NORTEK INC, 424B4, 1998-05-12

NORTEK INC
424B4, 1998-05-12
AIR-COND & WARM AIR HEATG EQUIP & COMM & INDL REFRIG EQUIP

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<PAGE> 1
Filed pursuant to Rule 424(b)(4)
Registration No. 333-50229
PROSPECTUS

2,000,000 SHARES

NORTEK, INC.

COMMON STOCK

All of the 2,000,000 shares of Common Stock, $1.00 par value per share (the
"Common Stock"), offered hereby (the "Offering") are being offered by Nortek,
Inc. ("Nortek" or the "Company"). The Common Stock is listed on the New York
Stock Exchange under the symbol "NTK." On May 11, 1998, the last reported sale
price of Common Stock on the New York Stock Exchange was $32.38 per share. See
"Price Range of Common Stock."

------------------------------

SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.

------------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

------------------------------

<TABLE>
<CAPTION>
=======================================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................... $31.50 $1.65 $29.85
- -----------------------------------------------------------------------------------------------------------------------
Total(3).................................... $63,000,000 $3,307,500 $59,692,500
=======================================================================================================================
</TABLE>

(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."

(2) Before deducting expenses of the Offering payable by the Company estimated
at $750,000.

(3) The Company has granted the Underwriters a 30-day option to purchase up to
300,000 additional shares of Common Stock, solely to cover over-allotments,
if any. If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$72,450,000, $3,803,625 and $68,646,375, respectively. See "Underwriting."

------------------------------

The shares of Common Stock are offered severally by the Underwriters,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters, subject to approval of certain legal matters by counsel for the
Underwriters and certain other conditions. The Underwriters reserve the right to
withdraw, cancel or modify such offer and to reject orders in whole or in part.
It is expected that delivery of the shares of Common Stock will be made against
payment therefor on or about May 15, 1998 at the offices of Bear, Stearns & Co.
Inc., 245 Park Avenue, New York, New York 10167.
------------------------------

BEAR, STEARNS & CO. INC.
PAINEWEBBER INCORPORATED
WASSERSTEIN PERELLA SECURITIES, INC.

THE DATE OF THIS PROSPECTUS IS MAY 11, 1998.
<PAGE> 2

[INSIDE FRONT COVER ART]

[Black, gray & steel range hood picture]

A Best(R) by Broan(R) stainless steel range hood produced in Nortek's Italian
manufacturing operation.

[Cooling system picture]

A Mammoth(R) custom designed cooling system. The Company estimates approximately
half of its commercial HVAC sales are to the replacement and retrofit market.

[White and black range hood picture]

A Broan(R) range hood produced at its automated manufacturing line which
produces approximately eight range hoods per minute.

[Air conditioner picture]

Nordyne recently began selling HVAC equipment for the site built, residential
market under the well-known Frigidaire(R), Tappan(R) and Philco(R) consumer
brand names.

Frigidaire(R), Tappan(R) and Philco(R) are registered trademarks of White
Consolidated Industries, Inc. and are used under license.

[Beige indoor air quality unit picture]

An efficient Broan(R) IAQ (Indoor Air Quality) unit used to exchange
indoor/outdoor air.

2
<PAGE> 3

CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS AND THE
IMPOSITION OF PENALTY BIDS. SEE "UNDERWRITING."

------------------------

SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

Certain of the matters discussed in this Prospectus and in the documents
incorporated herein by reference may constitute "forward-looking" statements for
purposes of the Securities Act and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and as such may involve known and unknown risks
over which the Company has no control, uncertainties and other factors that may
cause the actual results, performance or achievements of the Company to be
materially different from the future results, performance or achievements
presented herein or expressed or implied by such forward-looking statements.
When used in this Prospectus, the words "believes," "anticipates," "expects" and
similar expressions are intended to identify forward-looking statements. These
risks and uncertainties include increases in raw material costs (including,
among others, steel, copper, packaging material, plastics, resins, glass, wood
and aluminum) and purchased component costs, the level of domestic and foreign
construction and remodeling activity affecting residential and commercial
markets, interest rates, employment, inflation, currency translation, consumer
spending levels, operating in international economies, the rate of sales growth,
price and product liability claims. In connection with the Company's proposed
acquisition of NuTone Inc., factors that may cause actual results to differ
materially from those contemplated by such forward-looking statements include,
but are not limited to, the following: (i) expected cost savings from the
acquisition cannot be fully realized or realized within the expected time frame;
(ii) costs or difficulties related to the integration of the business of NuTone
Inc. are greater than expected; (iii) revenues following the acquisition are
lower than expected; (iv) general economic conditions, either nationally or in
one or more states in which NuTone Inc. conducts business, are less favorable
than expected; or (v) the acquisition of NuTone Inc. is not consummated, in
whole or in part. Other important factors that could cause the actual results,
performance or achievements of the Company to differ materially from the
Company's expectations are disclosed or incorporated by reference in this
Prospectus ("Cautionary Statements"), including, without limitation, those
statements made in conjunction with the forward-looking statements included
under "Risk Factors" and elsewhere herein. All written and oral forward-looking
statements attributable to the Company are expressly qualified in their entirety
by the Cautionary Statements.

Readers are cautioned not to place undue reliance on forward-looking
statements, including statements made in this Prospectus, which speak only as of
the date made (including the date of any document incorporated by reference in
the case of any forward-looking statements contained therein), and the Company
undertakes no obligation to republish revised forward-looking statements to
reflect events or circumstances after the date originally made or to reflect the
occurrence of unanticipated events. Readers are also urged to carefully review
and consider the various disclosures made by the Company in the Company's
periodic reports filed with the Securities and Exchange Commission (the
"Commission").

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<PAGE> 4

AVAILABLE INFORMATION

The Company is subject to the information requirements of the Exchange Act
and the rules and regulations thereunder, and in accordance therewith, files
periodic reports, proxy and information statements, and other information with
the Commission. All reports, proxy and information statements and other
information filed by the Company with the Commission may be inspected at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, NW, Washington, DC 20549, and at the regional offices
of the Commission located at 7 World Trade Center, 13th Floor, New York, New
York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials may be obtained from the Public Reference Section of
the Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, NW, Washington, DC
20549, at prescribed rates. The Commission also maintains a web site
(http://www.sec.gov) that contains reports, proxy and information statements
regarding registrants, such as the Company, that file electronically with the
Commission. The Common Stock is listed on the New York Stock Exchange and all
reports, proxy and information statements, and other information filed by the
Company with the Commission also may be inspected at the offices of the New York
Stock Exchange, 20 Broad Street, New York, New York 10005.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents or portions thereof filed with the Commission are
incorporated into this Prospectus by reference:

(1) The Company's Annual Report on Form 10-K for the year ended
December 31, 1997 as amended by the Company's Annual Report on Form 10-K/A,
filed with the Commission on April 20, 1998;

(2) The description of the Common Stock which is contained in the
Company's Registration Statement on Form 8-A, filed with the Commission on
April 21, 1981, including any amendments or reports for the purpose of
updating such description;

(3) The description of the Company's special common stock which is
contained in the Company's Registration Statement on Form 8-A, filed with
the Commission on November 25, 1986, including any amendments or reports
for the purpose of updating such description;

(4) The description of the rights issued by the Company pursuant to
the Second Amended and Restated Rights Agreement which is contained in the
Company's Registration Statement on Form 8-A, filed with the Commission on
April 4, 1986, including any amendments or reports for the purpose of
updating such description;

(5) The Company's Current Report on Form 8-K, filed with the
Commission on September 10, 1997, as amended by the Company's Current
Report on Form 8-K/A, filed with the Commission on September 12, 1997;

(6) The Company's Current Report on Form 8-K, filed with the
Commission on March 12, 1998, as amended by the Company's Current Report on
Form 8-K/A, filed with the Commission on March 18, 1998; and

(7) The Company's Current Report on Form 8-K, filed with the
Commission on May 7, 1998.

All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of this offering shall be deemed to be incorporated by reference
in this Prospectus and to be a part hereof from the date of filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.

The Company will provide without charge to each person to whom a copy of
this Prospectus has been delivered, upon the written or oral request of such
person, a copy of any and all of the documents which have been or may be
incorporated by reference into this Prospectus, except that exhibits to such
documents will not be provided unless they are specifically incorporated by
reference into such documents. Requests for copies of any such document should
be directed to Nortek, Inc., 50 Kennedy Plaza, Providence, Rhode Island
02903-2630, Attn: General Counsel, Telephone: (401) 751-1600.

4
<PAGE> 5

PROSPECTUS SUMMARY

The following summary information is qualified in its entirety by, and
should be read in connection with, the more detailed information and financial
data, including the Consolidated Financial Statements and Notes thereto,
appearing elsewhere in this Prospectus or incorporated herein by reference.
Unless otherwise indicated, (i) references to the "Company" or "Nortek" are to
Nortek, Inc., a Delaware corporation, and its subsidiaries, prior to and without
giving effect to the proposed acquisition of NuTone Inc.; (ii) the description
of the Company's business reflects the discontinuation of the Company's Plumbing
Products Group in the fourth quarter of 1997; and (iii) the information in this
Prospectus assumes the Underwriters' over-allotment option is not exercised.

THE COMPANY

The Company is a diversified manufacturer of residential and commercial
building products, operating within four principal product groups: the
Residential Building Products Group; the Air Conditioning and Heating Products
Group; the Windows, Doors and Siding Group; and the Specialty Products and
Distribution Group. Through these product groups, the Company manufactures and
sells, primarily in the United States, Canada and Europe, a wide variety of
products for the residential and commercial construction, manufactured housing
and the do-it-yourself ("DIY") and professional remodeling and renovation
markets.

The Company's current management team, led by Chief Executive Officer
Richard L. Bready since the end of 1990, has successfully implemented a strategy
of internal growth and growth through acquisitions while selectively divesting
non-core and underperforming businesses. From 1991 to 1994, the Company divested
eight businesses, and since 1995 has completed four acquisitions. The Company's
largest acquisition was completed in August 1997 when it acquired Ply Gem
Industries, Inc. and its subsidiaries ("Ply Gem"), a leading manufacturer of
windows, doors, siding and specialty wood products (the "Ply Gem Acquisition").

A brief description of the Company's four principal product groups is
provided below (pro forma 1997 net sales totals give effect to the Ply Gem
Acquisition as if it had occurred on January 1, 1997):

Residential Building Products Group (26.1% of pro forma 1997 net
sales). This Group primarily services the residential construction, DIY and
professional renovation markets and is the largest supplier in North America of
range hoods, bath fans, combination units (fan, heater and light combinations)
and indoor air quality products (such as continuous-ventilation systems and
energy-recovery ventilators). This Group also is one of the leading suppliers in
Western Europe, South America and the Middle East of luxury "Eurostyle" range
hoods. Products are marketed under the Broan(R), Best(R), vanEE(R), Venmar(R)
and Rangaire(R) brand names.

Air Conditioning and Heating Products Group (25.4% of pro forma 1997 net
sales). This Group manufactures and sells air conditioning and heating ("HVAC")
systems for custom-designed commercial applications and for manufactured and
site-built residential housing. This Group's commercial HVAC systems are
designed to meet customer specifications and operate on the rooftops of or
individual floors within commercial offices, manufacturing and educational
facilities, hospitals, retail stores and governmental buildings. Brand names for
commercial products include Governair(R), Mammoth(R) and Temtrol(R). This Group
also designs and sells a broad line of central air conditioners, heat pumps,
furnaces and a wide range of accessories for the manufactured and site built
residential housing market. This Group markets its residential products under
the Intertherm(R) and Miller(R) brand names and recently licensed the use of the
well-known Frigidaire(R), Tappan(R) and Philco(R) consumer brand names.

Windows, Doors and Siding Group (29.7% of pro forma 1997 net sales). This
Group is a leading manufacturer and distributor of vinyl and wood windows and
doors and vinyl siding for use in the residential construction, DIY and
professional renovation markets. The Company believes it is among the largest
suppliers of vinyl windows serving the replacement market in the United States.
The Company also believes it has achieved significant penetration of the home
center distribution channel, within which it is a leading supplier of vinyl
siding and wood windows. This Group markets its windows under the Great
Lakes(R), Vetter(R), Crestline(R) and ProCraft(R) brand names and its vinyl
siding under the Varigrain(R) brand name and the Georgia Pacific label.

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<PAGE> 6

Specialty Products and Distribution Group (18.8% of pro forma 1997 net
sales). This Group manufactures and distributes treated wood products,
specialty lumber and decorative home products which are marketed to home
centers, cooperative buying groups, lumberyards and independent wholesale
distributors for use generally in residential decking, roofing, siding and
landscaping as well as various commercial construction applications. This Group
also distributes decorative products for the home, including pre-finished wood
paneling, solid wood planking, imported ceramic, marble and porcelain tile and
melamine coated panels. The Company is currently considering selling one or more
of its businesses in this Group.

For the three year period ended December 31, 1997, the Company's net sales
and diluted earnings per share from continuing operations grew at a compounded
annual rate of approximately 22.6% and 30.4%, respectively, due to a combination
of internal growth, complementary acquisitions and the effects of the Company's
stock repurchase program. See "Selected Historical Consolidated Financial Data."
For the fiscal year ended December 31, 1997, the Company's pro forma adjusted
net sales, operating earnings and earnings from continuing operations were
approximately $1.65 billion, $107.3 million and $20.9 million, respectively. See
"Unaudited Pro Forma Condensed Consolidated Financial Data."

The Company's principal executive offices are located at 50 Kennedy Plaza,
Providence, Rhode Island 02903-2630 and its telephone number is (401) 751-1600.
The Company also maintains an Internet web site at http://www.nortek-inc.com.

BUSINESS STRATEGY

The Company seeks to realize consistent, profitable growth principally by:
(i) developing and maintaining leadership positions in market segments which the
Company believes are growing at rates in excess of the overall building products
industry; (ii) opportunistically expanding its product portfolio to achieve
synergies in marketing, distribution and manufacturing; (iii) increasing its
presence in the less cyclical replacement and retrofit market; (iv) operating as
a low cost producer to maintain a competitive advantage; and (v) successfully
completing and integrating strategic acquisitions.

Target High Growth Market Segments. The Company targets those segments of
the building products industry that it believes are experiencing more rapid
growth than the overall building products industry. These targeted segments
include: (i) the general repair and renovation market, which continues to
benefit from the increasing age and size of the U.S. housing stock and the
proliferation of home center chains; (ii) the manufactured housing market, which
has represented an increasing proportion of new housing starts over the past
five years; and (iii) the vinyl windows and siding market, which has cost and
performance characteristics that have resulted in substantially increased
penetration of such products within the new home and retrofit markets. By
increasing its presence in these market segments, the Company seeks to achieve
rates of growth in excess of the overall building products industry. For
example, net sales of the Company's Air Conditioning and Heating Products Group
have grown at an internal compounded annual growth rate of approximately 12.1%
for the five year period ended December 31, 1997, reflecting increasing demand
for replacement products as the installed base of HVAC systems in the United
States has grown.

Achieve Marketing, Distribution and Manufacturing Synergies. The Company
pursues increased penetration of distribution channels such as home centers and
manufactured home builders which it believes present cross-marketing
opportunities for the Company's expanding portfolio of products. For example,
the Ply Gem Acquisition provides the opportunity to market Ply Gem's vinyl
products to the manufactured housing market, in which the Company's HVAC
products maintain a leading position. Similarly, the Company expects to leverage
Ply Gem's position as one of the largest suppliers of vinyl siding and wood
windows to home centers to increase the Company's existing sales of residential
building products. Most recently, the Company entered into agreements to license
several well-known consumer brand names, including Frigidaire(R), Tappan(R) and
Philco(R), which the Company expects to be well-received by HVAC residential
distributors. The Company also seeks to achieve synergies in manufacturing by
rationalizing its manufacturing processes among its products. For example, the
Company transferred the manufacture of certain "Eurostyle" range hood products
sold into the North American markets from the facilities of Best S.p.A. ("Best")
in Italy to Venmar Ventilation inc.'s ("Venmar") lower-cost Canadian facilities
and also centralized production of its indoor-air-quality products into the same
facilities.

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<PAGE> 7

Increase Presence in Less Cyclical Replacement and Retrofit Market. The
Company seeks to increase its presence in the replacement and retrofit market
and lessen its dependence on the new construction segment of the building
products industry, which is more sensitive to economic cycles. For example, the
recent acquisition of Ply Gem, which is a leading supplier of windows to the
replacement market, increased the Company's presence in the replacement and
retrofit market. Other businesses of the Company which maintain a significant
presence in the replacement and retrofit market include the Company's HVAC and
ventilation businesses.

Operate as a Low Cost Producer. The Company employs a combination of
rigorous production controls, advanced manufacturing systems, capital investment
and quality management systems to seek to achieve consistently low cost
operations. To promote cost efficient operations, the Company also centralizes
certain of its overhead functions, including its risk management, tax reporting
and legal functions, and coordinates certain activities of its subsidiaries'
operations, such as purchasing and transportation.

Complete and Integrate Strategic Acquisitions. The Company has
demonstrated an ability to successfully integrate acquired businesses. In 1995,
the Company acquired Best, Rangaire Company ("Rangaire") and Venmar. Since that
time, the Company has taken numerous actions to integrate these acquisitions
into its Residential Building Products Group, including elimination of corporate
redundancies, rationalization of multiple sales forces and a general
reorganization of product line responsibilities related to its "Eurostyle" range
hood and indoor-air-quality products as described above. Partially as a result
of these actions, operating earnings within the Residential Building Products
Group have increased as a percentage of net sales from 7.9% in 1995 to 10.5% in
1997.

Since acquiring Ply Gem in August 1997, the Company has eliminated expenses
associated with Ply Gem's corporate headquarters, consolidated certain corporate
functions such as accounting, legal, tax, risk management and identified and
commenced rationalization of underperforming product lines.

RECENT DEVELOPMENTS

Proposed Acquisition of NuTone Inc.

On March 9, 1998, the Company, through a wholly-owned subsidiary
("Acquisition Sub"), entered into a Stock Purchase and Sale Agreement (the
"Purchase Agreement") with Williams Y&N Holdings, Inc. ("Williams Y&N"), a
subsidiary of Williams plc ("Williams" and together with the Company,
Acquisition Sub and Williams Y&N, the "Acquisition Parties"), pursuant to which
the Company agreed to purchase NuTone Inc., a Delaware corporation ("NuTone")
for an aggregate purchase price of $242.5 million, subject to certain
adjustments, plus the assumption of operating liabilities (the "Proposed
Acquisition"). If the Proposed Acquisition is consummated, the Company will use
the net proceeds from the Offering and available cash to finance a portion of
the purchase price for the Proposed Acquisition. In order to consummate the
Proposed Acquisition, the Company will need to raise additional funds through
debt financings. Following the Proposed Acquisition, the Company anticipates
that additional funds required to support its working capital needs will be
obtained from available cash, cash from continuing operations, additional
borrowings and the proceeds from sales of certain of the Company's existing
businesses. If the Proposed Acquisition is not consummated, the Company intends
to use the net proceeds of the Offering for general corporate purposes. See "Use
of Proceeds."

NuTone is a leading manufacturer and supplier of built-in electrical
appliances for use primarily in single household residential construction and
remodeling. NuTone has two principal product categories: Ventilation Products
and Bath/Electronics/Specialty ("BES") Products. Ventilation Products
manufactures home indoor air quality products, including a full line of exhaust
fans, heaters, range hoods, paddle fans and other ventilation products. BES
Products offers a wide variety of primarily electronic home improvement
products, including intercoms, audio speakers, door chimes, central vacuum
cleaners and bath cabinets and accessories. All of NuTone's products are
marketed under the NuTone(R) brand name.

For the year ended December 31, 1997, NuTone had net sales, EBITDA and
operating earnings of approximately $199.1 million, $28.2 million and $24.8
million, respectively. The Company expects to achieve

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<PAGE> 8

an estimated $16.7 million in annualized cost reductions related to the Proposed
Acquisition within 12 to 18 months following the consummation of the
acquisition. The magnitude and timing of these cost reductions represent
estimates and actual savings could differ materially. See "Unaudited Pro Forma
Condensed Consolidated Financial Data."

Consummation of the Proposed Acquisition is subject to the expiration or
termination of the applicable waiting period under the Hart Scott Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"). The Federal
Trade Commission (the "FTC") is reviewing the Proposed Acquisition under the HSR
Act and has issued a "second request" ("Second Request") for certain additional
information. The FTC has taken no position with respect to the transaction and
there can be no assurance that the Proposed Acquisition, as currently
structured, will be consummated. If the Proposed Acquisition is not consummated
on a timely basis as a result of the FTC's review, the Company expects that it
will incur an approximate $3.1 million net after tax charge to its earnings
during fiscal 1998 as a result of fees, expenses and other acquisition-related
costs. The Offering is not conditioned upon consummation of the Proposed
Acquisition. See "Risk Factors -- Inability to Complete Proposed Acquisition of
NuTone" and "Recent Developments."

First Quarter of Fiscal 1998

On May 6, 1998, the Company reported net sales for the first quarter of
fiscal 1998 of approximately $392.5 million as compared to approximately $194.2
million for the first quarter of fiscal 1997. First quarter 1998 net sales
included $172.6 million from the Ply Gem Acquisition. EBITDA for the first
quarter of fiscal 1998 was approximately $29.7 million as compared to EBITDA of
approximately $18.3 million for the first quarter of 1997. In addition, the
Company's earnings from continuing operations were $1.3 million for the first
quarter of 1998 as compared to $4.7 million for the first quarter of 1997. On an
adjusted pro forma basis, there was a loss from continuing operations of
$600,000 for the first quarter of 1997.

Earnings from continuing operations per diluted share were $.13 in the
first quarter of 1998 as compared to earnings from continuing operations per
diluted share of $.47 for the first quarter of 1997. On an adjusted pro forma
basis, there was a loss per diluted share from continuing operations of $.06 for
the first quarter of 1997.

First quarter 1998 net sales reflect an approximate 13% increase from the
Company's continuing first quarter 1997 operations, plus the additional net
sales attributable to the Ply Gem Acquisition.

Sale of Studley Assets

On May 8, 1998, the Company announced that it had sold the assets of its
Ply Gem subsidiary Studley Products, Inc. ("Studley"). Studley had net sales of
approximately $22.0 million in 1997. Studley had been treated as a discontinued
operation since the Ply Gem Acquisition. The terms of the sale were not
disclosed.

THE OFFERING

Common Stock Offered by the
Company.......................... 2,000,000 shares(1)

Common Stock Outstanding after
the Offering..................... 11,554,780 shares(2)

Use of Proceeds.................. To finance the Proposed Acquisition, or, if
the Proposed Acquisition is not
consummated, to be used for general
corporate purposes, including working
capital requirements, capital additions,
other acquisitions and possible reduction
of indebtedness.

New York Stock Exchange Symbol... NTK

- ---------------
(1) Does not include 300,000 shares which the Underwriters have the option to
purchase from the Company to cover over-allotments, if any.

(2) Based on the number of shares of Common Stock outstanding as of March 31,
1998 and includes 578,660 shares of Common Stock issuable upon conversion of
outstanding shares of the Company's Special Common Stock, $1.00 par value
per share (the "Special Common Stock"), issued and outstanding as of March
31, 1998. Does not include 712,496 shares of Common Stock and 653,849 shares
of Special Common Stock reserved under the Company's stock option plans, of
which 387,580 shares of Common Stock and 273,849 shares of Special Common
Stock were subject to outstanding options as of March 31, 1998.

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<PAGE> 9

SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION

The following summary historical financial data for each of the five years
in the period ended December 31, 1997 have been derived from the consolidated
financial statements of the Company which were audited by Arthur Andersen LLP,
independent public accountants. The "Pro Forma Adjusted Offering and Ply Gem"
Statement of Operations Data and Other Data give effect to (i) the Offering;
(ii) the Ply Gem Acquisition; (iii) an estimated $18.1 million of Ply Gem cost
reductions based on actions taken or expected to be taken by the Company; (iv)
the Company's issuance in 1997 of $175.0 million principal amount of 9 1/4%
Senior Notes due 2007 (the "9 1/4% Notes"); and (v) the Company's issuance in
1997 of $310.0 million principal amount of 9 1/8% Senior Notes due 2007 (the
"9 1/8% Notes"), in each case as if such events had occurred on January 1, 1997.
The "Pro Forma Adjusted Offering, Ply Gem and NuTone" Statement of Operations
Data and Other Data give effect to items (i) through (v) in the preceding
sentence, the Proposed Acquisition, an estimated $16.7 million in cost
reductions relating to the Proposed Acquisition and $131.1 million of additional
indebtedness that will be required to finance the Proposed Acquisition and to
pay related fees and expenses, including financing fees and expenses, in each
case as if such events had occurred on January 1, 1997. The following summary
financial data should be read in conjunction with the Company's audited
Consolidated Financial Statements and Notes thereto, the information contained
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations," Ply Gem's audited and unaudited Consolidated Financial Statements
and Notes thereto, NuTone's audited Consolidated Financial Statements and Notes
thereto and the "Unaudited Pro Forma Condensed Consolidated Financial Data"
included elsewhere or incorporated by reference herein.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------
1997
-------------------------------
PRO FORMA ADJUSTED
(UNAUDITED)
OFFERING,
OFFERING AND PLY GEM AND
1993(1) 1994(1) 1995 1996 1997 PLY GEM(2)(3) NUTONE(2)(4)(5)
------- ------- ------- ------- -------- ------------- ---------------
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA(6):
Net sales.................... $ 627.5 $ 616.0 $ 656.8 $ 841.6 $1,134.1 $1,650.1 $1,849.1
Operating earnings........... 31.7 44.4 43.0 61.0 83.0 107.3 142.9
Interest expense, net........ 19.4 18.5 14.9 22.4 40.3 70.3 84.5
Earnings (loss) from
continuing operations...... (10.2) 15.4 17.5 23.7 26.4 20.9 31.0
Earnings (loss) per share
from continuing
operations(7):
Basic...................... $ (0.81) $ 1.23 $ 1.41 $ 2.26 $ 2.75 $ 1.80 $ 2.67
Diluted.................... (0.81) 1.21 1.39 2.23 2.68 1.76 2.62
Weighted average number of
shares (in thousands):
Basic...................... 12,532 12,543 12,445 10,485 9,605 11,605 11,605
Diluted.................... 13,335 13,100 12,569 10,641 9,855 11,855 11,855
OTHER DATA(6):
Capital expenditures......... $ 8.7 $ 14.4 $ 15.7 $ 19.8 $ 22.5 $ 45.5 $ 49.2
Depreciation and amortization
including non-cash
interest................... 18.0 15.5 16.2 21.0 28.4 42.2 51.9
EBITDA(8).................... 49.2 58.6 58.1 80.8 109.7 146.6 191.5
</TABLE>

9
<PAGE> 10

<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------------
PRO FORMA ADJUSTED
(UNAUDITED)
OFFERING,
OFFERING AND PLY GEM AND
DECEMBER 31, 1997 PLY GEM(2)(9) NUTONE(2)(5)(10)
----------------- ------------- ----------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable
securities(11).................................. $ 168.2 $ 227.1 $ 109.0
Working capital................................... 341.8 400.8 302.7
Total assets...................................... 1,304.5 1,363.5 1,579.0
Total debt........................................ 853.6 853.6 984.7
Stockholders' investment.......................... 128.1 187.0 187.0
</TABLE>

- ---------------
(1) In the third quarter of 1993, the Company provided a pre-tax valuation
reserve of approximately $20.3 million to reduce the Company's net
investment in Dixieline Products, Inc. ("Dixieline") to estimated net
realizable value. On March 31, 1994, the Company sold all of the capital
stock of Dixieline for approximately $18.8 million in cash and $6.0 million
in preferred stock of the purchaser. No additional loss in 1994 was
incurred in connection with the sale. In January 1995, the Company paid
approximately $1.8 million as a final purchase price adjustment related to
the sale in 1992 of its wholly owned subsidiary Bend Millwork Systems, Inc.
("Bend") and recorded a charge to pre-tax earnings in the fourth quarter of
1994.

(2) The Ply Gem Acquisition has been and the Proposed Acquisition will be
accounted for under the purchase method of accounting. The summary
unaudited pro forma adjusted consolidated financial data have been prepared
utilizing preliminary purchase price allocations. The preliminary purchase
price allocations are subject to refinement until all pertinent information
regarding the acquisitions is obtained and accordingly the amounts
presented herein are subject to change.

(3) Gives effect to the Ply Gem Acquisition, an estimated $4.0 million of cost
reductions directly attributable to the Ply Gem Acquisition and an
estimated $14.1 million of additional cost savings and reductions related
to the Ply Gem Acquisition based on actions taken or to be taken by the
Company (the Ply Gem cost reductions represent an estimate -- actual
savings achieved could differ materially from those presented), issuance of
the 9 1/4% Notes, issuance of the 9 1/8% Notes and the Offering, in each
case as if such events had occurred on January 1, 1997. The Ply Gem
Acquisition occurred on August 26, 1997 and has been accounted for under
the purchase method of accounting. See "Unaudited Pro Forma Condensed
Consolidated Financial Data."

(4) Gives effect to the transactions and adjustments discussed in Note 3 above
and the Proposed Acquisition, in each case as if such events had occurred
on January 1, 1997 and reflects an estimated $1.7 million of cost
reductions directly attributable to the Proposed Acquisition and $15.0
million of estimated additional cost reductions and synergies the Company
expects to achieve as a result of (i) elimination of management fees and
other charges paid by NuTone to Williams plc and related entities; (ii)
consolidation of duplicative corporate expenses and overhead, both at the
Company and NuTone; and (iii) synergistic operational savings related to
the Proposed Acquisition (the cost reductions and synergies relating to the
Proposed Acquisition represent an estimate -- actual savings achieved could
differ materially from those presented). Also reflects the expected use of
approximately $58.9 million from the net proceeds from the Offering, $60.0
million of available cash and $131.1 million of additional indebtedness
that will be required to finance the Proposed Acquisition and to pay
related fees and expenses, including financing fees and expenses. See
"Unaudited Pro Forma Condensed Consolidated Financial Data."

(5) Consummation of the Proposed Acquisition is subject to the expiration or
termination of the applicable waiting period under the HSR Act. The FTC has
issued a Second Request in connection with the Proposed Acquisition and
there can be no assurance that the Proposed Acquisition, as currently
structured, will be consummated. See "Risk Factors -- Inability to Complete
Proposed Acquisition of NuTone" and "Recent Developments."

10
<PAGE> 11

(6) In the fourth quarter of 1997, the Company adopted a plan to discontinue
its Plumbing Products Group. Accordingly, the results of the Plumbing
Products Group have been excluded from earnings from continuing operations
and classified separately as discontinued operations for all periods
presented. See Note 9 of the Notes to Consolidated Financial Statements of
the Company included elsewhere herein.

(7) In 1997, the Company adopted the provisions of SFAS No. 128, Earnings Per
Share. This statement, issued by the FASB in February 1997, establishes
standards for computing and presenting earnings per share ("EPS") and
applies to entities with publicly held common stock. This statement
replaces the presentation of primary EPS with a presentation of basic EPS
and replaces the presentation of fully-diluted EPS with diluted EPS. All
periods presented have been restated to conform to SFAS No. 128.

(8) "EBITDA" is operating earnings from continuing operations plus depreciation
and amortization (other than amortization of deferred debt expense and debt
discount) and excludes the charges described in Note 1 above. EBITDA should
not be considered as an alternative to net earnings as a measure of the
Company's operating results or to cash flows as a measure of liquidity.
EBITDA principally differs from net increase (decrease) in unrestricted
cash and cash equivalents shown on the Consolidated Statement of Cash Flows
of the Company, prepared in accordance with generally accepted accounting
principles, in that EBITDA does not reflect capital expenditures,
borrowings, principal and interest payments under debt and capital lease
obligations, income tax payments and cash flows from operating, investing
and financing activities.

(9) Gives effect to the Offering and the application of net proceeds therefrom
as described in "Use of Proceeds."

(10) Gives effect to the Offering and the application of the net proceeds
therefrom as described in "Use of Proceeds" and the Proposed Acquisition
under the financing assumptions discussed in Note 4 above.

(11) Includes restricted cash, investments and marketable securities in the
amount of $6.3 million as of December 31, 1997 (historical and pro forma
adjusted).

11
<PAGE> 12

RISK FACTORS

In addition to the other information included or incorporated by reference
in this Prospectus, the following risk factors should be considered carefully in
evaluating the Company and its business before purchasing the Common Stock
offered by this Prospectus. Except for the historical information contained
herein or incorporated herein by reference, the discussion in this Prospectus
contains certain forward-looking statements that involve risks and
uncertainties. The Cautionary Statements contained or incorporated by reference
in this Prospectus should be read as being applicable to all related
forward-looking statements wherever they appear or are incorporated by reference
in this Prospectus. The Company's actual results could differ materially from
those discussed herein. Important factors that could cause or contribute to such
differences include those discussed below, as well as those discussed elsewhere
herein or incorporated herein by reference.

INABILITY TO COMPLETE PROPOSED ACQUISITION OF NUTONE

On March 9, 1998, the Company, through Acquisition Sub, entered into the
Purchase Agreement to acquire NuTone. Under the HSR Act and the rules
promulgated thereunder by the FTC, certain transactions may not be consummated
unless certain information has been furnished to the FTC and the Antitrust
Division of the United States Department of Justice (the "Antitrust Division")
and any applicable waiting period requirements have been satisfied. The
consummation of the Proposed Acquisition is subject to the expiration or
termination of the applicable waiting period under the HSR Act. In addition, the
Proposed Acquisition may be subject to review by Canadian antitrust authorities.

The FTC is currently conducting an investigation of the Proposed
Acquisition and has issued a Second Request to obtain additional information
relevant to the Proposed Acquisition. The Acquisition Parties have agreed to use
commercially reasonable efforts to respond to the Second Request and are
currently in the process of collecting information in response to the Second
Request. The FTC has not taken a position with respect to the Proposed
Acquisition. At any time before or after the consummation of the Proposed
Acquisition, notwithstanding that the waiting period under the HSR Act may have
expired at that time, the FTC may take such action under the antitrust laws as
it deems necessary or desirable to the public interest, including seeking to
enjoin the consummation of the Proposed Acquisition or seeking the divestiture
of certain assets of NuTone or possibly the Company. State attorneys general and
private parties may also bring actions under the antitrust laws under certain
circumstances. There can be no assurance that the FTC or other parties will not
seek and obtain a preliminary or permanent injunction enjoining consummation of
the Proposed Acquisition. As a condition to permitting consummation of the
Proposed Acquisition, the FTC or other parties might seek to impose or to have a
court impose certain operating restrictions on the combined enterprise or
require that the Acquisition Parties agree to terms and conditions not
contemplated by the Purchase Agreement. If the Proposed Acquisition is
consummated, there can be no assurance that the combined enterprise might not be
required to divest certain assets or product lines and that such divestitures
might not adversely affect the results of operations of the Company, the results
of operations of NuTone, the Company's ability to achieve certain cost savings
expected in relation to the Proposed Acquisition or the market value of the
Common Stock. If the Proposed Acquisition is not consummated on a timely basis
as a result of the FTC's review, the Company expects that it will incur an
approximately $3.1 million net after tax charge to its earnings during fiscal
1998 as a result of fees, expenses and other acquisition-related costs. The
Company is unable to predict the outcome of the FTC's investigation or the
outcome of any proceeding that may be commenced by the FTC or other parties, and
there can be no assurance that the Proposed Acquisition, as currently
structured, will be consummated.

In order to consummate the Proposed Acquisition and related transactions,
the Company will need to raise approximately $131.1 million through debt
financings. There can be no assurance that the Company will be able to obtain
such financing on satisfactory terms. If the Company does not consummate the
Proposed Acquisition in a timely manner other than as a result of the FTC's
review, the Company expects that it will incur an approximately $4.4 million net
after tax charge to its earnings during fiscal 1998 as a result of fees,
expenses and other acquisition-related costs.

The Offering is not conditioned upon the consummation of the Proposed
Acquisition. See "Recent Developments."

12
<PAGE> 13

SUBSTANTIAL LEVERAGE

The Company has, and after giving effect to the Offering and the
application of the net proceeds therefrom, will continue to have, substantial
consolidated long-term indebtedness in relation to its stockholders' investment.
In addition, in order to consummate the Proposed Acquisition, the Company will
need to raise additional funds through debt financings. The Company anticipates
that following the Proposed Acquisition additional funds required to support its
working capital needs will be obtained from available cash, cash from continuing
operations, additional borrowings and the proceeds of asset sales of existing
businesses. Other than limited working capital facilities at the subsidiary
level, the Company has no working capital facility. See "Description of Certain
Indebtedness -- Other Obligations." As of December 31, 1997, after giving pro
forma effect to the Offering and the application of the net proceeds therefrom
and to the incurrence of approximately $131.1 million of additional indebtedness
to finance the Proposed Acquisition, the Company would have had outstanding
consolidated indebtedness of approximately $984.7 million and total
stockholders' investment of approximately $187.0 million. The degree to which
the Company is leveraged could have significant consequences to holders of
shares of the Common Stock, including the following: (i) the Company's ability
to obtain additional financing in the future for refinancing indebtedness,
acquisitions, working capital, capital expenditures or other purposes may be
impaired; (ii) funds available to the Company for its operations and general
corporate purposes or for capital expenditures will be reduced as a result of
the dedication of a substantial portion of the Company's consolidated cash flow
from operations to the payment of principal and interest on its indebtedness;
(iii) the Company is more highly leveraged than certain of its competitors,
which may place it at a competitive disadvantage; (iv) the agreements governing
the Company's and its subsidiaries' long-term indebtedness and bank loans
contain certain restrictive financial and operating covenants, including, in the
case of certain indebtedness of subsidiaries, certain covenants that restrict
the ability of subsidiaries to pay dividends or make other distributions to the
Company (see "Description of Certain Indebtedness"); (v) an event of default
(not cured or waived) under financial and operating covenants contained in the
Company's or its subsidiaries' debt instruments could occur and have a material
adverse effect on the Company; (vi) certain of the borrowings under debt
instruments of the Company's subsidiaries have floating rates of interest, which
causes the Company and its subsidiaries to be vulnerable to increases in
interest rates; and (vii) the Company's substantial degree of leverage could
make it more vulnerable to a downturn in general economic conditions.

In addition to its debt service obligations, the Company's operations
require substantial investments on a continuing basis. The Company's ability to
make scheduled debt payments, to refinance its obligations with respect to its
indebtedness and to fund capital and non-capital expenditures necessary to
maintain the condition of the Company's operating assets, properties and systems
software, as well as to provide capacity for the growth of its business, depends
on its financial and operating performance and obtaining additional sources of
financing, which, in turn, is subject to prevailing economic conditions and
financial, business, competitive, legal and other factors, many of which are
beyond the Company's control. There can be no assurance that the current level
of operating results of the Company and its subsidiaries will continue or
improve. Moreover, the Company and its subsidiaries are and will be subject to
covenants contained in agreements governing their present and future
indebtedness. Such covenants include without limitation, restrictions on certain
payments, the granting of liens, the incurrence of additional indebtedness,
dividend restrictions affecting subsidiaries, asset sales, transactions with
affiliates and mergers and consolidations. See "Description of Certain
Indebtedness." There can be no assurance that the Company's operating results
will be sufficient to service the Company's indebtedness or to fund its other
expenditures or that the Company will be able to obtain financing to meet such
requirements. See "Capitalization" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

SENSITIVITY TO ECONOMIC CYCLES; AVAILABILITY AND PRICING OF RAW MATERIALS

A significant percentage of the Company's sales of residential and
commercial building products is attributable to new residential and
nonresidential construction, which are affected by such cyclical factors as
interest rates, inflation, consumer spending habits and employment. In addition,
the Company is dependent upon raw materials (including, among others, steel,
copper, packaging material, plastics, resins and aluminum) and components
purchased from third parties. Accordingly, the Company's results of operations
and

13
<PAGE> 14

financial condition have in the past been, and may again in the future be,
adversely affected by increases in raw material or component costs or their lack
of availability.

COMPETITION

Substantially all of the markets in which the Company participates are
highly competitive with respect to product quality, price, design innovations,
distribution, service, warranties, reliability, efficiency and financing terms.
Certain of the Company's competitors have greater financial and marketing
resources and brand awareness than the Company. Competitive factors could
require price reductions or increased spending on product development, marketing
and sales that would adversely affect the Company's operating results.

RISKS ASSOCIATED WITH ACQUISITIONS

The Company has made a number of acquisitions, including four since 1995,
and will continue to review future acquisition opportunities. No assurances can
be given that acquisition candidates will continue to be available on terms and
conditions acceptable to the Company. Acquisitions, including the Ply Gem
Acquisition and the Proposed Acquisition, involve numerous risks, including
among other things, difficulties and expenses incurred in connection with the
acquisition and the subsequent assimilation of the operations of the acquired
companies, adverse consequences of conforming the acquired company's accounting
policies to those of the Company, the difficulty in operating acquired
businesses, the diversion of management's attention from other business concerns
and the potential loss of key employees of acquired companies. There can be no
assurance that any acquisition, including the Ply Gem Acquisition and the
Proposed Acquisition, will be successfully integrated into the Company's
on-going operations or that estimated cost savings will be achieved. In
addition, in the event that the operations of an acquired business do not meet
expectations, the Company may be required to restructure the acquired business
or write-off the value of some or all of the assets of the acquired business.

SEASONALITY AND FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

The demand for the Company's products is seasonal, particularly in the
Northeast and Midwest regions of the United States where inclement weather
during the winter months usually reduces the level of building and remodeling
activity in both the home improvement and new construction markets.
Consequently, the Company usually experiences lower sales levels during the
first and fourth quarters. Because a high percentage of the Company's
manufacturing overhead and operating expenses are relatively fixed throughout
the year, operating earnings and net earnings tend to be lower in quarters with
lower sales. The Ply Gem businesses, acquired in August 1997, have in the past
been more seasonal in nature than the Company's subsidiaries owned prior to the
Ply Gem Acquisition. In addition, cash required to fund working capital at the
Company's subsidiaries is greatest from late in the first quarter until early in
the fourth quarter.

LABOR RELATIONS

As of December 31, 1997, approximately 18% of the Company's workforce was
subject to various collective bargaining agreements. Five collective bargaining
agreements, covering approximately 3% of the Company's workforce, expire in
1998. Eight collective bargaining agreements, covering approximately 14% of the
Company's workforce, expire in 1999. There can be no assurance as to the results
of future negotiations of these or other collective bargaining agreements,
whether these or any other collective bargaining agreements will be negotiated
without production interruptions including labor stoppages or the possible
impact of these or any other collective bargaining agreements, or the
negotiations thereof, on the Company's financial condition and results of
operations.

CONTROL BY CHIEF EXECUTIVE OFFICER

The authorized common stock of the Company consists of 40,000,000 shares of
Common Stock, of which 8,976,120 shares were issued and outstanding on March 31,
1998, and 5,000,000 shares of Special Common Stock, of which 578,660 shares were
issued and outstanding on March 31, 1998. Each share of Special Common Stock is
entitled to ten votes on all matters submitted to a stockholder vote, except
that the holders

14
<PAGE> 15

of the Common Stock, voting separately with the holders of Preference Stock
entitled to vote, have the right to elect 25% of members of the Company's Board
of Directors to be elected at a meeting, and the holders of the Common Stock and
the Special Common Stock are entitled to elect the remaining members. Shares of
Special Common Stock are generally nontransferable but are freely convertible on
a share-for-share basis into shares of Common Stock. As of March 31, 1998, 3.4%
of the Common Stock and 64.5% of the Special Common Stock, or 27.3% of the
combined voting power of the Common Stock and Special Common Stock were held by
Richard L. Bready, the Chief Executive Officer of the Company. Accordingly, Mr.
Bready has the ability to significantly influence the outcome of certain
corporate actions requiring stockholder approval. Mr. Bready's ownership of the
Special Common Stock may have the effect of preventing or delaying a change of
control of the Company, which may, in turn, adversely affect the value of the
Common Stock. See "Description of Capital Stock."

ANTI-TAKEOVER CONSIDERATIONS

Certain provisions of the Company's Restated Certificate of Incorporation,
as amended (the "Restated Certificate"), and by-laws may prevent or delay
changes in control of the Company, which may, in turn, adversely affect the
value of the Common Stock. These provisions include: (i) the requirement that
not less than 80% of the Company's outstanding shares of capital stock entitled
to vote generally in the election of directors approve business combinations
with certain third parties unless approved by the Board of Directors; (ii) the
authority of the Board of Directors to issue, without stockholder approval, one
or more series of Preference Stock and to determine the characteristics of each
series; (iii) a classified Board of Directors; and (iv) various procedural and
other requirements that could make it more difficult for stockholders to effect
certain corporate actions. The Company has also entered into a Second Amended
and Restated Rights Agreement (the "Rights Plan"), pursuant to which the shares
of Common Stock have attached rights (the "Rights") to purchase shares of a new
series of Preference Stock at a specified price upon the occurrence of certain
events. The Rights would cause substantial dilution to a person or group that
acquires 17% or more of the outstanding Common Stock and Special Common Stock,
taken together as a single class, or commences or announces a tender offer to
acquire 30% or more of the outstanding Common Stock and Special Common Stock,
taken together as a single class. See "Description of Capital Stock."

NO ANTICIPATED FUTURE DIVIDENDS; RESTRICTIONS ON DIVIDENDS

The Company has not paid any dividends on the Common Stock in the recent
past and presently does not anticipate paying any dividends in the foreseeable
future. Declaration of dividends on the Common Stock will depend upon, among
other things, future earnings, the operating and financial condition of the
Company, its capital requirements and general business conditions. Restrictions
on the ability of the Company to pay dividends on the Common Stock are imposed
by agreements governing indebtedness and bank loans of the Company and its
subsidiaries. At March 31, 1998, the Company had available for payment of cash
dividends or other stock payments under its most restrictive indenture
approximately $6.9 million. See "Dividend Policy" and "Description of Certain
Indebtedness."

EFFECTS OF YEAR 2000 ISSUE

The Company is in the process of updating its computer and information
systems to ensure that they are Year 2000 compliant and to improve such systems.
The Company has made and will continue to make investments in its computer
systems and applications to ensure that the Company is Year 2000 compliant.
Although the Company does not believe it will suffer any major effects from the
Year 2000 issue, there can be no assurance that the Company, or any business
acquired by the Company, including NuTone, or any of the Company's customers or
vendors will not experience interruptions of operations because of Year 2000
problems. Year 2000 problems might require the Company to incur unanticipated
expenses and such expenses could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

15
<PAGE> 16

RECENT DEVELOPMENTS

PROPOSED ACQUISITION OF NUTONE INC.

On March 9, 1998, Acquisition Sub and Williams Y&N entered into the
Purchase Agreement. Pursuant to the Purchase Agreement, Acquisition Sub agreed
to purchase all of the issued and outstanding capital stock of NuTone for an
aggregate purchase price of $242.5 million. In connection with the Proposed
Acquisition, Acquisition Sub also will assume NuTone's operating liabilities
(other than intercompany borrowings), including certain liabilities of NuTone
concerning post retirement medical and life insurance benefits. The purchase
price is subject to adjustment based on NuTone's net asset value determined as
of the month end prior to the closing of the Proposed Acquisition. If the final
closing net asset value, as determined in accordance with the Purchase
Agreement, is within the range of $65.1 million (inclusive) to $67.1 million
(inclusive), then there will be no adjustment to the purchase price. If the
final closing net asset value, as determined in accordance with the Purchase
Agreement, exceeds $67.1 million, then Acquisition Sub is obligated to pay
Williams Y&N an amount equal to the difference between the final closing net
asset value and $67.1 million. If the final closing net asset value is less than
$65.1 million, then Williams Y&N is obligated to pay Acquisition Sub an amount
equal to the difference between $65.1 million and the final closing net asset
value.

Under the HSR Act and the rules promulgated thereunder by the FTC, the
Proposed Acquisition may not be consummated until notifications have been given
and certain information has been furnished to the FTC and the Antitrust Division
and specified waiting period requirements have been satisfied. The Acquisition
Parties filed notification and report forms under the HSR Act with the FTC and
the Antitrust Division on December 18, 1997. On January 16, 1998, the
Acquisition Parties received a Second Request from the FTC. The Acquisition
Parties have agreed to use commercially reasonable efforts to respond to the
Second Request and currently are in the process of collecting information in
response to the Second Request. The waiting period with respect to the Proposed
Acquisition will expire, if not earlier terminated, within twenty days after
substantial compliance with the Second Request (the "Expiration Date") (unless
it is determined the Acquisition Parties have not substantially complied with
the Second Request). At any time before or after consummation of the Proposed
Acquisition, notwithstanding that the waiting period under the HSR Act may have
expired at that time, the FTC could take such action under the antitrust laws as
it deems necessary or desirable in the public interest, including seeking to
enjoin the consummation of the Proposed Acquisition or seeking divestiture of
certain assets of NuTone or possibly the Company. State attorneys general and
private parties may also bring actions under antitrust laws under certain
circumstances. If the Proposed Acquisition is consummated, there can be no
assurance that the combined enterprise might not be required to divest certain
assets or product lines and that such divestitures might not adversely affect
the results of operations of the Company, the results of operations of NuTone,
the Company's ability to achieve certain cost savings expected in relation to
the Proposed Acquisition or the market value of the Common Stock. In addition,
the Proposed Acquisition may be subject to review by Canadian antitrust
authorities.

The FTC has not taken a position with respect to the Proposed Acquisition
and there is no assurance that the Proposed Acquisition, as currently
structured, will be consummated. There can be no assurance that a challenge to
the consummation of the Proposed Acquisition on antitrust grounds will not be
made or that, if such a challenge were made, the Company would prevail or would
not be required to accept certain conditions, including the divestitures of
certain assets, in order to consummate the Proposed Acquisition.

The Purchase Agreement provides for consummation of the Proposed
Acquisition within 45 days after the Expiration Date. If the Expiration Date
does not occur before June 19, 1998, Williams Y&N may terminate the Purchase
Agreement, and, subject to certain conditions, including without limitation
Williams Y&N having substantially complied with the Second Request, Acquisition
Sub is obligated to pay Williams Y&N $3.0 million. If the Proposed Acquisition
is not consummated within 45 days after the Expiration Date, Williams Y&N may
terminate the Purchase Agreement and, subject to certain conditions, Acquisition
Sub is obligated to pay Williams Y&N $5.0 million.

16
<PAGE> 17

The total estimated cost to complete the Proposed Acquisition and to pay
related fees and expenses, including financing fees and expenses, is
approximately $250.0 million. The Company will use the net proceeds from the
Offering and available cash to finance a portion of the Proposed Acquisition. In
order to consummate the Proposed Acquisition, the Company will need to raise
approximately $131.1 million of additional indebtedness. The Company anticipates
that following the Proposed Acquisition additional funds required to support its
working capital needs will be obtained from available cash, cash from
operations, additional borrowings and the proceeds from sales of certain of the
Company's existing businesses. The Offering is not conditioned upon consummation
of the Proposed Acquisition.

NUTONE

NuTone is a leading manufacturer and supplier of built-in electrical
appliances for use primarily in residential construction and remodeling. NuTone
has two principal product groups: Ventilation Products and BES Products.
Ventilation Products consist of products that improve home indoor air quality,
including a full line of exhaust fans, heaters, range hoods, paddle fans and
other ventilation products. BES Products offers a wide variety of primarily
electronic home improvement products, including intercoms, audio speakers, door
chimes, central vacuum cleaners and bath cabinets and accessories. All of
NuTone's products are marketed under the NuTone(R) brand name.

Ventilation Products

Exhaust Fans and Heaters. Exhaust fans and heaters have been core product
categories for NuTone, a leading supplier in this segment, for approximately 50
years. Products include a complete line of exhaust fans for residential use in
bath, utility and recreation rooms that increase air quality by removing odors
and airborne pollutants.

Range Hoods. NuTone is a leading supplier of kitchen range hoods. Range
hoods are marketed in several configurations, including under-cabinet models,
power units (used with custom cabinetry) and exterior mounted kitchen exhaust
fans (used with hood shells).

Attic Fans. Attic fans reduce attic temperatures and can thereby decrease
air conditioning costs. Products include power roof and gable exhaust fans,
whole house ventilators and attic accessories, including thermostats,
replacement motors and louvers.

Paddle Fans. Paddle fans are an ancillary product line sold as part of a
builder upgrade package targeted for electrical distributors.

BES Products

Intercoms and Radios. Intercoms offer room-to-room communication and add
security and monitoring convenience. The Radio Intercom line includes a complete
family of products, including a builder series for the entry level home market
and intercoms with compact disc players for the upscale home buyer. Products are
marketed to the new construction and remodeling market through electrical
distributors and professional installers.

Door Chimes. NuTone introduced the first door chime more than 60 years ago
and is an industry leader in decorative chimes for the home construction market.
Product offerings include wired and wireless chimes in a broad selection of
styles.

Central Cleaning Systems. NuTone's central cleaning systems provide
cleaning power, efficiency and convenience by utilizing a central power unit,
located away from daily living areas and connected by a network of tubing to
inlets in walls, floors and ceilings.

Bathroom Cabinets. NuTone's offering of bathroom cabinets includes swing
door and three-door triview styles as well as specialty cabinets. The cabinets
have styles ranging from standard to decorative beveled and framed mirrors and
are constructed from various materials including metal, plastic and wood.

17
<PAGE> 18

Specialty Products. NuTone markets several specialty products including
food storage centers, lighting products and ironing centers.

FIRST QUARTER OF FISCAL 1998

First quarter 1998 net sales reflect an approximate 13% increase from the
Company's continuing first quarter 1997 operations, plus the additional net
sales attributable to the Ply Gem Acquisition.

SALE OF STUDLEY ASSETS

On May 8, 1998, the Company announced that it had sold the assets of its
Ply Gem subsidiary Studley Products, Inc. ("Studley"). Studley had sales of
approximately $22.0 million in 1997. Studley had been treated as a discontinued
operation since the Ply Gem Acquisition. The terms of the sale were not
disclosed.

USE OF PROCEEDS

The net proceeds to be received by the Company from the sale of 2,000,000
shares of Common Stock offered hereby (after deducting the underwriting
discounts and commissions and estimated offering expenses payable by the
Company) are estimated to be approximately $58.9 million ($67.9 million if the
Underwriters' overallotment option is exercised in full). The Company intends to
use the net proceeds of the Offering to finance a portion of the Proposed
Acquisition, if consummated. The Company intends to finance the remainder of the
Proposed Acquisition and its working capital needs through available cash, cash
from continuing operations, additional borrowings and the proceeds from sales of
certain of the Company's existing businesses. See "Recent Developments."

There can be no assurance that the Proposed Acquisition will be
consummated. If the Proposed Acquisition is not consummated for any reason,
including without limitation because of any action taken by the FTC, the Company
intends to use the net proceeds of the Offering for general corporate purposes,
including working capital requirements, capital additions, other acquisitions
and possible reduction of indebtedness.

DIVIDEND POLICY

The Company has not paid any dividends in the recent past and presently
anticipates that all earnings, if any, will be retained for development of the
Company's business and that no dividends on its Common Stock will be declared in
the foreseeable future. In addition, certain agreements governing the Company's
long term indebtedness and bank loans restrict the ability of the Company to pay
cash dividends. See "Description of Certain Indebtedness." At March 31, 1998,
the Company had available for payment of cash dividends or other stock payments
under its most restrictive indenture approximately $6.9 million. Any future
dividends will be subject to the discretion of the Company's Board of Directors
and will depend upon, among other things, future earnings, the operating and
financial condition of the Company, its capital requirements and general
business conditions.

18
<PAGE> 19

CAPITALIZATION

The following table sets forth the capitalization of the Company at
December 31, 1997 (i) on an actual basis; (ii) as adjusted to give effect to the
Offering and the application of the net proceeds therefrom as described in "Use
of Proceeds"; and (iii) as adjusted to give effect to the Offering and the
application of the net proceeds therefrom, the consummation of the Proposed
Acquisition and the incurrence of approximately $131.1 million of additional
indebtedness that will be required to finance the Proposed Acquisition and to
pay related fees and expenses, including financing fees and expenses. The
information presented below should be read in conjunction with the Consolidated
Financial Statements of the Company and Notes thereto and the Consolidated
Financial Statements of NuTone and Notes thereto appearing elsewhere herein and
the "Unaudited Pro Forma Condensed Consolidated Financial Data."

<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------------
AS AS ADJUSTED
ADJUSTED FOR THE
FOR THE OFFERING AND
ACTUAL OFFERING(1) NUTONE(2)
------ ----------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Short-term debt:
Short-term borrowings..................................... $ 11.8 $ 11.8 $ 11.8
Current maturities of long-term debt...................... 6.0 6.0 6.0
------ -------- --------
Total short-term debt............................. $ 17.8 $ 17.8 $ 17.8
====== ======== ========
Long-term debt:
Notes, mortgage notes and other(3)........................ $137.1 $ 137.1 $ 268.2
9 1/8 Senior Notes due 2007, net.......................... 174.0 174.0 174.0
9 1/4 Senior Notes due 2007, net.......................... 307.5 307.5 307.5
9 7/8 Senior Subordinated Notes due 2004, net............. 217.2 217.2 217.2
------ -------- --------
Total long-term debt(4)........................... 835.8 835.8 966.9
------ -------- --------
Stockholders' investment(5):
Preference Stock, $1.00 par value; 7,000,000 shares
authorized, none issued................................ -- -- --
Common Stock, $1.00 par value; 40,000,000 shares
authorized; 16,050,794 shares issued (actual);
18,050,794 shares issued (as adjusted)................. 16.1 18.1 18.1
Special Common Stock, $1.00 par value; 5,000,000 shares
authorized; 767,287 shares issued...................... 0.8 0.8 0.8
Additional paid-in capital................................ 135.3 192.2 192.2
Retained earnings......................................... 59.0 59.0 59.0
Cumulative translation, pension and other adjustments..... (5.3) (5.3) (5.3)
Less: Treasury stock, at cost, 7,032,497 common shares and
285,304 special common shares.......................... (77.8) (77.8) (77.8)
------ -------- --------
Total stockholders' investment.................... 128.1 187.0 187.0
------ -------- --------
Total capitalization.............................. $963.9 $1,022.8 $1,153.9
====== ======== ========
</TABLE>

- ---------------
(1) Gives effect to the Offering and the application of the net proceeds
therefrom.

(2) Gives effect to the Offering and the Proposed Acquisition. Consummation of
the Proposed Acquisition is subject to expiration or termination of the
applicable waiting periods under the HSR Act. The FTC has issued a Second
Request in connection with the Proposed Acquisition, and there can be no
assurance that the Proposed Acquisition, as currently structured, will be
consummated. See "Risk Factors -- Inability to Complete Proposed Acquisition
of NuTone," "Recent Developments" and "Unaudited Pro Forma Condensed
Consolidated Financial Data."

19
<PAGE> 20

(3) Long-term debt, as adjusted for the Offering and the Proposed Acquisition
includes approximately $131.1 million in additional indebtedness that will
be required to finance the Proposed Acquisition and to pay related fees and
expenses, including financing fees and expenses.

(4) Long-term debt is net of $4.7 million (actual and as adjusted) of
unamortized debt discount.

(5) Excludes (i) 1,804,134 shares of Common Stock which have been reserved for
issuance pursuant to options and the conversion of the Company's Special
Common Stock; (ii) 755,000 shares of Special Common Stock at December 31,
1997 which have been reserved for issuance pursuant to options; and (iii)
95,003 shares of Preference Stock which may be issuable upon exercise of
rights under the Rights Plan.

PRICE RANGE OF COMMON STOCK

The Common Stock of the Company is listed on the New York Stock Exchange
under the symbol "NTK." The following table sets forth the high and low sale
prices for the Common Stock during the periods indicated as reported by the New
York Stock Exchange:

<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1996:
First Quarter............................................ $12 1/4 $ 9 3/4
Second Quarter........................................... 16 1/8 11 5/8
Third Quarter............................................ 14 1/4 11
Fourth Quarter........................................... 20 5/8 13 1/2

1997:
First Quarter............................................ $27 1/2 $19 1/2
Second Quarter........................................... 25 17 3/4
Third Quarter............................................ 27 1/4 23 3/16
Fourth Quarter........................................... 26 15/16 21 13/16

1998:
First Quarter............................................ $34 3/4 $24 1/2
Second Quarter (through May 11, 1998).................... 33 1/4 28 3/4
</TABLE>

As of March 31, 1998, there were 8,976,120 shares of Common Stock issued
and outstanding and 578,660 shares of Special Common Stock issued and
outstanding. As of March 31, 1998, there were approximately 3,054 record holders
of Common Stock. As of such date, there were options to acquire 387,580 shares
of Common Stock outstanding, of which 188,112 were exercisable and options to
acquire 273,849 shares of Special Common Stock of which 223,849 were
exercisable.

20
<PAGE> 21

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The statement of operations data and balance sheet data set forth below
have been derived from the audited Consolidated Financial Statements of the
Company for each of the respective periods indicated. The following financial
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business" and the
Consolidated Financial Statements of the Company and Notes thereto included
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- --------
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1)(2):
Net sales................................ $ 627.5 $ 616.0 $ 656.8 $ 841.6 $1,134.1
Cost of products sold.................... 435.8 424.3 472.3 600.3 831.7
Selling, general and administrative
expense................................ 160.0 147.3 141.5 180.3 219.4
------- ------- ------- ------- --------
Operating earnings....................... 31.7 44.4 43.0 61.0 83.0
Interest expense......................... (24.2) (23.8) (23.0) (28.4) (50.2)
Investment income........................ 4.8 5.3 8.1 6.0 9.9
Loss on businesses sold(3)............... (20.3) (1.8) -- -- --
------- ------- ------- ------- --------
Earnings (loss) from continuing
operations before provision (credit)
for income taxes....................... (8.0) 24.1 28.1 38.6 42.7
Provision for income taxes............... 2.2 8.7 10.6 14.9 16.3
------- ------- ------- ------- --------
Earnings (loss) from continuing
operations(3).......................... (10.2) 15.4 17.5 23.7 26.4
Earnings (loss) from discontinued
operations............................. (4.0) 1.8 (2.5) (1.7) (5.2)
Extraordinary gain (loss) from debt
retirements............................ (6.1) 0.2 -- -- --
Cumulative effect of accounting
changes................................ (0.5) 0.4 -- -- --
------- ------- ------- ------- --------
Net earnings (loss)...................... $ (20.8) $ 17.8 $ 15.0 $ 22.0 $ 21.2
======= ======= ======= ======= ========
Earnings (loss) per share from continuing
operations(4):
Basic.................................. $ (0.81) $ 1.23 $ 1.41 $ 2.26 $ 2.75
Diluted................................ (0.81) 1.21 1.39 2.23 2.68
Net earnings (loss) per share(4):
Basic.................................. $ (1.66) $ 1.42 $ 1.21 $ 2.10 $ 2.21
Diluted................................ (1.66) 1.39 1.19 2.07 2.15
Weighted average number of shares(4) (in
thousands):
Basic.................................. 12,532 12,543 12,445 10,485 9,605
Diluted................................ 13,335 13,100 12,569 10,641 9,855

OTHER DATA(2):
Capital expenditures..................... $ 8.7 $ 14.4 $ 15.7 $ 19.8 $ 22.5
Depreciation and amortization including
non-cash interest...................... 18.0 15.5 16.2 21.0 28.4
EBITDA(5)................................ 49.2 58.6 58.1 80.8 109.7
</TABLE>

21
<PAGE> 22

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1993 1994 1995 1996 1997
------ ------ ------ ------ -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable
securities(6).............................. $ 89.2 $114.4 $112.7 $ 97.8 $ 168.2
Working capital.............................. 133.8 194.3 180.2 163.1 341.8
Total assets................................. 486.1 494.6 605.0 590.2 1,304.5
Total debt................................... 214.6 223.7 282.1 280.3 853.6
Stockholders' investment..................... 104.0 117.8 131.3 118.8 128.1
</TABLE>

- ---------------
(1) Acquisitions have been accounted for under the purchase accounting method
and dispositions have been accounted for as described in Note 2 of the Notes
to Consolidated Financial Statements of the Company included elsewhere
herein.

(2) In the fourth quarter of 1997, the Company adopted a plan to discontinue its
Plumbing Products Group. Accordingly, the results of the Plumbing Products
Group have been excluded from earnings from continuing operations and are
classified separately as discontinued operations for all periods presented.
See Note 9 of the Notes to Consolidated Financial Statements of the Company
included elsewhere herein.

(3) In the third quarter of 1993, the Company provided a pre-tax valuation
reserve of approximately $20.3 million to reduce the Company's net
investment in Dixieline to estimated net realizable value. On March 31,
1994, the Company sold all of the capital stock of Dixieline for
approximately $18.8 million in cash and $6.0 million in preferred stock of
the purchaser. No additional loss in 1994 was incurred in connection with
the sale. In January 1995, the Company paid approximately $1.8 million as a
final purchase price adjustment related to the sale in 1992 of its wholly
owned subsidiary Bend and recorded a charge to pre-tax earnings in the
fourth quarter of 1994.

(4) In 1997, the Company adopted the provisions of SFAS No. 128, Earnings Per
Share. This statement, issued by the FASB in February 1997, establishes
standards for computing and presenting EPS and applies to entities with
publicly held common stock. This statement replaces the presentation of
primary EPS with a presentation of basic EPS and replaces the presentation
of fully-diluted EPS with diluted EPS. All periods presented have been
restated to conform to SFAS No. 128.

(5) "EBITDA" is operating earnings from continuing operations plus depreciation
and amortization (other than amortization of deferred debt expense and debt
discount) and excludes the charges described in Note 3 above. EBITDA should
not be considered as an alternative to net earnings as a measure of the
Company's operating results or to cash flows as a measure of liquidity.
EBITDA principally differs from net increase (decrease) in unrestricted cash
and cash equivalents shown on the Consolidated Statement of Cash Flows of
the Company, prepared in accordance with generally accepted accounting
principles, in that EBITDA does not reflect capital expenditures,
borrowings, principal and interest payments under debt and capital lease
obligations, income tax payments and cash flows from operating, investing
and financing activities.

(6) Includes restricted cash, investments and marketable securities in the
amounts of approximately $6.7 million, $9.3 million, $9.4 million, $5.7
million and $6.3 million at December 31, 1993, 1994, 1995, 1996 and 1997,
respectively.

22
<PAGE> 23

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA

OVERVIEW

The Unaudited Pro Forma Condensed Consolidated Financial Data for the year
ended December 31, 1997 presented herein gives pro forma effect to certain
transactions. Transactions for which pro forma information is provided include
the 9 1/4% Notes offering completed in March 1997, the 9 1/8% Notes offering
completed in August 1997, the Ply Gem Acquisition completed in August 1997, the
Offering and the Proposed Acquisition announced in March 1998.

The Ply Gem Acquisition has been and the Proposed Acquisition will be
accounted for under the purchase method of accounting. With respect to these
acquisitions, the information contained herein has been prepared utilizing
preliminary purchase price allocations which are subject to refinement until all
pertinent information regarding the acquisitions has been obtained. In addition,
any cost reductions reflected herein are estimates. The ability to implement
such cost reductions could be beyond the control of the Company, and no
assurance can be given that such cost reductions will be achieved. As a result,
actual results could differ materially from those presented. Accordingly, the
financial information presented herein is subject to change.

The following Pro Forma and Pro Forma Adjusted Condensed Consolidated
Statements of Operations are not necessarily indicative of the actual results of
operations that would have been reported if the events described above had
occurred as of January 1, 1997, nor do they purport to be indicative of the
results of future operations. Furthermore, the Pro Forma and Pro Forma Adjusted
results may not give effect to all cost savings or incremental costs that may
occur as a result of the integration and consolidation of the acquisitions of
Ply Gem and NuTone. In the opinion of management, all adjustments necessary to
present fairly, in all material respects, such Pro Forma and Pro Forma Adjusted
Condensed Consolidated Statements of Operations have been made.

The Pro Forma Condensed Consolidated Financial Data should be read in
conjunction with "Capitalization," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and with the Company's
Consolidated Financial Statements and the Notes thereto, Ply Gem's Consolidated
Financial Statements and the Notes thereto and NuTone's Consolidated Financial
Statements and the Notes thereto included elsewhere herein.

PRO FORMA BALANCE SHEET INFORMATION

The Unaudited Pro Forma Consolidated Balance Sheet as of December 31, 1997
has been prepared based upon the audited Consolidated Balance Sheets of the
Company and of NuTone as of December 31, 1997 and gives pro forma effect to the
Offering and the Proposed Acquisition as if such transactions had occurred on
December 31, 1997.

PRO FORMA STATEMENT OF OPERATIONS INFORMATION FOR THE PLY GEM ACQUISITION

The Unaudited Pro Forma (for Ply Gem) Condensed Consolidated Statement of
Operations for the year ended December 31, 1997 has been prepared using the
Company's audited Consolidated Statement of Operations for the year ended
December 31, 1997 (which includes the operations of Ply Gem from August 26, 1997
to December 31, 1997) and Ply Gem's unaudited results of operations for the
period from January 1, 1997 through August 25, 1997.

Information entitled "Pro Forma Nortek and Ply Gem" gives pro forma effect
to: (i) the 9 1/4% Notes offering; (ii) the 9 1/8% Notes offering; (iii) the Ply
Gem Acquisition; (iv) approximately $4.0 million in cost savings (for the period
from January 1, 1997 through August 25, 1997) that are directly attributable to
the Ply Gem Acquisition (the "Ply Gem Acquisition Related Cost Savings"); and
(v) the Offering. In addition, information entitled "Pro Forma Nortek and Ply
Gem" includes effect of approximately $22.2 million of charges recorded by Ply
Gem prior to the Ply Gem Acquisition, to provide certain valuation reserves and
to conform accounting policies to the Company's.

23
<PAGE> 24

In addition, the information entitled "Pro Forma Adjusted Nortek and Ply
Gem" gives pro forma effect to approximately $14.1 million in expected
additional cost savings related to the Ply Gem Acquisition (for the period from
January 1, 1997 through August 25, 1997) that the Company estimates can be
achieved based on actions taken or to be taken by the Company (the "Ply Gem
Acquisition Additional Cost Savings"). In addition, information entitled "Pro
Forma Adjusted Nortek and Ply Gem" excludes effect of approximately $22.2
million of charges recorded by Ply Gem prior to the Ply Gem Acquisition as
described above.

PRO FORMA STATEMENT OF OPERATIONS INFORMATION FOR THE PLY GEM ACQUISITION AND
THE PROPOSED ACQUISITION OF NUTONE

The Unaudited Pro Forma (for Ply Gem and NuTone) Condensed Consolidated
Statement of Operations for the year ended December 31, 1997 has been prepared
using (i) the Company's audited Consolidated Statement of Operations for the
year ended December 31, 1997 (which includes the operations of Ply Gem from
August 26, 1997 to December 31, 1997); (ii) Ply Gem's unaudited results of
operations for the period January 1, 1997 through August 25, 1997; and (iii)
NuTone's audited Consolidated Statement of Operations for the year ended
December 31, 1997.

Information entitled "Pro Forma Nortek, Ply Gem and NuTone" gives pro forma
effect to (i) the 9 1/4% Notes offering; (ii) the 9 1/8% Notes offering; (iii)
the Ply Gem Acquisition; (iv) the Ply Gem Acquisition Related Cost Savings; (v)
the Proposed Acquisition; (vi) approximately $1.7 million in net savings
expected to be achieved from the elimination of fees and charges paid by NuTone
to Williams plc and related entities; and (vii) the Offering. In addition,
information entitled "Pro Forma Nortek, Ply Gem and NuTone" includes effect of
approximately $22.2 million of charges recorded by Ply Gem prior to the Ply Gem
Acquisition as described above.

Information entitled "Pro Forma Adjusted Nortek, Ply Gem and NuTone" gives
pro forma effect to (i) items (i) through (vii) above; (ii) the Ply Gem
Acquisition Additional Cost Savings; and (iii) approximately $15.0 million in
synergistic cost savings that the Company estimates can be achieved as a result
of the Proposed Acquisition. In addition, information entitled "Pro Forma
Adjusted Nortek, Ply Gem and NuTone" excludes effect of approximately $22.2
million of charges recorded by Ply Gem prior to the Ply Gem Acquisition as
described above.

24
<PAGE> 25

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(IN THOUSANDS)

<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS AS ADJUSTMENTS COMPANY
COMPANY FOR THE ADJUSTED NUTONE FOR THE PROPOSED AND
HISTORICAL OFFERING COMPANY HISTORICAL ACQUISITION NUTONE
---------- ----------- ---------- ---------- ---------------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Unrestricted:
Cash and cash equivalents........ $ 125,842 $58,942(a) $ 184,784 $ 840 $(118,942)(a) $ 66,682
Marketable securities available
for sale....................... 35,988 -- 35,988 -- -- 35,988
Restricted:
Cash and marketable securities... 6,348 -- 6,348 -- -- 6,348
Accounts receivable, net........... 180,414 -- 180,414 30,304 -- 210,718
Inventories, net................... 176,253 -- 176,253 4,804 23,600(b) 204,657
Prepaid expenses................... 8,391 -- 8,391 4,688 -- 13,079
Other current assets............... 12,627 -- 12,627 -- -- 12,627
Net assets of discontinued
operations....................... 22,386 -- 22,386 -- -- 22,386
Prepaid income taxes............... 46,800 -- 46,800 4,880 (9,440)(c) 42,240
---------- ------- ---------- --------- --------- ----------
Total current assets....... 615,049 58,942 673,991 45,516 (104,782) 614,725
Property, plant and equipment,
net.............................. 242,523 -- 242,523 18,212 -- 260,735
Goodwill........................... 378,232 -- 378,232 -- 238,162(d) 616,394
Intangible assets.................. 8,752 -- 8,752 -- -- 8,752
Notes receivable and other
investments...................... 10,235 -- 10,235 -- -- 10,235
Deferred income taxes.............. 10,022 -- 10,022 14,123 -- 24,145
Deferred debt expense.............. 20,170 -- 20,170 -- 4,000(e) 24,170
Other assets....................... 19,563 -- 19,563 289 -- 19,852
---------- ------- ---------- --------- --------- ----------
Total assets............... $1,304,546 $58,942 $1,363,488 $ 78,140 $ 137,380 $1,579,008
========== ======= ========== ========= ========= ==========

LIABILITIES AND STOCKHOLDERS' INVESTMENT
Notes payable and other short-term
obligations...................... $ 11,770 -- $ 11,770 -- -- $ 11,770
Intercompany borrowings............ -- -- -- 11,508 (11,508)(f) --
Current maturities of long-term
debt and capital leases.......... 5,969 -- 5,969 -- -- 5,969
Accounts payable................... 91,488 -- 91,488 23,134 -- 114,622
Accrued expenses and taxes, net.... 164,001 -- 164,001 15,635 -- 179,636
---------- ------- ---------- --------- --------- ----------
Total current
liabilities.............. 273,228 -- 273,228 50,277 (11,508) 311,997
Other long-term liabilities........ 67,390 -- 67,390 45,693 -- 113,083
Notes, mortgages, capital leases
and obligations payable less
current maturities............... 835,840 -- 835,840 -- 131,058(g) 966,898
Long-term intercompany
borrowings....................... -- -- -- 131,000 (131,000)(h) --
Preference stock................... -- -- -- -- -- --
Common stock....................... 16,051 2,000(i) 18,051 -- -- 18,051
Special common stock............... 767 -- 767 -- -- 767
Additional paid-in capital......... 135,345 56,942(j) 192,287 -- -- 192,287
Retained earnings.................. 58,966 -- 58,966 -- -- 58,966
Cumulative translation, pension and
other............................ (5,327) -- (5,327) -- -- (5,327)
Treasury stock-common.............. (75,779) -- (75,779) -- -- (75,779)
Treasury stock-special common...... (1,935) -- (1,935) -- -- (1,935)
---------- ------- ---------- --------- --------- ----------
Total stockholders' investment..... 128,088 58,942 187,030 (148,830) 148,830 187,030
---------- ------- ---------- --------- --------- ----------
Total liabilities and stockholders'
investment....................... $1,304,546 $58,942 $1,363,488 $ 78,140 $ 137,380 $1,579,008
========== ======= ========== ========= ========= ==========
</TABLE>

See Notes to the Unaudited Pro Forma Consolidated Balance Sheet

25
<PAGE> 26

NOTES TO THE UNAUDITED PRO FORMA
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(IN THOUSANDS)

<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS ADJUSTMENTS
FOR THE FOR THE PROPOSED
OFFERING ACQUISITION
----------- ----------------
<S> <C> <C>
(a) CASH AND CASH EQUIVALENTS
Net proceeds from the Offering.............................. $58,942 $ --
=======
Cash payment related to the Proposed Acquisition............ (242,500)
Fees, expenses and other costs related to the Proposed
Acquisition and related additional indebtedness........... (7,500)
---------
(250,000)
---------
Less additional indebtedness related to the Proposed
Acquisition............................................... 131,058
---------
Cash used to partially fund the Proposed Acquisition........ $(118,942)
=========
(b) INVENTORIES, NET
Increase in inventories to estimated fair market value in
connection with the Proposed Acquisition.................. $ 23,600
=========
(c) DEFERRED INCOME TAXES
Deferred taxes related to the Proposed Acquisition.......... $ (9,440)
=========
(d) GOODWILL
Additional costs in excess of net assets acquired in
connection with the Proposed Acquisition.................. $ 238,162
=========
(e) DEFERRED DEBT EXPENSE
Financing costs related to additional indebtedness related
to the Proposed Acquisition............................... $ 4,000
=========
(f) INTERCOMPANY BORROWINGS
Eliminate intercompany borrowings not assumed in connection
with the Proposed Acquisition............................. $ (11,508)
=========
(g) NOTES, MORTGAGES, CAPITAL LEASES AND OBLIGATIONS PAYABLE
LESS CURRENT MATURITIES
Additional indebtedness related to the Proposed
Acquisition............................................... $ 131,058
=========
(h) LONG-TERM INTERCOMPANY BORROWINGS
Eliminate intercompany borrowings not assumed in connection
with the Proposed Acquisition............................. $(131,000)
=========
(i) COMMON STOCK
Sale of 2.0 million shares of Common Stock, $1.00 par value
per share, in the Offering................................ $ 2,000
=======
(j) ADDITIONAL PAID-IN CAPITAL
Additional paid-in capital related to the sale of Common
Stock in
the Offering.............................................. $56,942
=======
(k) TOTAL STOCKHOLDERS' INVESTMENT
Eliminate NuTone's stockholder's deficit in connection with
the Proposed Acquisition.................................. $ 148,830
=========
</TABLE>

26
<PAGE> 27

UNAUDITED PRO FORMA (FOR PLY GEM)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA ADJUSTED
COMPANY PLY GEM PRO FORMA NORTEK AND ADDITIONAL NORTEK AND
HISTORICAL HISTORICAL(a) ADJUSTMENTS PLY GEM ADJUSTMENTS PLY GEM
---------- ------------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales..................... $1,134,129 $515,923 -- $1,650,052 -- $1,650,052
Cost and expenses:
Cost of products sold....... 831,772 431,196 3,495(b) 1,266,463 (11,500)(b) 1,254,963
Selling, general and
administrative expense.... 219,376 100,888 (7,746)(c) 312,518 (24,761)(c) 287,757
---------- -------- -------- ---------- --------- ----------
1,051,148 532,084 (4,251) 1,578,981 (36,261) 1,542,720
---------- -------- -------- ---------- --------- ----------
Operating earnings (loss)..... 82,981 (16,161) 4,251 71,071 36,261 107,332
Interest expense.............. (50,210) (5,696) (21,887)(d) (77,793) -- (77,793)
Investment income............. 9,929 302 (2,742)(e) 7,489 -- 7,489
---------- -------- -------- ---------- --------- ----------
Earnings (loss) from
continuing operations before
provision for income
taxes....................... 42,700 (21,555) (20,378) 767 36,261 37,028
Provision (benefit) for income
taxes....................... 16,300 (8,484) (5,545)(f) 2,271 13,891(f) 16,162
---------- -------- -------- ---------- --------- ----------
Earnings (loss) from
continuing operations....... $ 26,400 $(13,071) $(14,833) $ (1,504) $ 22,370 $ 20,866
========== ======== ======== ========== ========= ==========

EARNINGS PER SHARE:
Earnings from continuing
operations:
Basic....................... $ 2.75 $ (.16) $ 2.17
Diluted..................... 2.68 (.16) 2.12
Weighted average number of
shares:
Basic....................... 9,605 9,605 9,605
Diluted..................... 9,855 9,855 9,855

EARNINGS PER SHARE AS ADJUSTED
FOR THE OFFERING (g):
Earnings from continuing
operations:
Basic....................... $ (.13) $ 1.80
Diluted..................... (.13) 1.76
Weighted average number of
shares:
Basic....................... 11,605 11,605
Diluted..................... 11,855 11,855
</TABLE>

See Notes to the Unaudited Pro Forma (For Ply Gem)
Condensed Consolidated Statement of Operations

27
<PAGE> 28

NOTES TO THE UNAUDITED PRO FORMA (FOR PLY GEM)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)

<TABLE>
<CAPTION>
PRO FORMA ADDITIONAL
ADJUSTMENTS ADJUSTMENTS
----------- -----------
<S> <C> <C>
(a) PLY GEM HISTORICAL
Amounts include the unaudited results of Ply Gem for the
period from January 1, 1997 to August 25, 1997.

(b) COST OF PRODUCTS SOLD
Increased amortization of goodwill over 40 years due to the
Ply Gem Acquisition....................................... $ 4,795 $ --
Change in estimated lives of property, plant and equipment
offset by increased depreciation over 10 years due to
increase in Property, Plant and Equipment to estimated
fair value................................................ (1,300) --
Elimination of charges recorded by Ply Gem prior to the Ply
Gem Acquisition, to provide certain valuation reserves and
to conform accounting policies to the Company's........... -- (11,500)
-------- --------
$ 3,495 $(11,500)
======== ========
(c) SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Estimated cost reductions directly attributable to the Ply
Gem Acquisition........................................... $ (3,983) $ --
Reduction of goodwill and intangible amortization included
in Ply Gem's selling, general and administrative
expense................................................... (1,733) --
Decrease due to termination and repurchase of amounts
outstanding under Ply Gem's accounts receivable
securitization program.................................... (2,030) --
Estimated additional cost savings and reductions related to
the Ply Gem Acquisition................................... -- (14,061)
Elimination of charges recorded by Ply Gem prior to the Ply
Gem Acquisition, to provide certain valuation reserves and
to conform accounting policies to the Company's........... -- (10,700)
-------- --------
$ (7,746) $(24,761)
======== ========
(d) INTEREST EXPENSE
Interest expense related to the 9 1/4% Notes................ $ (3,438)
Amortization of related debt issuance costs of the 9 1/4%
Notes..................................................... (106)
Reduction of interest expense related to debt refinanced
with a portion of the proceeds from the 9 1/4% Notes...... 1,143
Interest expense related to the 9 1/8% Notes................ (18,495)
Amortization of related debt discount and issuance costs of
the 9 1/8% Notes.......................................... (771)
Interest expense at an assumed average rate of 6.85% on
indebtedness outstanding under the Ply Gem Credit
Facility.................................................. (4,971)
Reduction in interest expense related to the refinancing of
Ply Gem indebtedness at the date of the Ply Gem
Acquisition............................................... 4,751
--------
$(21,887)
========
(e) INVESTMENT INCOME
Reduction in interest income on marketable securities sold
to fund the Ply Gem Acquisition and related
transactions.............................................. $ (2,742)
========
</TABLE>

28
<PAGE> 29
NOTES TO THE UNAUDITED PRO FORMA (FOR PLY GEM)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)

<TABLE>
<CAPTION>
PRO FORMA ADDITIONAL
ADJUSTMENTS ADJUSTMENTS
----------- -----------
<S> <C> <C>
(f) PROVISION (BENEFIT) FOR INCOME TAXES

Tax benefit on the interest expense adjustments related to
the 9 1/4% Notes and the related refinancing.............. $ (783) $ --

Tax benefit on the interest expense adjustments related to
the 9 1/8% Notes, the Ply Gem Credit Facility and the
refinancing of existing Ply Gem indebtedness and accounts
receivable securitization................................. (6,019) --

Tax provision related to property, plant and equipment
depreciation and intangible amortization.................. 823 --

Tax provision on the estimated cost reductions directly
attributable to the Ply Gem Acquisition referred to in
Note (c) above............................................ 1,394 --

Tax benefit on the reduction in interest income related to
the sale of marketable securities used to fund the Ply Gem
Acquisition and related transactions...................... (960) --

Tax provision on the additional cost savings and operating
efficiencies and elimination of charges recorded by Ply
Gem referred to in Notes (b) and (c) above................ -- 13,891
-------- --------
$ (5,545) $ 13,891
======== ========
(g) EARNINGS PER SHARE AS ADJUSTED FOR THE OFFERING

Adjusted for the sale of 2.0 million shares related to the
Offering but does not include any investment income from
the investment of the net cash proceeds of the Offering.
If the net cash proceeds of the sale of the 2.0 million
shares were to be invested in cash equivalents at an
annual interest rate of 5%, Pro Forma Nortek and Ply Gem
and Pro Forma Adjusted Nortek and Ply Gem earnings from
continuing operations for the year ended December 31, 1997
would be as follows:

Pro Forma Nortek and Ply Gem
Earnings from continuing operations....................... $ 412
========
Basic earnings per share from continuing operations....... $ .04
Diluted earnings per share from continuing operations..... .03

Pro Forma Adjusted Nortek and Ply Gem
Earnings from continuing operations....................... $ 22,782
========
Basic earnings per share from continuing operations....... $ 1.96
Diluted earnings per share from continuing operations..... 1.92
</TABLE>

29
<PAGE> 30

UNAUDITED PRO FORMA (FOR PLY GEM AND NUTONE)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
PRO FORMA NORTEK, ADJUSTED
NORTEK AND NUTONE PRO FORMA PLY GEM ADDITIONAL NORTEK, PLY GEM
PLY GEM HISTORICAL ADJUSTMENTS AND NUTONE ADJUSTMENTS AND NUTONE
---------- ---------- ----------- ---------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $1,650,052 $199,072 -- $1,849,124 -- $1,849,124
Cost and expenses:
Cost of products
sold............... 1,266,463 122,897 5,954(a) 1,395,314 (11,500)(a) 1,383,814
Selling, general and
administrative
expense............ 312,518 51,387 (1,746)(b) 362,159 (39,761)(b) 322,398
---------- -------- ------- ---------- ------- ----------
1,578,981 174,284 4,208 1,757,473 (51,261) 1,706,212
---------- -------- ------- ---------- ------- ----------
Operating earnings
(loss)................ 71,071 24,788 (4,208) 91,651 51,261 142,912
Interest expense........ (77,793) (11,852) 640(c) (89,005) -- (89,005)
Investment income....... 7,489 42 (3,034)(d) 4,497 -- 4,497
---------- -------- ------- ---------- ------- ----------
Earnings (loss) from
continuing operations
before provision for
income taxes.......... 767 12,978 (6,602) 7,143 51,261 58,404
Provision (benefit) for
income taxes.......... 2,271 5,043 314(e) 7,628 19,741(e) 27,369
---------- -------- ------- ---------- ------- ----------
Earnings (loss) from
continuing
operations............ $ (1,504) $ 7,935 $(6,916) $ (485) $31,520 $ 31,035
========== ======== ======= ========== ======= ==========
EARNINGS PER SHARE AS
ADJUSTED FOR THE
OFFERING:
Earnings from continuing
operations:
Basic................. $ (.13) $ (.04) $ 2.67
Diluted............... (.13) (.04) 2.62
Weighted average number
of shares:
Basic................. 11,605 11,605 11,605
Diluted............... 11,855 11,855 11,855
</TABLE>

See Notes to the Unaudited Pro Forma (for Ply Gem and NuTone)
Condensed Consolidated Statement of Operations

30
<PAGE> 31

NOTES TO THE UNAUDITED PRO FORMA (FOR PLY GEM AND NUTONE)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)

<TABLE>
<CAPTION>
PRO FORMA ADDITIONAL
ADJUSTMENTS ADJUSTMENTS
----------- -----------
<S> <C> <C>
(a) COST OF PRODUCTS SOLD

Amortization of goodwill over 40 years related to the
Proposed Acquisition...................................... $ 5,954 $ --

Elimination of charges recorded by Ply Gem prior to the Ply
Gem Acquisition, to provide certain valuation reserves and
to conform accounting policies to the Company's........... -- (11,500)
-------- --------
$ 5,954 $(11,500)
======== ========
(b) SELLING, GENERAL AND ADMINISTRATIVE EXPENSE

Additional cost savings and reductions related to the Ply
Gem Acquisition........................................... $ -- $(14,061)

Elimination of charges recorded by Ply Gem prior to the Ply
Gem Acquisition, to provide certain valuation reserves and
to conform accounting policies to the Company's........... -- (10,700)

Estimated synergistic operational savings related to the
Proposed Acquisition...................................... -- (15,000)

Elimination of management fees and other charges paid by
NuTone to Williams plc and related entities, net of
estimated incremental Nortek management costs............. (1,746) --
-------- --------
$ (1,746) $(39,761)
======== ========
(c) INTEREST EXPENSE

Interest expense related to additional indebtedness related
to the Proposed Acquisition............................... $(10,812)

Amortization of debt issuance costs related to additional
indebtedness.............................................. (400)

Reduction of interest expense related to intercompany
borrowings not assumed in the Proposed Acquisition........ $ 11,852
--------
$ 640
========
(d) INVESTMENT INCOME

Reduction in interest income related to cash and cash
equivalents used to partially fund the Proposed
Acquisition............................................... $ (3,034)
========
(e) PROVISION (BENEFIT) FOR INCOME TAXES

Tax provision on the reduction of interest expense related
to intercompany borrowings offset by interest expense
adjustments related to additional indebtedness related to
the Proposed Acquisition.................................. $ 698 $ --

Tax benefit on the reduction in interest income related to
cash and cash equivalents used to partially fund the
Proposed Acquisition as referred to in Note (d) above..... (1,062) --

Tax provision on the Ply Gem additional cost savings and
operating efficiencies and elimination of charges recorded
by Ply Gem referred to in Notes (a) and (b) above......... -- 13,891

Tax provision related to the expected synergistic
operational savings as referred to in Note (b) above...... -- 5,850

Tax provision on elimination of management fees and other
charges paid by NuTone to Williams plc and related
entities, net of estimated incremental Nortek management
costs..................................................... 678 --
-------- --------
$ 314 $ 19,741
======== ========
</TABLE>

31
<PAGE> 32

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Company is a diversified manufacturer of residential and commercial
building products, operating within four principal product groups: the
Residential Building Products Group; the Air Conditioning and Heating Products
Group; the Windows, Doors and Siding Group; and the Specialty Products and
Distribution Group. Through these product groups, the Company manufactures and
sells, primarily in the United States, Canada and Europe, a wide variety of
products for the residential and commercial construction, manufactured housing
and the DIY and professional remodeling and renovation markets.

In the fourth quarter of 1995, several of the Company's wholly owned
subsidiaries completed the acquisition of the assets, subject to certain
liabilities, of Rangaire, all the capital stock of Best and related entities and
all the capital stock of Venmar.

On August 26, 1997, the Company acquired Ply Gem, which has been accounted
for under the purchase method of accounting. Accordingly, the results of Ply Gem
are included in the Company's consolidated results since that date. (See
"Liquidity and Capital Resources" and Notes 1 and 2 of the Notes to Consolidated
Financial Statements of the Company included elsewhere herein.)

In the fourth quarter of 1997, the Company adopted a plan to discontinue
its Plumbing Products Group. Accordingly, the results of the Plumbing Products
Group have been excluded from earnings from continuing operations and are
classified separately as discontinued operations for all periods presented. (See
Note 9 of the Notes to Consolidated Financial Statements of the Company included
elsewhere herein.)

RESULTS OF OPERATIONS

The following tables set forth, for the three years ended December 31,
1997, (a) certain consolidated operating results, (b) the percentage change of
such results as compared to the prior year, (c) the percentage which such
results bears to net sales and (d) the change of such percentages as compared to
the prior year:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERCENTAGE CHANGE
-------------------------- ---------------------------
1997 1996 1995 1996 TO 1997 1995 TO 1996
-------- ------ ------ ------------ ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net sales......................... $1,134.1 $841.6 $656.8 34.8% 28.1%
Cost of products sold............. 831.7 600.3 472.3 (38.5) (27.1)
Selling, general and
administrative expense.......... 219.4 180.3 141.5 (21.7) (27.4)
Operating earnings................ 83.0 61.0 43.0 36.1 41.9
Interest expense.................. (50.2) (28.4) (23.0) (76.8) (23.5)
Investment income................. 9.9 6.0 8.1 65.0 (25.9)
Earnings from continuing
operations before provision for
income taxes.................... 42.7 38.6 28.1 10.6 37.4
Provision for income taxes........ 16.3 14.9 10.6 (9.4) (40.6)
Earnings from continuing
operations...................... 26.4 23.7 17.5 11.4 35.4
Loss from discontinued
operations...................... (5.2) (1.7) (2.5) (205.9) 32.0
Net earnings...................... 21.2 22.0 15.0 (3.6) 46.7
</TABLE>

32
<PAGE> 33

<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
YEAR ENDED DECEMBER 31, PERCENTAGE CHANGE
------------------------ ---------------------------
1997 1996 1995 1996 TO 1997 1995 TO 1996
------ ------ ------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............................. 100.0% 100.0% 100.0% --% --%
Cost of products sold................. 73.4 71.3 71.9 (2.1) 0.6
Selling, general and administrative
expense............................. 19.3 21.4 21.5 2.1 0.1
Operating earnings.................... 7.3 7.3 6.6 -- 0.7
Interest expense...................... (4.4) (3.4) (3.5) (1.0) 0.1
Investment income..................... 0.9 0.7 1.2 0.2 (0.5)
Earnings from continuing operations
before provision for income taxes... 3.8 4.6 4.3 (0.8) 0.3
Provision for income taxes............ 1.4 1.8 1.6 0.4 (0.2)
Earnings from continuing operations... 2.4 2.8 2.7 (0.4) 0.1
Loss from discontinued operations..... (0.5) (0.2) (0.4) (0.3) 0.2
Net earnings.......................... 1.9 2.6 2.3 (0.7) 0.3
</TABLE>

The following table presents the net sales for the Company's principal
product groups for the three years ended December 31, 1997, and the percentage
change of such results as compared to the prior year. Certain amounts in the
table for prior periods have been reclassified to conform to the presentation
for 1997.

YEAR ENDED DECEMBER 31, 1997 AS COMPARED TO THE YEAR ENDED DECEMBER 31, 1996

Net sales increased approximately $292,500,000, or approximately 34.8%, as
compared to 1996 (or increased approximately $300,500,000, or approximately
35.7%, excluding the effect of foreign exchange). Net sales increased
principally as a result of the Ply Gem Acquisition on August 26, 1997, which
contributed approximately $284,200,000 to net sales. Excluding sales from the
Ply Gem Acquisition, net sales increased approximately $8,300,000, or 1.0%, as
compared to 1996 (or increased approximately $16,400,000, or approximately 2.0%
excluding the effect of foreign exchange). This increase was principally as a
result of slightly higher sales volume in the Residential Building Products
Group (partially offset by the effects of foreign exchange) and residential
products of the Air Conditioning and Heating Products Group partially offset by
lower sales levels of commercial HVAC products and approximately $3,600,000
lower sales from the sale of a residential HVAC product line in 1997.

Cost of products sold as a percentage of net sales increased from
approximately 71.3% in 1996 to approximately 73.4% in 1997. Excluding the Ply
Gem businesses, (which have a higher level of cost of sales than the overall
group of businesses owned prior to the Ply Gem Acquisition), cost of products
sold as a percentage of net sales decreased from approximately 71.3% to
approximately 70.4% in 1997, as compared to 1996. This decrease in the
percentage principally resulted from a reduction in the cost of certain raw
materials and components compared to 1996 and decreased labor as a percentage of
net sales in the Residential Building Products and Air Conditioning and Heating
Products Groups due to the increased volume of higher margin products and
improved efficiency. Had all year-end inventory values been stated on a FIFO
basis, year-end inventory would have been approximately $5,041,000 higher in
1997, approximately $6,015,000 higher in 1996 and approximately $7,873,000
higher in 1995. Overall, changes in the cost of products sold as a percentage of

33
<PAGE> 34

net sales for one period as compared to another period may reflect a number of
factors, including changes in the relative mix of products sold, the effect of
changes in sales prices, the material cost of products sold and changes in
productivity levels.

Selling, general and administrative expense as a percentage of net sales
decreased from approximately 21.4% in 1996 to approximately 19.3% in 1997.
Excluding the Ply Gem businesses (which have a lower level of selling, general
and administrative expense to net sales than the overall group of businesses
owned prior to the acquisition), selling, general and administrative expense as
a percentage of net sales decreased from approximately 21.4% in 1996 to
approximately 21.2% in 1997. This decrease in the percentage was due principally
to higher sales levels in the Residential Building Products Group without a
proportionate increase in expense and the effect of the sale of a residential
HVAC product line noted above, partially offset by lower sales levels of
commercial products by the Air Conditioning and Heating Products Group without a
proportionate decrease in expense.

Segment earnings were approximately $97,000,000 for 1997, as compared to
approximately $74,900,000 for 1996. Segment earnings are operating earnings from
continuing operations before corporate and other expenses that are not directly
attributable to the Company's product groups. The Ply Gem Acquisition
contributed approximately $11,300,000 to segment earnings. Segment earnings have
been reduced by depreciation and amortization expense of approximately
$26,600,000 and approximately $19,500,000 for 1997 and 1996, respectively. The
Ply Gem Acquisition contributed approximately $6,300,000 of the increase in
depreciation and amortization expense in 1997. The overall increase in segment
earnings was due principally, in addition to the effect of the Ply Gem
Acquisition, to increased sales volume without a proportionate increase in
expense particularly in the Residential Building Products Group and, to a lesser
extent, the residential sector of the Air Conditioning and Heating Products
Group and was affected by the factors previously noted.

Earnings of foreign operations, consisting primarily of the results of
operations of the Company's Canadian and European subsidiaries, which
manufacture built-in ventilating products, decreased to approximately 10.8% of
segment earnings in 1997 from approximately 11.2% of such earnings in 1996. The
decrease in the percentage is due to an increase in domestic earnings in 1997,
in part as a result of $11,300,000 contributed by Ply Gem, which has primarily
domestic operations. Sales and earnings derived from the international market
are subject to the risks of currency fluctuations.

Operating earnings in 1997 increased approximately $22,000,000, or
approximately 36.1%, as compared to 1996, primarily due to the factors
previously discussed.

Interest expense in 1997 increased approximately $21,800,000 or
approximately 76.8%, as compared to 1996, primarily as a result of the sale of
the 9 1/4% Notes in March 1997, the sale of the 9 1/8% Notes in August 1997 and
the existing indebtedness of Ply Gem. This increase was partially offset by the
refinancing of certain outstanding indebtedness of the Company's subsidiaries
primarily in the second quarter of 1997. (See Notes 2 and 5 of the Notes to
Consolidated Financial Statements of the Company included elsewhere herein.)

Investment income in 1997 increased approximately $3,900,000, or
approximately 65.0%, as compared to 1996, principally due to higher average
invested balances of short-term investments and marketable securities.

The provision for income taxes was approximately $16,300,000 for 1997, as
compared to approximately $14,900,000 for 1996. The provision for income taxes
was reduced by approximately $1,540,000 in 1997 and $481,000 in 1996 reflecting
the reversal of tax reserves no longer required. The income tax rates differed
from the United States Federal statutory rate of 35% principally as a result of
state income tax provisions, nondeductible amortization expense (for tax
purposes), changes in tax reserves, the effect of foreign income tax on foreign
source income and the effect of product development tax credits from foreign
operations. (See Note 4 of the Notes to Consolidated Financial Statements of the
Company included elsewhere herein.)

In the fourth quarter of 1997, the Company adopted a plan to discontinue
its Plumbing Products Group. Loss from discontinued operations related to the
Plumbing Products Group increased approximately $3,500,000 from a loss of
$1,700,000 in 1996 to a loss of $5,200,000 in 1997. Loss from discontinued
operations in 1997 includes a net after tax loss of $1,600,000 for operating
losses expected to occur during the

34
<PAGE> 35

disposal period and is net of an income tax benefit of $900,000. Loss from
discontinued operations includes net after tax operating losses of $3,600,000 in
1997 and $1,700,000 in 1996 and are net of income tax benefits of $2,100,000 and
$900,000 for 1997 and 1996, respectively. Operating results of discontinued
operations reflect an allocation of corporate interest expense of approximately
$1,900,000 and $1,700,000 in 1997 and 1996, respectively and are net of income
tax benefits of $670,000 and $600,000 in 1997 and 1996, respectively. (See Note
9 of the Notes to Consolidated Financial Statements of the Company included
elsewhere herein.)

YEAR ENDED DECEMBER 31, 1996 AS COMPARED TO THE YEAR ENDED DECEMBER 31, 1995

Net sales increased approximately $184,800,000, or approximately 28.1%, as
compared to 1995. The Residential Building Products Group net sales increased
principally as a result of fourth quarter 1995 acquisitions, which contributed
approximately $140,400,000 in 1996 as compared to approximately $24,600,000 in
1995. Shipments of new and replacement HVAC products to manufactured housing
customers and increased sales levels of commercial and industrial HVAC products
were the primary reasons for increased sales in the Air Conditioning and Heating
Products Group. Modest sales price increases in certain product lines of the
Residential Building Products Group were also a factor, and were partially
offset by lower sales prices of certain residential HVAC products in the Air
Conditioning and Heating Products Group.

Cost of products sold as a percentage of net sales decreased from
approximately 71.9% in 1995 to approximately 71.3% in 1996. The decrease in the
percentage principally resulted from a reduction in cost in 1996 of certain raw
materials and components compared to 1995 and decreased overhead costs as a
percentage of sales in the Residential Building Products and Air Conditioning
and Heating Products Groups due to increased volume and improved efficiency.
These decreases were partially offset by the 1995 acquisitions of Rangaire, Best
and Venmar, which have a higher level of cost of sales to net sales than the
overall group of businesses owned prior to the acquisitions, the effect of the
development and introduction of new products and the effect of an extended
shut-down period in the third quarter in Europe. Had all year-end inventory
values been stated on a FIFO basis, year-end inventory would have been
approximately $6,015,000 higher in 1996, approximately $7,873,000 higher in 1995
and approximately $4,254,000 higher in 1994.

Selling, general and administrative expenses as a percentage of net sales
were consistent between years at approximately 21.5% in 1995 and 21.4% in 1996.
The fourth quarter 1995 acquisitions, which have a lower level of selling,
general and administrative expense to net sales than the overall group of
businesses owned prior to the acquisitions, resulted in a decrease in the
percentage which was primarily offset by the effect of limited sales activity
during an extended shut-down period in the third quarter of 1996 by the
Company's European subsidiaries without a proportionate reduction in expense and
higher net unallocated expense.

Segment earnings were approximately $74,900,000 for 1996, as compared to
approximately $50,600,000 for 1995. Fourth quarter 1995 acquisitions, included
in the Residential Building Products Group, contributed approximately $8,400,000
to segment earnings in 1996 as compared to $1,050,000 in 1995. Segment earnings
have been reduced by depreciation and amortization expense of approximately
$19,500,000 and approximately $14,800,000 for 1996 and 1995, respectively.
Acquisitions accounted for approximately $5,100,000 of the depreciation and
amortization expense in 1996 as compared to $750,000 in 1995. The overall
increase in segment earnings was due principally to increased sales volume in
each of the Company's operating groups, particularly increased sales volume of
residential and commercial HVAC products and residential building products, the
effect of increased sales from the fourth quarter 1995 acquisitions of Rangaire,
Best and Venmar, and a reduction in the price paid for certain materials in each
of the Company's operating groups and was affected by the factors previously
noted.

Foreign segment earnings, consisting primarily of the results of operations
of the Company's Canadian and European subsidiaries, which manufacture built-in
ventilating products, increased to approximately 11.2% of segment earnings in
1996 from approximately 5.8% of such earnings in 1995. The increase in 1996 was
primarily attributable to an approximate 184.2% increase in foreign segment
earnings in 1996, as compared to a 39.1% increase in domestic earnings. The
increase in 1996 was primarily attributable to earnings of the Company's 1995
Canadian and European acquisitions.

35
<PAGE> 36

Operating earnings in 1996 increased approximately $18,000,000, or
approximately 41.9%, as compared to 1995, primarily due to the factors
previously discussed.

Interest expense in 1996 increased approximately $5,400,000, or
approximately 23.5%, as compared to 1995, primarily as a result of higher
borrowings resulting from the 1995 acquisitions of Rangaire, Best and Venmar,
including existing short-term working capital borrowings of the acquired
subsidiaries.

Investment income in 1996 decreased approximately $2,100,000, or
approximately 25.9%, as compared to 1995, principally due to lower average
invested balances of short-term investments and marketable securities,
principally resulting from the 1995 acquisitions of Rangaire, Best and Venmar
and from purchases of the Company's capital stock, partially offset by increased
cash from operating results.

The provision for income taxes was approximately $14,900,000 for 1996, as
compared to approximately $10,600,000 for 1995. The provision for income taxes
has been reduced by approximately $481,000 in 1996 and approximately $1,100,000
in 1995, respectively, reflecting the reversal of tax valuation reserves no
longer required, of which approximately $263,000 in 1996 and $670,000 in 1995
are as a result of the gain on the sale of certain investments and marketable
securities. The income tax rates differed from the United States Federal
statutory rate of 35% principally as a result of state income tax provisions,
nondeductible amortization expense (for tax purposes), the changes in tax
reserves, the effect of foreign income tax on foreign source income, and in 1996
from the effect of product development tax credits from foreign operations. (See
Note 4 of the Notes to Consolidated Financial Statements of the Company included
elsewhere herein.)

Loss from discontinued operations related to the Plumbing Products Group
decreased approximately $800,000 from a loss of $2,500,000 in 1995 to a loss of
$1,700,000 in 1996. Loss from discontinued operations includes a net after tax
operating loss of $1,700,000 in 1996 and $2,500,000 in 1995 and is net of tax
benefits of $900,000 and $1,300,000 for 1996 and 1995, respectively. Operating
results of discontinued operations reflect an allocation of corporate interest
expense of approximately $1,700,000 and $1,900,000 in 1996 and 1995,
respectively, and are net of a tax benefit of $600,000 and $670,000 in 1996 and
1995, respectively. (See Note 9 of the Notes to Consolidated Financial
Statements of the Company included elsewhere herein.)

LIQUIDITY AND CAPITAL RESOURCES

On August 26, 1997, a wholly-owned subsidiary of the Company completed the
Ply Gem Acquisition in a tender offer for a cash price of $19.50 per outstanding
share of common stock. Net cash paid for the Ply Gem Acquisition, including
expenses, settlement of stock options and payment to terminate Ply Gem's
existing accounts receivable securitization program, was approximately
$407,419,000 at December 31, 1997. On August 26, 1997, prior to the Ply Gem
Acquisition, Ply Gem refinanced approximately $108,900,000 of its existing
indebtedness.

On August 26, 1997, the Company sold approximately $310,000,000 principal
amount of the 9 1/8% Notes for approximately $297,269,000, net of a discount of
approximately $2,505,000 and approximately $10,226,000 of expenses incurred in
connection with the sale. The Company used a portion of these net proceeds,
together with available cash, to purchase the shares of Ply Gem, to fund the
approximate $45,000,000 payment to terminate Ply Gem's existing accounts
receivable securitization program and to pay certain fees and expenses.

On March 17, 1997, the Company sold $175,000,000 principal amount of 9 1/4%
Notes for approximately $168,945,000, net of a discount of approximately
$1,011,000 and approximately $5,044,000 of expenses incurred in connection with
the sale.

Unrestricted cash and cash equivalents increased approximately $84,800,000
from December 31, 1996 to December 31, 1997, primarily as the result of cash
generated from operations and the net proceeds from the sale of the 9 1/4% Notes
and the 9 1/8% Notes, net of cash paid in connection with the Ply Gem
Acquisition as described above and the reduction in certain indebtedness of the
Company's subsidiaries.

The Company's investment in marketable securities at December 31, 1997
consisted primarily of investments in bank issued money market instruments,
commercial paper and United States Treasury securities. At December 31, 1997,
approximately $6,348,000 of the Company's cash and investments were

36
<PAGE> 37

pledged as collateral for insurance and other requirements and were classified
as restricted in current assets in the Company's accompanying consolidated
balance sheet.

The Company's Board of Directors has authorized a program to purchase up to
500,000 shares of the Company's Common Stock and Special Common Stock in
open-market or negotiated transactions subject to market conditions, cash
availability and provisions of the Company's outstanding debt instruments. As of
February 28, 1998, the Company had purchased approximately 316,500 shares of its
Common and Special Common Stock under this program for approximately $9,314,000
and accounted for such share purchases as Treasury Stock.

At March 1, 1998, approximately $6,872,000 was available for the payment of
cash dividends or stock payments under the terms of the Company's most
restrictive Indenture.

The Company's working capital and current ratio increased from
approximately $163,133,000 and 1.9:1, respectively, to approximately
$341,821,000 and 2.3:1, respectively, between December 31, 1996 and December 31,
1997. The increase was principally as a result of the Ply Gem Acquisition, which
contributed approximately $212,971,000 to current assets and approximately
$88,385,000 to current liabilities at December 31, 1997 and an increase in
unrestricted cash, investments and marketable securities of approximately
$84,800,000.

Accounts receivable increased approximately $72,212,000, or approximately
66.7%, between December 31, 1996 and December 31, 1997, while net sales
increased approximately $206,282,000, or approximately 98.5% in the fourth
quarter of 1997 as compared to the fourth quarter of 1996. Approximately
$69,000,000 of the increase in accounts receivable and approximately
$201,000,000 of the increase in net sales was principally due to the Ply Gem
Acquisition. The rate of change in accounts receivable in certain periods may be
different from the rate of change in sales in such periods principally due to
the timing of net sales. Increases or decreases in net sales near the end of any
period generally result in significant changes in the amount of accounts
receivable on the date of the balance sheet at the end of such period, as was
the situation on December 31, 1997 as compared to December 31, 1996. The Company
has not experienced any significant changes in credit terms, collection efforts,
credit utilization or delinquency in accounts receivable in 1997.

Inventories increased approximately $86,264,000 or approximately 95.9%,
between December 31, 1996 and December 31, 1997. The increase is due to the
inclusion of approximately $88,000,000 of inventory related to Ply Gem at
December 31, 1997.

Accounts payable increased approximately $24,660,000 or approximately 36.9%
between December 31, 1996 and December 31, 1997, including approximately
$28,355,000 of accounts payable at December 31, 1997 from the Ply Gem
Acquisition.

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<PAGE> 38

Unrestricted cash and cash equivalents increased approximately $84,800,000
from December 31, 1996 to December 31, 1997, principally as a result of the
following:

<TABLE>
<CAPTION>
CONDENSED
CONSOLIDATED
CASH FLOWS
-------------
<S> <C>
Operating Activities:
Cash flow from operations, net............................ $ 52,407,000
Decrease in accounts receivable, net...................... 10,259,000
Decrease in inventories................................... 6,524,000
Decrease in prepaids and other current assets............. 5,699,000
Decrease in net assets of discontinued operations......... 4,934,000
Decrease in trade accounts payable........................ (16,359,000)
Increase in accrued expenses and taxes.................... 25,968,000

Investing Activities:
Net cash paid for a business acquired..................... (407,419,000)
Purchase of marketable securities......................... (283,918,000)
Proceeds from the sale of marketable securities........... 298,158,000
Capital expenditures...................................... (22,464,000)

Financing Activities:
Sale of Notes............................................. 466,214,000
Payment of borrowings, net................................ (33,354,000)
Purchase of Common Stock and Special Common Stock......... (10,177,000)

Other, net.................................................. (11,672,000)
-------------
$ 84,800,000
=============
</TABLE>

The impact of changes in foreign currency exchange rates on cash was not
material and has been included in other, net.

The Company's debt-to-equity ratio increased from approximately 2.4:1 at
December 31, 1996 to 6.7:1 at December 31, 1997, primarily as a result of the
sale of the 9 1/4% Notes and the 9 1/8% Notes, indebtedness of Ply Gem of
approximately $128,529,000 existing at the date of the Ply Gem Acquisition and
the effect of the purchase of the Company's Common Stock and Special Common
Stock (see Notes 2, 5 and 6 to Consolidated Financial Statements of the Company
included elsewhere herein), partially offset by the payment of certain
subsidiary indebtedness and by net earnings for the year ended December 31,
1997. (See the Consolidated Statement of Stockholders' Investment of the Company
included elsewhere herein.)

At December 31, 1997, the Company had approximately $60,800,000 of net U.S.
federal prepaid income tax assets which are expected to be realized through
future operating earnings. (See Note 4 of the Notes to Consolidated Financial
Statements of the Company included elsewhere herein.)

The Company believes that its growth will be generated largely by internal
growth, augmented by strategic acquisitions. The Company regularly evaluates
potential acquisitions which would increase or expand the market penetration of,
or otherwise complement, its current product lines.

Capital expenditures were approximately $22,500,000 in 1997 and are
expected to be approximately $40,000,000 in 1998.

The Offering and the Proposed Acquisition

On March 9, 1998, the Company through Acquisition Sub entered into the
Purchase Agreement to acquire NuTone for approximately $242,500,000 in cash,
subject to certain adjustments, plus the assumption of operating liabilities.
The Proposed Acquisition is subject to the requirements of the HSR Act. In
connection with its review of the transaction under the HSR Act, the FTC has
issued a Second Request for certain additional information. The FTC has taken no
position with respect to the transaction and there can be

38
<PAGE> 39

no assurance that the Proposed Acquisition, as proposed, will be consummated. If
the Proposed Acquisition is not consummated on a timely basis as a result of the
FTC's review, the Company expects that it will incur an approximately $3,100,000
net after tax charge to its earnings during fiscal 1998 as a result of fees,
expenses and other acquisition related costs. In order to consummate the
Proposed Acquisition, the Company will need to raise additional funds through
debt financings. (See "Recent Developments" and Note 13 to the Notes to
Consolidated Financial Statements of the Company included elsewhere herein.)
Following the Proposed Acquisition, the Company anticipates that additional
funds required to support its working capital needs will be obtained from
available cash, cash from continuing operations, additional borrowings and the
proceeds from asset sales of certain of the Company's existing businesses.

The Company expects to use a combination of approximately $58,900,000 from
the net proceeds from the Offering, $60,000,000 of available cash and
$131,100,000 of additional indebtedness to finance the Proposed Acquisition and
to pay related fees and expenses, including financing fees and expenses.
Therefore, after giving pro forma effect to the Offering and the Proposed
Acquisition, the Company's total unrestricted cash, cash equivalents and
marketable securities would be $102,700,000 as of December 31, 1997. See "Recent
Developments."

After giving pro forma effect to the Offering and the Proposed Acquisition,
the Company's leverage will be reduced, although the Company will remain highly
leveraged and expects to continue to remain highly leveraged for the foreseeable
future. As of December 31, 1997, after giving pro forma effect to the Offering
and the Proposed Acquisition, the Company would have had total debt of
$984,700,000 and its debt to equity ratio would decrease to 5.3 to 1.

After giving pro forma effect to the Offering and the Proposed Acquisition,
the Company would have had working capital (exclusive of cash, cash equivalents
and marketable securities) of approximately $193,700,000 at December 31, 1997.
Historically, the Company's level of working capital has been seasonal in
nature, with peak levels occurring during the second and third fiscal quarters.

The Proposed Acquisition is not expected to have a material effect on the
Company's capital expenditure requirements.

After giving effect to the Proposed Acquisition, annual net interest
expense is expected to increase to approximately $84,500,000.

Absent the Proposed Acquisition, the Company believes that cash flow from
subsidiary operations, unrestricted cash and marketable securities, and
borrowings under new credit facilities or arrangements which may be entered into
will provide sufficient liquidity to meet the Company's working capital, capital
expenditure, debt service and other ongoing business needs through the next 12
months.

INFLATION, TRENDS AND GENERAL CONSIDERATIONS

The Company's performance is dependent to a significant extent upon the
levels of new residential construction, residential replacement and remodeling
and non-residential construction, all of which are affected by such factors as
interest rates, inflation and unemployment. In the near term, the Company
expects to operate in an environment of relatively stable levels of construction
and remodeling activity. However, increases in interest rates could have a
negative impact on the level of housing construction and remodeling activity.

The demand for the Company's products is seasonal, particularly in the
Northeast and Midwest regions of the United States where inclement weather
during the winter months usually reduces the level of building and remodeling
activity in both the home improvement and new construction markets. The
Company's lower sales levels usually occur during the first and fourth quarters.
Since a high percentage of the Company's manufacturing overhead and operating
expenses are relatively fixed throughout the year, operating income and net
earnings tend to be lower in quarters with lower sales levels. The Ply Gem
businesses, acquired in August 1997, have in the past been more seasonal in
nature than the Company's businesses owned prior to the Ply Gem Acquisition. In
addition, the demand for cash to fund the working capital of the Company's
subsidiaries is greater from late in the first quarter until early in the fourth
quarter.

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<PAGE> 40

The Company is in the process of updating its computer systems to ensure
that its systems are Year 2000 compliant and to improve such systems. The
Company has and will continue to make investments in its computer systems and
applications to ensure that the Company is Year 2000 compliant. The financial
impact to the Company of its Year 2000 compliance programs has not been and is
not anticipated to be material to its financial position or results of
operations in any given year. While the Company does not believe it will suffer
any major effect from the Year 2000 issue, it is possible that such effects
could materially impact future financial results.

40
<PAGE> 41

BUSINESS

OVERVIEW

The Company is a diversified manufacturer of residential and commercial
building products, operating within four principal product groups: the
Residential Building Products Group; the Air Conditioning and Heating Products
Group; the Windows, Doors and Siding Group; and the Specialty Products and
Distribution Group. Through these product groups, the Company manufactures and
sells, primarily in the United States, Canada and Europe, a wide variety of
products for the residential and commercial construction, manufactured housing,
and the DIY and professional remodeling and renovation markets.

The Company's domestic performance is dependent to a significant extent
upon the levels of new residential construction, residential replacement and
remodeling and non-residential construction, which are affected by such factors
as interest rates, inflation, consumer spending habits and unemployment.

BUSINESS STRATEGY

Target High Growth Market Segments. The Company targets those segments of
the building products industry that it believes are experiencing more rapid
growth than the overall building industry. These targeted segments include: (i)
the general repair and renovation market, which continues to benefit from the
increasing age and size of the U.S. housing stock and the proliferation of home
center chains; (ii) the manufactured housing market, which has represented an
increasing proportion of new housing starts over the past five years; and (iii)
the vinyl windows and siding market, which have cost and performance
characteristics that have resulted in substantially increased penetration of
such products within the new home and retrofit markets. By increasing its
presence in these market segments, the Company seeks to achieve rates of growth
in excess of the overall building products industry. For example, net sales of
the Company's Air Conditioning and Heating Products Group have grown at an
internal compounded annual growth rate of approximately 12.1% for the five year
period ended December 31, 1997 reflecting increasing demand for replacement
products as the installed base of HVAC systems in the United States has grown.

Achieve Marketing, Distribution and Manufacturing Synergies. The Company
pursues increased penetration of distribution channels such as home centers and
manufactured home builders which it believes present cross-marketing
opportunities for the Company's expanding portfolio of products. For example,
the Ply Gem Acquisition provides the opportunity to market Ply Gem's vinyl
products to the manufactured housing market, in which the Company's HVAC
products maintain a leading position. Similarly, the Company expects to leverage
Ply Gem's position as one of the largest suppliers of vinyl siding and wood
windows to home centers to increase the Company's existing sales of residential
building products. Most recently, the Company entered into agreements to license
several well-known HVAC brand names, including Frigidaire(R), Tappan(R) and
Philco(R) which the Company expects to be well-received by HVAC residential
distributors. The Company also seeks to achieve synergies in manufacturing by
rationalizing its manufacturing processes among its products. For example, the
Company transferred the manufacture of certain "Eurostyle" range hood products
sold into the North American markets from the facilities of Best in Italy to
Venmar's lower-cost Canadian facilities and also centralized production of its
indoor-air-quality products into the same facilities.

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<PAGE> 42

Complete and Integrate Strategic Acquisitions. The Company has
demonstrated an ability to successfully integrate acquired businesses. In 1995,
the Company acquired Best, Rangaire and Venmar. Since that time, the Company has
taken numerous actions to integrate these acquisitions into its Residential
Building Products Group, including elimination of corporate redundancies,
rationalization of multiple sales forces and a general reorganization of product
line responsibilities related to its "Eurostyle" range hood and indoor-air-
quality products as described above. Partially as a result of these actions,
operating earnings within the Residential Building Products Group have increased
as a percentage of net sales from 7.9% in 1995 to 10.5% in 1997.

THE MARKET FOR BUILDING PRODUCTS

The Industry Overview. The building products industry consists of a large
number of companies that manufacture materials and equipment used primarily in
two end markets: (i) the repair, renovation and remodeling market and (ii) the
new construction market. Both of these end markets are further subdivided into
residential and non-residential categories. According to the United States
Department of Census (the "US Census Bureau"), private construction of
residential and non-residential buildings totaled approximately $422 billion in
1997.

The most important factors influencing demand for building products include
both the levels of residential and commercial new construction activity and the
levels of repair and remodeling activity. Demand for residential building
products is principally affected by the number of housing starts, the rate of
existing home sales and the age and size of the U.S. housing stock. The level of
remodeling activity tends to be closely related to the rate of existing home
sales and the age and size of such homes. The Company has strong relationships
with large retail home centers which are expected to benefit from continuing
growth of the DIY and home improvement markets.

Renovation and Remodeling. The Company's strategy is to increase sales
derived from spending associated with renovation and remodeling activities for
both residential and non-residential buildings and structures. The Company
believes that the frequency of renovating and remodeling activities increases
with the age of a home and that such activities also often occur shortly before
and after an existing home sale. Between 1987 and 1997, according to the
National Association of Realtors, sales of existing homes increased by 24%, from
3.4 million to 4.2 million. According to the National Association of
Homebuilders (the "NAH"), the average age of a U.S. home has increased from 23
years in 1985 to 28 years in 1995. Another factor driving increased demand for
building products has been an increase in the average size of homes built in the
United States. In 1996, according to the NAH the average single-family home
contained 1,950 square feet of space, as compared to 1,385 square feet in 1970
and 1,595 square feet in 1980. Additionally, the rapid expansion of building
product retail chains have made building products more accessible to "do-it-
yourselfers," contributing to the overall growth in the renovation and
remodeling markets. Correspondingly, between 1986 and 1996, according to the US
Census Bureau, expenditures on home improvements increased from $55.3 billion to
$77.9 billion, or 41%. In addition, these expenditures are 5.6% higher for the
first nine months of 1997 compared to the same period of 1996. The Company also
believes that the existing home market experiences less cyclicality than the new
home market.

Residential New Construction. This category includes spending associated
with the construction of both single-family and multi-family residences.
Building activity in the residential construction market is often measured in
terms of housing starts, which vary with job growth, population growth and other
demographic trends, as well as the state of the economy and interest rates.
According to the US Census Bureau, housing

42
<PAGE> 43

starts in 1997 totaled 1,470,000 units, consisting of 1,130,000 single family
units and 340,000 multi-family units. Since 1985, single family housing starts
have exceeded one million units in all but two years (1990 and 1991).
Manufactured housing shipments have increased from approximately 170,000 in 1991
to over 354,000 in 1997. The sector generally is growing faster than the overall
market for new housing, representing 24% of the total single family housing
starts in 1997, as compared to 17% in 1991. According to the US Census Bureau,
total spending for new single family housing units in 1997 totaled approximately
$162.7 billion, representing a 42% increase over 1987 levels.

Non-Residential Construction. This category includes spending associated
with the construction of new buildings and structures for the commercial,
industrial, government and infrastructure markets. According to the US Census
Bureau, expenditures for non-residential building construction between 1987 and
1997 increased from $123.2 billion to $161.2 billion, or 31%.

NORTEK

Residential Building Products Group

The Residential Building Products Group manufactures and distributes
built-in products primarily for the residential new construction, DIY and
professional remodeling and renovation markets. The principal products sold by
the Group are kitchen range hoods, bath fans, combination units (fan, heater and
light combinations), shower doors and bath cabinets. The Group is the largest
supplier in North America of range hoods, bath fans and combination units,
indoor air quality products (such as continuous-ventilation systems and energy-
recovery ventilators) and one of the leading suppliers in Western Europe, South
America and the Middle East of luxury "Eurostyle" range hoods. Products are sold
under the Broan(R), Nautilus(R), Venmar(R), Flair, vanEE(R), Rangaire(R) and
Best(R) brand names, among others, to distributors and dealers of electrical and
lighting products, kitchen and bath dealers, retail home centers and original
equipment manufacturers ("OEMs"). Customers for the Group's products include
residential and electrical contractors, professional remodelers and DIY
homeowners. Other products sold by this Group include, among others, wireless
security products, garage door openers, built-in home intercoms and
entertainment systems, home automation systems, door chimes, paddle fans,
central vacuum systems and fluorescent lighting fixtures. The Company's sales of
kitchen range hoods accounted for approximately 14.8% of the Company's
consolidated net sales in 1997.

A key component of the Group's operating strategy is the introduction of
new products which capitalize on the strong Broan(R), Nautilus(R), Venmar(R),
Flair, vanEE(R), Rangaire(R) and Best(R) brand names and the extensive
distribution system of the Group's businesses. Products sold under these brand
names include the Broan Rangemaster and Finesse(TM) rangehood, Solitaire and
Solitare Ultra Silent fans and fan lights, the Best by Broan(R), "Eurostyle"
luxury rangehoods, the Venmar(R), Flair and vanEE(R) Super Compact line of
indoor air quality systems and the Broan(R) 12" wide trash compactor.

With respect to certain product lines, several private label customers
account for a substantial portion of net sales. In 1997, approximately 20.2% of
the total sales of the Group were made to private label customers.

Production generally consists of fabrication from coil and sheet steel and
formed metal utilizing stamping, pressing and welding methods, assembly with
components and subassemblies purchased from outside sources (motors, fan blades,
heating elements, wiring harnesses, controlling devices, glass, mirrors,
lighting fixtures, lumber, wood and polyethylene components, speakers, grilles
and similar electronic components, and compact disc and tape player mechanisms)
and painting, finishing and packaging.

The Group offers a broad array of products with various features and styles
across a range of price points. The Company believes that the Group's variety of
product offerings helps the Group maintain and improve its market position for
its principal products. At the same time, the Company believes that the Group's
status as a low-cost producer, in large part as a result of advanced
manufacturing processes, provides the Group with a competitive advantage.

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<PAGE> 44

The Group's primary products compete with many domestic and international
suppliers in their various markets. The Group competes with suppliers of
competitive products primarily on the basis of quality, distribution, delivery
and price. The market for bath cabinets is highly fragmented with no single
dominant supplier. Although the Group believes it competes favorably among
suppliers of the Group's products, certain of these suppliers have greater
financial and marketing resources than the Group.

The Group has 17 manufacturing plants and had 2,791 full-time employees as
of December 31, 1997, 306 of whom are covered by collective bargaining
agreements which expire in 1999, 2000 and 2001. The Company believes that the
Group's relationships with its employees are satisfactory.

Air Conditioning and Heating Products Group

The Air Conditioning and Heating Products Group manufactures and sells HVAC
systems for custom-designed commercial applications and for manufactured and
site-built residential housing. The Group's commercial products consist of HVAC
systems that are custom-designed to meet customer specifications for commercial
offices, manufacturing and educational facilities, hospitals, retail stores and
governmental buildings. Such systems are primarily designed to operate on
building rooftops (including large self-contained walk-in units) or on
individual floors within a building, and range from 40 to 600 tons of cooling
capacity. The Group markets its commercial products under the Governair(R),
Mammoth(R), Temtrol(TM), Aston and Venmar(R) brand names. For manufactured and
site built residential housing, the Group's products include central air
conditioners, heat pumps, furnaces and a wide range of accessories marketed
under the Intertherm(R), Miller(R), and POWERmiser(R) brand names for certain of
its products. The Group has recently licensed the use of the Frigidaire(R),
Tappan(R) and Philco(R) brand names. Residential central air conditioning
products range from 1.5 to 5 tons of cooling capacity and furnaces range from
45,000 BTUs to 144,000 BTUs of heating capacity.

Commercial Products. The Group's commercial products include packaged
rooftop units and air handlers, custom walk-in mechanical equipment rooms,
individual floor by floor units, heat pumps and heat recovery equipment. The
market for commercial HVAC equipment is segmented between standard and
custom-designed equipment. Standard equipment can be manufactured at a lower
cost and therefore offered at substantially lower initial prices than
custom-designed equipment. As a result, suppliers of standard equipment
generally have a larger share of the overall commercial HVAC market than
suppliers of custom-designed equipment, including the Group. However, because of
certain building designs, shapes or other characteristics, the Company believes
there are many applications for which custom-designed equipment is required or
is more cost effective over the life of the building. Unlike standard equipment,
the Group's commercial HVAC equipment can be designed to match the exact space,
capacity and performance requirements of the customer. The Group sells its
commercial products primarily to contractors, owners and developers of
commercial office buildings, manufacturing and educational facilities,
hospitals, retail stores and governmental buildings. The Group seeks to maintain
strong relationships nationwide with design engineers, owners and developers,
the persons who are most likely to value the benefits and long-term cost
efficiencies of the Group's custom-designed equipment.

The Company estimates that about half of the Group's commercial sales in
1997 were attributable to replacement and retrofit activity, which typically is
less cyclical than new construction activity and generally commands higher
margins. The Group continues to develop product and marketing programs to
increase penetration in the growing replacement and retrofit market.

For many commercial applications, the ability to provide a custom-designed
system is the principal concern of the customer. The Group's packaged rooftop
and self-contained walk-in equipment rooms maximize a building's rentable floor
space because they are located outside the building. In addition, factors
relating to the manner of construction and timing of installation of commercial
HVAC equipment can often favor custom-designed rather than standard systems. As
compared with site-built and standard HVAC systems, the Group's systems are
factory assembled and then installed, rather than assembled on site, permitting
extensive testing prior to shipment. As a result, the Group's commercial systems
can be installed

44
<PAGE> 45

later in the construction process than site-built systems, thereby saving the
owner or developer construction and labor costs. The Group's individual floor
units offer flexibility in metering and billing, a substantial advantage if a
building is to be occupied in stages or where HVAC usage varies significantly
from floor to floor.

The Group's commercial products are marketed through independently-owned
manufacturers' representatives and an in-house sales, marketing and engineering
group of 110 persons as of December 31, 1997. The independent representatives
are typically HVAC engineers, a factor which is significant in marketing the
Group's commercial products because of the design-intensive nature of the market
segment in which the Group competes.

The Company believes that the Group is among the largest suppliers of
custom-designed commercial HVAC products in the United States. The Group's three
largest competitors in the commercial HVAC market are York International
Corporation (which sells under the "Pace" trade name) and its Miller-Picking
division, McQuay International (a subsidiary of OYL Corporation), and The Trane
Company (a subsidiary of American Standard Inc.). The Group competes primarily
on the basis of engineering support, quality, flexibility in design and
construction and total installed system cost. Although the Company believes that
the Group competes favorably with respect to certain of these factors, most of
the Group's competitors have greater financial and marketing resources than the
Group and enjoy greater brand awareness. However, the Company believes that the
Group's ability to produce equipment that meets the performance characteristics
required by the particular product application provides it with advantages not
enjoyed by certain of these competitors.

Residential Products. The Group is one of the largest suppliers of air
conditioners, heat pumps and furnaces to the manufactured housing market in the
United States. In addition, the Group manufactures and markets HVAC and light
commercial products for site-built homes and light commercial structures.

The principal factors affecting the market for the Group's residential HVAC
products are the levels of manufactured housing shipments and housing starts and
the demand for replacements and modernization of existing equipment. The Company
anticipates that the replacement market will continue to expand as a large
number of previously installed heating and cooling products become outdated or
reach the end of their useful lives. This growth may be accelerated by a
tendency among consumers to replace older heating and cooling products with
higher efficiency models prior to the end of such equipment's useful life. The
market for residential cooling products, including those sold by the Group, is
affected by spring and summer temperatures. The Group does not sell window air
conditioners, a segment of the market which is highly seasonal and especially
affected by spring and summer temperatures. The Company believes that the
Group's ability to offer both heating and cooling products helps offset the
effects of seasonality of the Group's sales.

The Group sells its manufactured housing products to builders of
manufactured housing and, through distributors, to manufactured housing
retailers and owners of such housing. The majority of sales to builders of
manufactured housing consists of furnaces designed and engineered to meet or
exceed certain standards mandated by federal agencies, including the United
States Department of Housing and Urban Development. These standards differ in
several important respects from the standards for furnaces used in site-built
residential homes. The aftermarket channel of distribution includes sales of
both new and replacement air conditioning units and heat pumps and replacement
furnaces. The Company believes that the Group has one major competitor in the
furnace segment of this market, Evcon Industries, a subsidiary of York
International Corporation, which markets its products under the "Evcon/Coleman"
name.

A substantial portion of site-built residential products have been
introduced in the past several years, including a new line of furnaces and a
reengineered line of high efficiency air conditioners and heat pumps.
Residential HVAC products for use in site-built homes are sold through
independently-owned distributors who sell to HVAC contractors. New products for
commercial application up to 10 tons have also been recently introduced.

Competition in the site-built residential HVAC market is intense, and many
suppliers of such equipment have substantially greater financial and marketing
resources than the Group and enjoy greater brand

45
<PAGE> 46

awareness. In these markets, the Group competes with, among others, Carrier
Corporation, Rheem Manufacturing Company, Lennox Industries, The Trane Company
and York International Corporation. The Group competes in both the manufactured
housing and site-built markets on the basis of breadth and quality of its
product line, distribution, product availability and price. The Company believes
that the Group competes favorably with respect to these factors. To provide
greater consumer acceptance and pull through for its products, the Company has
recently licensed from White Consolidated Industries, Inc. the use of the
Frigidaire(R), Tappan(R) and Philco(R) brand names for certain of its products.

The Company estimates that more than half of the Group's sales of
residential HVAC products in 1997 were attributable to the replacement market,
which tends to be less cyclical than the new construction market.

The Group has nine manufacturing plants and had 2,288 full-time employees
as of December 31, 1997, 212 of whom are covered by a collective bargaining
agreement which expires in 1998. The Company believes that the Group's
relationships with its employees are satisfactory.

Windows, Doors and Siding Group

The Windows, Doors and Siding Group, which was acquired by the Company as
part of the Ply Gem Acquisition in August, 1997, is a manufacturer and
distributor of vinyl and wood windows, doors, vinyl siding, soffit, skirting and
shutters for use in the residential construction, DIY and professional
renovation market. The Company believes it is among the largest suppliers of
vinyl windows serving the replacement market in the United States. Additionally,
the Company believes it is a leading supplier of wood windows to major home
centers and a leading supplier of vinyl siding in the United States. The
Company's sales of windows, since the Ply Gem Acquisition, accounted for
approximately 10.1% of the Company's consolidated net sales in 1997.

Windows and Doors. The Group manufactures and sells a full line of wood,
clad, composition (wood and vinyl) and vinyl windows and patio doors, glass and
polycarbonate skylights, and wooden interior bifold doors sold under the
Crestline(R), Vetter(R), Kenergy(R) and AWC(R) brand names. In addition, the
Group manufactures energy efficient and maintenance free vinyl windows and patio
doors, under the Great Lakes(R) Gold, PLY GEM(R) Premium, Uniframe(R), MC+(TM)
and Garden Windows(TM) brand names. The products are marketed to both the home
improvement and new construction markets through wholesale and specialty
distributors, large contractors, home centers and lumber yards. The Company
believes that it is the fourth largest producer of wood windows in the United
States.

Through the Crestline(R) and Vetter(R) brands, wood windows are available
with primed or clad exteriors, and offer innovative product features with a wide
selection of options. A complete range of window styles include double hung,
single hung, casement, awning, sliding, garden, angle bay and bow windows.
Specialty and custom windows are available in a wide variety of shapes and
sizes. Patio doors are offered in traditional hinged, French hinged, sliding and
French sliding designs. The CrestWood(TM) series of premium wood windows and
patio doors combine the performance of an energy efficient, maintenance-free
solid vinyl exterior with the warmth and beauty of a natural pine, oak, walnut
or cherry interior that can be painted or stained. Most of the products are
available with insulated divided light glass, a patented energy efficient
replica of historically correct narrow muntin bar divided light wood windows and
patio doors. VinylCrest(TM) and ProCraft(TM) comprise a complete line of solid
vinyl windows, which are available for replacement and new construction
applications, in a full range of styles. These product offerings are an
important component of the Group's strategy to offer windows in all price points
and market segments. In addition to a broad line of standard windows and doors,
its custom window factory can build nearly any shape and size window.

The Group manufactures a series of vinyl windows and patio doors for new
construction in both standard and custom sizes. Replacement units are
manufactured to customer specifications. These products include single hung,
double hung, bow and bay, casement, garden, sliding and awning windows, as well
as hinged and sliding patio doors in a variety of vinyl colors and interior
woodgrains, several different grille styles and patterns and a wide assortment
of glass options. Product lines feature fusion welded sash and frame corners
which are guaranteed not to separate, leak air or water, or require maintenance.
The Intercept(TM) warm edge glass spacer system is manufactured in one
continuous piece, resulting in a stronger, more energy efficient insulated glass
unit. The Company is the only vinyl window manufacturer to offer EasyClean(TM)
glass, which works like

46
<PAGE> 47

Teflon(TM) on cookware, providing an owner with a window which requires less
cleaning. These products incorporate other innovations which differentiate the
product line from other window manufacturers, including wood grain vinyl
interiors available in three finishes, multi-point locking hardware, and sliding
patio doors which utilize a proprietary tank type roller system. Replacement
products are sold through specialty distributors and directly to large
contractors. The new construction series of vinyl windows and patio doors is
currently being sold under private label programs and to a select number of
dealer distributors. This multiple brand approach has allowed the Group to
achieve increased penetration in a given geographic area, by offering dealer
distributors individual brands on an exclusive basis.

The Group differentiates itself from its competition with a multiple brand
strategy, multi-channels of distribution (with an emphasis on the home center
market), an established distribution network utilizing custom design and
manufacturing capabilities, and a trained field sales and service support
network. Its ability to sell in full truckload and less than truckload
quantities is tailored to the desires of large home center chains which prefer
to purchase windows direct from the manufacturer. The Group's ability to offer a
broad product line that includes primed, clad, composition (wood and vinyl) and
vinyl windows and patio doors, along with skylights under a single brand is also
important to the Group's sales and marketing strategy, together with the
Company's focus on one of the fastest growing segments in the industry -- home
centers and lumberyards.

Siding. The Group is a manufacturer of vinyl siding, soffit, skirting and
accessories, which are available in a variety of woodgrains and colors. Its
products are used in both remodeling and new construction applications,
including manufactured housing. Vinyl siding has captured an increasing share of
the overall market for exterior siding materials due to its ease of
installation, high performance, durability, low maintenance requirements and
price stability as compared to alternative siding materials (including wood,
aluminum and masonry). These products are marketed under Cedar Lane(R),
Varigrain(R), Duragrain(R), Timber Oak(R), and ProLoc(R), brands and the Georgia
Pacific label. The Company believes it is the leading supplier to home centers
and lumberyards, and the fourth largest producer of vinyl siding in the United
States. In addition, the Group is a supplier to the Eastern European market.

Vinyl siding is sold to either specialty distributors who, in turn, sell
directly to remodeling contractors or builders, or to building materials
wholesale distributors who sell to home centers and lumberyards who, in turn,
sell to remodeling contractors and consumers (two-step distribution). The
Company believes that it is able to compete on favorable terms as a result of
its distribution coverage, high quality and innovative products, and production
efficiency. Additionally, the Company has a strong presence in the retail
segment of the market, which continues to grow at a rate faster than the overall
market.

The Group also manufactures a line of injection molded siding components
for the remodeling and new construction markets. Siding components include
blocks, which allow for the flush mounting of items like light fixtures to the
exterior of a home, and gable vents that provide attic ventilation. The products
are sold to home centers, lumberyards and wholesale distributors of building
materials. It is the only manufacturer of siding components to offer a color
selection to match or complement the colors offered by most major manufacturers
of vinyl siding. The Group has also recently introduced a line of fixed and
variable dimension shutters.

The Group operates ten manufacturing plants in the United States and had
3,436 full-time employees as of December 31, 1997, 1,578 of whom are covered by
collective bargaining agreements which expire in 1998 and 1999. The Company
believes that the Group's relationships with its employees are satisfactory.

Specialty Products and Distribution Group

The Specialty Products and Distribution Group, which was acquired by the
Company as part of the Ply Gem Acquisition in August, 1997, manufactures and
distributes pressure treated wood products, specialty lumber and decorative home
products. The Group offers a full range of preservative and fire retardant
treated lumber and plywood products which are marketed to home centers,
cooperative buying groups, lumberyards and independent wholesale distributors
for use generally in residential decking, roofing, siding and landscaping as
well as various commercial construction applications. The Group's products
include fire retardant treated wood products which are used nationwide for
commercial and noncombustible construction. These products, PYRO-GUARD(R) and
EXTERIOR FIRE-X(R) are the Group's major brands in the United States. They are

47
<PAGE> 48

available from Company plants east of the Rockies and from licensees west of the
Rockies. Other treated wood products include CCA/KDAT preservative treated wood
for commercial and residential construction that is kiln dried after treatment,
COP-8(R) food-safe preservative treated wood and PLYWALL preservative treated
wood highway noise barriers.

The Group manufactures and distributes specialty lumber and related
building products for a variety of uses including roofing, decking, siding,
landscaping and interior paneling. The Group also distributes decorative
products for the home including prefinished wood paneling, solid wood planking,
imported ceramic, marble and porcelain tile and melamine coated panels. Finished
and unfinished wood and melamine shelving as well as other products are sold to
home centers and lumberyards. The Group has become a strategic, value-added
supplier of a wide range of products for the national home center chains.

While the specialty wood products industry is very competitive, the Company
believes it is able to compete effectively by providing superior customer
service and quality, and wherever possible, proprietary products. The companies
within the Group focus on high margin, niche markets within the broader defined
wood products industry which tends to be commodity driven. Its products are sold
through home center retailers and wholesalers of building materials. The Company
believes that growth of this segment of its business will result from continued
expansion of its share of the home center market.

The Group also distributes a broad range of high end specialty wood and
wood related products, including hardwood plywood, melamine and other laminated
board products, hardwood lumber, high pressure laminates (HPL), solid surface
materials and cabinet hardware and is a leading importer of specialty wood
panels from all over the world, including Russian plywood sold under its brand
name Baltic Birch(R). Customers of these products are industrial woodworkers,
including cabinet manufacturers, architectural millworkers, and manufacturers of
store fixtures, furniture, signs and exhibits. Products are sold through an
extensive network of Company operated warehouse facilities as well as public
warehouses located in various major port cities. Sales are generated by a well
trained and experienced sales force. These distribution operations are
differentiated from those of competitors, which primarily include local
independent distributors, by superior customer service, geographic coverage and
breadth of product line. As a result, the Group has become a preferred
distributor of many products, selling them on an exclusive or limited exclusive
basis. The Company believes that future growth will come from the introduction
of new products and expansion of its market territories.

In addition, the Group is a west coast manufacturer and distributor of
furniture components, laminates and board products to furniture manufacturers
and other original equipment manufacturers, building materials retailers and
wholesalers. In addition to distribution of wood products, its strengths are
laminating, drawer parts, cut-to-size components and other value added services
on a just-in-time basis. As a large manufacturer and distributor of high
quality, cost efficient products for the furniture, ready-to-assemble, cabinet
and building industries, the Company specializes in providing custom laminations
to industrial customers that meet almost any specification.

The Specialty Products and Distribution Group operates eight production
facilities and twelve distribution centers in the United States and had 707
full-time employees as of December 31, 1997, 163 of whom are covered by
collective bargaining agreements which expire in 1998 and 1999. The Company
believes that the Group's relationships with its employees are satisfactory.

The Company is currently considering selling one or more of its businesses
in this Group.

GENERAL CONSIDERATIONS

Employees. The Company employed approximately 9,262 persons at December
31, 1997, of which 2,259 were employed under collective bargaining agreements.

Backlog. Backlog expected to be filled during 1998 was approximately
$127,137,000 at December 31, 1997 ($107,907,000 at December 31, 1996). Backlog
is not regarded as a significant factor for most of the Company's operations for
which orders are generally for prompt delivery. While backlog stated for
December 31, 1997 is believed to be firm, the possibility of cancellations makes
it difficult to assess the firmness of backlog with certainty.

48
<PAGE> 49

Research and Development. The Company's research and development
activities are principally related to new product development and such
expenditures represent approximately 1% of net sales.

Patents and Trademarks. The Company holds numerous design and process
patents that it considers important, but no single patent is material to the
overall conduct of its business. It is the Company's policy to obtain and
protect patents whenever such action would be beneficial to the Company. The
Company owns several trademarks that it considers material to the marketing of
its products, including Broan(R), Nautilus(R), Venmar(R), vanEE(R), Rangaire(R),
Best(R), Crestline(R), Vetter(R), AWC(R), Kenergy(R), CrestWood(TM),
VinylCrest(TM), ProCraft(TM), Cedar Lane(R), Varigrain(R), Duragrain(R), Timber
Oak(R), ProLoc(R), Great Lakes(R) Gold, PLY GEM(R)Premium, Uniframe(R), MC+(TM),
Intercept(TM), Easy-Clean(TM), PYRO-GUARD(R), EXTERIOR FIRE-X(R), CCA/KDAT,
COP-8(R), Baltic Birch(R), Governair(R), Mammoth(R), Temtrol(TM), Miller(R),
Intertherm(R) and POWERmiser(R). The Company believes that its rights in these
trademarks are adequately protected.

Raw Materials. The Company purchases raw materials and most components
used in its various manufacturing processes. The principal raw materials
purchased by the Company are rolled sheet, formed and galvanized steel, copper,
aluminum, plate mirror glass, PVC, polypropylene, glass, vinyl extrusions,
particle board, fiberboard, lumber, plywood, various chemicals, paints, resins
and plastics.

The materials, molds and dyes, subassemblies and components purchased from
other manufacturers, and other materials and supplies used in the Company's
manufacturing processes have generally been available from a variety of sources.
Whenever practical, the Company establishes multiple sources for the purchase of
raw materials and components to achieve competitive pricing, ensure flexibility
and protect against supply disruption. From time to time, increases in raw
material costs can affect future supply availability due in part to raw material
demands by other industries.

Working Capital. The carrying of inventories to support customers and to
permit prompt delivery of finished goods requires substantial working capital.
Substantial working capital is also required to carry receivables. The demand
for the Company's products is seasonal, particularly in the Northeast and
Midwest regions of the United States and in Canada where inclement weather
during the winter months usually reduces the level of building and remodeling
activity in both the home improvement and new construction markets. The Ply Gem
businesses, acquired in August 1997, have in the past been more seasonal in
nature than the Company's subsidiaries owned prior to the acquisition. As a
result, the demand for working capital of the Company's subsidiaries is greater
from late in the first quarter until early in the fourth quarter. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

LEGAL PROCEEDINGS

The Company and its subsidiaries are subject to numerous federal, state and
local laws and regulations, including environmental laws and regulations that
impose limitations on the discharge of pollutants into the air and water and
establish standards for the treatment, storage and disposal of solid and
hazardous wastes. The Company believes that it is in substantial compliance with
the material laws and regulations applicable to it. The Company is involved in
current, and may become involved in future, remedial actions under federal and
state environmental laws and regulations which impose liability on companies to
clean up, or contribute to the cost of cleaning up, sites at which their
hazardous wastes or materials were disposed of or released. Such claims may
relate to properties or business lines acquired by the Company after a release
has occurred. In other instances, the Company may be partially liable under law
or contract to other parties that have acquired businesses or assets from the
Company for past practices relating to hazardous substances management. The
Company believes that all such claims asserted against it, or such obligations
incurred by it, will not have a material adverse effect upon the Company's
financial condition or results of operations. Expenditures in 1996 and 1997 to
evaluate and remediate such sites were not material. However, the Company is
presently unable to estimate accurately its ultimate financial exposure in
connection with identified or yet to be identified remedial actions due among
other reasons to: (i) uncertainties surrounding the nature and application of
environmental regulations, (ii) the Company's lack of information about
additional sites with respect to which

49
<PAGE> 50

it may be listed as a potentially responsible party ("PRP"), (iii) the level of
clean-up that may be required at specific sites and choices concerning the
technologies to be applied in corrective actions and (iv) the time periods over
which remediation may occur. Furthermore, since liability for site remediation
is joint and several, each PRP is potentially wholly liable for other PRPs that
become insolvent or bankrupt. Thus, the solvency of other PRPs could directly
affect the Company's ultimate aggregate clean-up costs. In certain
circumstances, the Company's liability for clean-up costs may be covered in
whole or in part by insurance or indemnification obligations of third parties.

In addition to the legal matters described above, the Company and its
subsidiaries are parties to various legal proceedings incident to the conduct of
their businesses. None of these proceedings is expected to have a material
adverse effect, either individually or in the aggregate, on the Company's
financial position or results of operations. (See Note 8 of Notes to the
Company's Consolidated Financial Statements included elsewhere herein.)

50
<PAGE> 51

MANAGEMENT

DIRECTORS OF THE COMPANY

The following table sets forth the name, age as of the date hereof and
current principal occupation or employment and five-year employment history for
the five members currently serving on the Company's Board of Directors. Unless
otherwise noted, each director has maintained the same principal occupation
during the past five years.

<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND
NAME AGE FIVE-YEAR EMPLOYMENT HISTORY
- ---- --- ----------------------------------------------
<S> <C> <C>
Richard L. Bready......................... 53 Chairman and Chief Executive Officer of the Company.
Phillip L. Cohen.......................... 66 Partner with the professional service firm Arthur
Andersen LLP from 1965 until his retirement in June
1994 and a financial consultant since that date.
Richard J. Harris......................... 61 Vice President and Treasurer of the Company.
William I. Kelly.......................... 54 Director of the Graduate School of Professional
Accounting of Northeastern University.
J. Peter Lyons............................ 63 President of The Lyons Companies, an insurance and
employee benefits consulting company.
</TABLE>

EXECUTIVE OFFICERS OF THE COMPANY

The following table sets forth the name, age as of the date hereof and
position and office held with the Company for the following persons who may be
deemed executive officers of the Company. Each executive officer has maintained
the same position and office with the Company during the past five years.

<TABLE>
<CAPTION>
NAME AGE PRESENT POSITION WITH THE COMPANY
- ---- --- ---------------------------------
<S> <C> <C>
Richard L. Bready......................... 53 Chairman and Chief Executive Officer
Almon C. Hall............................. 51 Vice President, Controller and Chief Accounting
Officer
Richard J. Harris......................... 61 Vice President and Treasurer
Kenneth J. Ortman......................... 62 Senior Vice President, Group Operations
Kevin W. Donnelly......................... 43 Vice President, General Counsel and Secretary
</TABLE>

Executive officers are elected annually by the Board of Directors of the
Company and serve until their successors are chosen and qualified. Mr. Bready
has an employment agreement with the Company providing for his employment as
Chief Executive Officer through 2002, which term is extended at the end of each
year for an additional year until either party gives notice that it will not be
further extended. Mr. Bready has been Chief Executive Officer of the Company
since October 31, 1990.

51
<PAGE> 52

PRINCIPAL STOCKHOLDERS

The following table sets forth the beneficial ownership of equity
securities of the Company by the Company's directors, by its executive officers,
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 March 31, 1998, except for the number of shares held by Gabelli
Funds, Inc., Neuberger & Berman, LLC, Marvin Schwartz and Canpartners
Incorporated, as to which the dates are February 2, 1998, February 10, 1998,
February 10, 1998 and May 4, 1998, respectively.

<TABLE>
<CAPTION>
COMMON STOCK SPECIAL COMMON STOCK SHARES OF
----------------------- ----------------------- COMMON STOCK
AMOUNT AND AMOUNT AND BENEFICIALLY OWNED
NATURE OF NATURE OF AFTER THE OFFERING
BENEFICIAL PERCENT BENEFICIAL PERCENT -------------------
NAME(1) OWNERSHIP(2) OF CLASS OWNERSHIP(2) OF CLASS NUMBER PERCENT
- ------- ------------ -------- ------------ -------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Richard L. Bready(3)+-.............. 590,950 6.5 693,294 81.3 590,950 5.4
Phillip L. Cohen+................... 100 * -- 100 *
Kevin W. Donnelly-.................. 19,840 * 10 * 19,840 *
Almon C. Hall-...................... 22,400 * -- 22,400 *
Richard J. Harris(3)+-.............. 284,266 3.2 50,106 8.7 284,266 2.6
William I. Kelly+................... 100 * -- 100 *
J. Peter Lyons+..................... 240 * -- 240 *
Kenneth J. Ortman-.................. 32,875 * -- 32,875 *
All directors and executive officers 713,971 7.9 697,147 81.8 713,971 6.4
as a group(3)(4)..................

Gabelli Funds, Inc.(5).............. 1,415,600 15.8 18,665 3.2 1,415,600 12.9
One Corporate Center,
Rye, NY 10580

Neuberger & Berman, LLC(5).......... 567,000 6.3 -- 567,000 5.2
605 Third Avenue,
New York, NY 10158

Marvin Schwartz(5).................. 479,300 5.3 -- 479,300 4.4
c/o Neuberger & Berman, LLC
605 Third Avenue,
New York, NY 10158

Canpartners Incorporated(5)(6)...... 449,400 5.0 -- 449,400 4.1
19665 Wilshire Boulevard, Suite 200
Beverly Hills, CA 90212
</TABLE>

- ---------------
* Less than 1%

+ Director of the Company

- Executive Officer of the Company

(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 Exchange Act. 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
shares issuable upon the exercise of options not currently exercisable 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

52
<PAGE> 53

Stock), 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 March 31, 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 shares
upon exercise of options totaling 120,300 shares of Common Stock that are
not currently exercisable.

(5) The information as to these holdings was obtained from filings made with the
Commission pursuant to Section 13 of the Exchange Act.

(6) Canyon Capital Management, L.P. ("CCM") is an investment advisor to various
managed accounts with the right to receive or the power to direct the
receipt of dividends from, or the proceeds from the sale of the shares of
Common Stock. Canpartners Incorporated is the general partner of CCM and
Mitchell R. Julis, R. Christian B. Evenson and Joshua S. Friedman own 100%
of Canpartners Incorporated.

Except as set forth in the above table, the Company knows of no persons who
at March 31, 1998, beneficially owned more than 5% of the shares of Common
Stock or Special Common Stock of the Company outstanding on that date.

53
<PAGE> 54

DESCRIPTION OF CAPITAL STOCK

The following description of the capital stock of the Company and certain
provisions of the Restated Certificate and Bylaws, as amended (the "By-laws") is
a summary and is qualified in its entirety by the provisions of the Restated
Certificate and the By-laws, which are incorporated by reference as exhibits to
the Registration Statement.

Upon the closing of the Offering, the Company's authorized capital stock
will consist of 40,000,000 shares of Common Stock, $1.00 par value per share,
5,000,000 shares of Special Common Stock, $1.00 par value per share, and
7,000,000 shares of Preference Stock, $1.00 par value per share, of which
200,000 shares have been designated as Series A Participating Preference Stock.
As of March 31, 1998, there were issued and outstanding 8,976,120 shares of
Common Stock and 578,660 shares of Special Common Stock. As of March 31, 1998,
there were 3,054 record holders of Common Stock and 2,412 record holders of
Special Common Stock.

COMMON STOCK

Holders of Common Stock are entitled to one vote for each share held and
have no preemptive, conversion or other rights to subscribe for additional
shares or other securities of the Company. The holders of the Common Stock,
voting separately as a class with the Preference Stock entitled to vote, have
the right to elect 25% of the number of directors to be elected at a meeting
called for such purpose. Holders of Common Stock are entitled to such dividends,
payable in cash or other property, as and if declared by the Board of Directors
out of funds legally available therefor, subject to preferential dividend rights
of any outstanding Preference Stock. See "Dividend Policy." Upon liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary, the
holders of Common Stock are entitled to share ratably with the holders of
Special Common Stock the net assets of the Company remaining after the payment
of all creditors and liquidation preferences, if any. All the issued and
outstanding shares of Common Stock are, and the shares being offered by the
Company, upon their issuance and sale will be, fully paid and nonassessable.

SPECIAL COMMON STOCK

Each share of Special Common Stock entitles the holder thereof to ten votes
on each matter on which the holders of Special Common Stock are entitled to
vote. Holders of Special Common Stock are entitled to dividends of cash, shares
of capital stock of the Company or other property, as and if declared by the
Board of Directors; provided, however that no cash dividends may be declared on
the Special Common Stock unless cash dividends of at least an equal amount are
declared and paid on the Common Stock. The Special Common Stock is not
transferable except in certain limited circumstances, including a transfer to
the holder's spouse. The Special Common Stock is also convertible at any time,
without cost to the stockholder, into Common Stock on a share-for-share basis.
Upon liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, the holders of Special Common Stock are entitled to share ratably
with the holders of Common Stock the net assets of the Company remaining after
payment of all creditors and liquidation preferences, if any. All of the issued
and outstanding shares of Special Common Stock are fully paid and nonassessable.

PREFERENCE STOCK

The Board of Directors is authorized, subject to any limitations prescribed
by law, without further stockholder approval, from time to time to issue up to
an aggregate of 7,000,000 shares of Preference Stock, $1.00 par value per share,
in one or more series, each of such series to have such voting powers, full or
limited, or no voting powers, and such designations, preferences and relative,
participating, optional or other special rights, and such qualifications,
limitations or restriction is thereof, as shall be determined by the Board of
Directors. Thus, any series may, if so determined by the Board of Directors,
have full voting rights with the Common or Special Common Stock or superior or
limited voting rights, be convertible into Common Stock or another security of
the Company, and have such other relative rights, preferences and limitations as
the

54
<PAGE> 55

Company's Board of Directors shall determine. As a result, any class or series
of Preference Stock could have rights which would adversely affect the voting
power of the Common Stock and Special Common Stock.

The Company has reserved 200,000 shares of Series A Participating
Preference Stock (the "Series A Stock") for issuance in connection with exercise
of the Rights, as discussed below. Each share of Series A Stock entitles the
holder thereof to 100 votes on all matters submitted to the stockholders for a
vote. In general, holders of Series A Stock vote together as a class with the
holders of Common Stock and the holders of Special Common Stock. Holders of
Series A Stock are entitled to receive dividends, as and if declared out of
funds legally available therefor, in cash on the tenth of January, April, July
and October in an amount equal to the greater of (i) $0.25 or (ii) 100 times the
aggregate per share amount of all cash dividends and 100 times the aggregate
amount per share of all non-cash dividends or other distributions payable on
shares of Common Stock or Special Common Stock, since the immediately preceding
date on which a dividend was required to be paid to the Series A Stock. Upon
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, the holders of Series A Stock are entitled to a preference payment
of $15.00 per share plus accrued and unpaid dividends and distributions thereon,
whether or not declared.

The issuance of Preference Stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, a majority of the
outstanding voting stock of the Company. As of the date of this Prospectus,
there were no shares of Preferred Stock outstanding.

DELAWARE LAW AND CERTAIN CHARTER PROVISIONS

Section 203 of the General Corporation Law of Delaware prohibits
publicly-held Delaware corporations from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person becomes an interested stockholder, unless
the business combination is approved in a prescribed manner. An "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within the prior three years did own) 15% or more of the corporation's voting
stock. The Company's By-laws provide that the Company will not be subject to the
provisions of Section 203. The Company's Restated Certificate requires the
affirmative approval of not less than 80% of the outstanding shares of capital
stock of the Company entitled to vote to approve or authorize certain business
combinations with restricted third parties. Restricted third parties include,
subject to certain exclusions, any person who, together with affiliates and
associates, owns 5% or more of the outstanding shares of capital stock of the
Company.

The Restated Certificate provides that any action by the stockholders of
that class must be taken at a duly called annual or special meeting of the
stockholders, and not by written consent. This provision could have the effect
of delaying until the next stockholders' meeting stockholder actions which are
favored by the holders of a majority of the outstanding voting securities of the
Company, since special meetings of stockholders may be called only by the Board
of Directors, the Chairman of the Board or the President of the Company. These
provisions may also discourage another person or entity from making a tender
offer for Common Stock, because such person or entity, even if it acquired a
majority of the outstanding voting securities of the Company, would be able to
take action as a stockholder (such as electing new directors or approving a
merger) only at a duly called stockholders' meeting, and not by written consent.
In addition, the Board of Directors of the Company is divided into three
"staggered" classes, with each class serving a term of three years. Dividing the
Board of Directors in this manner increases the difficulty of removing incumbent
members and could discourage a proxy contest or the acquisition of a substantial
block of the Company's Common Stock.

The Board of Directors is permitted pursuant to the Restated Certificate to
consider special factors, such as the social, legal and economic effects upon
employees, suppliers, and customers and the future prospects of the Company,
when evaluating tender or exchange offers or a "Business Combination" as defined
in Section 203 of the Delaware General Corporation Law.

55
<PAGE> 56

The Company has also included in its Restated Certificate provisions to
eliminate the personal liability of its directors for monetary damages resulting
from breaches of their fiduciary duty to the extent permitted by the Delaware
General Corporation Law and to indemnify its directors and officers to the
fullest extent permitted by Section 145 of the Delaware General Corporation Law.

RIGHTS PLAN

The Company has adopted the Rights Plan, pursuant to which each share of
Common Stock has attached one right (the "Rights") which trades together with
such share. The Rights will separate from the Common Stock and Rights
certificates will be issued on the Distribution Date. Unless a majority of the
Board of Directors determines otherwise, the "Distribution Date" will occur on
the tenth business day following (i) public announcement that a person or group
of affiliated or associated persons (an "Acquiring Person") has acquired or
obtained the right to acquire 17% or more of the outstanding Common Stock and
Special Common Stock, taken together as a single class, or commences or
announces an intention to make a tender offer that would result in a person or
group owning 30% or more of the outstanding Common Stock and Special Common
Stock, taken together as a single class. Certain individuals and entities,
including any wholly owned subsidiary or employee benefit plan of the Company,
members of the Company's Board of Directors, executive officers and entities
controlled by any of the foregoing, will not be considered an Acquiring Person.
Each Right enables the holder thereof to purchase from the Company one
one-hundredth of a share of Series A Stock at a price of $72.00 per each one
one-hundredth of Series A Stock, subject to adjustment.

The Board may, at its option, at any time after any person becomes an
Acquiring Person, exchange all or part of the then outstanding and exercisable
Rights for shares of Common Stock at an exchange ratio of one share of Common
Stock per Right, appropriately adjusted to reflect any stock split, stock
dividend or similar dilutive transaction; provided, however, that the Board may
not effect an exchange at any time after any person, together with all
affiliates of such person, becomes the beneficial owner of 50% or more of the
Common Stock and Special Common Stock, taken together as a single class, then
outstanding.

If, at any time after the Company has knowledge that any person has become
an Acquiring Person, the Company were to be acquired in a merger or other
business combination, or more than 25% of the assets or earning power of the
Company were to be sold, each Right would entitle the holder thereof to
purchase, at the then current exercise price of the Right, common shares of the
surviving company having a fair market value of twice the exercise price of the
Right.

The Board of Directors may redeem the Rights at a redemption price of $0.01
per Right, subject to adjustments to reflect any stock split, stock dividend,
combination of shares or similar dilutive transaction, at any time prior to
March 31, 2006, the expiration date of the Rights.

56
<PAGE> 57

DESCRIPTION OF CERTAIN INDEBTEDNESS

CREDIT FACILITY

On August 26, 1997, in connection with the Ply Gem Acquisition, a syndicate
of lenders and Fleet National Bank, as sole administrative and collateral agent
for itself and the other lenders, entered into a credit facility (as amended,
the "Ply Gem Credit Facility") to refinance a portion of Ply Gem's existing
indebtedness. At December 31, 1997, the aggregate amount of the credit
outstanding under the Ply Gem Credit Facility was approximately $103.9 million.

The Ply Gem Credit Facility provides Ply Gem with a term loan and letters
of credit. Under the Ply Gem Credit Facility, the term loan and the letters of
credit were issued contemporaneously with the closing of the acquisition of Ply
Gem (the "Ply Gem Credit Facility Closing Date") and will mature on the fifth
anniversary of the Ply Gem Credit Facility Closing Date.

Term loans under the Ply Gem Credit Facility, at the option of Ply Gem,
bear interest at a rate equal to: (i) a fluctuating interest rate per annum in
effect from time to time, equal to the higher of (A) the prime rate publicly
announced by Fleet and (B) 1/2 of one percent per annum above the federal funds
rate; or (ii) the London InterBank Offer Rate plus a spread, which spread
fluctuates between 30 and 95 basis points based on certain financial ratios of
Ply Gem; provided, however, that the applicable interest rate will increase by
200 basis points during the continuance of any monetary default or event of
default. Interest on the term loans under the Ply Gem Credit Facility is payable
quarterly in arrears. In addition, Ply Gem pays a facility fee on the aggregate
principal amount available under the Ply Gem Credit Facility, which fluctuates
between 20 and 30 basis points based on certain financial ratios of Ply Gem. The
facility fee is payable quarterly in arrears.

The Ply Gem Credit Facility is secured by a first-priority lien on (i) all
shares of capital stock of substantially all of Ply Gem's present operating
subsidiaries, (ii) all of the present and future accounts receivable and
inventory of Ply Gem and its operating Subsidiaries and (iii) all proceeds and
products of the foregoing. In addition, Ply Gem and substantially all of its
present operating subsidiaries have guaranteed the Ply Gem Credit Facility.

During the period commencing on June 1, 1999 and ending on August 26, 2002,
the aggregate principal amount of the Ply Gem Credit Facility will be subject to
quarterly principal payments in an aggregate amount of $20.0 million beginning
with annual amounts of $3.0 million in 1999 and increasing to $6.0 million for
the first half of 2002 followed by a final payment of $83.9 million on August
26, 2002. Ply Gem is also required to make mandatory prepayments of a portion of
the net proceeds of asset sales. Ply Gem may prepay borrowings under the Ply Gem
Credit Facility, in whole or in part without premium or penalty. Borrowings
outstanding under the Ply Gem Credit Facility are due and payable no later than
the fifth anniversary of the Ply Gem Credit Facility Closing Date.

The Ply Gem Credit Facility contains representations and warranties,
covenants (including, without limitation, the financial covenants described
below) and events of default customary for credit facilities of such type,
except that there are no restrictions on the payment of dividends by Ply Gem
unless a default exists, or would result from the payment of such dividend,
under the Ply Gem Credit Facility.

The Ply Gem Credit Facility requires Ply Gem at all times to have
consolidated net worth of at least $375 million, less up to $25 million in
losses on the sale by Ply Gem of certain unprofitable subsidiaries. Under the
Ply Gem Credit Facility, Ply Gem also is required to maintain (i) a ratio of
consolidated current assets to consolidated current liabilities that equals or
exceeds 2 to 1 and (ii) a ratio of consolidated EBITDA to consolidated interest
expense of at least 3.5 to 1. Furthermore, Ply Gem must not permit its
consolidated funded debt to consolidated EBITDA for the four most recent
consecutive full fiscal quarters to exceed the following amounts: 3.5 to 1 until
September 30, 1998; 3.0 to 1 on December 31, 1998; 2.5 to 1 on June 30, 1999;
and 2 to 1 on June 30, 2000 and thereafter.

57
<PAGE> 58

OTHER OBLIGATIONS

In February 1994, the Company issued $218,500,000 principal amount of
9 7/8% Senior Subordinated Notes due 2004 (the "9 7/8% Notes"). The indenture
governing the 9 7/8% Notes (the "9 7/8% Indenture") restricts, among other
things, the payment of cash dividends, repurchase of the Company's capital stock
and the making of certain other restricted payments, the incurrence of
additional indebtedness, the making of certain investments, mergers,
consolidations and sale of assets (all as defined in the 9 7/8% Indenture). Upon
certain asset sales (as defined in the 9 7/8% Indenture), the Company will be
required to offer to purchase, at 100% principal amount plus accrued interest to
the date of purchase, the 9 7/8% Notes in a principal amount equal to any net
cash proceeds (as defined in the 9 7/8% Indenture) that are not invested in
properties and assets used primarily in the same or related business to those
owned and operated by the Company at the issue date of the 9 7/8% Notes or at
the date of such asset sale and such net cash proceeds were not applied to
permanently reduce Senior Indebtedness (as defined in the 9 7/8% Indenture). The
9 7/8% Notes are redeemable at the option of the Company, in whole or in part,
at any time and from time to time, at 104.214% on March 1, 1999, declining to
100% on March 1, 2002 and thereafter. The payment of the principal of, premium,
if any, and interest on the 9 7/8% Notes is subordinated in right of payment to
the prior payment of all Senior Indebtedness (as defined in the 9 7/8%
Indenture).

In March 1997, the Company issued $175,000,000 principal amount of the
9 1/4% Notes. The indenture governing the 9 1/4% Notes (the "9 1/4% Indenture")
restricts, among other things, the payment of cash dividends, repurchase of the
Company's capital stock and the making of certain other restricted payments, the
incurrence of additional indebtedness, the making of certain investments,
mergers, consolidations and sales of assets (all as defined in the 9 1/4%
Indenture). Upon certain asset sales (as defined in the 9 1/4% Indenture), the
Company will be required to offer to purchase, at 100% principal amount plus
accrued interest to the date of purchase, the 9 1/4% Notes in a principal amount
equal to any net cash proceeds (as defined in the 9 1/4% Indenture) that are not
invested in properties and assets used primarily in the same or related business
to those owned and operated by the Company at the issue date of the 9 1/4% Notes
or at the date of such asset sale and such net cash proceeds were not applied to
permanently reduce other indebtedness of the Company (other than the
indebtedness which is subordinated by its terms to the 9 1/4% Notes). The 9 1/4%
Notes are redeemable at the option of the Company, in whole or in part, at any
time and from time to time, at 104.625% on March 15, 2002, declining to 100% on
March 15, 2005 and thereafter.

In August 1997, the Company issued $310,000,000 principal amount of the
9 1/8% Notes. The indenture governing the 9 1/8% Notes (the "9 1/8% Indenture")
restricts, among other things, the payment of cash dividends, repurchase of the
Company's capital stock and the making of certain other restricted payments, the
incurrence of additional indebtedness, the making of certain investments,
mergers, consolidations and sales of assets (all as defined in the 9 1/8%
Indenture). Upon certain asset sales (as defined in the 9 1/8% Indenture), the
Company will be required to offer to purchase, at 100% principal amount plus
accrued interest to the date of purchase, the 9 1/8% Notes in a principal amount
equal to any net cash proceeds (as defined in the 9 1/8% Indenture) that are not
invested in properties and assets used primarily in the same or related business
to those owned and operated by the Company at the issue date of the 9 1/8% Notes
or at the date of such asset sale and such net cash proceeds were not applied to
permanently reduce other indebtedness of the Company (other than the
indebtedness which is subordinated by its terms to the 9 1/8% Notes). The 9 1/8%
Notes are redeemable at the option of the Company, in whole or in part, at any
time and from time to time, at 104.563% on September 1, 2002, declining to 100%
on September 1, 2005 and thereafter.

As of December 31, 1997, the Company's Canadian subsidiary, Broan Limited,
had $7.7 million in secured borrowings (based on exchange rates in effect on
December 31, 1997). The line of credit contains a covenant prohibiting net
aggregate dividends or other distributions to the Company from Broan Limited in
excess of $10.8 million. As of December 31, 1997, $7.0 million in dividends or
other distributions could have been made to the Company by Broan Limited under
this covenant.

For additional information regarding the obligations described above, see
Note 5 of Notes to Consolidated Financial Statements of the Company included
elsewhere herein.

58
<PAGE> 59

UNDERWRITING

The Underwriters named below (the "Underwriters") have severally agreed,
subject to the terms and conditions of the Underwriting Agreement, to purchase
from the Company the number of shares of Common Stock set forth opposite their
respective names below. The Underwriting Agreement provides that the obligations
of the Underwriters are subject to certain conditions precedent, and that the
Underwriters are committed to purchase all such shares if any are purchased.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Bear, Stearns & Co. Inc. ................................... 583,334
PaineWebber Incorporated.................................... 583,333
Wasserstein Perella Securities, Inc. ....................... 583,333
BT Alex. Brown Incorporated................................. 50,000
CIBC Oppenheimer Corp. ..................................... 50,000
Gabelli & Company, Inc. .................................... 50,000
Schroder & Co., Inc. ....................................... 50,000
Smith Barney Inc. .......................................... 50,000
---------
Total............................................. 2,000,000
</TABLE>

The Underwriters have advised the Company that the Underwriters propose to
offer the Common Stock to the public at the public offering price set forth on
the cover page of this Prospectus and to certain dealers at that price less a
concession not in excess of $1.00 per share. The Underwriters may allow, and
such dealers may reallow, a discount not in excess of $.10 per share on sales to
certain other dealers. After the initial offering to the public, the public
offering price, concession and discount may be changed.

The Company has granted to the Underwriters an option, exercisable for 30
days after the date of this Prospectus, to purchase up to 300,000 additional
shares of Common Stock (the "Option Shares") to cover over-allotments, if any,
at the public offering price per share set forth on the cover page of this
Prospectus, less the underwriting discount. If the Underwriters exercise this
option, each of the Underwriters will have a firm commitment, subject to certain
conditions, to purchase approximately the same percentage of the total Option
Shares that the number of shares of Common Stock to be purchased by it shown in
the foregoing table bears to the shares of Common Stock offered hereby.

In the Underwriting Agreement, the Company has agreed to indemnify the
several Underwriters against certain civil liabilities, including liabilities
under the Securities Act, or to contribute to payments the Underwriters may be
required to make in respect thereof.

The Company and its executive officers have agreed, subject to certain
exceptions, not to offer, sell, contract to sell, swap, make any short sale,
pledge, establish an open "put equivalent position" within the meaning of Rule
16a-1(h) under the Exchange Act, grant any option to purchase or otherwise
dispose (or publicly announce his or its intention to do any of the foregoing)
of any shares of Common Stock or other capital stock of the Company, or any
securities convertible into, or exercisable or exchangeable for, any shares of
Common Stock or other capital stock of the Company for a period of 90 days after
the date of the final prospectus relating to the Offering without the prior
written consent of Bear, Stearns & Co. Inc. ("Bear Stearns").

In order to facilitate the Offering, certain persons participating in the
Offering may engage in transactions that stabilize, maintain or otherwise affect
the price of the Common Stock during and after the Offering. Specifically, the
Underwriters may over-allot or otherwise create a short position in the Common
Stock for their own account by selling more shares of Common Stock than have
been sold to them by the Company. The Underwriters may elect to cover any such
short position by purchasing shares of Common Stock in the open market or by
exercising the over-allotment option granted to the Underwriters. In addition,
such persons may stabilize or maintain the price of the Common Stock by bidding
for or purchasing shares of Common Stock in the open market and may impose
penalty bids, under which selling concessions allowed to syndicate members or
other broker-dealers participating in the Offering are reclaimed if shares of
Common Stock previously distributed in the Offering are repurchased in
connection with stabilizing transactions or otherwise.

59
<PAGE> 60

The effect of these transactions may be to stabilize or maintain the market
price of the Common Stock at a level above that which might otherwise prevail in
the open market. The imposition of a penalty bid may also affect the price of
the Common Stock to the extent that it discourages resales thereof. No
representation is made as to the magnitude or effect of any such stabilization
or other transactions. Such transactions may be effected on the New York Stock
Exchange and, if commenced, may be discontinued at any time.

From time to time, certain of the Underwriters or their affiliates have
provided, and may continue to provide in the future, investment banking services
to the Company and its affiliates, for which they have received, and expect to
receive, customary compensation. Bear Stearns and Wasserstein Perella
Securities, Inc. acted as initial purchasers of debt securities of the Company
in March and August of 1997 and received customary discounts for their services.

LEGAL MATTERS

Certain legal matters with respect to the validity of the shares of Common
Stock offered hereby are being passed upon for the Company by Ropes & Gray,
Boston, Massachusetts, and for the Underwriters by Paul, Hastings, Janofsky &
Walker LLP.

EXPERTS

The audited consolidated financial statements of Nortek, Inc. and
subsidiaries as of December 31, 1996 and 1997 and for each of the three years in
the period ended December 31, 1997 set forth or incorporated by reference in
this Prospectus and elsewhere in the Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto and are included herein in reliance upon the
authority of said firm as experts in giving said reports.

The audited consolidated financial statements of Ply Gem as of December 31,
1995 and 1996 and for each of the three years in the period ended December 31,
1996 incorporated by reference in this Prospectus have been audited by Grant
Thornton LLP, independent public accountants, as indicated in their report with
respect thereto.

The audited consolidated financial statements of NuTone Inc. and its
subsidiary set forth in this Prospectus have been audited by Coopers and Lybrand
L.L.P., independent public accountants, as indicated in their report with
respect thereto.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement (which
term shall include all amendments, exhibits and schedules thereto) on Form S-3
(the "Registration Statement") under the Securities Act, with respect to the
shares of Common Stock offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission, and to
which reference is hereby made. Statements made in this Prospectus as to the
contents of any document referred to are not necessarily complete. With respect
to each such document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference. The Registration Statement may be inspected and copied at the
public reference facilities maintained by the Commission referred to in
"Available Information."

60
<PAGE> 61

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

NORTEK, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
PAGE NO.
--------

<S> <C>
Report of Independent Public Accountants.................... F-2

Consolidated Statement of Operations for the three years
ended December 31, 1997................................... F-3

Consolidated Balance Sheet as of December 31, 1997 and
1996...................................................... F-4

Consolidated Statement of Cash Flows for the three years
ended December 31, 1997................................... F-6

Consolidated Statement of Stockholders' Investment for the
three years ended December 31, 1997....................... F-7

Notes to Consolidated Financial Statements.................. F-8

NUTONE INC. AND SUBSIDIARY

Report of Independent Accountants........................... F-25

Financial Statements:

Consolidated Balance Sheet as of December 31, 1997........ F-26

Consolidated Statement of Operations for the year ended
December 31, 1997...................................... F-27

Consolidated Statement of Shareholder's Net Investment for
the year ended December 31, 1997....................... F-28

Consolidated Statement of Cash Flows for the year ended
December 31, 1997...................................... F-29

Notes to Consolidated Financial Statements................ F-30
</TABLE>

F-1
<PAGE> 62

NORTEK, INC. AND SUBSIDIARIES

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Nortek, Inc.:

We have audited the accompanying consolidated balance sheets of Nortek,
Inc. (a Delaware corporation) and subsidiaries (the "Company") as of December
31, 1997 and 1996, and the related statements of operations, stockholders'
investment and cash flows for each of the three years in the period ended
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Nortek, Inc. and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Boston, Massachusetts,
March 9, 1998

F-2
<PAGE> 63

NORTEK, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
------------ ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net Sales................................................. $1,134,129 $841,557 $656,800
---------- -------- --------
Costs and Expenses:
Cost of products sold..................................... 831,772 600,298 472,286
Selling, general and administrative expense............... 219,376 180,308 141,541
---------- -------- --------
1,051,148 780,606 613,827
---------- -------- --------
Operating earnings........................................ 82,981 60,951 42,973
Interest expense.......................................... (50,210) (28,400) (22,993)
Investment income......................................... 9,929 6,049 8,120
---------- -------- --------
Earnings from continuing operations before provision for
income taxes............................................ 42,700 38,600 28,100
Provision for income taxes................................ 16,300 14,900 10,600
---------- -------- --------
Earnings from continuing operations....................... 26,400 23,700 17,500
Loss from discontinued operations......................... (5,200) (1,700) (2,500)
---------- -------- --------
Net Earnings.............................................. $ 21,200 $ 22,000 $ 15,000
========== ======== ========
EARNINGS PER SHARE:
Earnings from continuing operations:
Basic................................................... $ 2.75 $ 2.26 $ 1.41
Diluted................................................. $ 2.68 $ 2.23 $ 1.39
Loss from discontinued operations:
Basic................................................... $ (.54) $ (.16) $ (.20)
---------- -------- --------
Diluted................................................. $ (.53) $ (.16) $ (.20)
---------- -------- --------
Net Earnings:
Basic................................................... $ 2.21 $ 2.10 $ 1.21
========== ======== ========
Diluted................................................. $ 2.15 $ 2.07 $ 1.19
========== ======== ========
Weighted Average Number of Shares:
Basic................................................... 9,605 10,485 12,445
========== ======== ========
Diluted................................................. 9,855 10,641 12,569
========== ======== ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-3
<PAGE> 64

NORTEK, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Unrestricted
Cash and cash equivalents................................. $ 125,842 $ 41,042
Marketable securities available for sale.................. 35,988 51,051
Restricted
Investments and marketable securities at cost, which
approximates market.................................... 6,348 5,681
Accounts receivable, less allowances of $11,047,000 and
$3,656,000................................................ 180,414 108,202
Inventories
Raw materials............................................. 72,693 35,160
Work in process........................................... 18,399 11,688
Finished goods............................................ 85,161 43,141
---------- --------
176,253 89,989
---------- --------
Prepaid expenses............................................ 8,391 4,736
Other current assets........................................ 12,627 9,209
Net assets of a discontinued operation...................... 22,386 24,789
Prepaid income taxes........................................ 46,800 20,000
---------- --------
Total current assets.............................. 615,049 354,699
---------- --------
PROPERTY AND EQUIPMENT, AT COST:
Land........................................................ 12,081 6,461
Buildings and improvements.................................. 96,606 62,756
Machinery and equipment..................................... 250,677 152,454
---------- --------
359,364 221,671
Less accumulated depreciation............................... 116,841 100,124
---------- --------
Total property and equipment, net................. 242,523 121,547
---------- --------
OTHER ASSETS:
Goodwill, less accumulated amortization of $31,773,000 and
$26,615,000............................................... 378,232 90,679
Intangible assets........................................... 8,752 4,263
Notes receivable and other investments...................... 10,235 1,379
Deferred income taxes....................................... 10,022 --
Deferred debt expense....................................... 20,170 6,647
Other....................................................... 19,563 11,019
---------- --------
446,974 113,987
---------- --------
$1,304,546 $590,233
========== ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-4
<PAGE> 65

NORTEK, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' INVESTMENT

CURRENT LIABILITIES:
Notes payable and other short-term obligations.............. $ 11,770 $ 25,334
Current maturities of long-term debt........................ 5,969 11,152
Accounts payable............................................ 91,488 66,828
Accrued expenses and taxes, net............................. 164,001 88,252
---------- --------
Total current liabilities......................... 273,228 191,566
---------- --------
OTHER LIABILITIES:
Deferred income taxes....................................... -- 17,637
Other....................................................... 67,390 18,466
---------- --------
67,390 36,103
---------- --------
Notes, Mortgage Notes and Obligations Payable, Less Current
Maturities................................................ 835,840 243,769
---------- --------
Commitments and Contingencies (Note 8)

STOCKHOLDERS' INVESTMENT:
Preference stock, $1 par value; authorized 7,000,000 shares,
none issued............................................... -- --
Common stock, $1 par value; authorized 40,000,000 shares;
16,050,794 and 15,965,585 shares issued................... 16,051 15,966
Special common stock, $1 par value; authorized 5,000,000
shares; 767,287 and 784,169 shares issued................. 767 784
Additional paid-in capital.................................. 135,345 135,028
Retained earnings........................................... 58,966 37,766
Cumulative translation, pension and other adjustments....... (5,327) (3,212)
Less -- treasury common stock at cost, 7,032,497 and
6,599,645 shares.......................................... (75,779) (65,805)
-- treasury special common stock at cost, 285,304 and
276,910 shares............................................ (1,935) (1,732)
---------- --------
Total stockholders' investment.................... 128,088 118,795
---------- --------
$1,304,546 $590,233
========== ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-5
<PAGE> 66

NORTEK, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
--------- -------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings from continuing operations.................. $ 26,400 $ 23,700 $ 17,500
Net loss from discontinued operations.................... (5,200) (1,700) (2,500)
--------- -------- ---------
Net earnings............................................. 21,200 22,000 15,000
--------- -------- ---------
ADJUSTMENTS TO RECONCILE NET EARNINGS TO CASH:
Depreciation and amortization............................ 26,696 19,831 15,155
Non-cash interest expense................................ 1,711 1,164 1,070
Net gain on investments and marketable securities........ (200) (750) (2,000)
Deferred federal income tax provision (benefit).......... 4,000 (3,000) 1,200
Deferred federal income tax (benefit) provision on
discontinued operations................................ (1,000) 1,200 100

CHANGES IN CERTAIN ASSETS AND LIABILITIES, NET OF EFFECTS
FROM ACQUISITIONS AND DISPOSITIONS:
Accounts receivable, net............................... 10,259 (3,729) 2,302
Prepaids and other current assets...................... 5,699 3,280 (781)
Inventories............................................ 6,524 11,828 5,405
Net assets of discontinued operations.................. 4,934 817 1,666
Accounts payable....................................... (16,359) 1,699 (5,299)
Accrued expenses and taxes............................. 25,968 (7,550) (2,698)
Long-term assets, liabilities and other, net........... (4,317) 583 2,219
--------- -------- ---------
Total adjustments to net earnings.............. 63,915 25,373 18,339
--------- -------- ---------
Net cash provided by operating activities...... 85,115 47,373 33,339
--------- -------- ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures..................................... (22,464) (19,267) (14,859)
Net cash paid for businesses acquired.................... (407,419) -- (27,543)
Purchase of investments and marketable securities........ (283,918) (66,901) (104,762)
Proceeds from the sale of investments and marketable
securities ............................................ 298,158 82,435 112,173
Other, net............................................... (7,738) (1,477) (108)
--------- -------- ---------
Net cash used in investing activities.......... (423,381) (5,210) (35,099)
--------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of notes, net....................................... 466,214 -- --
Increase in borrowings................................... 612 9,609 10,763
Payment of borrowings.................................... (33,966) (13,598) (1,142)
Purchase of Nortek Common and Special Common Stock....... (10,177) (34,822) (4,664)
Other, net............................................... 383 479 (822)
--------- -------- ---------
Net cash provided by (used in) financing
activities................................... 423,066 (38,332) 4,135
--------- -------- ---------
Net increase in unrestricted cash and cash equivalents... 84,800 3,831 2,375
Unrestricted cash and cash equivalents at the beginning
of the year............................................ 41,042 37,211 34,836
--------- -------- ---------
Unrestricted cash and cash equivalents at the end of the
year................................................... $ 125,842 $ 41,042 $ 37,211
========= ======== =========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-6
<PAGE> 67

NORTEK, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' INVESTMENT

<TABLE>
<CAPTION>
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
-------------------------------------------------------------------
CUMULATIVE
TRANSLATION,
SPECIAL ADDITIONAL PENSION
COMMON COMMON PAID-IN RETAINED AND OTHER TREASURY
STOCK STOCK CAPITAL EARNINGS ADJUSTMENTS STOCK
------- ------- ---------- -------- ------------ --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994........... $15,814 $802 $134,627 $ 766 $(6,168) $(28,051)
27,731 shares of special common stock
converted into 27,731 shares of
common stock....................... 28 (28) -- -- -- --
41,450 shares of common stock issued
upon exercise of stock options..... 41 -- 63 -- -- --
511,671 shares of treasury stock
acquired........................... -- -- -- -- -- (5,029)
Translation adjustment............... -- -- -- -- 701 --
Pension adjustment................... -- -- -- -- (244) --
Unrealized appreciation in marketable
securities......................... -- -- -- -- 2,969 --
Net earnings......................... -- -- -- 15,000 -- --
------- ---- -------- ------- ------- --------
BALANCE, DECEMBER 31, 1995........... $15,883 $774 $134,690 $15,766 $(2,742) $(33,080)
27,697 shares of special common stock
converted into 27,697 shares of
common stock....................... 28 (28) -- -- -- --
54,461 shares of common stock and
37,500 shares of special common
stock issued upon exercise of stock
options............................ 55 38 338 -- -- --
2,293,065 shares of treasury stock
acquired........................... -- -- -- -- -- (34,457)
Translation adjustment............... -- -- -- -- 138 --
Pension adjustment................... -- -- -- -- (127) --
Unrealized decline in marketable
securities......................... -- -- -- -- (481) --
Net earnings......................... -- -- -- 22,000 -- --
------- ---- -------- ------- ------- --------
BALANCE, DECEMBER 31, 1996........... $15,966 $784 $135,028 $37,766 $(3,212) $(67,537)
22,690 shares of special common stock
converted into 22,690 shares of
common stock....................... 23 (23) -- -- -- --
62,519 shares of common stock and
5,808 shares of special common
stock issued upon exercise of stock
options............................ 62 6 317 -- -- --
441,246 shares of treasury stock
acquired........................... -- -- -- -- -- (10,177)
Translation adjustment............... -- -- -- -- (3,815) --
Pension adjustment................... -- -- -- -- 919 --
Unrealized appreciation in the value
of marketable securities........... -- -- -- -- 781 --
Net earnings......................... -- -- -- 21,200 -- --
------- ---- -------- ------- ------- --------
BALANCE, DECEMBER 31, 1997........... $16,051 $767 $135,345 $58,966 $(5,327) $(77,714)
======= ==== ======== ======= ======= ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-7
<PAGE> 68

NORTEK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company is a diversified manufacturer of residential and commercial
building products, operating within four principal product groups: the
Residential Building Products Group; the Air Conditioning and Heating Products
Group; the Windows, Doors and Siding Group and the Specialty Products and
Distribution Group. Through these product groups, the Company manufactures and
sells, primarily in the United States, Canada and Europe, a wide variety of
products for the residential and commercial construction, manufactured housing,
and the do-it-yourself and professional remodeling and renovation markets.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Nortek, Inc.
and all of its significant wholly-owned subsidiaries (the "Company" or "Nortek")
after elimination of intercompany accounts and transactions. Certain amounts in
the prior years' financial statements have been reclassified to conform to the
presentation at December 31, 1997.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles involves estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities as of the date of the financial statements and the
reported amounts of income and expense during the reporting periods. Actual
results could vary from the amounts derived from such estimates and assumptions.

CASH, INVESTMENTS AND MARKETABLE SECURITIES

Cash equivalents consist of short-term highly liquid investments with
original maturities of three months or less which are readily convertible into
cash.

The Company has classified as restricted (in current assets in the
accompanying consolidated balance sheet) certain investments and marketable
securities that are not fully available for use in its operations. At December
31, 1997, approximately $6,348,000 of cash, investments and marketable
securities has been pledged as collateral for insurance and other requirements.

DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:

Cash and Cash Equivalents --

The carrying amount approximates fair value because of the short
maturity of those instruments.

Marketable Securities --

The fair value of marketable securities is based on quoted market
prices. At December 31, 1997, the fair value of marketable securities
approximated the amount on the Company's consolidated balance sheet.

Long-Term Debt --

At December 31, 1997, the fair value of long-term indebtedness was
approximately $14,000,000 higher than the amount, before original issue
discount, on the Company's consolidated balance sheet. (See Note 5.)

F-8
<PAGE> 69
NORTEK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

INVENTORIES

Inventories in the accompanying consolidated balance sheet are valued at
the lower of cost or market. At December 31, 1997 and 1996, approximately
$53,817,000 and $53,933,000 of total inventories, respectively, were valued on
the last-in, first-out method (LIFO). Under the first-in, first-out method
(FIFO) of accounting, such inventories would have been approximately $5,041,000
and $6,015,000 greater at December 31, 1997 and 1996, respectively. All other
inventories were valued under the FIFO method.

SALES RECOGNITION

The Company recognizes sales upon the shipment of its products net of
applicable provisions for discounts and allowances. The Company also provides
for its estimate of warranty and bad debts at the time of sale as selling,
general and administrative expense.

FOREIGN CURRENCY TRANSLATION

The financial statements of subsidiaries outside the United States are
generally measured using the local currency as the functional currency. The
Company translates the assets and liabilities of its foreign subsidiaries at the
exchange rates in effect at year-end. Net sales and expenses are translated
using average exchange rates in effect during the year. Gains and losses from
foreign currency translation are credited or charged to cumulative translation
adjustment included in stockholders' investment in the accompanying consolidated
balance sheet. Transaction gains or losses are recorded in selling, general and
administrative expense and have not been material.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization of property and equipment are provided on a
straight-line basis over the estimated useful lives, which are generally as
follows:

<TABLE>
<S> <C>
Buildings and improvements.................................. 10-35 years
Machinery and equipment, including leases................... 3-15 years
Leasehold improvements...................................... term of lease
</TABLE>

Expenditures for maintenance and repairs are expensed when incurred.
Expenditures for renewals and betterments are capitalized. When assets are sold,
or otherwise disposed, the cost and accumulated depreciation are eliminated and
the resulting gain or loss is recognized.

GOODWILL

The Company has classified as goodwill the cost in excess of fair value of
the net assets (including tax attributes) of companies acquired in purchase
transactions. Goodwill is being amortized on a straight-line method over 40
years. Amortization charged to operations amounted to $5,319,000, $2,940,000 and
$2,489,000 for 1997, 1996 and 1995, respectively. At each balance sheet date,
the Company evaluates the realizability of goodwill based on expectations of
non-discounted cash flows and operating income for each subsidiary having a
material goodwill balance. Based on its most recent analysis, the Company
believes that no material impairment of goodwill exists at December 31, 1997.

EARNINGS PER SHARE

In 1997, the Company adopted the provisions of SFAS No. 128, Earnings Per
Share. This statement was issued by the FASB in February 1997, establishes
standards for computing and presenting earnings per share (EPS) and applies to
entities with publicly held common stock or potential common stock. This
statement replaces the presentation of primary EPS with a presentation of basic
EPS. It requires dual presentation of

F-9
<PAGE> 70
NORTEK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

basic and diluted EPS on the face of the statement of operations for all
entities with complex capital structures and requires a reconciliation of the
numerators and denominators of the basic and diluted EPS computations. This
statement also requires a restatement of all prior-period EPS data presented.

Basic earnings per share amounts have been computed using the weighted
average number of common and common equivalent shares outstanding during each
year. Special Common Stock is treated as the equivalent of Common Stock in
determining earnings per share results. Diluted earnings per share amounts have
been computed using the weighted average number of common and common equivalent
shares and the dilutive potential common shares outstanding during each year.

A reconciliation between basic and diluted earnings per share is as
follows:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Earnings from continuing operations................. $26,400 $23,700 $17,500
Basic EPS:
Basic common shares............................... 9,605 10,485 12,445
======= ======= =======
Basic EPS......................................... $ 2.75 $ 2.26 $ 1.41
======= ======= =======
Diluted EPS:
Basic common shares............................... 9,605 10,485 12,445
Plus: Impact of stock options (Note 6)............ 250 156 124
------- ------- -------
Diluted common shares............................. 9,855 10,641 12,569
======= ======= =======
Diluted EPS....................................... $ 2.68 $ 2.23 $ 1.39
======= ======= =======
</TABLE>

COMPREHENSIVE INCOME

In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income
which will be effective for the Company's financial statements issued for the
fiscal year ending December 31, 1998. This statement establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses). Components of comprehensive income are net earnings
and all other changes that are currently reflected in Stockholders' Investment.
This statement requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position.

SEGMENT INFORMATION

In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information which will be effective for the Company's
financial statements for the fiscal year ending December 31, 1998. This
statement establishes standards for reporting information about segments in
annual and interim financial statements. This statement introduces a new model
for segment reporting, called the "management approach." The management approach
is based on the way the chief operating decision-maker organizes segments within
a Company for making operating decisions and assessing performance. Reportable
segments are based on products and services, geography, legal structure and
management structure.

2. ACQUISITIONS AND BUSINESSES SOLD

Acquisitions are accounted for as purchases and, accordingly, have been
included in the Company's consolidated results of operations since the
acquisition date. Purchase price allocations are subject to refinement until all
pertinent information regarding the acquisitions is obtained.

F-10
<PAGE> 71
NORTEK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On August 26, 1997, a wholly owned subsidiary of the Company completed the
acquisition of Ply Gem Industries, Inc. ("Ply Gem") in a tender offer for a cash
price of $19.50 per outstanding share of common stock. The aggregate purchase
price, including expenses and settlement of stock options, was approximately
$444,300,000. Prior to accepting for payment the tendered shares of Ply Gem on
August 26, 1997, the Company sold $310,000,000 principal amount of 9 1/8% Senior
Notes due September, 2007 (the "9 1/8% Notes") at a slight discount (see Note
5). The Company used a portion of these net proceeds, together with available
cash, to purchase the shares of Ply Gem, fund an approximate $45,000,000 payment
to terminate Ply Gem's existing accounts receivable securitization program and
pay certain fees and expenses.

Since the acquisition date, the Company has realized, and expects to
continue to realize, cost savings as a result of the acquisition. These savings
result from several actions, including: (i) the elimination of expenses
associated with Ply Gem's New York headquarters; (ii) the consolidation into
Nortek of certain of Ply Gem's corporate functions such as accounting, legal and
risk management; and (iii) the identification and rationalization of
under-performing product lines. Pro Forma earnings (see below) have been
adjusted for the pro forma effect of those estimated cost reductions directly
attributable to the acquisition. These expected pre-tax savings total
approximately $4,000,000 for the period from January 1, 1997 to the date of
acquisition for the year ended December 31, 1997 and approximately $7,800,000
for the year ended December 31, 1996. As Adjusted earnings (see below) have been
adjusted to include cost reductions directly attributable to the acquisition and
additional estimated cost savings and operating efficiencies which management
expects will result from the acquisition. These additional pre-tax cost savings
total approximately $14,100,000 and approximately $13,500,000 for the periods
January 1, 1997 to the date of acquisition for the year ended December 31, 1997
and the year ended December 31, 1996, respectively. The actual cost savings
achieved since the acquisition of Ply Gem are reflected in the Company's
historical consolidated operating results for the period from the acquisition
date to December 31, 1997. Pro forma earnings also include approximately
$13,300,000 of net after-tax charges (approximately $22,200,000 before income
taxes), recorded by Ply Gem during the period from January 1, 1997 through
August 25, 1997, to provide certain valuation reserves and to conform accounting
policies to the Company's. These charges have been excluded from the As Adjusted
results.

F-11
<PAGE> 72
NORTEK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following presents the approximate unaudited Pro Forma and As Adjusted
net sales, operating earnings, earnings from continuing operations and diluted
earnings per share of the Company for all periods presented and gives pro forma
effect to the acquisition of Ply Gem, the sale of $310,000,000 principal amount
of 9 1/8% Notes, the extension of credit under the Ply Gem credit facility to
refinance certain existing indebtedness and the termination of Ply Gem's
accounts receivable securitization program, the sale of $175,000,000 principal
amount of 9 1/4% Notes, the refinancing of certain subsidiary indebtedness, and
reflects the estimated cost reductions as described above as if such
transactions and adjustments had occurred on January 1, 1996 to the date of
acquisition. The Pro Forma and As Adjusted results below include the actual
results of Ply Gem since August 26, 1997 in accordance with the purchase method
of accounting for an acquisition.

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------
1997 1996
---------- ----------
(IN THOUSANDS EXCEPT PER
SHARE AMOUNTS)
(UNAUDITED)
<S> <C> <C>
PRO FORMA

Net sales................................................. $1,650,052 $1,616,485
Operating earnings........................................ 71,100 94,400
Earnings (loss) from continuing operations................ (1,500) 7,700
Diluted earnings (loss) from continuing operations per
share................................................... $(.16) $.72

AS ADJUSTED

Net sales................................................. $1,650,052 $1,616,485
Operating earnings........................................ 107,300 107,900
Earnings from continuing operations....................... 20,900 16,400
Diluted earnings from continuing operations per share..... $2.12 $1.54
</TABLE>

In computing the pro forma earnings, earnings have been reduced by the net
interest income on the aggregate cash portion of the purchase price of the
acquisition at the historical rate earned by the Company and interest expense on
indebtedness incurred in connection with the acquisition, the refinancing and
repayment of certain indebtedness of Ply Gem. Earnings have been reduced by
amortization of goodwill and reflect net adjustments to depreciation expense as
a result of an increase in the estimated fair market value of property and
equipment and changes in depreciable lives. Interest expense on the subsidiary
indebtedness refinanced with funds from the 9 1/4% Notes offering was excluded
at an average interest rate consistent with the indebtedness outstanding which
was refinanced for all periods presented, net of the tax effect. Interest
expense was included on the 9 1/4% Notes at a rate of approximately 9 1/4%, plus
amortization of deferred debt expense and debt discount net of tax effect, and
on the 9 1/8% Notes at a rate of approximately 9 1/8%, plus amortization of
deferred debt expense and debt discount for the periods presented, net of tax
effect.

The pro forma information presented does not purport to be indicative of
the results which would have been reported if these transactions had occurred on
January 1, 1996, or which may be reported in the future.

In the fourth quarter of 1995, several of the Company's wholly owned
subsidiaries completed the acquisition of the assets, subject to certain
liabilities, of Rangaire Company ("Rangaire"), all the capital stock of Best
S.p.A. and related entities ("Best") and all the capital stock of Venmar
Ventilation inc. ("Venmar"). The aggregate purchase price for these acquisitions
was approximately $36,500,000, consisting of cash of approximately $33,400,000
and future payments of approximately $3,100,000. The selling shareholders of
certain of these acquisitions are entitled to additional purchase price payments
of up to approximately $2,000,000, depending on subsequent operating results of
such acquisitions.

F-12
<PAGE> 73
NORTEK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. CASH FLOWS

Interest paid was $35,921,000, $30,568,000 and $23,203,000 in 1997, 1996
and 1995, respectively.

Fair value of assets acquired was $672,311,000 and $129,652,000 in 1997 and
1995, respectively. Liabilities assumed or created of businesses acquired was
$264,892,000 and $96,224,000 in 1997 and 1995, respectively. Cash paid for
acquisitions net of cash acquired was $407,419,000 and $27,543,000 in 1997 and
1995, respectively.

Cash proceeds from businesses sold totaled $1,129,000 in 1995 and included
$2,874,000 of proceeds from the sale of preferred stock net of $1,745,000 for
payments made in relation to businesses sold.

Significant non-cash financing and investing activities excluded from the
accompanying consolidated statement of cash flows include capitalized lease
additions of approximately $500,000 in 1996 and approximately $800,000 in 1995
and an increase of approximately $781,000, a decline of approximately $481,000
and an increase of approximately $2,969,000 in the fair market value of
marketable securities available for sale for 1997, 1996 and 1995, respectively.

4. INCOME TAXES

The following is a summary of the components of earnings from continuing
operations before provision for income taxes:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Domestic.............................................. $37,000 $35,100 $25,400
Foreign............................................... 5,700 3,500 2,700
------- ------- -------
$42,700 $38,600 $28,100
======= ======= =======
</TABLE>

The following is a summary of the provision (benefit) for income taxes from
continuing operations included in the accompanying consolidated statement of
operations:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Federal income taxes --
Current............................................. $ 9,000 $15,050 $ 7,100
Deferred............................................ 4,000 (3,000) 1,200
------- ------- -------
13,000 12,050 8,300
Foreign............................................... 1,000 1,300 1,300
State................................................. 2,300 1,550 1,000
------- ------- -------
$16,300 $14,900 $10,600
======= ======= =======
</TABLE>

Income tax payments, net of refunds, were approximately $7,977,000,
$18,611,000 and $3,739,000 in 1997, 1996 and 1995, respectively.

F-13
<PAGE> 74
NORTEK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following reconciles the federal statutory income tax rate of
continuing operations to the effective tax rate of such earnings of
approximately 38.2%, 38.6% and 37.7% in 1997, 1996 and 1995, respectively.

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Income tax provision from continuing operations at the
Federal statutory rate.............................. $14,945 $13,510 $ 9,835

NET CHANGE FROM STATUTORY RATE:
Change in tax reserves, net......................... (1,540) (481) (1,100)
State income taxes, net of federal tax effect....... 1,520 1,008 650
Amortization not deductible for income tax
purposes......................................... 1,827 1,040 868
Product development income tax credit from foreign
operations....................................... (264) (478) --
Tax effect on foreign income........................ (86) 56 79
Effect of change in foreign tax law................. (766) -- --
Other, net.......................................... 664 245 268
------- ------- -------
$16,300 $14,900 $10,600
======= ======= =======
</TABLE>

The tax effect of temporary differences which gave rise to significant
portions of deferred income tax assets and liabilities as of December 31, 1997
and December 31, 1996 are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
---------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
PREPAID INCOME TAX ASSETS ARISING FROM:
Net operating losses of Ply Gem........................... $ 6,000 $ --
Accounts receivable....................................... 4,038 1,246
Inventory................................................. 7,201 (610)
Insurance reserves........................................ 9,624 4,985
Other reserves, liabilities and assets, net............... 19,937 14,379
-------- -------
$ 46,800 $20,000
======== =======
DEFERRED (PREPAID) INCOME TAX (ASSETS) LIABILITIES ARISING
FROM:
Property and equipment, net............................... $ 30,032 $15,400
Other reserves, liabilities and (assets), net............. (19,547) (608)
Capital loss carryforward................................. (655) (6,462)
Net operating losses of Ply Gem........................... (21,580) --
Valuation allowances...................................... 7,771 10,238
Other tax assets.......................................... (6,043) (931)
-------- -------
$(10,022) $17,637
======== =======
</TABLE>

At December 31, 1997, the Company has approximately $60,800,000 of net U.S.
federal prepaid income tax assets which are expected to be realized through
future operating earnings. At December 31, 1997, the Company's wholly owned
subsidiary, Ply Gem, has a net operating loss carry-forward of approximately
$78,800,000 that expires in 2011 and is subject to certain limitations imposed
by the Internal Revenue Code. These losses may only be utilized against future
income of the Ply Gem Group and the utilization of these losses is limited to
approximately $17,500,000 per year.

F-14
<PAGE> 75
NORTEK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. NOTES, MORTGAGE NOTES AND OBLIGATIONS PAYABLE

Short-term bank obligations at December 31, 1997 and 1996 consist of the
following:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
-------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Secured revolving lines of credit of a Canadian
subsidiary................................................ $ -- $ 2,472
Secured lines of credit and bank advances of the Company's
European subsidiaries..................................... 11,318 22,118
Other obligations........................................... 452 744
------- -------
Short-term Bank Obligations................................. $11,770 $25,334
======= =======
</TABLE>

These short term bank obligations are secured by approximately $29,600,000
of accounts receivable and inventory. These borrowings have an average weighted
interest rate of approximately 9.475%.

Notes, mortgage notes and obligations payable in the accompanying
consolidated balance sheet at December 31, 1997 and 1996 consist of the
following:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
--------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
9 1/4% Senior Notes due 2007 ("9 1/4% Notes"), net of
unamortized original issue discount of $961,000........... $174,039 $ --
9 1/8% Senior Notes due 2007 ("9 1/8% Notes"), net of
unamortized original issue discount of $2,451,000......... 307,549 --
9 7/8% Senior Subordinated Notes due 2004 ("9 7/8% Notes"),
net of unamortized original issue discount of $1,259,000
and $1,396,000............................................ 217,241 217,104
Ply Gem term loan........................................... 103,940 --
Mortgage notes payable...................................... 16,882 20,878
Other....................................................... 22,158 16,939
-------- --------
841,809 254,921
Less amounts included in current liabilities................ 5,969 11,152
-------- --------
$835,840 $243,769
======== ========
</TABLE>

On March 17, 1997, the Company sold $175,000,000 of its 9 1/4% Senior Notes
due March 15, 2007 ("9 1/4% Notes") at a discount of approximately $1,011,500,
which is being amortized over the life of the issue. Net proceeds from the sale
of the 9 1/4% Notes, after deducting underwriting commissions and expenses,
amounted to approximately $168,945,000, a portion of which was used to refinance
certain outstanding indebtedness of the Company's subsidiaries. The 9 1/4% Notes
are redeemable at the option of the Company, in whole or in part, at any time
and from time to time, on or after March 15, 2002 at 104.625%, declining to 100%
on March 15, 2005 and thereafter. On August 26, 1997, the Company sold
$310,000,000 of its 9 1/8% Senior Notes due September 1, 2007 ("9 1/8% Notes")
at a discount of approximately $2,505,000, which is being amortized over the
life of the issue. Net proceeds from the sale of the 9 1/8% Notes, after
deducting underwriting commissions and expenses, amounted to approximately
$297,269,000. The 9 1/8% Notes are redeemable at the option of the Company, in
whole or in part, at any time and from time to time, on or after September 1,
2002 at 104.563%, declining to 100% on September 1, 2005 and thereafter. The
Company used a portion of these net proceeds, together with available cash, to
purchase the shares of Ply Gem. (See Note 2.)

The indenture governing the 9 7/8% Notes, the Company's most restrictive
indenture, restricts, among other things, the payment of cash dividends,
repurchase of the Company's capital stock and the making of certain other
restricted payments, the incurrence of additional indebtedness, the making of
certain invest-

F-15
<PAGE> 76
NORTEK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ments, mergers, consolidations and sale of assets (all as defined in the
indenture). Upon certain asset sales (as defined in the indenture), the Company
will be required to offer to purchase, at 100% principal amount plus accrued
interest to the date of purchase, 9 7/8% Notes in a principal amount equal to
any net cash proceeds (as defined in the indenture) that are not invested in
properties and assets used primarily in the same or related business to those
owned and operated by the Company at the issue date of the 9 7/8% Notes or at
the date of such asset sale and such net cash proceeds were not applied to
permanently reduce Senior Indebtedness (as defined in the indenture). The 9 7/8%
Notes are redeemable at the option of the Company, in whole or in part, at any
time and from time to time, at 104.214% on March 1, 1999, declining to 100% on
March 1, 2002 and thereafter. At March 1, 1998 approximately $6,872,000 was
available for the payment of cash dividends or stock payments under the terms of
the Company's Indenture governing the 9 7/8% Notes. (See Note 6.)

The Company's Ply Gem subsidiary has a credit facility with a syndicate of
banks, which provides Ply Gem with a term loan and a letter of credit facility.
Interest on borrowings is at varying rates based, at Ply Gem's option, on (a)
the London Interbank Offered Rate (LIBOR) plus a spread or (b) the higher of (i)
.5% above the federal funds rate or (ii) the bank's prime rate. Ply Gem pays a
facility fee quarterly which fluctuates between .20% and .30% of the aggregate
principal amount available under the facility. The average weighted interest
rate on the credit facility for the period from inception (August 26, 1997) to
December 31, 1997 was 6.75%. The credit facility includes customary covenants,
including covenants limiting Ply Gem's ability to pledge assets or incur liens
on assets and maintain certain financial covenants. Borrowings under this credit
facility are collateralized by the common stock, inventory and accounts
receivable of Ply Gem's principal subsidiaries.

The Company's Ply Gem subsidiary has $75 million of interest rate swap
agreements, whereby Ply Gem will pay the counterparties interest at a fixed rate
of 5.53% and the counterparties will pay the Company interest at a floating rate
equal to one month LIBOR for a two year period ending December 3, 1998. At the
option of the counterparties, the termination date may be extended to December
3, 1999 upon notice to Ply Gem. Amounts to be paid or received under interest
rate swap agreements are accrued as interest rates change and are recognized
over the life of the swap agreements as an adjustment to interest expense. The
Company's Ply Gem subsidiary also has $75 million of interest rate cap
agreements which entitles Ply Gem to receive from the counterparties on a
monthly basis an amount by which the LIBOR interest rate on $75 million of its
floating rate debt exceeds 7% during the period December 5, 1998 to December 5,
1999. The cost of interest rate cap agreements are amortized to interest expense
over the life of the cap. Payments received as a result of the cap agreements
reduce interest expense. The unamortized costs of the cap agreements are
included in other assets. The impact of these arrangements has not been material
to the Company's consolidated operating results.

Mortgage notes payable of approximately $16,882,000 outstanding at December
31, 1997 include various mortgage notes and other related indebtedness payable
in installments through 2012 and bearing interest at rates ranging from 3.875%
to 9.3% and are collateralized by property and equipment with an aggregate net
book value of approximately $36,700,000 at December 31, 1997.

Other obligations of approximately $22,158,000 outstanding at December 31,
1997 include borrowings relating to equipment purchases and other borrowings
bearing interest at rates primarily ranging between 3.5% to 13.0% and maturing
at various dates through 2017. Approximately $18,400,000 of such indebtedness is
collateralized by property and equipment with an aggregate net book value of
approximately $21,400,000 at December 31, 1997.

F-16
<PAGE> 77
NORTEK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following is a summary of maturities of all of the Company's debt
obligations, excluding unamortized debt discount, due after December 31, 1997:

<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS)
<S> <C>
1999.................................................... $ 8,923
2000.................................................... 9,315
2001.................................................... 9,512
2002.................................................... 92,755
Thereafter.............................................. 720,006
--------
$840,511
========
</TABLE>

6. COMMON STOCK, SPECIAL COMMON STOCK, STOCK OPTIONS AND DEFERRED COMPENSATION

Each share of Special Common Stock has 10 votes on all matters submitted to
a stockholder vote, except that the holders of Common Stock, voting separately
as a class, have the right to elect 25% of the directors to be elected at a
meeting, with the remaining 75% being elected by the combined vote of both
classes. Shares of Special Common Stock are generally non-transferable, but are
freely convertible on a share-for-share basis into shares of Common Stock.

On April 1, 1996, the Company extended and amended its shareholder rights
plan to March 31, 2006. Under the amended plan, each right previously issued
under the plan in effect to date, or subsequently issued under the amended and
restated plan, entitles shareholders to buy 1/100 of a share of a new series of
preference stock of Nortek at an exercise price of $72 per share, subject to
adjustments for stock dividends, splits and similar events.

The rights, that are not currently exercisable, are attached to each share
of Common Stock and may be redeemed by the Directors at $.01 per share at any
time. After a shareholder acquires beneficial ownership of 17% or more of the
Company's Common Stock and Special Common Stock, the rights will trade
separately and become exercisable entitling a rights holder to acquire
additional shares of the Company's Common Stock having a market value equal to
twice the amount of the exercise price of the right. In addition, after a person
or group ("Acquiring Company") commences a tender offer or announces an
intention to acquire 30% or more of the Company's Common Stock and Special
Common Stock, the rights will trade separately and, under certain circumstances,
will permit each rights holder to acquire common stock of the Acquiring Company,
having a market value equal to twice the amount of the exercise price of the
right.

At December 31, 1997, a total of 1,804,134 shares of Common Stock was
reserved as follows:

<TABLE>
<S> <C>
Stock option plans.......................................... 1,036,847
Conversion of Special Common Stock.......................... 767,287
---------
1,804,134
=========
</TABLE>

At December 31, 1997, 755,000 shares of Special Common Stock were reserved
for stock option plans.

The Company has several stock option plans which provide for the granting
of options to certain officers, employees and non-employee directors of the
Company. Options granted under the plans vest over periods ranging up to five
years and expire ten years from the date of grant. At December 31, 1997, 51,067
additional options are available for grant under these plans. Options for
427,915 and 27,500 shares of Common and Special Common Stock became exercisable
during 1997 and 1996, respectively.

F-17
<PAGE> 78
NORTEK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following summarizes the Common and Special Common Stock option
transactions for the three years ended December 31, 1997:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OPTION PRICE EXERCISE
OF SHARES PER SHARE PRICE
--------- ------------ --------
<S> <C> <C> <C>
Options outstanding at December 31, 1994........ 494,100 $2.25-$15.69 $ 6.97
Exercised..................................... (42,600) 2.25-2.875 2.81
------- ------------ ------
Options outstanding at December 31, 1995........ 451,500 $2.25-$15.69 $ 7.36
Granted....................................... 275,000 14.75 14.75
Exercised..................................... (95,200) 2.25-$7.9375 5.07
Canceled...................................... (2,500) 8.75 8.75
------- ------------ ------
Options outstanding at December 31, 1996........ 628,800 $2.875-15.69 $10.93
Granted....................................... 435,600 19.5-27.00 22.98
Exercised..................................... (71,953) 2.875-15.69 6.66
Canceled...................................... (6,667) 22.69 22.69
------- ------------ ------
Options outstanding at December 31, 1997........ 985,780 $2.875-27.00 $16.48
======= ============ ======
</TABLE>

22,100 of the 985,780 options outstanding at December 31, 1997 have an
exercise price of $2.875, with a weighted average contractual life of 2.8 years.
All of these options are exercisable. 259,747 options have exercise prices
between $7.69 and $9.38 with a weighted average exercise price of $8.75 and a
weighted average remaining contractual life of 6.0 years. All of these options
are exercisable. 275,000 options, all of which are exercisable, have an exercise
price of $14.75 and a remaining contractual life of 9.0 years. The remaining
428,933 options, 152,915 of which are exercisable, have exercise prices between
$19.50 and $27.00, with a weighted average exercise price of $22.976 and a
remaining contractual life of 10 years.

The Company accounts for stock option plans under APB Opinion No. 25, under
which no compensation cost has been recognized since options are granted with
exercise prices equal to the fair market value of the Common Stock at the date
of grant. Had compensation cost for these plans been determined consistent with
SFAS No. 123, the Company's earnings from continuing operations and diluted
earnings per share from continuing operations would have been approximately
$24,100,000 and $2.45 for 1997 and approximately $23,300,000 and $2.19 for 1996,
respectively, and net earnings and diluted net earnings per share would have
been approximately $19,000,000 and $1.92 for 1997 and approximately $21,600,000
and $2.03 for 1996, respectively.

The weighted average grant date fair value of options granted was $9.82 and
$6.15 in 1997 and 1996, respectively. The fair value of each option grant is
estimated on the date of the grant using the Black-Scholes option pricing model
with the following assumptions used:

<TABLE>
<CAPTION>
1997 1996
----------------------- -------
<S> <C> <C>
Risk-free interest rate.................... Between 5.75% and 6.73% 7%
Expected life.............................. 5 years 5 years
Expected volatility........................ 37% 33%
Expected dividend yield.................... 0% 0%
</TABLE>

The Company's Board of Directors has authorized a program to purchase up to
500,000 shares of the Company's Common and Special common Stock in open market
or negotiated transactions, subject to market conditions, cash availability and
provisions of the Company's outstanding debt instruments. As of February 28,
1998, the Company has purchased approximately 316,500 shares of its Common and
Special Common Stock for approximately $9,314,000 under this program and
accounted for such share purchases as treasury stock.

F-18
<PAGE> 79
NORTEK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. PENSION, RETIREMENT AND PROFIT SHARING PLANS

The Company and its subsidiaries have various pension, retirement and
profit sharing plans requiring contributions to qualified trusts and union
administered funds. Pension and profit sharing expense charged to operations
aggregated approximately $6,624,000 in 1997, approximately $4,310,000 in 1996
and approximately $828,000 in 1995. The Company's policy is to fund currently
the actuarially determined annual contribution. In the fourth quarter of 1995,
benefits related to the Company's existing defined benefit plans were frozen. On
January 1, 1996, the Company adopted a supplemental retirement plan for certain
officers. The actuarial present value of the unfunded accumulated benefit
obligation and the pension costs of this plan have been included in the tables
below.

The Company's net expense for its defined benefit plans for 1997, 1996 and
1995 consists of the following components:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Service costs......................................... $ 485 $ 358 $ 1,156
Interest cost......................................... 2,655 2,226 2,069
Actual net income on plan assets...................... (9,157) (3,944) (2,640)
Net amortization and deferred items................... 7,361 2,218 434
Net gain from freezing plan benefits.................. -- -- (581)
------- ------- -------
Total expense......................................... $ 1,344 $ 858 $ 438
======= ======= =======
</TABLE>

The following sets forth the funded status of the Company's defined benefit
plans and amounts recognized in the Company's consolidated balance sheet at
December 31, 1997 and 1996:

<TABLE>
<CAPTION>
PLAN ASSETS EXCEEDING
BENEFIT OBLIGATIONS
----------------------
1997 1996
-------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations at
September 30:
Vested benefits........................................... $33,958 $23,945
Non-Vested benefits....................................... 585 --
------- -------
Accumulated benefit obligation............................ 34,543 23,945
Effect of projected future compensation levels............ 2,394 --
------- -------
Projected benefit obligation................................ 36,937 23,945
Plan assets at fair value at September 30................... 48,673 28,040
------- -------
Plan assets in excess of the projected benefit obligation... 11,736 4,095
Unrecognized net gain....................................... (6,026) (452)
------- -------
$ 5,710 $ 3,643
======= =======
</TABLE>

F-19
<PAGE> 80
NORTEK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
BENEFIT OBLIGATIONS
EXCEEDING PLAN ASSETS
-----------------------
1997 1996
--------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations at
September 30:
Vested benefits............................................. $ 11,027 $ 5,359
Non-vested benefits......................................... 810 520
-------- -------
Accumulated benefit obligation.............................. 11,837 5,879
Effect of projected future compensation levels.............. 3,662 2,439
-------- -------
Projected benefit obligation................................ 15,499 8,318
Plan assets at fair value at September 30................... 3,639 804
-------- -------
Projected benefit obligation in excess of plan assets....... (11,860) (7,514)
Unrecognized net loss....................................... 1,707 212
Unrecognized prior service costs............................ 7,125 6,335
Additional minimum liability................................ (5,341) (4,108)
-------- -------
$ (8,369) $(5,075)
======== =======
</TABLE>

Plan assets include commingled funds, marketable securities, insurance
contracts and cash and short-term investments. The weighted average discount
rate and rate of increase in future compensation levels used in determining the
actuarial present value of benefit obligations were 7 1/2 percent and 5 percent,
respectively, in 1997, 1996 and 1995. The expected long-term rate of return on
assets was 8 1/2 percent in 1997, 1996 and 1995.

Recognition of a minimum pension liability and an intangible asset for
certain plans resulted in a cumulative reduction in the Company's stockholders'
investment of approximately $124,000, $1,043,000 and $916,000 in 1997, 1996, and
1995, respectively.

8. COMMITMENTS AND CONTINGENCIES

The Company provides accruals for all direct and indirect costs associated
with the estimated resolution of contingencies at the earliest date at which the
incurrence of a liability is deemed probable and the amount of such liability
can be reasonably estimated.

At December 31, 1997, the Company and its subsidiaries are obligated under
lease agreements for the rental of certain real estate and machinery and
equipment used in its operations. Minimum annual rental expense aggregates
approximately $110,427,000 at December 31, 1997. The obligations are payable as
follows:

<TABLE>
<S> <C>
1998............................................ $18,203,000
1999............................................ 15,094,000
2000............................................ 11,250,000
2001............................................ 8,026,000
2002............................................ 6,933,000
Thereafter...................................... 50,921,000
</TABLE>

Certain of these lease agreements provide for increased payments based on
changes in the consumer price index. Rental expense charged to operations in the
accompanying consolidated statement of operations was approximately $8,700,000,
$6,725,000, and $6,900,000, for the years ended December 31, 1997, 1996 and
1995, respectively. Under certain of these lease agreements, the Company and its
subsidiaries are also obligated to pay insurance and taxes.

F-20
<PAGE> 81
NORTEK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company is subject to other contingencies, including legal proceedings
and claims arising out of its businesses that cover a wide range of matters,
including, among others, environmental matters, contract and employment claims,
product liability, warranty and modification, adjustment or replacement of
component parts of units sold, which may include product recalls. The Company
has used various substances in its products and manufacturing operations which
have been or may be deemed to be hazardous or dangerous, and the extent of its
potential liability, if any, under environmental, product liability and workers'
compensation statutes, rules, regulations and case law is unclear. Further, due
to the lack of adequate information and the potential impact of present
regulations and any future regulations, there are certain circumstances in which
no range of potential exposure may be reasonably estimated.

While it is impossible to ascertain the ultimate legal and financial
liability with respect to contingent liabilities, including lawsuits, the
Company believes that the aggregate amount of such liabilities, if any, in
excess of amounts provided, will not have a material adverse effect on the
consolidated financial position or results of operations of the Company.

9. DISCONTINUED OPERATIONS

In the fourth quarter of 1997, the Company adopted a plan of disposition
for its Plumbing Products Group. The following is an unaudited summary of the
results of discontinued operations for the three years ended December 31, 1997:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Net sales.......................................... $104,467 $128,241 $119,410
-------- -------- --------
Loss before income taxes........................... $ (5,700) $ (2,600) $ (3,800)
Income tax benefit................................. 2,100 900 1,300
-------- -------- --------
Loss from discontinued operations.................. (3,600) (1,700) (2,500)
Reserve for future operating expenses, net of
income tax benefit of $900,000................... (1,600) -- --
-------- -------- --------
Loss from discontinued operations.................. $ (5,200) $ (1,700) $ (2,500)
======== ======== ========
</TABLE>

Loss from discontinued operations before income taxes includes an
allocation of corporate interest expense of approximately $1,900,000, $1,700,000
and $1,900,000 in 1997, 1996 and 1995, respectively.

10. OPERATING AND GEOGRAPHIC SEGMENT INFORMATION AND CONCENTRATION OF
CREDIT RISK

The Company operates in one industry segment, Residential and Commercial
Building Products. No single customer accounts for 10% or more of consolidated
net sales.

F-21
<PAGE> 82
NORTEK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following information by geographic area is presented for 1997 and 1996
for the Company's continuing operations:

<TABLE>
<CAPTION>
PRE-TAX EARNINGS
NET FROM CONTINUING IDENTIFIABLE
FOR THE YEAR ENDED DECEMBER 31, 1997: SALES OPERATIONS ASSETS
- ------------------------------------- ---------- ---------------- ------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Geographic areas:
Domestic operations...................... $ 998,049 $ 86,491 $ 976,891
European operations...................... 76,564 3,467 60,743
Other foreign operations................. 75,700 7,046 57,527
Eliminations............................. (16,184) -- (7,986)
---------- -------- ----------
1,134,129 97,004 1,087,175
Unallocated........................... -- (14,023) 217,371
Interest expense...................... -- (50,210) --
Investment income..................... -- 9,929 --
---------- -------- ----------
Consolidated Totals.............. $1,134,129 $ 42,700 $1,304,546
========== ======== ==========
</TABLE>

<TABLE>
<CAPTION>
PRE-TAX EARNINGS
NET FROM CONTINUING IDENTIFIABLE
FOR THE YEAR ENDED DECEMBER 31, 1996: SALES OPERATIONS ASSETS
- ------------------------------------- ---------- ---------------- ------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Geographic areas:
Domestic operations...................... $ 706,548 $ 66,514 $ 303,273
European operations...................... 82,363 3,520 73,285
Other foreign operations................. 67,503 4,886 64,609
Eliminations............................. (14,857) -- (5,663)
---------- -------- ----------
841,557 74,920 435,504
Unallocated........................... -- (13,969) 154,729
Interest expense...................... -- (28,400) --
Investment income..................... -- 6,049 --
---------- -------- ----------
Consolidated Totals.............. $ 841,557 $ 38,600 $ 590,233
========== ======== ==========
</TABLE>

Unallocated assets consist primarily of cash, investments and marketable
securities and U.S. Federal prepaid income taxes.

The Company operates internationally and is exposed to market risks from
changes in foreign exchange rates. Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of
temporary cash investments and trade receivables. The Company places its
temporary cash investments with high credit quality financial institutions and
limits the amount of credit exposure to any one financial institution.
Concentrations of credit risk with respect to trade receivables are limited due
to the large number of customers comprising the Company's customer base and
their dispersion across many different geographical regions. At December 31,
1997, the Company had no significant concentrations of credit risk.

11. NET GAIN (LOSS) ON MARKETABLE SECURITIES

At December 31, 1997 and 1996, the reduction in the Company's stockholders'
investment for gross unrealized losses was approximately $110,000 and $891,000,
respectively. At December 31, 1997, there were no gross unrealized gains on the
Company's marketable securities.

F-22
<PAGE> 83
NORTEK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company's unrestricted marketable securities at December 31, 1997
consist primarily of U.S. Government Treasury Notes, certificates of deposit,
and bank issued money market instruments of which approximately $26,006,000
mature within one year; approximately $5,978,000 mature within one to five years
and approximately $4,004,000 mature within five to ten years.

12. ACCRUED EXPENSES AND TAXES, NET

Accrued expenses and taxes, net, consist of the following at December 31,
1997 and 1996:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
---------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Insurance................................................... $ 23,880 $12,205
Payroll, management incentive and accrued employee
benefits.................................................. 37,600 23,136
Interest.................................................... 22,049 7,749
Accrued product warranty expense............................ 9,471 7,770
Other, net.................................................. 71,001 37,392
-------- -------
$164,001 $88,252
======== =======
</TABLE>

13. SUBSEQUENT EVENTS

On March 9, 1998, the Company through a wholly-owned subsidiary, entered
into an agreement to purchase NuTone, Inc., a wholly-owned subsidiary of
Williams plc, for approximately $242,500,000 in cash. The acquisition is subject
to the requirements of the Hart-Scott-Rodino Antitrust Improvements Act. In
connection with its review of the transaction under the Act, the Federal Trade
Commission ("FTC") has issued a "second request" for certain additional
information. The FTC has taken no position with respect to the transaction and
there can be no assurance that the transaction, as proposed, will be
consummated. If the acquisition is not consummated, the Company expects that it
would incur an approximately $3,000,000 ($0.31 per diluted share) net after tax
charge to its earnings as a result of fees, expenses and other acquisition
related costs.

14. SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following summarizes unaudited quarterly financial data for the years
ended December 31, 1997 and December 31, 1996:

<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
------------------------------------------------
MARCH 29 JUNE 28 SEPTEMBER 27 DECEMBER 31
-------- -------- ------------ -----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1997
Net sales................................. $194,238 $223,795 $300,380 $415,716
Gross profit.............................. 56,540 64,353 78,872 102,592
Earnings from continuing operations....... 4,700 7,700 8,400 5,600
Earnings per share from continuing
operations:
Basic................................... .48 .80 .88 .59
Diluted................................. .47 .78 .86 .57
Net earnings.............................. 3,700 6,700 7,700 3,100
Net earnings per share:
Basic................................... .38 .70 .80 .33
Diluted................................. .37 .68 .78 .32
</TABLE>

F-23
<PAGE> 84
NORTEK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
------------------------------------------------
MARCH 30 JUNE 29 SEPTEMBER 28 DECEMBER 31
-------- -------- ------------ -----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1996
Net sales................................. $189,762 $226,737 $215,624 $209,434
Gross profit.............................. 51,225 63,892 61,687 64,455
Earnings from continuing operations....... 3,200 6,000 6,700 7,800
Earnings per share from continuing
operations:
Basic................................... .27 .58 .67 .78
Diluted................................. .27 .57 .66 .77
Net earnings.............................. 2,400 5,800 6,500 7,300
Net earnings per share:
Basic................................... .20 .56 .65 .73
Diluted................................. .20 .55 .64 .72
</TABLE>

See Notes 2 and 9 regarding certain other quarterly transactions included
in the operating results in the above table.

Increased net sales in the third and fourth quarters of 1997, as compared
to 1996, reflect, primarily, the effect of the Ply Gem acquisition (see Note 2).

F-24
<PAGE> 85

COOPERS & LYBRAND LETTERHEAD

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of
Williams Y&N Holdings, Inc.
Parent of NuTone Inc. and Subsidiary

We have audited the accompanying consolidated balance sheet of NuTone Inc.
and Subsidiary (the "Company") as of December 31, 1997, and the related
consolidated statements of operations, shareholder's net investment and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of NuTone Inc. and
Subsidiary as of December 31, 1997 and the consolidated results of its
operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.

/s/ COOPERS & LYBRAND L.L.P.

Cincinnati, Ohio
February 20, 1998

F-25
<PAGE> 86

NUTONE INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
ASSETS
Current assets:
Cash...................................................... $ 840
Accounts receivable, less allowance for doubtful accounts
of $1,373.............................................. 30,304
Inventories............................................... 4,804
Deferred tax asset, current............................... 4,880
Prepaid expenses and other current assets................. 4,688
---------
Total current assets.............................. 45,516
Property, plant and equipment, net.......................... 18,212
Deferred tax asset, noncurrent.............................. 14,123
Other noncurrent assets..................................... 289
---------
Total assets...................................... $ 78,140
=========
</TABLE>

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
LIABILITIES
Current liabilities:
Accounts payable.......................................... $ 23,134
Payable to Parent and related entities.................... 11,508
Accrued expenses and other................................ 15,635
---------
Total current liabilities......................... 50,277
Pension liability........................................... 12,883
Post-retirement medical benefits liability.................. 27,820
Accrued warranty............................................ 4,990
Long-term debt to Parent and related entities............... 131,000
---------
Total liabilities................................. 226,970
---------
Contingencies
</TABLE>

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
SHAREHOLDER'S NET INVESTMENT (DEFICIT)
Shareholder's net investment (deficit)...................... (148,830)
---------
Total liabilities and shareholder's net investment
(deficit)........................................ $ 78,140
=========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-26
<PAGE> 87

NUTONE INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Net sales................................................... $ 199,072
Cost of goods sold.......................................... (122,897)
---------
Gross profit........................................... 76,175
Selling, general and administrative expenses................ (51,387)
---------
Income from operations................................. 24,788
Other income (expense):
Interest expense.......................................... (11,852)
Other income, net......................................... 42
---------
Income before income taxes............................. 12,978
Provision for income taxes.................................. (5,043)
---------
Net income........................................ $ 7,935
=========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-27
<PAGE> 88
NUTONE INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF SHAREHOLDER'S NET INVESTMENT
FOR THE YEAR ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
SHAREHOLDER'S
NET INVESTMENT
(DEFICIT)
--------------
(IN THOUSANDS)
<S> <C>
Balance, December 31, 1996.................................. $(147,062)
Net income.................................................. 7,935
Foreign currency translation adjustment..................... (49)
Pension liability adjustment................................ 503
Capital contribution from Parent............................ 2,243
Dividend to Parent.......................................... (12,400)
---------
Balance, December 31, 1997.................................. $(148,830)
=========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-28
<PAGE> 89

NUTONE INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997

(IN THOUSANDS)
<S> <C>
Cash flows from operating activities:
Net income................................................ $ 7,935
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation expense................................... 3,416
Deferred tax provision................................. (555)
Loss on sale of fixed assets........................... 16
Decrease in accounts receivable........................ 3,604
Increase in inventories................................ (1,065)
Decrease in prepaid expenses and other current
assets................................................ 339
Increase in accounts payable........................... 3,784
Increase in accrued expenses........................... 583
Decrease in pension liability.......................... (1,119)
Increase in post-retirement medical benefit
liability............................................. 1,018
--------
Net cash provided by operating activities............ 17,956
--------
Cash flows from investment activities:
Proceeds from sale of fixed assets........................ 11
Capital expenditures...................................... (3,663)
--------
Net cash used in investing activities................ (3,652)
--------
Cash flows from financing activities:
Dividends paid to Parent.................................. (12,400)
Contributions from Parent and related entities............ 2,243
Change in amount due to/from Parent and related
entities............................................... (4,250)
Foreign currency translation adjustment................... (49)
--------
Net cash used in financing activities................ (14,456)
--------
Net decrease in cash........................................ (152)
Cash at beginning of year................................... 992
--------
Cash at end of year......................................... $ 840
========
Supplemental cash flow information:
Cash paid for interest.................................... $ 12,141
========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-29
<PAGE> 90

NUTONE INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. PURPOSE OF FINANCIAL STATEMENTS:

The financial statements of NuTone Inc. and Subsidiary (the "Company") have
been prepared in connection with the proposed sale of the capital stock of the
Company by its ultimate parent company, Williams plc ("Williams" or the
"Parent"), a U.K. Company, to Nortek, Inc., pursuant to an agreement dated
March 9, 1998.

The consolidated financial statements include the accounts of NuTone Inc.
(U.S.) and its wholly owned subsidiary, NuTone Canada Inc.

Certain properties, while historically part of the Company, have been
excluded from these financial statements, as the related assets, liabilities and
costs will not be a part of the proposed transaction. These properties, at
December 31, 1997, are non-operating and are not material to the Company's
financial position or 1997 results of operations.

2. NATURE OF BUSINESS:

The Company is principally engaged in the manufacturing and sale of
household fixtures, such as ventilation fans and heaters, range hoods, door
chimes, bathroom cabinets, and intercom systems. The Company's primary
manufacturing operations are located in Cincinnati, Ohio and the Company also
has a manufacturing facility in Coppell, Texas. Approximately 99% of its 1997
sales were to customers in the United States and Canada.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The following is a summary of the significant accounting policies followed
in the preparation of these consolidated financial statements.

a. Basis of Presentation: The Company's consolidated financial statements,
which have been prepared on the basis of U.S. generally accepted accounting
principles, reflect the actual results of operations, financial position,
changes in shareholder's net investment, and cash flows as if it were a separate
stand-alone entity for all periods presented. The financial statements do not
reflect the goodwill resulting from the acquisition of the Company by Williams
in 1991, as "push down accounting" has not been utilized.

General corporate overhead expenses related to Williams' corporate
headquarters and common support functions have been allocated to the Company, to
the extent such amounts are applicable to the Company, based on the ratio of the
Company's budgeted sales to budgeted sales of all companies within the Williams
U.S. consolidated group. Management believes these allocations are reasonable.
However, the costs of these services charged to the Company are not necessarily
indicative of the costs that would have been incurred if the Company had
performed these functions as a stand-alone entity. As a result of the proposed
sale described in Note 1, the Company, or the acquirer, will be required to
perform certain of these functions using its own resources, or purchased
services, and will be responsible for the costs and expenses associated with the
management of the Company.

The financial information included herein may not necessarily reflect the
consolidated results of operations, financial position and cash flows of the
Company which would have resulted had the Company been a separate, stand-alone
entity during the period presented.

b. Basis of Consolidation: The consolidated financial statements include
the accounts of NuTone Inc. and its wholly-owned subsidiary, NuTone Canada Inc.
All significant intercompany transactions and accounts have been eliminated.

F-30
<PAGE> 91
NUTONE INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

c. Foreign Currency Translation: For international operations, assets and
liabilities are translated into U.S. dollars at year-end exchange rates, and
revenues and expenses are translated at average exchange rates prevailing during
the year. Translation adjustments, resulting from fluctuations in exchange
rates, are included in shareholder's net investment.

d. Use of Estimates: The preparation of consolidated financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

e. Research and Development Expenses: Research and development expenses
are charged to operations as incurred. Research and development expense was
approximately $1,377,000 for the year ended December 31, 1997.

f. Inventories: Inventories are stated at the lower of cost or market,
with cost being determined on the last in, first out (LIFO) method.

g. Property, Plant and Equipment: Property, plant and equipment, including
the cost of certain tooling, is recorded at cost and depreciated on the
straight-line basis over the following useful lives:

<TABLE>
<S> <C>
Buildings................................................... 40 years
Building improvements....................................... 10 years
Machinery and equipment..................................... 4 to 10 years
Furniture, fixtures and computer equipment.................. 5 to 10 years
Tools and dies.............................................. 5 years
</TABLE>

Repairs and maintenance expenditures are charged to income as incurred,
whereas replacements, betterments and improvements are capitalized. Upon sale or
retirement, the cost and related accumulated depreciation are eliminated from
the respective accounts and the resulting gain or loss is included in
operations.

h. Product Warranty Expense: The estimated amount of product warranty
costs is accrued in the period in which the related sale is made.

i. Advertising Costs: The Company expenses advertising costs the first
time the advertising takes place. Advertising expense was $4,942,000 for the
year ended December 31, 1997.

j. Income Taxes: The Company's operations have historically been included
in the income tax returns filed by a subsidiary of Williams. However, income tax
expense in the Company's consolidated financial statements has been calculated
as if the Company had filed separate tax returns for all periods presented.

The Company is a member of a consolidated U.S. tax group. Under a tax
sharing agreement with intermediate and ultimate parent companies, the Company
is not charged for taxes on its operations. The Company's current tax provision
has been accounted for as a capital contribution.

k. Statement of Cash Flows: The Company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents.

F-31
<PAGE> 92
NUTONE INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. INVENTORIES:

At December 31, 1997, inventories were as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Raw materials and work-in-process........................... $13,738
Finished goods.............................................. 14,665
-------
28,403
Less reserve for LIFO valuation............................. 23,599
-------
Total inventories........................................... $ 4,804
=======
</TABLE>

5. PROPERTY, PLANT AND EQUIPMENT:

At December 31, 1997, property, plant and equipment consisted of:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Land, building and improvements............................. $13,828
Machinery and equipment..................................... 20,697
Furniture, fixtures and computer equipment.................. 5,997
Tools and dies.............................................. 13,999
Construction in progress.................................... 3,150
-------
57,671
Less accumulated depreciation............................... 39,459
-------
$18,212
=======
</TABLE>

6. LONG-TERM DEBT TO SUBSIDIARY OF PARENT COMPANY:

The Company has a promissory note payable to a wholly-owned subsidiary of
the Parent of $131,000,000, due on September 7, 2001. Interest is paid in
semi-annual installments in June and December at a rate of 8.5%.

7. EMPLOYEE BENEFIT PLANS:

The Company has a defined contribution plan covering predominantly
non-union employees of NuTone Inc. (U.S.). Under the Plan, participants can
elect to defer up to 10% of their eligible earnings on a pre-tax basis, with the
Company matching 50% of the first 5% of deferred earnings. During 1997, the
Company's contribution to the plan was $347,000.

The Company has six noncontributory defined benefit pension plans (the
"Plans") covering substantially all employees, with benefits for salaried
employees based on years of service and the employee's career compensation, and
benefits for hourly paid employees based on years of service. The Company
accrues expense for the Plans in accordance with generally accepted accounting
principles and makes contributions to the Plans in accordance with an agreed
funding policy, which are deductible for federal income tax purposes.

At December 31, 1997, substantially all of the assets of the defined
benefit plans were included with those of other Williams subsidiaries in the
United States and held as part of a master trust. Plan assets, as stated below,
represent the Company's proportionate share of the net assets of the master
trust.

F-32
<PAGE> 93
NUTONE INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table sets forth the principal Plans' funded status and
amounts recognized in the Company's balance sheet, utilizing information from
the latest actuarial valuation date, December 31, 1997:

<TABLE>
<CAPTION>
NUTONE NUTONE
(U.S.) (U.S.)
SALARIED HOURLY
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, primarily vested.......... $42,851 $25,383
======= =======
Projected benefit obligation for services rendered to
date...................................................... $46,816 $25,383
Plan assets at fair value, primarily cash equivalents and
marketable securities..................................... 37,350 23,086
------- -------
Projected benefit obligation in excess of plan assets....... 9,466 2,297
Unrecognized net gain (loss) from past experience different
from that assumed and effects of changes in assumptions... 3,920 723
Unrecognized prior service cost............................. -- (1,012)
Additional minimum liability................................ -- 289
------- -------
Accrued pension liability................................... $13,386 $ 2,297
======= =======
</TABLE>

The deferred tax asset associated with employee pensions and other benefits
is disclosed in Note 9.

Net pension expense, reflected in both cost of sales and general and
administrative expenses, for the year ended December 31, 1997, included the
following components:

<TABLE>
<CAPTION>
NUTONE NUTONE
(U.S.) (U.S.)
SALARIED HOURLY
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Service cost............................................. $ 910 $ 363
Interest cost............................................ 3,335 1,851
Actual return on plan assets............................. (4,424) (2,637)
Net amortization and deferral............................ 1,374 906
------- -------
Net pension expense...................................... $ 1,195 $ 483
======= =======
</TABLE>

For 1997, the discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the projected benefit
obligation was 7.5% and 4.5%, respectively. The expected long-term rate of
return on assets was 9%.

8. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS:

The Company provides certain medical and life insurance benefits to
eligible retired employees. Hourly employees at the Cincinnati, Ohio location
covered by a collective bargaining agreement, hired before June 12, 1992, and
non-union employees, hired before January 1, 1994, generally become eligible for
retiree medical and life insurance benefits on retirement. Pre-age 65 retirees
are paid covered medical expenses, including drugs, less deductibles or
co-payments. Post-age 65 retiree medical expenses are offset by Medicare
benefits.

F-33
<PAGE> 94
NUTONE INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table sets forth the funded status and amounts recognized in
the Company's balance sheet at December 31, 1997:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................. $17,234
Fully eligible active participants........................ 5,347
Other active participants................................. 5,084
-------
Total unfunded accumulated postretirement benefit
obligation............................................ 27,665
Unrecognized net gain....................................... 1,555
-------
Accrued postretirement benefit obligation................. $29,220
=======
</TABLE>

The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 8% in 1997, declining by 1% in 1998 and
declining by 0.5% thereafter through 2004 to an ultimate rate of 4.0%. If the
health care cost trend rate assumptions were increased by 1%, the accumulated
postretirement benefit obligation, as of December 31, 1997, would have increased
by $3,570,000. The effect of this change on the sum of the service cost and
interest cost components of net periodic postretirement benefit cost for 1997
would have been an increase of $381,000.

The deferred tax asset associated with employee pensions and other benefits
is disclosed in Note 9.

The components of net periodic postretirement benefit cost for the year
ended December 31, 1997 were as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Service cost................................................ $ 431
Interest cost on accumulated post retirement benefit
obligation................................................ 2,064
Net amortization............................................ (26)
------
Total expense..................................... $2,469
======
</TABLE>

The discount rate used in determining the accumulated postretirement
benefit obligation and net periodic postretirement benefit cost was 7.5% as of
December 31, 1997.

9. INCOME TAXES:

The following table presents the principal components of the difference
between the U.S. federal statutory income tax rate and the effective tax rate
for the year ended December 31, 1997:

<TABLE>
<S> <C>
Federal income tax rate..................................... 35%
Tax effect of foreign losses................................ (1)%
Effect of state and local taxes, net of federal tax
benefit................................................... 5%
--
Effective tax rate.......................................... 39%
==
</TABLE>

The Company's tax provision includes a provision for income taxes in
foreign tax jurisdictions.

F-34
<PAGE> 95
NUTONE INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table presents the U.S. and foreign components of income tax
expense for the year ended December 31, 1997:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Income tax expense (benefit):
Current:
Federal................................................ $4,327
State and local........................................ 1,256
Foreign................................................ 15
Deferred:
Federal................................................ (443)
State and local........................................ (112)
------
Total income tax expense.......................... $5,043
======
</TABLE>

Deferred income tax liabilities are taxes that the Company expects to pay
in future periods. Conversely, deferred income tax assets are tax benefits
recognized for expected reductions in future taxes payable. Deferred income
taxes arise because of differences in the financial reporting and tax bases of
certain assets and liabilities. Deferred income tax assets and liabilities
included in the balance sheet at December 31, 1997 were as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Deferred income tax assets:
Employee pensions and other benefits...................... $17,804
Accrued warranty.......................................... 2,996
Balance sheet reserves and allowances..................... 3,258
-------
Total deferred income tax assets.................. 24,058
-------
Deferred income tax liabilities:
Property, plant, and equipment............................ 3,997
Accounts receivable....................................... 1,058
-------
Total deferred income tax liabilities............. 5,055
-------
Total net deferred income tax assets.............. $19,003
=======
</TABLE>

10. LEASES:

The Company leases manufacturing and warehouse facilities and other
equipment under various operating leases. Total rent expense for the year ended
December 31, 1997 was approximately $1,309,000.

Future minimum rental payments required under all leases that have
remaining noncancelable lease terms in excess of one year, as of December 31,
1997, are as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1998........................................................ $ 995
1999........................................................ 1,053
2000........................................................ 616
2001........................................................ 424
Thereafter.................................................. --
------
Total minimum payments required................... $3,088
======
</TABLE>

F-35
<PAGE> 96
NUTONE INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. RELATED PARTY TRANSACTIONS:

Management fees charged to the Company by its Parent in 1997 were
$1,676,000.

The Company maintains a revolving loan with a fellow wholly-owned
subsidiary of the Parent. The loan has no stated due date and is due and payable
upon demand by this subsidiary. The Company is charged interest on outstanding
balances, based on the prime rate (8.5% at December 31, 1997), which is payable
monthly. In situations where the Company has advanced funds to this subsidiary,
it receives interest at the prime rate less 1%. Interest expense, net of
interest income, on this revolving loan and on the long-term debt discussed in
Note 6, was $11,852,000 in 1997.

12. MAJOR CUSTOMER:

The Company derived approximately 22% of its consolidated net sales from
one customer in 1997.

13. CONTINGENCIES:

The Company is subject to various investigations, claims and legal
proceedings covering a wide range of matters that arise in the ordinary course
of its business activities. Each of these matters is subject to various
uncertainties, and it is possible that some of these matters may be resolved
unfavorably to the Company. The Company has established accruals for matters
that are probable and reasonably estimable. Management believes that any
liability that may ultimately result from the resolution of these matters in
excess of amounts provided will not have a material adverse effect on the
financial position or results of operations of the Company.

F-36
<PAGE> 97

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<PAGE> 98

(This page intentionally left blank)
<PAGE> 99

[INSIDE BACK COVER ART]

[Palladian wood window with red background picture]

A palladian wood window produced at the Company's SNE facility and marketed
under the Vetter(R) brand name.

[Crestline(R) and Vetter(R) windows on wood house picture]

The Company's Crestline(R) and Vetter(R) windows are available with primed or
aluminum clad exteriors. Window styles include single hung, double hung,
casement, awning, sliding, angle bay and bow windows.

[Picture of white house with vinyl siding]

Vinyl siding produced by Variform(R). Additionally, the Company also
manufactures vinyl and wood windows and patio doors marketed under the
Crestline(R) and Vetter(R) brand names, as well as vinyl windows and patio doors
under the Great Lakes(R) name.

[Picture vinyl bow window]

A premium, all vinyl bow window with a wood grain finish produced by Great
Lakes(R).
<PAGE> 100

================================================================================

NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITY
OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE SHARES OF COMMON
STOCK TO ANYONE OR BY ANYONE IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO
WHOM, IT WOULD BE UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN A CHANGE IN THE
INFORMATION SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF.

------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Special Cautionary Notice Regarding
Forward-Looking Statements........ 3
Available Information............... 4
Incorporation of Certain Documents
by Reference...................... 4
Prospectus Summary.................. 5
Risk Factors........................ 12
Recent Developments................. 16
Use of Proceeds..................... 18
Dividend Policy..................... 18
Capitalization...................... 19
Price Range of Common Stock......... 20
Selected Historical Consolidated
Financial Data.................... 21
Unaudited Pro Forma Condensed
Consolidated Financial Data....... 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 32
Business............................ 41
Management.......................... 51
Principal Stockholders.............. 52
Description of Capital Stock........ 54
Description of Certain
Indebtedness...................... 57
Underwriting........................ 59
Legal Matters....................... 60
Experts............................. 60
Additional Information.............. 60
Index to Consolidated Financial
Statements........................ F-1
</TABLE>

2,000,000 SHARES

NORTEK, INC.
COMMON STOCK

-----------------------

PROSPECTUS

-----------------------

BEAR, STEARNS & CO. INC.

PAINEWEBBER INCORPORATED

WASSERSTEIN PERELLA SECURITIES, INC.

MAY 11, 1998
================================================================================