<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 ss.240.14a-11(c) or ss.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
[NORTEK LETTERHEAD]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 14, 1998
The Annual Meeting of Stockholders of Nortek, Inc. (the "Company") will be
held at the facility of the Company's subsidiary, SNE Enterprises, Inc., located
at 888 Southview Drive, Mosinee, Wisconsin on May 14, 1998 at 11 o'clock a.m.,
local time, for the following purposes:
1. To elect two directors for a term expiring at the 2001 Annual Meeting
of Stockholders.
2. To consider the approval of the Company's 1998 Equity and Cash
Incentive Plan.
3. 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 April 7, 1998 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
April 14, 1998
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 April 14, 1998 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 May 14, 1998 or at any adjournment
or postponement thereof.
A copy of the Company's 1997 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 April 7, 1998 the Company had outstanding 8,978,698 shares of Common
Stock, $1.00 par value (the "Common Stock"), and 578,582 shares of Special
Common Stock, $1.00 par value (the "Special Common Stock"). Holders of record at
the close of business on April 7, 1998 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 directors, holders of
Common Stock shall be entitled to elect one director, and the holders of Special
Common Stock shall have no voting rights with respect to the election of such
director. The holders of Common Stock and Special Common Stock, voting as a
single class, shall be entitled to elect the remaining director to be elected. A
plurality of votes properly cast by the appropriate class of stockholders will
elect directors. Approval of the 1998 Equity and Cash Incentive Plan will
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 and Special Common Stock represented by duly executed proxies for
the election of the nominees for director selected by the Board of Directors and
for the 1998 Equity and Cash Incentive Plan set forth as item 2 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 1998 Equity
and Cash Incentive Plan are the equivalent of votes against the item while
broker nonvotes will have no effect on the outcome.
1. ELECTION OF DIRECTORS
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 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, two directors are to be elected for a term of three years expiring at
the
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<PAGE> 4
2001 Annual Meeting and until their respective successors are 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. Phillip L. Cohen
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 2001 Annual
Meeting. Richard L. Bready has been nominated to be elected by the holders of
Common Stock and Special Common Stock, voting as a single class, for a term of
three years expiring at the 2001 Annual Meeting. THE BOARD OF DIRECTORS
RECOMMENDS A VOTE FOR THE NOMINEES.
Each of the nominees has agreed to serve as a director, if elected. If, at
the time of the Annual Meeting, a 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.
Presented below is information regarding the nominees for director as well
as those directors continuing in office.
NOMINEES FOR THE BOARD OF DIRECTORS
<TABLE>
<CAPTION>
NOMINEES FOR TERM EXPIRING DIRECTOR
AT THE 2001 ANNUAL MEETING PRINCIPAL OCCUPATION AGE SINCE
-------------------------- -------------------- --- --------
<S> <C> <C> <C>
Phillip L. Cohen............................. Financial Consultant; Certified Public 66 1996
Accountant
Richard L. Bready............................ Chairman, President and Chief Executive 53 1976
Officer of the Company
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
</TABLE>
<TABLE>
<CAPTION>
TERM EXPIRING AT THE
1999 ANNUAL MEETING
--------------------
<S> <C> <C> <C>
J. Peter Lyons............................... Chairman of The Lyons Companies 63 1991
(consulting service for employee
insurance benefits)
William I. Kelly............................. Assistant Dean and Director of 54 1996
Northeastern University Graduate School
of Professional Accounting
</TABLE>
<TABLE>
<CAPTION>
TERM EXPIRING AT THE
2000 ANNUAL MEETING
--------------------
<S> <C> <C> <C>
Richard J. Harris............................ Vice President and Treasurer of the 61 1984
Company
</TABLE>
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. Bready has been Chairman and Chief Executive
Officer of the Company for more than the past five years. Mr. Lyons, for more
than the past five years, has been Chairman of The Lyons Companies 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. Mr. Harris has been
employed by the Company in his present capacities for more than the past five
years.
2
<PAGE> 5
The Board of Directors held eight meetings during 1997. 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 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 the Company's 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 1997
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 five meetings in
1997. 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 fifteen
meetings during 1997. 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.
3
<PAGE> 6
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 nominees 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 April 7, 1998, except for the number of shares held by Gabelli
Funds, Inc., Neuberger & Berman, LLC and Marvin Schwartz, as to which the dates
are February 2, 1998, February 10, 1998 and February 10, 1998, respectively.
<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).......................... 590,950 6.5 693,294 81.3
Phillip L. Cohen.............................. 100 * --
Kevin W. Donnelly............................. 19,840 * 10 *
Almon C. Hall................................. 22,400 * --
Richard J. Harris(3).......................... 284,266 3.2 50,106 8.7
William I. Kelly.............................. 100 * --
J. Peter Lyons................................ 240 * --
Kenneth J. Ortman............................. 32,875 * --
All directors and executive officers as a
group(3)(4)................................. 713,971 7.9 697,147 81.8
Gabelli Funds, Inc.,
One Corporate Center
Rye, NY 10580............................... 1,415,600 15.8 18,665 3.2
Neuberger & Berman, LLC
605 Third Avenue
New York, NY 10158.......................... 567,000 6.3 --
Marvin Schwartz
c/o Neuberger & Berman, LLC
605 Third Avenue
New York, NY 10158.......................... 479,300 5.3 --
</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 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 exercisable options in the case of Messrs. Bready
(50,000 shares of Common Stock and 273,849 shares of Special Common Stock),
Cohen (100 shares of Common Stock), Donnelly (11,747 shares of Common
Stock), Hall (17,400 shares of Common Stock), Harris (25,000 shares of
Common Stock), Kelly (100 shares of Common Stock), Lyons (100 shares of
Common Stock) and Ortman (5,000 shares of Common Stock). Does not include
future rights to acquire shares upon the exercise of options in the case of
Messrs. Bready (100,000 shares of Common Stock), Cohen (100 shares of Common
Stock), Donnelly (5,000 shares of Common Stock), Hall (5,000 shares of
Common Stock),
4
<PAGE> 7
Harris (5,000 shares of Common Stock), Kelly (100 shares of Common Stock),
Lyons (100 shares of Common Stock) and Ortman (5,000 shares of 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 8.0% of the outstanding Special Common Stock at April 7, 1998.
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 109,447 shares of Common Stock and 273,849 shares of Special Common
Stock that directors and executive officers as a group have a right to
acquire upon the exercise of exercisable options. Does not include future
rights of executive officers to acquire shares upon exercise of options
totaling 120,300 shares of Common Stock. Except as set forth in the above
table, the Company knows of no persons who at April 7, 1998, beneficially
owned more than 5% of the shares of Common Stock or Special Common Stock of
the Company outstanding on that date.
5
<PAGE> 8
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
[TOTAL RETURN GRAPH]
<TABLE>
<CAPTION>
12/92 12/93 12/94 12/95 12/96 12/97
<S> <C> <C> <C> <C> <C> <C>
Nortek, Inc. 100 171 226 224 381 506
Peer Group 100 134 100 134 143 205
Russell 2000 100 119 117 150 175 214
</TABLE>
* $100 INVESTED ON 12/31/92 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
</TABLE>
Ply Gem Industries, Inc., formerly included in the peer group, was acquired
by the Company in 1997 and, since its shares are no longer publicly traded, has
been eliminated from the peer group companies.
6
<PAGE> 9
REPORTS ON EXECUTIVE COMPENSATION
BOARD OF DIRECTORS
The compensation of the Chief Executive Officer, Mr. Bready, is governed by
the terms of his employment agreement with the Company. The terms of the
agreement in effect for 1997, as well as his current agreement which was
approved by the stockholders at the 1997 Annual Meeting, are set forth in a
footnote to the Summary Compensation Table. 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 1997 based on
competitive salary analyses and individual performance of job goals and
objectives. Bonuses awarded such executive officers for the year reflected the
achievement of individual goals, the operating performance of the Company and
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 former
employment agreement, which was in effect during 1997, Mr. Bready received
non-discretionary incentive compensation for 1997.
In 1997, the Compensation Committee approved an employment agreement
between the Company and Mr. Bready, which was approved by the stockholders at
the 1997 Annual Meeting. The terms of the agreement, which became effective
January 1, 1998, are summarized in a footnote to the "Summary Compensation
Table" (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 believed 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"), 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.
On April 16, 1997 the Compensation Committee approved a performance award
to Mr. Bready under the Company's 1997 Equity and Cash Incentive Plan in
connection with the proposed sale of the Company's Universal-Rundle Corporation
("U-R") subsidiary. If the net proceeds (as defined) from the disposition of U-R
prior to March 27, 1998 exceeded an amount as set by the Committee, Mr. Bready
would receive a bonus of $500,000 plus 2%, 3% and 4% of varying amounts above
such net proceeds. The total bonus would not
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<PAGE> 10
exceed $2.5 million. The Committee believes it is in the best interests of the
Company that the disposition of U-R be as financially successful as possible and
that Mr. Bready's active participation in the disposition process is key to that
success. On February 25, 1998 the committee extended the performance period to
June 27, 1998.
By the Compensation Committee:
Phillip L. Cohen William I. Kelly
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 1997, the Committee
awarded options to Mr. Bready for 250,000 shares of Common and Special Common
Stock. In making the awards, the Committee considered his performance as the
Company's Chief Executive Officer, his compensation arrangements including his
employment agreement, the number and terms of outstanding options and
information with respect to options as a component of chief executive officer
compensation which align the goals of the stockholders with those of the
executive. Stock options were awarded to certain other executive officers based
on their recent salary history, prior option awards, job performance and overall
success of the Company.
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.
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<PAGE> 11
EXECUTIVE COMPENSATION.
The following table sets forth, on an accrual basis, information concerning
the compensation for services to the Company and its subsidiaries for 1995, 1996
and 1997 of those persons who were, at December 31, 1997, 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 1997 $817,080 $ 327,250 250,000 $43,380
Chairman, President, 1996 790,980 1,343,000 275,000 19,584
and Chief Executive Officer(3) 1995 771,696 1,220,150 -0- 18,037
Almon C. Hall 1997 254,264 300,000 10,000 404
Vice President, Controller and 1996 248,062 225,000 -0- 404
Chief Accounting Officer 1995 236,250 140,000 -0- 1,338
Richard J. Harris 1997 226,013 175,000 10,000 264
Vice President and 1996 220,500 175,000 -0- 264
Treasurer 1995 210,000 125,000 -0- 877
Kenneth J. Ortman 1997 199,106 110,000 10,000 -0-
Senior Vice President -- 1996 194,250 85,000 -0- -0-
Group Operations 1995 185,000 60,000 -0- -0-
Kevin W. Donnelly 1997 189,625 125,000 10,000 -0-
Vice President, General 1996 185,000 85,000 -0- -0-
Counsel and Secretary 1995 165,000 65,000 -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 1997 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 $33,855
represents the term life portion of the premiums and $8,385 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 prior employment agreement with the Company provided for his
employment as President and Chief Executive Officer through December 31,
1997. It has been replaced effective January 1, 1998 by the 1998 Employment
Agreement which was approved by the stockholders at the 1997 Annual Meeting.
As of November 1, 1990, his annual base salary was $650,000 with adjustments
based upon increases in the cost of living. The prior agreement also
provided 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 provided that
9
<PAGE> 12
discretionary bonuses may be awarded. The 1998 Employment Agreement
provides for the employment of Mr. Bready as Chairman and Chief Executive
Officer to January 1, 2003 and at the end of each year will be extended for
an additional year. His basic annual salary will be not less than $825,000
with adjustments based upon increases in the cost of living. The 1998
Employment Agreement provides for incentive compensation of 1% of the
Company's earnings before taxes up to $10,000,000, 2% of earnings from
$10,000,000 to $15,000,000, 3% of earnings from $15,000,000 to $20,000,000
and 4% of the excess over $20,000,000, subject to a maximum of 2 1/2 times
base salary.
In addition, the Company made a loan in 1997 to Mr. Bready in the amount of
$3,000,000, repayable annually in installments of principal of $300,000 and
accrued interest. In accordance with the 1998 Employment Agreement, and as
a result of the Company's operating earnings in 1997 in excess of
$35,000,000 the 1998 installment of principal and interest was forgiven.
Installments will also be forgiven if Mr. Bready is terminated without
cause, if he resigns for good reason, or dies or is disabled during the
term of the agreement.
Mr. Bready is 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 is
eligible for discretionary bonuses. In addition, Mr. Bready is entitled to
receive all other benefits or participate in any employee benefit plans
generally available to executive personnel of the Company.
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 which accounts 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 his basic salary at the date of
such termination, plus (ii) 60 percent of the greater of (a) the average of
his 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 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 his basic salary as of the date of such termination,
plus (ii) 70 percent of the greater of (a) the average of his incentive
compensation earned for the preceding three calendar years or (b) incentive
compensation that would have been payable to Mr. Bready for the year in
which termination occurs if the employment
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<PAGE> 13
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.
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. 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 him harmless 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.
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 following such 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 March 1,
1998, 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 $3,290,000. Mr. Ortman is entitled to a
minimum of 15 months severance pay if his employment is terminated without
cause.
11
<PAGE> 14
STOCK OPTIONS
The following table provides information regarding stock options granted to
named executive officers in 1997.
OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
% OF TOTAL
NO. OF SHARES OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION GRANT DATE
NAME GRANTED 1997 PRICE DATE PRESENT VALUE(1)
---- ------------- ------------ -------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Richard L. Bready............ 100,000(2) 23.0 $19.50 4/14/07 $ 850,000
150,000 34.5 27.00 7/23/07 1,713,000
Almon C. Hall................ 10,000 2.3 20.75 3/26/07 90,400
Richard J. Harris............ 10,000 2.3 20.75 3/26/07 90,400
Kenneth J. Ortman............ 10,000 2.3 20.75 3/26/07 90,400
Kevin W. Donnelly............ 10,000 2.3 20.75 3/26/07 90,400
</TABLE>
- ---------------
(1) Pre-tax amounts based on Black-Scholes option pricing model with the
following assumptions: risk-free interest rate between 5.75% and 6.73%,
expected life of 5 years, expected volatility of 37% and dividend yield of
0%.
(2) Special Common Stock; all other information relates to Common Stock.
The following table contains information with respect to the value realized
(market value less exercise price) of options exercised in 1997 by those
executive officers listed in the Summary Compensation Table and the value of
their unexercised options at year-end.
AGGREGATED OPTION EXERCISES IN 1997 AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
AGGREGATED 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.................... -- -- 525,000(1) 150,000 $7,001,563 $ 353,125
Almon C. Hall........................ -- -- 42,500 7,500 727,031 43,594
Richard J Harris..................... 2,800 $ 64,050 45,100 7,500 788,620 43,594
Kenneth J. Ortman.................... 11,900 261,056 17,500 7,500 281,719 43,594
Kevin W. Donnelly.................... 10,253 178,146 17,247 7,500 277,212 43,594
</TABLE>
- ---------------
(1) 325,000 of these options with a value of $4,307,813 are for Special Common
Stock.
PENSION PLAN
As of December 31, 1995, the Company's qualified pension plan (the "Pension
Plan") was frozen and no further increases in benefits may 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 vested
annual retirement benefits payable under the Pension Plan at age 65 as a
straight-life annuity to the executive officers listed in the Summary
Compensation Table are as follows: Mr. Bready $121,329; Mr. Hall $60,304; Mr.
Harris $78,286, Mr. Ortman $19,966 and Mr. Donnelly $17,343.
12
<PAGE> 15
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 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 8 and 10 years of service respectively for purposes of
the Supplemental Executive Retirement Plan. With the consent of the Board of
Directors, reduced benefits may be received beginning at age 55.
The Company provides deferred compensation benefits for Messrs. Bready,
Hall and Harris of 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
Purchase of Shares by the Company. On January 28, 1997 the Company
purchased 12,000 shares of Common Stock from Mr. Harris and 9,502 shares of
Common Stock from Mr. Ortman at the market price of $26.13 per share.
On February 3, 1997 the Company purchased 16,552 shares of Common Stock and
1,918 shares of Special Common Stock from Mr. Hall at the market price of $25.25
per share.
On February 18, 1998, the Company purchased 150,000 shares of Common Stock
from Mr. Bready, 16,527 shares of Common Stock from Mr. Hall, 22,600 shares of
Common Stock from Mr. Harris, 6,000 shares of Common Stock from Mr. Ortman and
9,000 shares of Common Stock from Mr. Donnelly, all at the market price of
$32.46875 per share.
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 1997 a total of $67,889 in commissions on insurance premiums paid by the
Company.
2. APPROVAL OF THE 1998 EQUITY AND CASH INCENTIVE PLAN
On February 25, 1998, the Company's Board of Directors approved, subject to
stockholder approval, the 1998 Equity and Cash Incentive Plan (the "1998
Incentive Plan"), and the issuance of 475,000 shares of the Company's Common
Stock or Special Common Stock pursuant to awards thereunder.
The purpose of the 1998 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.
13
<PAGE> 16
GENERAL
The 1998 Incentive Plan will be administered by a committee of the Board of
Directors designated for such purpose 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 1998
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 475,000 shares of Stock are
reserved for issuance under the 1998 Incentive Plan. Awards under the 1998
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 1998 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 1998 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 1998 Incentive Plan
is being submitted for stockholder approval.
Stock Options. The exercise price of an incentive stock option ("ISO")
granted under the 1998 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 1998 Incentive Plan is determined
by the Stock Option Committee. Options granted under the 1998 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 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 1998 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
14
<PAGE> 17
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 for the amount paid by the
participant for the stock. Other awards under the 1998 Incentive Plan may also
be settled with Restricted Stock. The 1998 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 1998 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 1998 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 establish
in advance in writing specific performance goals that are based upon any one or
more operational, result or event-specific goals, which will be based upon the
following: (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. 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 2004 and
thereafter is conditioned upon reapproval by the Company's stockholders no later
than the first meeting of stockholders in 2003.
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). In the case of termination for reason other than death,
retirement or disability, 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). If termination is due to
retirement or total disability, options and SARs remain exercisable for their
original term. Options and SARs not exercisable upon termination of service will
terminate. Shares of Restricted Stock must be resold to the Company for the
amount paid for the stock, and other awards terminate, except as otherwise
provided.
Upon a Change of Control (as defined in the 1998 Incentive Plan), options
and SARs shall become fully exercisable, shares of Restricted Stock shall vest,
and holders of Performance Awards shall be entitled to receive a cash payment
equal to the full value of the cash component plus the fair market value of any
stock included in the award. If, as part of or in connection with the Change of
Control, there occurs a merger or consolidation in which the Company does not
survive or is wholly acquired or there is a liquidation or dissolution of the
Company, awards that are not disposed of in or prior to the transaction will
terminate.
Amendment. The Stock Option Committee may amend the 1998 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 1998 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.
15
<PAGE> 18
NEW PLAN BENEFIT
The future benefits or amounts that would be received under the 1998
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 1998 Incentive Plan. The
summary does not purport to cover federal employment tax or other federal tax
consequences that may be associated with the 1998 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
of 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 1998 Incentive Plan, may be subject to an additional 20% federal tax (on the
payment) and may be nondeductible to the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE 1998
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 1998 Incentive Plan, authorizing the adoption of the plan by the
Company, with 475,000 shares reserved for issuance under the terms of the plan.
16
<PAGE> 19
AUDIT MATTERS
The Board of Directors has selected Arthur Andersen LLP, auditors of the
Company in 1997, to continue in that capacity for 1998. 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 1999
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 December 14, 1998.
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 has 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.
April 14, 1998
17
<PAGE> 20
APPENDIX A
NORTEK, INC.
1998 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 8.6.
A-1
<PAGE> 21
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
May 14, 2008, 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 475,000. 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.
A-2
<PAGE> 22
(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. SARs may be granted in tandem
with, or independently of, Options granted under the Plan.
(1) Rules Applicable to Tandem Awards. When SARs are granted in
tandem with Options, (a) the SAR 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 SAR will terminate and no longer be exercisable
upon the termination or exercise of the related Option, except that a SAR
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 SAR; (c) the Option will terminate and no longer
be exercisable upon the exercise of the related SAR; and (d) the SAR will
be transferable only with the related Option.
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(2) Exercise of Independent SARs. A SAR 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 SAR 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 Stock in such amounts and upon such
terms and conditions as the Committee shall determine subject to the
restrictions described below ("Restricted Stock").
(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) Tranferability 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, if a
Participant suffers a Termination of Service (as defined at Section 7.1) for any
reason during the Restricted Period, the Company may purchase the shares of
Restricted Stock subject to such restrictions and conditions for the amount of
cash paid by the Participant for such shares; provided, that if no cash was paid
by the Participant such shares of Restricted Stock shall be automatically
forfeited to the Company.
During the Restricted Period with respect to any shares of Restricted
Stock, the Company shall have the right to retain in the Company's possession
the certificate or certificates representing such shares.
(d) Removal of Restrictions. Except as otherwise provided in this Section
6.3, a share of Restricted Stock covered by a Restricted Stock grant shall
become freely transferable by the Participant upon completion of the Restricted
Period, including the passage of any applicable period of time and satisfaction
of any conditions to vesting. The Committee, in its sole discretion, shall have
the right at any time immediately to waive all or any part of the restrictions
and conditions with regard to all or any part of the shares held by any
Participant.
(e) Voting Rights. Dividends and Other Distributions. During the
Restricted Period, Participants holding shares of Restricted Stock granted
hereunder may exercise full voting rights and shall receive all regular cash
dividends paid with respect to such shares. Except as the Committee shall
otherwise determine, any other cash dividends and other distributions paid to
Participants with respect to shares of Restricted Stock including any dividends
and distributions paid in shares shall be subject to the same restrictions and
conditions as the shares of Restricted Stock with respect to which they were
paid.
(f) Other Awards Settled with Restricted Stock. The Committee may, at the
time any Award described in this Section 6 is granted, provide that any or all
the Stock delivered pursuant to the Award will be Restricted Stock.
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(g) Unrestricted Stock. Subject to the terms and provisions of the Plan,
the Committee may grant shares of Stock free of restrictions under the Plan in
such amounts and upon such terms and conditions as the Committee shall
determine.
(h) Notice of Section 83(b) Election. Any Participant making an election
under Section 83(b) of the Code with respect to Restricted Stock must provide a
copy thereof to the Company within 10 days of filing such election with the
Internal Revenue Service.
6.4. DEFERRED STOCK.
A Deferred Stock Award entitles the recipient to receive shares of Stock to
be delivered in the future. Delivery of the Stock will take place at such time
or times, and on such conditions, as the Committee may specify. The Committee
may at any time accelerate the time at which delivery of all or any part of the
Stock will take place. At the time any Award described in this Section 6.4 is
granted, the Committee may provide that, at the time Stock would otherwise be
delivered pursuant to the Award, the Participant will instead receive an
instrument evidencing the Participant's right to future delivery of Deferred
Stock.
6.5. PERFORMANCE AWARDS; PERFORMANCE GOALS.
(a) Nature of Performance Awards. A Performance Award entitles the
recipient to receive, without payment, an amount in cash or Stock or a
combination thereof (such form to be determined by the Committee) following the
attainment of Performance Goals (as hereinafter defined). Performance Goals may
be related to personal performance, corporate performance, departmental
performance or any other category of performance established by the Committee.
The Committee will determine the Performance Goals, the period or periods during
which performance is to be measured and all other terms and conditions
applicable to the Award.
(b) Other Awards Subject to Performance Condition. The Committee may, at
the time any Award described in this Section 6.5 is granted, impose the
condition (in addition to any conditions specified or authorized in this Section
6 or any other provision of the Plan) that Performance Goals be met prior to the
Participant's realization of any payment or benefit under the Award. Any such
Award made subject to the achievement of Performance Goals (other than an Option
or SAR) shall be treated as a Performance Award for purposes of Section 6.5(c)
below.
(c) Limitations and Special Rules. In the case of any Performance Award
intended to qualify for the performance-based remuneration exception described
in Section 162(m)(4)(c) of the Code and the regulations thereunder (an "Exempt
Award"), the Committee shall in writing preestablish specific Performance Goals.
A Performance Goal must be established prior to passage of 25% of the period of
time over which attainment of such goal is to be measured. "Performance Goal"
means criteria based upon any one or more of the following (on a consolidated,
divisional, subsidiary, line of business or geographical basis or in
combinations thereof): (i) sales; revenues; assets; expenses; earnings before or
after deduction for all or any portion of interest, taxes, depreciation or
amortization, whether or not on a continuing operations or an aggregate or per
share basis; return on equity, investment, capital or assets; inventory level or
turns; one or more operating ratios; borrowing levels, leverage ratios or credit
rating; market share; capital expenditures; cash flow; stock price; stockholder
return; or any combination of the foregoing; or (ii) acquisitions and
divestitures (in whole or in part); joint ventures and strategic alliances;
spin-offs, split-ups and the like; reorganizations; recapitalizations,
restructurings, financings (issuance of debt or equity) and refinancings;
transactions that would constitute a Change of Control; or any combination of
the foregoing. A Performance Goal and targets with respect thereto determined by
the Committee need not be based upon an increase, a positive or improved result
or avoidance of loss. The maximum Exempt Award payable to any Participant in
respect of any such Performance Goal for any year shall not exceed $2,500,000.
Payment of Exempt Awards
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based upon a Performance Goal for calendar years 2004 and thereafter is
conditioned upon reapproval by Employer's shareholders no later than Employer's
first meeting of shareholders in 2003.
7. EVENTS AFFECTING OUTSTANDING AWARDS
7.1. TERMINATION OF SERVICE.
If a Participant who is an Employee ceases to be an Employee, or if there
is a termination 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 to be referred to as a
"Termination of Service"), except as otherwise provided by the Committee with
respect to an Award, the following will apply:
(a) Options and SARs.
(1) All Options and SARs held by the Participant immediately prior to
the Termination of Service, to the extent then exercisable, may be
exercised as follows:
(i) If the Termination of Service is on account of the
Participant's death, such Awards 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, and shall thereupon
terminate.
(ii) If the Termination of Service is on account of the
Participant's retirement with consent of the Company after attainment of
age 65 or total and permanent disability (as determined by the
Committee), such Awards may be exercised by the Participant at any time
in accordance with the original terms of the Award.
(iii) If the Termination of Service is for any other reason, such
Awards may be exercised by the Participant at any time within the three
month period following the Termination, and shall thereupon terminate,
unless the Award provides by its terms for immediate termination of the
Award in the event of such a Termination of Service or unless the
Termination of Service results from a discharge for cause that, in the
opinion of the Committee, casts such discredit on the Participant as to
justify immediate termination of the Award.
(2) In no event, however, shall an Option or SAR remain exercisable
beyond the latest date on which it could have been exercised without regard
to this Section 7.
(3) Options and SARs held by a Participant immediately prior to the
Termination of Service that are not then exercisable shall terminate upon
the Termination of Service.
(b) Restricted Stock. 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) Deferred Stock and Performance Awards. Any payment or benefit under a
Deferred Stock Award or Performance Award to which the Participant was not
irrevocably entitled prior to the Termination of Service will be forfeited and
the Award canceled upon the Termination of Service.
(d) Special Circumstances. In the case of a Participant who is an
Employee, a Termination of Service 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
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either by statute or by contract, or (ii) a transfer of employment between the
Company and a subsidiary or between subsidiaries, or to the employment of a
corporation (or a parent or subsidiary corporation of such corporation) issuing
or assuming an option in a transaction to which Section 424(a) of the Code
applies.
7.2. CHANGE OF CONTROL PROVISIONS.
(a) Effect of Change of Control. Notwithstanding any other provision of
the Plan to the contrary, except as otherwise explicitly provided by the
Committee in writing with respect to a particular Award at the time the Award is
granted, in the event of a Change of Control:
(1) Acceleration of Awards. As of the date on which such Change of
Control is determined to have occurred, (i) Options and SARs that are
outstanding and that are not then exercisable shall become exercisable to
the full extent of the original grants; (ii) shares of Restricted Stock
that are not otherwise vested shall vest (and any Stock to be delivered
under any other Award as Restricted Stock shall upon delivery be
unrestricted); and (iii) holders of Performance Awards granted hereunder as
to which the relevant performance period has not ended shall be entitled at
the time of the 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 any Stock included in such Award.
(2) Termination of Awards in Certain Transactions. If, as part of, or
in connection with, the Change of Control, there occurs a merger or
consolidation 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 person, entity or group of persons and/or entities
acting in concert or there is a dissolution or liquidation of the Company,
Awards payable in Stock that are not cashed out or otherwise disposed of in
or prior to the transaction will terminate.
(3) Restriction on Termination of Awards Due to Termination of
Employment. Awards that remain outstanding after a Change of Control shall
not be terminated as a result of a Termination of Service, other than by
reason of death, for a period of at least seven months following such
Termination of Service.
(4) 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
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 7.2 would make a Change of Control transaction ineligible for pooling of
interests accounting under applicable accounting principles that but for this
Section 7.2 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 7.2 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 and when:
(1) The Company ceases to be a publicly owned corporation having at
least 500 stockholders; or
(2) There occurs any event or series of events that would be required
to be reported as a change of control in response to Item l(a) on a Form
8-K filed by the Company under the Exchange Act or in any other filing by
the Company with the Securities and Exchange Commission unless the person
("Person"), as that term is defined or used in Section 13(d) or 14(d)(2) of
the 1934 Act, acquiring control is an affiliate of the Company as of the
date the Plan is approved by stockholders of the Company; or
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(3) The Company 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
the Company will be controlled by another Person; provided, however, for
purposes of this subparagraph (3) that (i) if such an agreement requires as
a condition precedent approval by the Company'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, (ii) if the
voting shareholders of such other Person shall, immediately after such
effective date, be substantially the same as the voting shareholders of the
Company immediately prior to such effective date, the execution of such
agreement shall not, by itself, constitute a "Change of Control"; or
(4) Any Person (other than the Company, a majority-owned subsidiary of
the Company, an employee benefit plan maintained by the Company or a
majority-owned subsidiary of the Company or members of the Board on the
date the Plan is approved by stockholders of the Company) 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 the Company representing 25% or more of the
votes that could then be cast in an election for members of the Board
unless within 15 days of being advised that such ownership level has been
reached, the Company's board of directors adopts a resolution approving the
acquisition of that level of securities ownership by such Person; or
(5) During any period of 24 consecutive months, commencing after the
date this Plan is approved by stockholders of the Company, individuals who
at the beginning of such 24-month period were directors of the Company
shall cease to constitute at least a majority of the Board, 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 (i) the directors then in office who were directors at the
beginning of the 24-month period, or (ii) the directors specified in clause
(i) plus directors whose election has been so approved by directors
specified in clause (i).
8. GENERAL PROVISIONS
8.1. DOCUMENTATION OF AWARDS.
Awards will be evidenced by such written instruments, if any, as may be
prescribed by the Committee from time to time. Such instruments may be in the
form of agreements to be executed by both the Participant and the Company, or
certificates, letters or similar instruments, which need not be executed by the
Participant but acceptance of which will evidence agreement to the terms
thereof.
8.2. RIGHTS AS A STOCKHOLDER, DIVIDEND EQUIVALENTS.
Except as specifically provided by the Plan, the receipt of an Award will
not give a Participant rights as a stockholder; the Participant will obtain such
rights, subject to any limitations imposed by the Plan or the instrument
evidencing the Award, only upon the issuance of Stock. However, the Committee
may, on such conditions as it deems appropriate, provide that a Participant will
receive a benefit in lieu of cash dividends that would have been payable on any
or all Stock subject to the Participant's Award had such Stock been outstanding.
Without limitation, the Committee may provide for payment to the Participant of
amounts representing such dividends, either currently or in the future, or for
the investment of such amounts on behalf of the Participant.
8.3. CONDITIONS ON DELIVERY OF STOCK.
The Company will not be obligated to deliver any shares of Stock pursuant
to the Plan or to remove restriction from shares previously delivered under the
Plan (a) until all conditions of the Award have been
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satisfied or removed, (b) until, in the opinion of the Company's counsel, all
applicable federal and state laws and regulation have been complied with, (c) if
the outstanding Stock is at the time listed on any stock exchange or The Nasdaq
National Market, until the shares to be delivered have been listed or authorized
to be listed on such exchange or market upon official notice of notice of
issuance, and (d) until all other legal matters in connection with the issuance
and delivery of such shares have been approved by the Company's counsel. If the
sale of Stock has not been registered under the Securities Act of 1933, as
amended, the Company may require, as a condition to exercise of the Award, such
representations or agreements as counsel for the Company may consider
appropriate to avoid violation of such Act and may require that the certificates
evidencing such Stock bear an appropriate legend restricting transfer.
If an Award is exercised by the Participant's legal representative, the
Company will be under no obligation to deliver Stock pursuant to such exercise
until the Company is satisfied as to the authority of such representative.
8.4. TAX WITHHOLDING.
The Company will withhold from any cash payment made pursuant to an Award
an amount sufficient to satisfy all federal, state and local withholding tax
requirements (the "withholding requirements").
In the case of an Award pursuant to which Stock may be delivered, the
Committee will have the right to require that the Participant or other
appropriate person remit to the Company an amount sufficient to satisfy the
withholding requirements, or make other arrangements satisfactory to the
Committee with regard to such requirements, prior to the delivery of any Stock
or removal of restrictions thereon. If and to the extent that such withholding
is required, the Committee may permit the Participant or such other person to
elect at such time and in such manner as the Committee provides to have the
Company hold back from the shares to be delivered, or to deliver to the Company,
Stock having a value calculated to satisfy the withholding requirement. The
Committee may make such share withholding mandatory with respect to any Award at
the time such Award is made to a Participant.
If at the time an ISO is exercised the Committee determines that the
Company could be liable for withholding requirements with respect to the
exercise or with respect to a disposition of the Stock received upon exercise,
the Committee may require as a condition of exercise that the person exercising
the ISO agree (a) to provide for withholding under the preceding paragraph of
this Section 8.4, if the Committee determines that a withholding responsibility
may arise in connection with tax exercise, (b) to inform the Company promptly of
any disposition (within the meaning of section 424(c) of the Code) of Stock
received upon exercise, and (c) to give such security as the Committee deems
adequate to meet the potential liability of the Company for the withholding
requirements and to augment such security from time to time in any amount
reasonably deemed necessary by the Committee to preserve the adequacy of such
security.
8.5. TRANSFERABILITY OF AWARDS.
Unless otherwise permitted by the Committee, no Award (other than an Award
in the form of an outright transfer of cash or Unrestricted Stock) may be
transferred other than by will or by the laws of descent and distribution.
8.6. ADJUSTMENTS IN THE EVENT OF CERTAIN TRANSACTIONS.
(a) In the event of a stock dividend, stock split or combination of shares,
recapitalization or other change in the Company's capitalization, or other
distribution to holders of Stock other than normal cash dividends, after the
effective date of the Plan, the Committee will make any appropriate adjustments
to the maximum number of shares that may be delivered under the Plan under the
first paragraph of Section 4 above and to the limits described in the second
paragraph of Section 4 and in Section 6.5(c).
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(b) In any event referred to in paragraph (a), the Committee will also make
any appropriate adjustments to the number and kind of shares of Stock or
securities subject to Awards then outstanding or subsequently granted, any
exercise prices relating to Awards and any other provision of Awards affected by
such change. The Committee may also make such adjustments to take into account
material changes in law or in accounting practices or principles, mergers,
consolidations, acquisitions, dispositions or similar corporate transactions, or
any other event, if it is determined by the Committee that adjustments are
appropriate to avoid distortion in the operation of the Plan; provided, that
adjustments pursuant to this sentence shall not be made to the extent it would
cause any Award intended to be exempt under Section 162(m)(4)(c) of the Code to
fail to be so exempt.
(c) In the case of ISOs, the adjustments described in (a) and (b) will be
made only to the extent consistent with continued qualification of the Option
under Section 422 of the Code (in the case of an ISO) or Section 162(m) of the
Code.
8.7. EMPLOYMENT RIGHTS, ETC.
Neither the adoption of the Plan nor the grant of Awards will confer upon
any person any right to continued retention by the Company or any subsidiary as
an Employee or otherwise, or affect in any way the right of the Company or
subsidiary to terminate an employment, service or similar relationship at any
time. Except as specifically provided by the Committee in any particular case,
the loss of existing or potential profit in Awards granted under the Plan will
not constitute an element of damages in the event of termination of an
employment, service or similar relationship even if the termination is in
violation of an obligation of the Company to the Participant.
8.8. DEFERRAL OF PAYMENTS.
The Committee may agree at any time, upon request of the Participant, to
defer the date on which any payment under an Award will be made.
8.9. PAST SERVICES AS CONSIDERATION.
Where a Participant purchases Stock under an Award for a price equal to the
par value of the Stock the Committee may determine that such price has been
satisfied by past services rendered by the Participant.
9. EFFECT, AMENDMENT AND TERMINATION
Neither adoption of the Plan nor the grant of Awards to a Participant will
affect the Company's right to grant to such Participant awards that are not
subject to the Plan, to issue to such Participant Stock as a bonus or otherwise,
or to adopt other plans or arrangements under which Stock may be issued to
Employees.
The Committee may at any time or times amend the Plan or any outstanding
Award for any purpose which may at the time be permitted by law, or may at any
time terminate the Plan as to any further grants of Awards, provided that
(except to the extent expressly required or permitted by the Plan) no such
amendment will, without the approval of the stockholders of the Company,
effectuate a change for which stockholder approval is required in order for the
Plan to continue to qualify for the award of ISOs under Section 422 of the Code
or for the award of performance-based compensation under Section 162(m) of the
Code.
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<PAGE> 30
COMMON STOCK COMMON STOCK
NORTEK, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF STOCKHOLDERS
MAY 14, 1998
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 May
14, 1998 at the SNE Enterprises, Inc. facility, 888 Southview Drive, Mosinee,
Wisconsin, at 11:00 a.m., local time, or at any adjournment of 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 DIRECTORS) AND PROPOSAL 2 (APPROVAL OF
1998 EQUITY AND CASH INCENTIVE PLAN).
- --------------------------------------------------------------------------------
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?
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 31
/X/ PLEASE MARK VOTES
AS IN THIS EXAMPLE
- --------------------------------------------------------------------------------
NORTEK, INC.
- --------------------------------------------------------------------------------
COMMON STOCK
Mark box at right if an address change has been noted on the reverse / /
side of this card.
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 ALL WITH- FOR ALL
1. ELECTION OF DIRECTORS: NOMINEES HOLD EXCEPT
Election of one director by holders of / / / / / /
Common Stock, voting as a class:
Phillip L. Cohen
Election of one director by holders of
Common Stock and Special Common Stock,
voting together as a class:
Richard L. Bready
NOTE: If you do not wish your shares "For" a particular nominee, mark
the "For All Except" box and write that nominee's name in the space provided
below. Your shares will be voted for the remaining nominee.
----------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. To approve the Company's 1998 Equity and Cash / / / / / /
Incentive Plan.
3. In their discretion, the proxies are authorized to vote upon any other
business that may properly come before the meeting.
DETACH CARD DETACH CARD
<PAGE> 32
SPECIAL COMMON STOCK SPECIAL COMMON STOCK
NORTEK, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF STOCKHOLDERS
MAY 14, 1998
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 May 14, 1998
at the SNE Enterprises, Inc. facility, 888 Southview Drive, Mosinee, Wisconsin,
at 11:00 a.m., local time, or at any adjournment of 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 by the
undersigned stockholder(s). IF NO CONTRARY DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSAL 1 (ELECTION OF DIRECTORS) AND PROPOSAL 2 (APPROVAL OF
1998 EQUITY AND CASH INCENTIVE PLAN).
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PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN
PROMPTLY IN THE ENCLOSED ENVELOPE.
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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.
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HAS YOUR ADDRESS CHANGED?
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<PAGE> 33
/X/ PLEASE MARK VOTES
AS IN THIS EXAMPLE
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NORTEK, INC.
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SPECIAL COMMON STOCK
Mark box at right if an address change has been noted on the reverse / /
side of this card.
RECORD DATE SHARES:
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Please be sure to sign and date this Proxy Date
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- ---------Stockholder sign here---------------------------Co-owner sign here-----
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE FOR THE FOLLOWING PROPOSALS:
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1. ELECTION OF DIRECTOR: FOR WITHHOLD
Election of one director by holders of / / / /
Common Stock and Special Common Stock, voting
together as a class: Richard L. Bready
FOR AGAINST ABSTAIN
2. To approve the Company's 1998 Equity and Cash / / / / / /
Incentive Plan.
3. In their discretion, the proxies are authorized to vote upon any other
business that may properly come before the meeting.
DETACH CARD DETACH CARD
