bready $116,663, Mr. Hall
$60,304, Mr. Harris $78,286, Mr. Ortman $19,966 and Mr. Donnelly $17,343.
In part to compensate certain officers for the effect of the limitations
under the Code and the freezing of the Pension Plan, the Company adopted,
effective January 1, 1996 (for Mr. Bready effective January 1, 1997), the
Nortek, Inc. Supplemental Executive Retirement Plan, a non-qualified plan. Under
this plan, Messrs. Bready, Hall and Harris will be entitled to receive, at age
65, annual supplemental pension payments equal to fifty percent (50%) (sixty
percent (60%) for Mr. Bready) of their highest consecutive five-year average
compensation (all compensation reported on the employee's Form W-2) less the
amounts to which they are entitled under the Pension Plan. Messrs. Ortman and
Donnelly will be entitled to receive, at age 65 subject to the completion of 10
years of service, annual supplemental pension payments equal to thirty percent
(30%) of their highest consecutive five-year average compensation, less the
amounts to which they are entitled under the Pension Plan. Messrs. Ortman and
Donnelly currently have 7 and 9 years of service respectively for purposes of
the Supplemental Executive Retirement Plan.
The Company provides deferred compensation benefits for Messrs. Bready,
Hall and Harris. The agreements provide for 180 monthly payments beginning at
age 65, although in the Company's discretion the employee may receive reduced
benefits upon retirement as early as age 60. Benefits are subject to forfeiture
(except in the case of Mr. Bready) in the event employment terminates for any
reason prior to age 60. Benefits are also subject to forfeiture in the event
that the employee engages in competitive activity. Monthly payments to Messrs.
Bready, Hall and Harris respectively, will, assuming retirement at age 65, be
$5,050, $1,833 and $1,833.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Investment in Ecological Engineering Associates Limited
Partnership. Ecological Engineering Associates Limited Partnership (EEA) is
engaged in the design and operation of wastewater-treatment systems. Dennis J.
McGillicuddy, D. Stevens McVoy and Barry Silverstein, former directors of the
Company who were directors during part of 1996, are directors and the only
stockholders of Environmental Engineering Inc. (EEI), which is the general
partner of EEA. The Company has made an investment in EEA of $1,554,375 through
January 1997 in the form of a note with interest accruing at 2% over prime
compounded annually and has agreed to invest up to an additional $25,000 during
the first six months of 1997 contingent on EEI matching such investment. The
note, secured by a first lien on the partnership assets, matures on January 8,
1998. The Company also receives, in connection with its investment, warrants to
acquire limited partnership units proportionate to all debt and equity
investments made by other investors in EEA.
Purchase of Shares by the Company. In November 1995 the Company announced
the commencement of a stock repurchase program. Since then and through December
31, 1996 approximately 2,400,000 shares of Common Stock were acquired by the
Company, including the purchase of 1,189,809 shares on April 26, 1996 at a price
of $17 per share from Messrs. McGillicuddy, McVoy and Silverstein who then
resigned as directors. The repurchase from the former directors was approved by
the Board of Directors and by a committee of independent directors after
receiving investment advice from independent financial advisors as to the
fairness of the repurchase. The purchase of such shares was accretive as to
earnings. If all of these shares had been purchased as of January 1, 1995, fully
diluted earnings per share for 1995 would have been $.18 higher then reported
for 1995 and $.09 higher than reported for 1996. With respect to the shares
purchased from the former directors, the advice of the independent financial
advisor was that the price paid was less than the Company would pay in acquiring
that number of shares from non-affiliates of the Company.
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Insurance Commissions Payable to Director. J. Peter Lyons, a director, is
an executive officer and 50% owner of L&M Insurance Agency, Inc., which received
in 1996 or will receive in 1997 a total of $255,460 in commissions on insurance
premiums paid by the Company.
2. APPROVAL OF THE 1997 EQUITY AND CASH INCENTIVE PLAN
On February 26, 1997, the Company's Board of Directors approved, subject to
stockholder approval, the 1997 Equity and Cash Incentive Plan (the "1997
Incentive Plan"), and the issuance of 450,000 shares of the Company's Common
Stock or Special Common Stock pursuant to awards thereunder.
The purpose of the 1997 Incentive Plan is to advance the interests of 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,
and to reward participants for such contributions through ownership of shares of
the Company's Common Stock or Special Common Stock (together, the "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, unrestricted stock or deferred stock, or performance awards,
or combinations thereof, all as more fully described below.
GENERAL
The 1997 Incentive Plan will be administered by a committee of the Board of
Directors designated for such purposes consisting of at least two directors (the
"Stock Option Committee"). During such times as the Company's Stock is
registered under the Securities Exchange Act of 1934 (the "1934 Act"), all
members of the Stock Option Committee will 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 Code. Under the 1997
Incentive Plan, the Stock Option Committee may grant stock options, stock
appreciation rights, restricted stock, unrestricted stock, deferred stock, and
performance awards (in cash or stock), or combinations thereof, and may waive
the terms and conditions of any award. A total of 450,000 shares of Stock are
reserved for issuance under the 1997 Incentive Plan. Awards under the 1997
Incentive Plan may also include provision for the payment of dividend
equivalents with respect to shares subject to awards. Employees of the Company
and its subsidiaries and other persons or entities who are in a position to make
a significant contribution to the success of the Company are eligible to receive
awards under the 1997 Incentive Plan.
Section 162(m) of the Code places annual limitations on the deductibility
by public companies of compensation in excess of $1,000,000 paid to each of the
chief executive officer and the other four most highly compensated officers,
unless, among other things, the compensation is performance-based. For
compensation attributable to stock options and stock appreciation rights to
qualify as performance-based, the plan under which they are granted must state a
maximum number of shares with respect to which options and rights may be granted
to an individual during a specified period and must be approved by the company's
stockholders. To comply with these requirements, the 1997 Incentive Plan
provides that the maximum number of shares as to which awards may be granted to
any participant in any one calendar year is 250,000, and the 1997 Incentive Plan
is being submitted for stockholder approval.
Stock Options. The exercise price of an incentive stock option ("ISO")
granted under the 1997 Incentive Plan 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 at the time of grant. The
exercise price of a non-ISO granted under the 1997 Incentive Plan is determined
by the Stock Option Committee. Options granted under the 1997 Incentive Plan
will expire and terminate 10 years from the date of grant. The exercise price
may be paid in cash or check acceptable to the Company. Subject to certain
additional limitations, the Stock Option Committee may also permit the exercise
price to be paid by tendering shares of
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<PAGE> 14
Stock, by delivery to the Company an undertaking by a broker to deliver promptly
sufficient funds to pay the exercise price, or a combination of the foregoing.
Stock Appreciation Rights (SARs). Stock appreciation rights ("SARs") may
be granted either alone or in tandem with stock option grants. Each SAR entitles
the holder on exercise to receive an amount in cash or Stock or a combination
thereof (such form to be determined by the Stock Option Committee) determined in
whole or in part by reference to appreciation 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. The date as of which such appreciation or other measure is
determined shall be the exercise date unless another date is specified by the
Stock Option Committee. If an SAR is granted in tandem with an option, the SAR
will be exercisable only to the extent the option is exercisable. To the extent
the option is exercised, the accompanying SAR will cease to be exercisable, and
vice versa.
Stock Awards; Deferred Stock. The 1997 Incentive Plan provides for awards
of nontransferable shares of restricted Stock subject to forfeiture ("Restricted
Stock"), as well as unrestricted shares of Stock. Shares of Restricted Stock may
not be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated until the end of the applicable period and the satisfaction of any
other conditions or restrictions established by the Stock Option Committee.
Except as the Stock Option Committee may otherwise determine, if a participant
dies or ceases to be an employee or ceases to continue the consulting or other
similar relationship engaged in by such participant with the Company for any
reason during the restricted period, the Company may purchase the shares of
Restricted Stock subject to certain restrictions and conditions. Other awards
under the 1997 Incentive Plan may also be settled with Restricted Stock. The
1997 Incentive Plan also provides for deferred grants entitling the recipient to
receive shares of Stock in the future at such times and on such conditions as
the Stock Option Committee may specify.
Performance Awards. The 1997 Incentive Plan provides for performance
awards entitling the recipient to receive cash or Stock following the attainment
of performance goals determined by the Stock Option Committee. Performance
conditions and provisions for deferred stock may also be attached to other
awards under the 1997 Incentive Plan. In the case of any performance award
intended to qualify for the performance-based remuneration exception described
in Section 162(m) of the Code (an "Exempt Award"), the Committee will in writing
pre-establish specific performance goals that are based upon any one or more
operational, result or event-specific goals. The maximum Exempt Award payable to
an individual in respect of any performance goal for any year cannot exceed
$2,500,000. Payment of performance awards based upon a performance goal for
calendar years 2003 and thereafter is conditioned upon re-approval by the
Company's stockholders no later than the first meeting of stockholders in 2002.
Termination. Except as otherwise provided by the Stock Option Committee,
if a participant dies, options and SARs exercisable immediately prior to death
may be exercised by the participant's executor, administrator or transferee
during a period of one year following such death (or for the remainder of their
original term, if less). Options and SARs not exercisable at a participant's
death terminate. Outstanding awards of Restricted Stock must be transferred to
the Company upon a participant's death, and deferred stock grants, performance
awards and supplemental awards to which a participant is not irrevocably
entitled will be forfeited unless otherwise provided. In the case of termination
for reasons other than death, options and SARs remain exercisable, to the extent
they were exercisable immediately prior to termination, for three months (or for
the remainder of their original term, if less), shares of Restricted Stock must
be resold to the Company, and other awards terminate, except as otherwise
provided.
In the case of certain mergers, consolidations or other transactions in
which the Company is acquired or is liquidated, all outstanding awards will
terminate. The Stock Option Committee may, however, in its
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<PAGE> 15
discretion cause unvested awards to vest or become exercisable, remove
performance or other conditions on the exercise of or vested right to an award,
or in certain circumstances provide for replacement awards.
Amendment. The Stock Option Committee may amend the 1997 Incentive Plan or
any outstanding award at any time, provided that 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 1997 Incentive 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.
NEW PLAN BENEFIT
The future benefits or amounts that would be received under the 1997
Incentive Plan by the executive officers, the non-executive officer directors
and the non-executive officer employees are discretionary and are therefore not
determinable at this time.
FEDERAL TAX EFFECTS
The following discussion summarizes certain federal income tax consequences
of the issuance and receipt of options under the 1997 Incentive Plan. The
summary does not purport to cover federal employment tax or other federal tax
consequences that may be associated with the 1997 Incentive Plan, nor does it
cover state, local or non-U.S. taxes.
Incentive Stock Options. In general, an optionee realizes no taxable
income upon the grant or exercise of an ISO. However, the exercise of an ISO may
result in an alternative minimum tax liability to the optionee. With certain
exceptions, a disposition of shares purchased under an ISO within two years from
the date of grant or within one year after exercise produces ordinary income to
the optionee (and a deduction to the Company) equal to the value of the shares
at the time of exercise less the exercise price. Any additional gain recognized
in the disposition is treated as a capital gain for which the Company is not
entitled to a deduction. If the optionee does not dispose of the shares until
after the expiration of these one- and two-year holding periods, any gain or
loss recognized upon a subsequent sale is treated as a long-term capital gain or
loss for which the Company is not entitled to a deduction.
Nonstatutory (Non-ISO) Options. In general, in the case of a non-ISO, the
optionee has no taxable income at the time of grant but realizes income in
connection with exercise of the option in an amount equal to the excess (at the
time of exercise) of the fair market value of the shares acquired upon exercise
over the exercise price; a corresponding deduction is available to the Company;
and upon a subsequent sale or exchange of the shares, appreciation or
depreciation after the date of exercise is treated as capital gain or loss for
which the Company is not entitled to a deduction.
In general, an ISO that is exercised more than three months after
termination of employment (other than termination by reason of death) is treated
as a non-ISO. ISOs are also treated as non-ISOs to the extent they first become
exercisable by an individual in any calendar year for shares having a fair
market value (determined as of the date of grant) in excess of $100,000.
Under the so-called "golden parachute" provisions of the Code, the vesting
or accelerated exercisability of awards in connection with a change in control
of the Company may be required to be valued and taken into account in
determining whether participants have received compensatory payments, contingent
on the change in control, in excess of certain limits. If these limits are
exceeded, a substantial portion of amounts payable to the participant, including
income recognized by reason of the grant, vesting or exercise of awards under
the 1997 Incentive Plan, may be subject to an additional 20% federal tax and may
be nondeductible to the Company.
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<PAGE> 16
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS APPROVE THE 1997 EQUITY AND CASH
INCENTIVE PLAN.
Unless instructions are given to the contrary, it is the intention of the
persons named as proxies to vote the shares to which the proxy is related FOR
approval of the 1997 Incentive Plan, authorizing the adoption of the plan by the
Company, with 450,000 shares reserved for issuance under the terms of the plan.
3. APPROVAL OF THE 1997 STOCK OPTION PLAN FOR DIRECTORS
On February 26, 1997, the Company's Board of Directors approved, subject to
stockholder approval, the 1997 Stock Option Plan for Directors (the "1997
Directors' Plan"), and the issuance of 30,000 shares of Stock pursuant to awards
thereunder. The purpose of the 1997 Directors' Plan is to advance the interests
of 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 Stock, all as more fully described below.
GENERAL
Under the 1997 Directors' Plan, the Stock Option Committee of the Board of
Directors may grant non-ISO stock options to those directors who are not
employees of the Company or its subsidiaries ("Eligible Directors"). A total of
30,000 shares are reserved for issuance under the 1997 Directors' Plan, which
will be administered by the Stock Option Committee. Options granted under the
1997 Directors' Plan will expire and terminate 10 years from the date of grant.
Formula and Discretionary Options. Eligible Directors who are directors on
the date of stockholder approval of the Plan will be awarded options to purchase
up to 200 shares of Stock. Thereafter, each newly elected Eligible Director will
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 of the Company
commencing with the 1998 annual meeting, each Eligible Director (other than an
Eligible Director first elected as a director at such meeting) will be awarded
an option covering 200 shares of Stock. The Stock Option Committee may also
award options to purchase shares of Stock to Eligible Directors on such terms as
it may determine and as are not inconsistent with the 1997 Directors' Plan.
Unless otherwise determined by the Stock Option Committee, options are
transferable at any time by a director.
Exercise of Options. The exercise price of each formula option may not be
less than the fair market value per share of the Stock at the time of the grant.
The exercise price of each discretionary option shall be as determined by the
Stock Option Committee. Each formula option will 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 will become
exercisable at such time or times as the Stock Option Committee determines.
Stock purchased under the 1997 Directors' Plan may be paid for in cash or by
check, 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
by a combination of cash and Stock.
Termination. If an Eligible Director dies, options exercisable immediately
prior to death may be exercised by the director's executor, administrator or
transferee during a period of three years following such death (or for the
remainder of their original term, if less). Unless the Stock Option Committee or
the Board of Directors specifies otherwise, in the case of termination by
reasons other than death, all options that are not then exercisable terminate
and options that are exercisable on the date of termination shall continue to be
exercisable for six months (or for the remainder of their original term, if
less).
Amendment. The Stock Option Committee may amend the 1997 Directors' Plan
at any time, provided that no such amendment shall, without the approval of the
stockholders of the Company, (a) increase the
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<PAGE> 17
maximum number of shares available under the 1997 Directors' 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 directors
eligible to receive options under the 1997 Directors' Plan; or (d) reduce the
price at which options may be granted other than as permitted in the 1997
Directors' Plan.
FEDERAL TAX EFFECTS
For federal income tax purposes, options under the 1997 Directors' Plan are
treated as non-ISO options. For a discussion of the federal income tax
consequences of the issuance and exercise of such options, see "Federal Tax
Effects" in item 2 above.
NEW PLAN BENEFITS
To the extent that they are determinable, the future benefits or amount
that will be received under the 1997 Directors' Plan if the 1997 Directors' Plan
is approved by the Company's stockholders are set forth in the following table.
<TABLE>
<CAPTION>
SHARES SUBJECT
NAME OF DIRECTOR TO OPTIONS(1)
------------------------------------------------------------ --------------
<S> <C>
Phillip L. Cohen............................................ 200
J. Peter Lyons.............................................. 200
William I. Kelly............................................ 200
All Eligible Directors as a Group........................... 600
</TABLE>
- - ---------------
(1) The exercise price of the options will be the fair market value per share of
the Stock at the time of grant.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS APPROVE THE 1997 STOCK OPTION
PLAN FOR DIRECTORS.
Unless instructions are given to the contrary, it is the intention of the
persons named as proxies to vote the shares to which the proxy is related FOR
approval of the 1997 Directors' Plan, authorizing the adoption of the plan by
the Company, with 30,000 shares reserved for issuance under the terms of the
plan.
4. APPROVAL OF EMPLOYMENT AGREEMENT FOR RICHARD L. BREADY
On February 26, 1997, the Compensation Committee of the Company's Board of
Directors approved a new Employment Agreement between the Company and its Chief
Executive Officer, Richard L. Bready (the "1998 Employment Agreement"), subject
to stockholder approval. The purpose of the 1998 Employment Agreement is to
advance the interests of the Company and its subsidiaries by assuring that they
will have the benefit of the continued service and experience of Mr. Bready for
a period of time, and that there will be continuity of management of the Company
in the event of any actual or threatened change of control of the Company, all
as more fully described below.
GENERAL
The 1998 Employment Agreement was approved by the Compensation Committee
with a view to having Mr. Bready's compensation qualify, to the maximum extent
possible, for deductibility by the Company in compliance with Section 162(m) of
the Code. Section 162(m) of the Code places limitations on the deductibility by
public companies of compensation in excess of $1,000,000 paid to each of the
chief executive officer and the other four most highly compensated officers,
unless, among other things, the compensation is performance-based and is
approved by the stockholders. The Company reserves the right to grant
compensation to Mr. Bready that would not be deductible as a result of the
application of Section 162(m) of the Code.
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<PAGE> 18
Effectiveness; Term. The 1998 Employment Agreement provides for the
employment of Mr. Bready as chairman and chief executive officer of the Company
from January 1, 1998 to January 1, 2003, and at the end of each year is extended
for an additional year until either party gives notice that Mr. Bready's
employment is not to be further extended (the "Employment Period"). The 1998
Employment Agreement further provides that if any Person (as defined in the 1998
Employment Agreement) begins a tender or exchange offer, solicits proxies or
takes other actions to effect a Change of Control (as defined in the 1998
Employment Agreement) of the Company, Mr. Bready will not voluntarily terminate
his employment until such Person has abandoned or terminated such efforts or
until a Change of Control has occurred. Prior to January 1, 1998, Mr. Bready
will continue to be employed by the Company pursuant to an employment agreement
dated January 1, 1984, as amended. See Footnote 3 to the "Summary Compensation
Table".
Compensation. During the Employment Period, Mr. Bready will receive a
basic annual salary of not less than $825,000, subject to increases based upon
increases in the Consumer Price Index (the "Basic Salary"). In addition to his
Basic Salary, Mr. Bready will be entitled to receive incentive compensation
either in cash or stock or some combination thereof (the "Incentive
Compensation"), as follows: (i) 1% of the Company's consolidated Earnings Before
Taxes (as defined in the 1998 Employment Agreement) up to $10,000,000, (ii) 2%
of the Company's consolidated Earnings Before Taxes from $10,000,000 up to
$15,000,000, (iii) 3% of the Company's consolidated Earnings Before Taxes from
$15,000,000 up to $20,000,000, and (iv) 4% of the Company's consolidated
Earnings Before Taxes in excess of $20,000,000, subject to a maximum in any one
year of two and one-half times the Basic Salary. In addition, the Company has
made a ten-year loan to Mr. Bready of $3,000,000, repayable annually in equal
installments of principal of $300,000, plus accrued interest. If the 1998
Employment Agreement is approved by the stockholders and if Mr. Bready is an
employee of the Company on the date an installment is due, or is then subject to
certain noncompetition covenants, and the Company had Operating Earnings (as
defined in the 1998 Employment Agreement) of $35,000,000 or more for the prior
year, such installment of principal and interest will be forgiven. All remaining
installments will be forgiven if the Company terminates Mr. Bready without cause
(as defined in the 1998 Employment Agreement), if Mr. Bready terminates the
Employment Period for "good reason" (as defined in the 1998 Employment
Agreement), or if Mr. Bready dies or is disabled during the Employment Period.
Participation in Other Plans. Mr. Bready will be eligible to participate
in any deferred compensation, supplemental executive retirement, pension or
other benefit plan in which executive personnel of the Company are eligible to
participate and shall be eligible for discretionary bonuses. In addition, Mr.
Bready will be entitled to receive all other benefits or participate in any
employee benefit plans generally available to executive personnel of the
Company.
Termination. The 1998 Employment Agreement may be voluntarily terminated
at any time by Mr. Bready. In the case of such a voluntary termination, Mr.
Bready may not compete with the Company for a period of five years from the date
of such termination (the "Noncompete Period"). Mr. Bready's agreement not to
compete with the Company during the Noncompete Period is limited to prohibiting
Mr. Bready 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 the Company or any of its
subsidiaries at the termination of the Employment Period and accounting for more
than 5% of the Company's gross revenues. During the Noncompete Period, Mr.
Bready will be prohibited among other things from hiring or attempting to hire
any person employed by the Company or any of its subsidiaries during the 24
month period prior to the termination of the Employment Period. In consideration
of Mr. Bready's agreement not to compete for such period, the Company will pay
Mr. Bready a fee 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 for the preceding three calendar years or
(b) the Incentive Compensation that would have been payable to Mr. Bready for
the year in
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<PAGE> 19
which the Noncompete Period begins if the Employment Period had not terminated.
In the event of a Change of Control during the period beginning 12 months prior
to the commencement of the Noncompete Period or at any time during the
Noncompete Period, Mr. Bready may elect to be paid in cash an amount equal to
the balance of the fee payable if the Noncompete Period had continued for its
maximum five-year term, 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.
The Company may terminate Mr. Bready at any time, but if termination is
other than for "cause" (as defined in the 1998 Employment Agreement), or if Mr.
Bready terminates the 1998 Employment Agreement for "good reason" (as defined in
the 1998 Employment Agreement), the Company will be obligated to pay Mr. Bready
for a period of five years an amount for each year 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 for the
preceding three calendar years or (b) the Incentive Compensation that would have
been payable to Mr. Bready for the year in which termination occurs if the
Employment Period had not terminated. If a Change of Control occurs 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, Mr. Bready may
elect to be paid in cash an amount equal to the balance of severance pay, with
Incentive Compensation for the purpose of such payment to be calculated on the
basis of the average of the Incentive Compensation for the preceding three
calendar years. In the event of such a termination of the Employment Period, Mr.
Bready will continue for a period of 60 months after termination of the
Employment Period to be covered at the expense of the Company 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.
If Mr. Bready becomes disabled or dies during the Employment Period or the
Noncompete Period, his estate or designated beneficiary will be entitled to
receive from the Company: (i) in the case of such a termination of the
Employment Period, for a period of five years 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 for the preceding three
calendar years or (b) the Incentive Compensation that would have been payable to
Mr. Bready if the Employment Period had not terminated, 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 fee payable to Mr. Bready at the date of
such termination.
Split Dollar Insurance. The Company and Mr. Bready or a trust established
by him have entered into certain split dollar life insurance agreements (the
"Insurance Agreements"). In the event of a Change of Control during the
Employment Period or the Noncompete Period, the Company 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
the Company's obligation to pay premiums pursuant to the Insurance Agreements
will 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, the Company will consult with Mr. Bready and apply cash value to
payment of premiums as directed by Mr. Bready. As to policies where such
premiums are not to be paid by the application of cash value, at the election of
Mr. Bready, the Company will either permit Mr. Bready to pay premiums to the
extent not paid from the application of cash value or transfer such policies to
Mr. Bready, conditioned upon Mr. Bready's executing any additional instruments
reasonably necessary to preserve the Company's rights under the Insurance
Agreements.
Tax Provisions. If it is determined that any benefit provided by the
Company to Mr. Bready will be subject to the excise tax imposed by Section 4999
of the Code, the Company will make an additional lump-sum payment to Mr. Bready
sufficient, after giving effect to all federal, state and other taxes and
charges with respect to such payment, to make Mr. Bready whole for all taxes
imposed under or as a result of Section 4999.
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Indemnification. The Company agrees to pay all costs and expenses incurred
by Mr. Bready in connection with the enforcement of the 1998 Employment
Agreement and will indemnify and hold harmless Mr. Bready from and against any
damages, liabilities and expenses (including without limitation fees and
expenses of counsel) incurred by Mr. Bready in connection with any litigation or
threatened litigation, including any regulatory proceedings, arising out of the
making, performance or enforcement of the 1998 Employment Agreement or
termination of the Employment Period.
NEW PLAN BENEFITS
Other than the payment of the Basic Salary (as adjusted for any increase in
the Consumer Price Index) if the Employment Period continues through the end of
1998, the future benefits or amount that would be received by Mr. Bready under
the 1998 Employment Agreement are based on operating results that may or may not
be attained, and, as such, are not determinable at this time. If the 1998
Employment Agreement had been in effect for the year ended December 31, 1996, in
addition to the Basic Salary, Mr. Bready would have received Incentive
Compensation (including loan forgiveness) of $1,305,930.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS APPROVE THE 1998 EMPLOYMENT
AGREEMENT.
Unless instructions are given to the contrary, it is the intention of the
persons named as proxies to vote the shares to which the proxy is related FOR
approval of the 1998 Employment Agreement, authorizing the performance of the
1998 Employment Agreement by the Company.
AUDIT MATTERS
The Board of Directors has selected Arthur Andersen LLP, auditors of the
Company in 1996, to continue in that capacity for 1997. Representatives of
Arthur Andersen LLP are expected to be present at the Annual Meeting with the
opportunity to make a statement if they so desire and to be available to respond
to appropriate questions.
STOCKHOLDER PROPOSALS
In order for any proposal that a stockholder intends to present at the 1998
Annual Meeting of Stockholders of the Company to be eligible for inclusion in
the Company's proxy material for that meeting, it must be received by the
Secretary of the Company at the Company's offices in Providence, Rhode Island,
no later than November 5, 1997.
OTHER MATTERS
As of the date of this Proxy Statement, management of the Company knows of
no business to be presented for consideration at the Annual Meeting of
Stockholders other than as stated in the Notice of the Annual Meeting of
Stockholders.
In addition to the solicitation of proxies by mail, management and
employees of the Company may solicit proxies in person or by telephone, for
which they will receive no additional compensation. The Company also retained
D.F. King & Co., Inc., New York, New York, to assist in the solicitation of
proxies and will pay such firm a fee, estimated not to exceed $8,000 plus
reimbursement of reasonable out-of-pocket expenses. Persons holding stock as
nominees will, upon request, be reimbursed for their reasonable out-of-pocket
expenses in sending soliciting materials to their principals. The cost of
solicitation will be borne by the Company.
March 5, 1997
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APPENDIX A
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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.
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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.
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(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 or 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
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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.
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(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
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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
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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.
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(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.
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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,
9
<PAGE> 30
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 gram 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.
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<PAGE> 31
APPENDIX B
----------
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
<PAGE> 32
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.
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<PAGE> 33
(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 (iii) 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 180th
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.
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<PAGE> 34
APPENDIX C
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
<PAGE> 35
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:
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<PAGE> 36
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.
-3-
<PAGE> 37
(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
-4-
<PAGE> 38
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.
-5-
<PAGE> 39
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
-6-
<PAGE> 40
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).
-7-
<PAGE> 41
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 titles), 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.
-8-
<PAGE> 42
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).
-9-
<PAGE> 43
(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
-10-
<PAGE> 44
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
-11-
<PAGE> 45
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.
-12-
<PAGE> 46
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.
-13-
<PAGE> 47
18. Counterpart
-----------
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 By /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
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<PAGE> 48
COMMON STOCK NORTEK, INC. COMMON STOCK
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF STOCKHOLDERS
MARCH 27, 1997
The undersigned hereby appoints Richard L. Bready, Richard J. Harris and Kevin
W. Donnelly, or any of them, proxies with power of substitution to each, to vote
at the Annual Meeting of Stockholders of Nortek, Inc., to be held on March 27,
1997 at the Broan Mfg. Co., Inc. facility, 926 West State Street, Hartford,
Wisconsin, at 11:00 a.m., local time, or at any adjournment or postponement
thereof, all of the shares of Common Stock, par value $1 per share of Nortek,
Inc. that the undersigned would be entitled to vote if personally present. The
undersigned instructs such proxies or their substitutes to act on the following
matters as specified by the undersigned, and to vote in such manner as they may
determine on any other matters that may properly come before the meeting.
This Proxy, when properly executed, will be voted in the manner directed by the
undersigned stockholder(s). IF NO CONTRARY DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSAL 1 (ELECTION OF DIRECTOR), PROPOSAL 2 (APPROVAL OF 1997
EQUITY AND CASH INCENTIVE PLAN). PROPOSAL 3 (APPROVAL OF 1997 STOCK OPTION PLAN
FOR DIRECTORS) AND PROPOSAL 4 (APPROVAL OF EMPLOYMENT AGREEMENT WITH RICHARD L.
BREADY).
- - --------------------------------------------------------------------------------
PLEASE VOTE, DATE, AND SIGN ON REVERSE AND
RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
- - --------------------------------------------------------------------------------
NOTE: Please sign exactly as name(s) appear(s) hereon. Joint owners should
each sign. When signing as attorney, executor, administrator, trustee
or guardian, please give full title as such.
- - --------------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED?
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
/X/ PLEASE MARK VOTES
AS IN THIS EXAMPLE
---------------------------------
NORTEK, INC.
---------------------------------
COMMON STOCK
RECORD DATE SHARES:
----------------------------
Please be sure to sign and date this Proxy. Date
- - --------------------------------------------------------------------------------
- - --------- Stockholder sign here-------------------Co-owner sign here------------
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE FOR THE FOLLOWING PROPOSALS:
---
For Withheld
1. Election of Director. (Election of one director by / / / /
holders of Common Stock, voting as a class).
Richard J. Harris
For Against Abstain
2. To approve the Company's 1997 Equity and / / / / / /
Cash Incentive Plan.
3. To approve the Company's 1997 Stock / / / / / /
Option Plan for Directors.
4. To approve the employment agreement / / / / / /
between the Company and Richard
L. Bready.
5. In their discretion, the proxies are authorized to vote upon any other
business that may properly come before the meeting.
Mark box at right if an address change has been noted on the / /
reverse side of this card.
DETACH CARD DETACH CARD
<PAGE> 49
SPECIAL COMMON STOCK NORTEK, INC. SPECIAL COMMON STOCK
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF STOCKHOLDERS
MARCH 27, 1997
The undersigned hereby appoints Richard L. Bready, Richard J. Harris and Kevin
W. Donnelly, or any of them, proxies with power of substitution to each, to vote
at the Annual Meeting of Stockholders of Nortek, Inc., to be held on March 27,
1997 at the Broan Mfg. Co., Inc. facility, 926 West State Street, Hartford,
Wisconsin, at 11:00 a.m., local time, or at any adjournment or postponement
thereof, all of the shares of Special Common Stock, par value $1 per share of
Nortek, Inc. that the undersigned would be entitled to vote if personally
present. The undersigned instructs such proxies or their substitutes to act on
the following matters as specified by the undersigned, and to vote in such
manner as they may determine on any other matters that may properly come before
the meeting.
This Proxy, when properly executed, will be voted in the manner directed herein
by the undersigned stockholder(s). IF NO CONTRARY INDICATION IS MADE, THIS PROXY
WILL BE VOTED FOR PROPOSAL 2 (APPROVAL OF 1997 EQUITY AND CASH INCENTIVE PLAN).
PROPOSAL 3 (APPROVAL OF 1997 STOCK OPTION PLAN FOR DIRECTORS) AND PROPOSAL 4
(APPROVAL OF EMPLOYMENT AGREEMENT WITH RICHARD L. BREADY).
- - --------------------------------------------------------------------------------
PLEASE VOTE, DATE, AND SIGN ON REVERSE AND
RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
- - --------------------------------------------------------------------------------
NOTE: Please sign exactly as name(s) appear(s) hereon. Joint owners should
each sign. When signing as attorney, executor, administrator, trustee
or guardian, please give full title as such.
- - --------------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED?
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
/X/ PLEASE MARK VOTES
AS IN THIS EXAMPLE
---------------------------------
NORTEK, INC.
---------------------------------
SPECIAL COMMON STOCK
RECORD DATE SHARES:
----------------------------
Please be sure to sign and date this Proxy. Date
- - --------------------------------------------------------------------------------
- - --------- Stockholder sign here-------------------Co-owner sign here------------
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE FOR THE FOLLOWING PROPOSALS:
---
For Against Abstain
2. To approve the Company's 1997 Equity and / / / / / /
Cash Incentive Plan.
3. To approve the Company's 1997 Stock / / / / / /
Option Plan for Directors.
4. To approve the employment agreement / / / / / /
between the Company and Richard
L. Bready.
5. In their discretion, the proxies are authorized to vote upon any other
business that may properly come before the meeting.
Mark box at right if an address change has been noted on the / /
reverse side of this card.
DETACH CARD DETACH CARD
