-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B/jy6/ce+CKt2V/Xl9ROo0hUTBUjZGZy+WRdhBFYK0lIVJCcrL/1n+fpq7JcFuD9 UtIbGWFUDS+v/g2PoNVk8A== 0000072423-97-000023.txt : 19971114 0000072423-97-000023.hdr.sgml : 19971114 ACCESSION NUMBER: 0000072423-97-000023 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970927 FILED AS OF DATE: 19971112 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTEK INC CENTRAL INDEX KEY: 0000072423 STANDARD INDUSTRIAL CLASSIFICATION: AIR COND & WARM AIR HEATING EQUIP & COMM & INDL REFRIG EQUIP [3585] IRS NUMBER: 050314991 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-06112 FILM NUMBER: 97712598 BUSINESS ADDRESS: STREET 1: 50 KENNEDY PLZ CITY: PROVIDENCE STATE: RI ZIP: 02903 BUSINESS PHONE: 4017511600 MAIL ADDRESS: STREET 1: 50 KENNEDY PLAZA CITY: PROVIDENCE STATE: RI ZIP: 02903 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 27, 1997 ------------------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------------- ----------- Commission File No. 1-6112 ----------------------------------------- NORTEK, INC. - ------------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 05-0314991 - ------------------------------------------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 50 Kennedy Plaza, Providence, RI 02903-2360 - ------------------------------------------------------------ (Address of principal executive offices) (Zip Code) (401) 751-1600 - ------------------------------------------------------------ (Registrant's telephone number, including area code) N/A - ------------------------------------------------------------ (Former name, former address and former fiscal year if changed since last year) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---------- ----------- The number of shares of Common Stock outstanding as of October 31, 1997 was 9,035,080. The number of shares of Special Common Stock outstanding as of October 31, 1997 was 484,900. NORTEK, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (Dollar Amounts in Thousands) Sept. 27, Dec. 31, 1997 1996 ---- ---- (Unaudited) ASSETS Current Assets: Unrestricted-- Cash and cash equivalents $ 49,075 $ 41,042 Marketable securities available for sale 104,620 51,051 Restricted-- Cash and marketable securities at cost which approximates market 6,952 5,681 Accounts receivable, less allowances of $11,105 and $4,356 222,132 122,176 Inventories: Raw materials 69,771 36,765 Work in process 25,010 12,717 Finished goods 96,620 48,176 --------- ------- 191,401 97,658 --------- ------- Prepaid expenses 10,308 5,031 Other current assets 12,164 9,909 Prepaid income taxes 49,500 20,000 --------- ------- Total Current Assets 646,152 352,548 --------- ------- Property and Equipment, at cost: Land 11,710 7,046 Buildings and improvements 96,322 72,954 Machinery and equipment 263,998 174,064 372,030 254,064 Less--Accumulated depreciation 114,485 112,645 --------- ------- Total Property and Equipment, net 257,545 141,419 --------- ------- Other Assets: Goodwill, less accumulated amortiza- tion of $29,827 and $26,948 361,498 91,578 Intangible assets 9,072 4,263 Notes receivable and other Investments 11,605 1,633 Deferred debt expense 20,771 6,647 Other 25,785 11,028 --------- ------- 428,731 115,149 --------- ------- $1,332,428 $609,116 ========= ======= The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. NORTEK, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (Continued) (Dollar Amounts in Thousands) Sept. 27, Dec. 31, 1997 1996 ---- ---- (Unaudited) LIABILITIES AND STOCKHOLDERS' INVESTMENT - ---------------------------------------- Current Liabilities: Notes payable and other short- term obligations $ 12,038 $ 25,334 Current maturities of long-term debt 9,441 11,230 Accounts payable 112,497 74,945 Accrued expenses and taxes, net 181,051 97,565 --------- ------- Total Current Liabilities 315,027 209,074 --------- ------- Other Liabilities: Deferred income taxes 9,845 17,637 Other 40,179 19,649 --------- ------- 50,024 37,286 --------- ------- Notes, Mortgage Notes and Obligations Payable, less current maturities 839,639 243,961 --------- ------- Stockholders' Investment: Preference stock, $1 par value; authorized 7,000,000 shares, none issued --- --- Common Stock, $1 par value; authorized 40,000,000 shares, 16,040,905 shares and 15,965,585 shares issued 16,041 15,966 Special Common Stock, $1 par value; authorized 5,000,000 shares, 770,876 shares and 784,169 shares issued 771 784 Additional paid-in capital 135,333 135,028 Retained earnings 55,866 37,766 Cumulative translation, pension and other adjustments (3,912) (3,212) Less - treasury common stock at cost, 6,973,997 shares and 6,599,645 shares (74,426) (65,805) - treasury special common stock at cost, 285,304 shares and 276,910 shares (1,935) (1,732) --------- ------- Total Stockholders' Investment 127,738 118,795 --------- ------- $1,332,428 $609,116 ========= ======= The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. NORTEK, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (In Thousands Except Per Share Amounts) For The Three Months Ended ------------------ Sept. 27, Sept. 28, 1997 1996 ---- ---- (Unaudited) Net Sales $327,756 $248,227 ------- ------- Costs and Expenses: Cost of products sold 245,196 181,808 Selling, general and administrative expense 59,687 49,414 ------- ------- 304,883 231,222 ------- ------- Operating earnings 22,873 17,005 Interest expense (13,998) (7,261) Investment income 3,125 1,256 ------- ------- Earnings before provision for income taxes 12,000 11,000 Provision for income taxes 4,300 4,500 ------- ------- Net Earnings $ 7,700 $ 6,500 ======= ======= Net Earnings Per Share: Primary $ .78 $ .64 ======= ======= Fully diluted $ .78 $ .64 ======= ======= Weighted Average Number of Shares: Primary 9,841 10,162 ======= ======= Fully diluted 9,841 10,169 ======= ======= The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. NORTEK, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (In Thousands Except Per Share Amounts) For The Nine Months Ended ---------------- Sept. 27, Sept. 28, 1997 1996 ---- ---- (Unaudited) Net Sales $796,974 $729,447 ------- ------- Costs and Expenses: Cost of products sold 587,640 539,018 Selling, general and administrative expense 156,517 147,657 ------- ------- 744,157 686,675 ------- ------- Operating earnings 52,817 42,772 Interest expense (32,521) (22,747) Investment income 7,704 4,075 ------- ------- Earnings before provision for income taxes 28,000 24,100 Provision for income taxes 9,900 9,400 ------- ------- Net Earnings $ 18,100 $ 14,700 ======= ======= Net Earnings Per Share: Primary $ 1.83 $ 1.35 ======= ======= Fully diluted $ 1.83 $ 1.35 ======= ======= Weighted Average Number of Shares: Primary 9,878 10,845 ======= ====== Fully diluted 9,912 10,859 ======= ====== The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. NORTEK, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Amounts in Thousands) For the Nine Months Ended ----------------- Sept. 27, Sept. 28, 1997 1996 ---- ---- (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $18,100 $14,700 ------ ------ Adjustments to reconcile net earnings to cash: Depreciation and amortization 19,495 16,579 Non-cash interest expense, net 1,046 979 Net gain on investments and marketable securities (250) --- Deferred federal income tax credit (3,100) (875) Changes in certain assets and liabilities, net of effects from acquisitions and dispositions: Accounts receivable, net (15,436) (22,084) Prepaids and other current assets 3,605 1,322 Inventories (1,484) 3,702 Accounts payable (4,097) 19,051 Accrued expenses and taxes 21,597 (914) Long-term assets, liabilities and other, net (3,587) (1,945) ------ ------ Total adjustments to net earnings 17,789 15,815 ------ ------ Net Cash Provided by Operating Activities 35,889 30,515 ------ ------ CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (14,861) (13,576) Net cash paid for a business acquired (386,952) --- Purchase of investments and marketable securities (238,199) (45,903) Proceeds from sale of investments and marketable securities 183,329 37,905 Other, net (2,740) 146 -------- ------ Net Cash Used in Investing Activities (459,423) (21,428) -------- ------- The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. NORTEK, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Amounts in Thousands) (Continued) For the Nine Months Ended ----------------- Sept. 27, Sept. 28, 1997 1996 ---- ---- (Unaudited) CASH FLOWS FROM FINANCING ACTIVITIES: Sale of notes $467,663 $ --- Principal payments, net (27,667) (655) Purchase of Nortek Common and Special Common Stock (8,824) (31,738) Other, net 395 75 ------- ------- Net Cash Provided by (Used in) Financing Activities 431,567 (32,318) ------- ------- Net increase(decrease) in unrestricted cash and investments 8,033 (23,231) Unrestricted cash and investments at the beginning of the period 41,042 60,079 ------- ------- Unrestricted cash and investments at the end of the period $ 49,075 $ 36,848 ======= ======= Interest paid $ 32,724 $ 27,670 ======= ======= Income taxes paid, net $ 8,203 $ 13,490 ======= ======= The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. Nortek, Inc. and Subsidiaries Condensed Consolidated Statement of Stockholders' Investment For the Three Months Ended September 27, 1997 and September 28, 1996 (Dollar Amounts in Thousands) Cumulative Translation, Addi- Pension Special tional and Other Common Common Paid-in Retained Adjust- Treasury Stock Stock Capital Earnings ments Stock ----- ----- ------- -------- -------- ----- (Unaudited) Balance, June 29, 1996 $15,916 $758 $134,746 $23,966 $(3,193) $(64,454) 5,319 shares of special common stock converted into 5,319 shares of common stock 5 (5) --- --- --- --- Translation adjust- ment --- --- --- --- 335 --- Unrealized apprecia- tion in the value of marketable securities --- --- --- --- 97 --- Net earnings --- --- --- 6,500 --- --- ------ --- ------- ------ ------ ------- Balance, September 28, 1996 $15,921 $753 $134,746 $30,466 $(2,761) $(64,454) ====== === ======= ====== ====== ======= Balance, June 28, 1997 $16,026 $774 $135,311 $48,166 $(3,948) $(75,232) 3,463 shares of special common stock converted into 3,463 shares of common stock 3 (3) --- --- --- --- 11,900 shares of common stock issued upon exercise of stock options 12 --- 22 --- --- --- 44,841 shares of treasury stock acquired --- --- --- --- --- (1,129) Translation adjust- ment --- --- --- --- (87) --- Unrealized appreciation in the value of mar- ketable securities --- --- --- --- 123 --- Net earnings --- --- --- 7,700 --- --- ------ --- ------- ------ ------ ------- Balance, September 27, 1997 $16,041 $771 $135,333 $55,866 $(3,912) $(76,361) ====== === ======= ====== ====== ======= The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. Nortek, Inc. and Subsidiaries Condensed Consolidated Statement of Stockholders' Investment For the Nine Months Ended September 27, 1997 and September 28, 1996 (Dollar Amounts in Thousands) Cumulative Translation, Addi- Pension Special tional and Other Common Common Paid-in Retained Adjust- Treasury Stock Stock Capital Earnings ments Stock ----- ----- ------- -------- -------- ----- (Unaudited) Balance, December 31, 1995 $15,883 $774 $134,690 $15,766 $(2,742) $(33,080) 21,025 shares of special common stock converted into 21,025 shares of common stock 21 (21) --- --- --- --- 16,843 shares of common stock issued upon exercise of stock options 17 --- 56 --- --- --- 2,117,314 shares of treasury stock acquired --- --- --- --- --- (31,374) Translation adjustment --- --- --- --- 396 --- Unrealized decline in marketable securities --- --- --- --- (415) --- Net earnings --- --- --- 14,700 --- --- ------ --- ------- ------ ------ ------- Balance, September 28, 1996 $15,921 $753 $134,746 $30,466 $(2,761) $(64,454) ====== ==== ======= ======= ======= ======= Balance, December 31, 1996 $15,966 $784 $135,028 $37,766 $(3,212) $(67,537) 19,101 shares of special common stock converted into 19,101 shares of common stock 19 (19) --- --- --- --- 56,219 shares of common stock and 5,808 shares of special common stock issued upon exercise of stock options 56 6 305 --- --- --- 382,746 shares of treasury stock acquired --- --- --- --- --- (8,824) Translation adjustment --- --- --- --- (1,192) --- Unrealized appreciation In the value of marketable securities --- --- --- --- 492 --- Net earnings --- --- --- 18,100 --- --- ------ --- ------- ------ ------ ------- Balance, September 27, 1997 $16,041 $771 $135,333 $55,866 $(3,912) $(76,361) ====== === ======= ====== ====== ======= The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. NORTEK, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 27, 1997 AND SEPTEMBER 28, 1996 (A) The unaudited condensed consolidated financial statements presented ("Unaudited Financial Statements") have been prepared by Nortek, Inc. and include all of its wholly-owned subsidiaries (the "Company") after elimination of intercompany accounts and transactions, without audit and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary for a fair statement of the interim periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted, although, the Company believes that the disclosures included are adequate to make the information presented not misleading. Certain amounts in the Unaudited Financial Statements for the prior periods have been reclassified to conform to the presentation at September 27, 1997. It is suggested that these Unaudited Financial Statements be read in conjunction with the financial statements and the notes included in the Company's latest Annual Report on Form 10-K. (B) 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. 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 $420,000,000. 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. 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 expense. Also on August 26, 1997, prior to the acquisition, Ply Gem refinanced approximately $108,900,000 of existing Ply Gem indebtedness. On March 17, 1997, the Company sold $175,000,000 principal amount of 9 1/4% Senior Notes due March 2007 (the "9 1/4% Notes") at a slight discount. The net proceeds were used to refinance certain outstanding indebtedness of the Company's subsidiaries and for acquisitions and other general corporate purposes. NORTEK, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 27, 1997 AND SEPTEMBER 28, 1996 (Continued) Nortek expects to realize cost savings as a result of the acquisition. These savings are expected to 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 legal, accounting and risk management; and (iii) the identification and rationalization of underperforming product lines. Pro Forma earnings results (see below) have been adjusted for only those estimated cost reductions directly attributable to the acquisition. These expected pre-tax savings total $262,000 and $3,983,000 for the third quarter and nine months ended September 27, 1997 and $2,729,000 and $6,358,000 for the third quarter and nine months ended September 28, 1996. As Adjusted pro forma earnings results (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. This additional pre-tax cost savings total $4,997,000 and $12,661,000 for the third quarter and nine months ended September 27, 1997 and $3,530,000 and $9,231,000 for the third quarter and nine months ended September 28, 1996. The following presents the approximate unaudited Pro Forma and As Adjusted net sales, operating earnings, net earnings and fully diluted net 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 and 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 acquisitions. NORTEK, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 27, 1997 AND SEPTEMBER 28, 1996 (Continued) Pro Forma Three Months Ended Nine Months Ended ------------------ ---------------- Sept. 27, Sept.28, Sept. 27, Sept. 28, 1997 1996 1997 1996 ------- ------- -------- -------- (Amounts in Thousands except per share amounts) Net Sales $461,951 $478,370 $1,312,897 $1,313,687 Operating Earnings 21,037 33,755 63,349 67,880 Net Earnings 2,000 7,350 4,100 3,830 Fully Diluted Net Earnings Per Share $ .20 $ .72 $ .41 $ .35 As Adjusted Three Months Ended Nine Months Ended ------------------ ---------------- Sept. 27, Sept.28, Sept. 27, Sept. 28, 1997 1996 1997 1996 ------- ------- -------- -------- (Amounts in Thousands except per share amounts) Net Sales $458,891 $472,341 $1,297,780 $1,295,044 Operating Earnings 26,034 37,288 76,018 77,125 Net Earnings 5,175 9,600 12,200 9,700 Fully Diluted Net Earnings Per Share $ .53 $ .94 $ 1.23 $ .89 In computing the pro forma net 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 refinancing and repayment of certain indebtedness of Ply Gem. Net 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. Interest expense on the subsidiary indebtedness refinanced with funds from the 9 1/4% Notes offering was excluded at an average interest rate of approximately 9.6% for all periods presented, net of the tax effect. Interest expense was included on the 9 1/4% Notes at a rate of approximately 9 1/4%, plus amortization of deferred debt expense and debt discount, 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. NORTEK, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 27, 1997 AND SEPTEMBER 28, 1996 (Continued) (C) The Company's Board of Directors has authorized a number of programs to purchase shares of the Company's Common and Special Common Stock since November 16, 1995. The most recent of these programs was announced on April 30, 1997, to purchase up to 500,000 shares of the Company's Common and Special Common Stock in open market or negotiated transactions, subject to market conditions, cash availability and provisions of the Company's outstanding debt instruments. As of October 31, 1997, the Company has purchased approximately 86,833 shares of its Common and Special Common Stock for approximately $2,100,000 under this latest program. For the period from November 16, 1995 to October 31, 1997, the Company purchased approximately 2,900,000 shares of its Common and Special Common Stock for approximately $45,900,000 and accounted for such share purchases as Treasury Stock. The following presents the approximate unaudited pro forma net earnings and fully diluted earnings per share of the Company, as adjusted for the pro forma effect of the Treasury Stock purchases, assuming these transactions occurred at January 1, 1996: Three Months Ended Nine Months Ended Sept. 27, Sept.28, Sept. 27, Sept.28, 1997 1996 1997 1996 -------- ------- ------- -------- Net earnings $7,700 $6,400 $18,050 $14,100 ===== ====== ====== ====== Fully diluted net earnings per share $ .78 $ .67 $ 1.84 $ 1.46 ===== ===== ====== ====== (D) At September 27, 1997 and December 31, 1996, the reduction in the Company's stockholders' investment for gross unrealized losses on marketable securities was approximately $399,000 and $891,000, respectively. (E) The tax effect of temporary differences which gave rise to significant portions of deferred income tax assets and liabilities as of September 27, 1997 and December 31, 1996 is as follows: NORTEK, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 27, 1997 AND SEPTEMBER 28, 1996 (Continued) Sept. 27, Dec. 31, 1997 1996 ---- ---- (Amounts in Thousands) U. S. Federal Prepaid (Deferred) Income Tax Assets Arising From: Net operating losses of Ply Gem $12,400 $ --- Accounts receivable 3,478 1,246 Inventory 2,004 (610) Insurance reserves 5,947 4,985 Other reserves, liabilities and assets, net 25,671 14,379 ------ ------ $49,500 $20,000 ====== ====== Deferred (Prepaid) Income Tax Liabilities Arising From: Property and equipment, net $31,938 $15,400 Prepaid pension assets 520 841 Other reserves, liabilities and assets, net (766) (608) Capital loss carryforward (6,400) (6,462) Other, net (11,720) (1,772) Net operating losses of Ply Gem (14,000) --- Valuation allowances 10,273 10,238 ------ ------ $ 9,845 $17,637 ====== ====== At September 27, 1997, the Company's wholly owned subsidiary, Ply Gem, has a net operating loss carryforward of approximately $75,400,000. This net operating loss carryforward expires in 2012 and is subject to certain limitations. Also, at September 27, 1997, the Company has a capital loss carryforward of approximately $18,300,000, of which approximately $16,400,000 expires in 1997. The Company has provided a valuation allowance equal to the tax effect of capital loss carryforwards and certain other tax assets, since realization of these tax assets cannot be reasonably assured. The following reconciles the federal statutory income tax rate to the effective tax rate from continuing operations of approximately 35.8% and 40.9% in the third quarter of 1997 and 1996, respectively, and 35.4% and 39.0% in the first nine months of 1997 and 1996, respectively. NORTEK, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 27, 1997 AND SEPTEMBER 28, 1996 (Continued) Three Months Ended Nine Months Ended Sept. 27, Sept. 28, Sept. 27,Sept. 28, 1997 1996 1997 1996 -------- ------- -------- ------- (Amounts in Thousands) Income tax provision at the Federal statutory rate $4,200 $3,850 $9,800 $8,435 Net Change from Statutory Rate: Change in tax reserves, net (907) 199 (1,734) (549) State taxes, net of federal tax effect 422 293 877 780 Amortization not deductible for tax purposes 376 278 911 800 Other nondeductible items 129 81 312 200 Product development tax credit from foreign operations (111) (90) (318) (314) Tax effect on foreign income 191 (111) 52 48 ===== ===== ===== ===== $4,300 $4,500 $9,900 $9,400 ===== ===== ===== ===== (F) At October 31, 1997, approximately $6,924,000 was available for the payment of cash dividends or stock purchases under the terms of the Company's most restrictive Indenture. (G) Net earnings per share ("EPS") amounts have been computed using the weighted average number of common and common equivalent shares outstanding during each year. Special common stock is treated as the equivalent of common stock in determining earnings per share. In March 1997, the FASB issued SFAS No. 128, "Earnings Per Share," which is effective for financial statements for both interim and annual periods ending after December 15, 1997. Early adoption of the new standard is not permitted. The new standard eliminates primary and fully diluted earnings per share and requires presentation of basic and diluted earnings per share together with disclosure of how the per share amounts were computed. Adoption of the new standard would not have had a material effect on earnings per share for the three months and nine months ended September 27, 1997 and September 26, 1996. (H) The following table summarizes the unaudited activity of a business acquired in a purchase transaction included in the accompanying consolidated statement of cash flows for the nine months ended September 27, 1997: (Amounts in Thousands) Fair value of assets acquired $ 616,864 Liabilities assumed or created (229,912) ---------- Cash paid for acquisition $ 386,952 ========= NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 27, 1997 AND THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 28, 1996 The Company is a diversified manufacturer of residential and commercial building products, operating within five principal product groups: the Residential Building Products Group; the Air Conditioning and Heating Products Group; the Windows, Doors and Siding Group; the Specialty Products & Distribution Group; and the Plumbing Products Group. Through these product groups, the Company manufactures and sells, primarily in the United States, Canada and Europe, a wide variety of products for the residential and commercial construction, manufactured housing, and the do- it-yourself and professional remodeling and renovation markets. On August 26, 1997, the Company acquired Ply Gem, which is 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. Results of Operations The tables below and on the next page set forth, for the periods presented, (a) certain consolidated operating results, (b) the change in the amount and the percentage change of such results as compared to the prior comparable period, (c) the percentage which such results bears to net sales and (d) the change of such percentages as compared to the prior comparable period. The results of operations for the third quarter ended September 27, 1997 are not necessarily indicative of the results of operations to be expected for any other interim period or the full year. Change in Third Quarter Ended Third Quarter 1997 ------------------- Sept. 27, Sept. 28, as Compared to 1996 ------------------- 1997 1996 $ % ---- ---- ------ ------ (Dollar amounts in millions) Net sales $327.8 $248.2 79.6 32.1 Cost of products sold 245.2 181.8 (63.4) (34.9) Selling, general and administrative expense 59.7 49.4 (10.3) (20.9) Operating earnings 22.9 17.0 5.9 34.7 Interest expense (14.0) (7.3) (6.7) (91.8) Investment income 3.1 1.3 1.8 138.5 Earnings before provision for income taxes 12.0 11.0 1.0 9.1 Provision for income taxes 4.3 4.5 .2 4.4 ----- ----- ---- ----- Net earnings $ 7.7 $ 6.5 1.2 18.5 ===== ===== ==== ===== NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 27, 1997 AND THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 28, 1996 (Continued) Change in Percentage of Net Sales Percentage Third Quarter Ended for the Third ------------------- Sept. 27, Sept. 28, Quarter 1997 1997 1996 as compared to 1996 ---- ---- ------------------- Net sales 100.0% 100.0% ---% Cost of products sold 74.8 73.3 (1.5) Selling, general and administrative expense 18.2 19.9 1.7 Operating earnings 7.0 6.8 .2 Interest expense (4.3) (2.9) (1.4) Investment income 1.0 .5 .5 Earnings before provision for income taxes 3.7 4.4 (.7) Provision for income taxes 1.3 1.8 .5 ---- ---- ---- Net earnings 2.4% 2.6% (.2)% ==== ==== ==== The tables below and on the next page set forth, for the periods presented, (a) certain consolidated operating results, (b) the change in the amount and the percentage change of such results as compared to the prior comparable period, (c) the percentage which such results bears to net sales and (d) the change of such percentages as compared to the prior comparable period. The results of operations for the nine months ended September 27, 1997 are not necessarily indicative of the results of operations to be expected for any other interim period or the full year. Change in Nine Months Ended Nine Months 1997 ----------------- Sept. 27, Sept. 28, as Compared to 1996 1997 1996 $ % ---- ---- ----- ----- (Dollar amounts in millions) Net sales $797.0 $729.4 67.6 9.3 Cost of products sold 587.7 539.0 (48.7) (9.0) Selling, general and administrative expense 156.5 147.6 (8.9) (6.0) Operating earnings 52.8 42.8 10.0 23.4 Interest expense (32.5) (22.8) (9.7) (42.5) Investment income 7.7 4.1 3.6 87.8 Earnings before provision for income taxes 28.0 24.1 3.9 16.2 Provision for income taxes 9.9 9.4 (.5) (5.3) ---- ----- ---- ----- Net earnings $18.1 $ 14.7 3.4 23.1 ==== ===== ==== ===== NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 27, 1997 AND THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 28, 1996 (Continued) Change in Percentage of Net Sales Percentage Nine Months Ended for the Nine ---------------- Sept. 27, Sept. 28, Months 1997 as 1997 1996 Compared to 1996 ---- ---- ---------------- Net sales 100.0% 100.0% ---% Cost of products sold 73.8 73.9 .1 Selling, general and administrative expense 19.6 20.2 .6 Operating earnings 6.6 5.9 .7 Interest expense (4.1) (3.1) (1.0) Investment income 1.0 .6 .4 Earnings before provision for income taxes 3.5 3.4 .1 Provision for income taxes 1.2 1.3 .1 ---- ----- --- Net earnings 2.3% 2.1% .2% ==== ===== === The following table presents the net sales for the Company's principal product groups for the third quarter and nine months ended September 27, 1997 as compared to the third quarter and nine months ended September 28, 1996 and the amount and the percentage change of such results as compared to the prior comparable period. Certain amounts in the table for the prior periods have been reclassified to conform to the classifications for 1997. Third Quarter Ended --------------------------------------- Sept. 27, Sept. 28, Increase (Decrease) ------------------- 1997 1996 $ % ---- ---- ----- ------ (000's omitted) Net Sales: Residential Building Products Group $102,618 $ 99,572 $ 3,046 3.1 Air Conditioning and Heating Products Group 111,656 113,370 (1,714) (1.5) Plumbing Products Group 30,290 35,285 (4,995) (14.2) ------- ------- ------ ---- Total, excluding acquisition 244,564 248,227 (3,663) (1.5) Windows, Doors and Siding Group 55,343 --- 55,343 --- Specialty Products & Distribution Group 27,849 --- 27,849 --- -------- -------- ------- ---- $327,756 $248,227 $79,529 32.0 ======= ======= ====== ==== NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 27, 1997 AND THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 28, 1996 (Continued) Nine Months Ended --------------------------------------- Sept. 27, Sept. 28, Increase (Decrease) ------------------- 1997 1996 $ % ---- ---- ----- ----- (000's omitted) Net Sales: Residential Building Products Group $308,268 $302,622 $ 5,646 1.9 Air Conditioning and Heating Products Group 318,254 321,151 (2,897) (.9) Plumbing Products Group 87,260 105,674 (18,414) (17.4) ------- ------- ------- ----- Total, excluding acquisition 713,782 729,447 (15,665) (2.1) Windows, Doors and Siding Group 55,343 --- 55,343 --- Specialty Products & Distribution Group 27,849 --- 27,849 --- ------- ------- ------ ---- $796,974 $729,447 $67,527 9.3% ======= ======= ====== ==== Operating Results Net sales increased approximately $79,600,000, or approximately 32.1%, (or increased approximately $81,000,000, or approximately 32.6% excluding the effect of foreign exchange) and increased approximately $67,500,000, or approximately 9.3% (or increased approximately $72,300,000, or approximately 9.9% excluding the effect of foreign exchange), for the third quarter and the first nine months of 1997, respectively, as compared to 1996. Net sales increased principally as a result of the acquisition of Ply Gem on August 26, 1997, which contributed approximately $83,200,000 in the third quarter and first nine months. Excluding sales from the acquisition, net sales decreased approximately $3,700,000, or 1.5% and approximately $15,700,000, or 2.1%, for the third quarter and first nine months of 1997, respectively, as compared to 1996. These decreases in both periods are principally as a result of lower sales volume, including the reduction of certain product line offerings (approximately $1,900,000 and $5,800,000 of the decrease for the third quarter and first nine months, respectively), within the Plumbing Products Group and to a lesser extent, lower sales levels of commercial products by the Air Conditioning and Heating Products Group's Canadian operations. These decreases were partially offset by increased sales volume in the Residential Building Products Group. Cost of products sold as a percentage of net sales increased from approximately 73.3% in the third quarter of 1996 to approximately 74.8% in the third quarter of 1997, and decreased slightly from approximately 73.9% in the first nine months of 1996 to approximately 73.8% in the first nine months of 1997. Excluding the third quarter 1997 acquisitions, which have a higher level of cost of sales than the overall group of businesses owned prior to the acquisition, cost of products sold as a percentage of net sales NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 27, 1997 AND THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 28, 1996 (Continued) decreased from approximately 73.3% to approximately 72.6% in the third quarter of 1997 compared to 1996 and from approximately 73.9% to 73.0% in the first nine months of 1997. These decreases in the percentages principally resulted from a reduction in cost in the third quarter and first nine months of 1997 of certain raw materials and components compared to the third quarter and first nine months of 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. These decreases were partially offset by increased overhead costs in the Plumbing Products Group and the Company's European subsidiary, in part, reflecting lower sales levels. Overall, changes in the cost of products sold as a percentage of net sales for one period as compared to another period may reflect a number of factors, including changes in the relative mix of products sold, the effect of changes in sales prices, the unit cost of products sold and changes in productivity levels. The overall increase in segment earnings was due principally the factors noted above. Selling, general and administrative expense as a percentage of net sales decreased from approximately 19.9% in the third quarter of 1996 to approximately 18.2% in the third quarter of 1997 and decreased from approximately 20.2% in the first nine months of 1996 to approximately 19.6% in the first nine months of 1997. Excluding the third quarter 1997 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 acquisition, selling, general and administrative expense as a percentage of net sales increased from approximately 19.9% to approximately 20.2% and from approximately 20.2% to approximately 20.6% in the third quarter and first nine months of 1997, respectively, as compared to 1996. The increase in the percentage in the third quarter and first nine months of 1997 was primarily the result of higher unallocated expense and lower sales in the Company's Plumbing Products Group, without a proportionate decrease in expense in both periods. Segment earnings were approximately $27,000,000 for the third quarter of 1997, as compared to approximately $18,800,000 for the third quarter of 1996, and approximately $63,600,000 for the first nine months of 1997 as compared to approximately $51,700,000 for the first nine months of 1996. The Ply Gem acquisition in late August 1997 contributed approximately $5,200,000 to segment earnings for the third quarter and first nine months of 1997. Segment earnings have been reduced by depreciation and amortization NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 27, 1997 AND THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 28, 1996 (Continued) expense of approximately $7,700,000 and approximately $5,400,000 for the third quarter of 1997 and 1996, respectively, and approximately $19,400,000 and approximately $16,500,000 for the first nine months of 1997 and 1996, respectively. The acquisition of Ply Gem contributed approximately $2,000,000 of the increase in depreciation and amortization expense in 1997. 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, increased to approximately 11.9% of segment earnings in the third quarter of 1997 from approximately 3.7% of such earnings in the third quarter of 1996 and to approximately 10.7% of segment earnings in the first nine months of 1997 from approximately 10.2% of such earnings in the first nine months of 1996. Sales and earnings derived from the international market are subject to the risks of currency fluctuations. Operating earnings in the third quarter of 1997 increased approximately $5,900,000, or approximately 34.7%, as compared to the third quarter of 1996 and increased approximately $10,000,000, or approximately 23.4%, for the first nine months of 1997 as compared to 1996, primarily due to the factors previously discussed. Interest expense in the third quarter of 1997 increased approximately $6,700,000, or approximately 91.8%, as compared to the third quarter of 1996, and increased approximately $9,700,000, or approximately 42.5% for the first nine months of 1997, as compared to the first nine months of 1996, primarily as a result of the sale of $175,000,000 principal amount of 9 1/4% Notes in March 1997 and the sale of $310,000,000 principal amount of 9 1/8% Notes in August 1997. 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 Note B of the Notes to the Unaudited Financial Statements included elsewhere herein.) Investment income in the third quarter of 1997 increased approximately $1,800,000, or approximately 138.5%, as compared to the third quarter of 1996, and increased approximately $3,600,000 or approximately 87.8% for the first nine months of 1997, as compared to the first nine months of 1996, principally due to higher average invested balances of short-term investments and marketable securities, principally as a result of the investment of a portion of the proceeds from the sale in March 1997 of the 9 1/4% Notes. NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 27, 1997 AND THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 28, 1996 (Continued) The provision for income taxes was approximately $4,300,000 for the third quarter of 1997, as compared to approximately $4,500,000 for the third quarter of 1996 and was approximately $9,900,000 for the first nine months of 1997, as compared to approximately $9,400,000 for the first nine months of 1996. The income tax rates principally differed from the United States Federal statutory rate of 35%, as a result of state income tax provisions, nondeductible amortization expense (for tax purposes), changes in tax tax reserves, the effect of foreign income tax on foreign source income and the effect of product development tax credits from foreign operations in both periods. (See Note E of the Notes to the Unaudited Financial Statements included elsewhere herein.) Liquidity and Capital Resources - ------------------------------- 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. Net cash paid for the acquisition of Ply Gem, including expenses and settlement of stock options, was approximately $387,000,000 at September 27, 1997. Accrued payments in connection with this acquisition are estimated to be approximately $33,000,000, including approximately $19,400,000 of amounts due to former shareholders of Ply Gem included in accrued expenses in the accompanying unaudited condensed consolidated balance sheet at September 27, 1997. On August 26, 1997, prior to the 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 9 1/8% Notes due 2007 for approximately $298,269,000, net of a discount of approximately $2,505,000 and approximately $9,226,000 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 an approximate $45,000,000 payment to terminate Ply Gem's existing accounts receivable securitization program and to pay certain fees and expenses. In March 1997, the Company sold $175,000,000 principal amount of 9 1/4% Notes due 2007 for approximately $169,395,000, net of a discount of approximately $1,011,000 and approximately $4,594,000 of expenses incurred in connection with the sale. The net proceeds of this offering were used to refinance certain outstanding indebtedness of the Company's subsidiaries and for acquisitions and other general corporate purposes. (See Note B of the Notes to the Unaudited Condensed Consolidated Financial Statements included elsewhere herein). NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 27, 1997 AND THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 28, 1996 (Continued) Unrestricted cash, investments and marketable securities increased approximately $61,602,000 from December 31, 1996 to September 27, 1997, primarily as the result of the investment of the net proceeds from the sale of the 9 1/4% and the 9 1/8% Notes, net of cash paid in connection with the acquisition of Ply Gem as described above, and an increase of approximately $12,111,000 from the operations of Ply Gem. The Company's investment in marketable securities at September 27, 1997 consisted primarily of investments in bank issued money market instruments, commercial paper and United States Treasury securities. At September 27, 1997, approximately $6,952,000 of the Company's cash and investments were pledged as collateral for insurance and other requirements and were classified as restricted in current assets in the Company's accompanying unaudited condensed consolidated balance sheet. The Company's Board of Directors has authorized a number of programs to purchase shares of the Company's Common and Special Common Stock since November 16, 1995. The most recent of these programs was announced on April 30, 1997, to purchase up to 500,000 shares of the Company's Common and Special Common Stock in open-market or negotiated transactions subject to market conditions, cash availability and provisions of the Company's outstanding debt instruments. As of October 31, 1997, the Company has purchased approximately 86,833 shares of the Company's Common Stock and Special Common Stock for approximately $2,100,000 under this latest program. From November 16, 1995 to October 31, 1997, the Company purchased approximately 2,900,000 shares of its Common and Special Common Stock for approximately $45,900,000 and accounted for such share purchases as Treasury Stock. (See below and Note C of the Notes to the Unaudited Condensed Consolidated Financial Statements included elsewhere herein.) At October 31, 1997, approximately $6,924,000 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 $143,474,000 and 1.7:1, respectively, to approximately $331,125,000 and 2.1:1, respectively, between December 31, 1996 and September 27, 1997. The increase was principally the result of the acquisition of Ply Gem, which contributed approximately $205,909,000 of current assets and approximately $113,598,000 of current liabilities and an increase in unrestricted cash, investments and marketable securities from approximately $92,093,000 at December 31, 1996 to approximately $153,695,000 at September 27, 1997, arising in part from the sales of Notes in 1997. NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 27, 1997 AND THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 28, 1996 (Continued) Accounts receivable increased approximately $99,956,000, or approximately 81.8%, between December 31, 1996 and September 27, 1997, while net sales increased approximately 36.4% in the third quarter of 1997 as compared to the fourth quarter of 1996. The increase in accounts receivable and net sales was principally due to approximately $84,665,000 and $83,192,000, respectively, from the acquisition of Ply Gem. The rate of change in accounts receivable in certain periods may be different than the rate of change in sales in such periods principally due to the timing of net sales. 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 September 27, 1997 as compared to December 31, 1996. The Company has not experienced any changes in credit terms, collection efforts, credit utilization or delinquency in accounts receivable in 1996 or 1997. Inventories increased approximately $93,743,000 or approximately 96.0%, between December 31, 1996 and September 27, 1997, including approximately $92,234,000 from the acquisition of Ply Gem. Accounts payable increased approximately $37,552,000 or approximately 50.1% between December 31, 1996 and September 27, 1997, including approximately $33,668,000 from the acquisition of Ply Gem. Unrestricted cash and cash equivalents increased approximately $8,033,000 from December 31, 1996 to September 27, 1997, principally as a result of the following: Condensed Consolidated Cash Flows ---------- Operating Activities-- Cash flow from operations, net $ 35,291,000 Increase in accounts receivable, net (15,436,000) Increase in inventories (1,484,000) Decrease in prepaids and other current assets 3,605,000 Decrease in trade accounts payable (4,097,000) Increase in accrued expenses and taxes 21,597,000 Investing Activities-- Net cash paid for a business acquired (386,952,000) Purchase of marketable securities (238,199,000) Proceeds from the sale of marketable securities 183,329,000 Capital expenditures (14,861,000) Financing Activities-- Sale of notes 467,663,000 Increase in borrowing 4,967,000 Payment of borrowings (32,634,000) Purchase of Nortek Common and Special Common Stock (8,824,000) Other, net (5,932,000) ----------- $ 8,033,000 =========== The net non-cash impact of changes in foreign currency exchange rates was not material and has been included in other, net. The Company's debt-to-equity ratio increased from approximately 2.4:1 at December 31, 1996 to 6.7:1 at September 27, 1997, primarily as a result of the sale of the 9 1/4% and the 9 1/8% Notes , increased indebtedness of approximately $128,529,000 from the acquisition of Ply Gem and the effect of the purchase of the Company's Common and Special Common Stock (see Note C of the Notes to Unaudited Condensed Consolidated Financial Statements), partially offset by the payment of certain subsidiary indebtedness and by net earnings for the first nine months of 1997. (See the Company's Unaudited Condensed Consolidated Statement of Stockholders' Investment included elsewhere herein.) The Company believes that its growth will be generated largely by internal growth, augmented by strategic acquisitions. The Company regularly evaluates potential acquisitions which would increase or expand the market penetration of, or otherwise complement, its current product lines. NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 27, 1997 AND THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 28, 1996 (Continued) When used in this discussion, the words "believes," "anticipates," and "expects" and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, over which the Company has no control, which could cause actual results to differ materially from those presented. These risks and uncertainties include increases in raw material costs (including, among others, steel, copper, packaging material, plastics, resins, 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, inflation, consumer spending levels, operating in international economies, the rate of sales growth, price and product competition, new product introduction, material shortages and product liability claims. Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date hereof. The Company undertakes no obligation to republish revised forward-looking statements to reflect events or circumstances after the date thereof or to reflect the occurrence of unanticipated events. Readers are also urged to carefully review and consider the various disclosures made by the Company, in this report, as well as the Company's periodic reports on Forms 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits 10.1 Amended and Restated Credit Agreement dated as of August 26, 1997 among Ply Gem Industries, Inc., certain Designated Subsidiaries, certain banks and Fleet National Bank as Agent (filed herewith). 11.1 Calculation of shares used in determining earnings per share (filed herewith). 27 Financial Data Schedule (filed herewith). (b) Reports on Form 8-K The following reports on Form 8-K were filed by the Registrant during the period: July 29, 1997, Item 5. Other Events and Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. August 27, 1997, Item 5. Other Events and Item 7. Exhibits. September 10, 1997, Item 2, Acquisition or Disposition of Assets and Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. September 12, 1997 (8-K/A), Item 7. Financial Statements. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NORTEK, INC. (Registrant) /s/ Almon C. Hall --------------------------------- Almon C. Hall, Vice President and Controller and Chief Accounting Officer November 12, 1997 - ------------------------- (Date) EX-11 2
EXHIBIT 11.1 (Page 1 of 2) NORTEK, INC. AND SUBSIDIARIES CALCULATION OF SHARES USED IN DETERMINING EARNINGS PER SHARE For the Three Months Ended -------------------------- Sept. 27, Sept. 28, 1997 1996 ---- ---- Calculation of the number of shares to be used in computing primary earnings per share: Weighted average common and special common shares issued during the period 16,802,856 16,674,636 Less average common and special common shares held in the Treasury (7,233,568) (6,700,804) ---------- ---------- Weighted average number of common and special common shares outstanding during the period 9,569,288 9,973,832 Dilutive effect of stock options considered common stock equivalents computed under the treasury stock method using the average price during the period 271,662 188,061 --------- ---------- Weighted average number of common and common equivalent shares outstanding during the period 9,840,950 10,161,893 ========= ========== Calculation of the number of shares to be used in computing fully diluted earnings per share: Weighted average number of common and special common shares outstanding during the period 9,569,288 9,973,832 Dilutive effect of stock options considered common stock equivalents computed under the treasury stock method using the greater of the price at the end of the period or the average price during the period 271,662 195,067 --------- ---------- 9,840,950 10,168,899 ========= ==========
EXHIBIT 11.1 (Page 2 of 2) NORTEK, INC. AND SUBSIDIARIES CALCULATION OF SHARES USED IN DETERMINING EARNINGS PER SHARE For the Nine Months Ended -------------------------- Sept. 27, Sept. 28, 1997 1996 ---- ---- Calculation of the number of shares to be used in computing primary earnings per share: Weighted average common and special common shares issued during the period 16,791,580 17,362,207 Less average common and special common shares held in the Treasury (7,159,983) (6,700,804) ---------- ---------- Weighted average number of common and special common shares outstanding during the period 9,631,597 10,661,403 Dilutive effect of stock options considered common stock equivalents computed under the treasury stock method using the average price during the period 246,254 183,172 --------- ---------- Weighted average number of common and common equivalent shares outstanding during the period 9,877,851 10,844,575 ========= ========== Calculation of the number of shares to be used in computing fully diluted earnings per share: Weighted average number of common and special common shares outstanding during the period 9,631,597 10,661,403 Dilutive effect of stock options considered common stock equivalents computed under the treasury stock method using the greater of the price at the end of the period or the average price during the period 280,093 198,046 --------- ---------- 9,911,690 10,859,449 ========= ==========
EX-27 3
5 1000 9-MOS DEC-31-1996 SEP-27-1997 49,075 111,572 233,237 11,105 191,401 646,152 372,030 114,485 1,332,428 315,027 839,639 0 0 16,812 110,926 1,332,428 796,974 796,974 587,640 587,640 0 0 32,521 28,000 9,900 18,100 0 0 0 18,100 1.83 1.83
EX-10 4 AMENDED AND RESTATED CREDIT AGREEMENT, dated as of August 26, 1997, among PLY GEM INDUSTRIES, INC., a Delaware corporation (the "Company"); the Designated Subsidiaries from time to time party hereto; the Banks from time to time party hereto; and FLEET NATIONAL BANK ("Fleet"), as agent for the Banks (in such capacity, together with its successors in such capacity, the "Agent"). W I T N E S S E T H : WHEREAS, the Company and certain of the Designated Subsidiaries (the "Existing Designated Subsidiaries") are borrowers under a Credit Agreement, dated February 24, 1994 (as heretofore amended, the "Existing Credit Agreement"), with the lenders party thereto (the "Existing Banks"), the Co-Agents named therein and Fleet, as successor to National Westminster Bank USA, as agent for the Existing Banks, which provides, among other things, for the making of revolving credit loans to the Company and the Existing Designated Subsidiaries in an aggregate principal amount not to exceed $200,000,000 at any time outstanding; WHEREAS, Nortek, Inc., a Delaware corporation ("Nortek"), has organized a single-purpose, wholly-owned subsidiary (the "Purchaser") that, pursuant to a merger agreement entered into with the Company (as amended, supplemented or otherwise modified from time to time in accordance with its terms, to the extent permitted in accordance with the Loan Documents, the "Merger Agreement"), will purchase, pursuant to a tender offer (the "Tender Offer"), a majority of the outstanding common stock of the Company for $19.50 per share, and subsequently will be merged (the "Merger") with and into the Company, with the Company being the surviving corporation; WHEREAS, the Company has requested that the Existing Credit Agreement be amended and restated in connection with the closing of the Tender Offer to provide, among other things, for a term loan and letters of credit; WHEREAS, the proceeds of the term loan will be used to refinance certain existing debt of the Company and the Existing Designated Subsidiaries under the Existing Credit Agreement; WHEREAS, the Banks have agreed to amend and restate the Existing Credit Agreement and to make the requested term loan and to maintain certain letters of credit, in each case on the terms and conditions of this Agreement; WHEREAS, this Agreement shall constitute the "Ply Gem Credit Facility" for purposes of that certain Nortek Indenture described in clause (c) of the definition thereof in subsection 1.1; WHEREAS, simultaneously with the execution hereof the Existing Banks have entered into an Assignment and Agreement in the form of Exhibit B attached hereto dated as of the date hereof (the "Assignment Agreement"), with the Agent and the Banks hereunder pursuant to which such Existing Banks have agreed to sell and assign to the Banks and the Banks have agreed to purchase and assume, as of the Closing Date, all of the Existing Banks' rights and obligations under the Existing Credit Agreement as of the Closing Date on the terms set forth in the Assignment Agreement; and WHEREAS, after giving effect to the Assignment Agreement, the Commitments and Commitment Percentages of, and the amount of Loans owing to, each of the Banks will be as set forth on Schedule I. NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties to this Agreement hereby agree as follows: SECTION 1. DEFINITIONS 1.1 Defined Terms. As used in this Agreement, the following terms shall have the following respective meanings (such definitions to be equally applicable to the singular and plural forms thereof): "Additional Subsidiary Grantors" shall mean each of (a) Continental Wood Preservers, Inc., a Michigan corporation, (b) SNE Enterprises Texas, Inc., a Delaware corporation, (c) SNE Special Services, Inc., a Delaware corporation, and (d) SNE Transportation Company, Inc., a Wisconsin corporation. "Account Party" shall mean with respect to each L/C, the Company or any Designated Subsidiary, as the case may be, in its capacity as the Person for the account of which such L/C is issued or deemed issued. "Affiliate" of any Person shall mean (a) any other Person (other than a Subsidiary) which, directly or indirectly, is in control of, is controlled by, or is under common control with such Person, or (b) any other Person who is a director or officer (i) of such Person, (ii) of any Subsidiary of such Person or (iii) of any Person described in clause (a) above. For purposes of this definition, control of a Person shall mean the power, direct or indirect, (i) to vote 10% or more of the securities having ordinary voting power for the election of directors of such Person, or (ii) to direct or cause the direction of the management and policies of such Person, whether by contract or otherwise. "Agent" shall have the meaning ascribed thereto in the preamble hereto. "Agreement" shall mean this Amended and Restated Credit Agreement, as amended, supplemented or otherwise modified from time to time. "Applicable Margin" shall mean, for any day for any Type of Loan, the relevant rate per annum for such Type of Loan as determined by reference to the applicable ratio of Senior Funded Debt to Consolidated EBITDA set forth in the table below: Ratio Prime Rate Loans Eurodollar Loans Level I 3.25:1.00 or greater 0.0% 0.950% Level II 3.00:1.00 or greater but less than 3.25:1.00 0.0% 0.725% Level III 2.50:1.00 or greater but less than 3.00:1.00 0.0% 0.625% Level IV 2.00:1.00 or greater but less than 2.50:1.00 0.0% 0.525% Level V 1.50:1.00 or greater but less than 2.00:1.00 0.0% 0.400% Level VI less than 1.50:1.00 0.0% 0.300% The determination of the Applicable Margin pursuant to the table set forth above shall be made on a quarterly basis based on an examination of the consolidated financial statements of the Company and its Subsidiaries delivered pursuant to and in compliance with subsection 5.1; provided, however, that the initial Applicable Margin shall be at Level II in such table from the date hereof until such time as audited annual consolidated financial statements of the Company and its Subsidiaries indicating an Applicable Margin at a different Level in such table are first delivered to the Agent and the Banks pursuant to and in compliance with subsection 5.1. Each change in the Applicable Margin shall be effective as of the first day of the calendar month following the date of the Company's financial statements reflecting any change in the ratio of Senior Funded Debt to Consolidated EBITDA. In the event that financial statements for the four fiscal quarters most recently completed prior to such date of determination either: (a) have not been delivered to the Agent in compliance with subsection 5.1, or (b) if delivered, do not comply in form or substance with subsection 5.1, then the Agent may determine, in its reasonable judgment, the ratio of Senior Funded Debt to Consolidated EBITDA referred to above that would have been in effect as at such date, and, consequently, the Applicable Margin in effect for the period commencing on such date. "Application" shall mean any agreement in form and substance satisfactory to Fleet between Fleet, as issuing bank, and any Account Party in respect of the issuance of an L/C. "Asset Sale" shall mean any sale or other disposition by the Company or any of the Subsidiaries (whether in one sale or a series of related sales) of any business unit or units (including, without limitation, any Non-Core Subsidiary) or any product line or group of product lines (whether pursuant to a sale of stock or sale of assets). "Assignment Agreement" shall have the meaning ascribed thereto in the preamble hereto. "Assignment and Acceptance" shall mean an agreement in the form of Exhibit E hereto. "Available Commitment" shall mean, as to each Bank, at a particular time, an amount equal to the difference between (a) the amount of such Bank's Commitment at such time and (b) the aggregate unpaid principal amount at such time of (i) all Loans made by such Bank pursuant to subsection and (ii) such Bank's Commitment Percentage of Bank L/C Obligations. "Available L/C Commitment" at any date shall mean the lesser of (a) the difference between the L/C Sublimit and the Specified L/C Obligations at such date and (b) the Available Commitments. "Banks" shall mean the Initial Banks and each Person that shall become a Bank hereunder pursuant to subsection 9.7. "Bank L/C Obligations" at any date shall mean the sum of (a) the aggregate undrawn amount at such date of all L/Cs issued or deemed issued by Fleet pursuant to this Agreement, plus (b) the amount of all Unpaid Drawings relating to such L/Cs. "Business Day" shall mean a day other than a Saturday, Sunday or other day on which commercial banks in Boston, Massachusetts are authorized or required by law to close. "Business of the Company" shall mean (a) the businesses described in the Company's Form 10-K for the year ended December 31, 1996 and the Company's 1996 Annual Report to Stockholders and (b) other businesses related to, or growing out of, such businesses. "Capital Expenditures" shall mean, during any period, the amount of additions to property, plant and equipment for such period as shown on the consolidated financial statements of the Company and its Subsidiaries for such period prepared in accordance with GAAP, net of Financing Leases. "Cash Equivalents" shall mean (a) securities with maturities of one year or less from the date of acquisition issued or directly and fully guaranteed or insured by the United States Government or any agency or instrumentality thereof, (b) certificates of deposit, acceptances and Eurodollar time deposits with maturities of one year or less from the date of acquisition and overnight or demand bank deposits of any Bank and certificates of deposit with maturities of one year or less from the date of acquisition and overnight or demand bank deposits of any other commercial bank having capital and surplus in excess of $500,000,000, the holding company of which has a commercial paper rating meeting the requirements specified in clause (d) below, (c) repurchase obligations with a term of not more than 7 days for underlying securities of the types described in clauses (a) and (b) entered into with any bank meeting the qualifications specified in clause (b) above, and (d) commercial paper of a domestic issuer rated at least A- 2 or the equivalent thereof by Standard & Poor's, a division of The McGraw-Hill Companies, Inc. or P-2 or the equivalent thereof by Moody's Investors Service, Inc. "CERCLA" shall mean the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. 9601, et seq., as amended from time to time. "Change of Control" shall occur when (a) any person or group of related persons, excluding Permitted Shareholders, gains beneficial ownership of a majority in voting interest of the outstanding voting stock of the Company or has caused to be elected a majority of the Board of Directors of the Company against the wishes of a majority of the voting interest held by Permitted Shareholders; or (b) all or substantially all of the assets of the Company are sold or liquidated. "Closing Date" shall mean the date on which each of the conditions precedent in Section 4 shall have been satisfied or duly waived. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. "Collateral Grantor" shall have the meaning ascribed thereto in subsection 2.21. "Commitment" shall mean, as to any Bank, its obligation to make Loans pursuant to subsection 2.1 and participate in L/Cs in an aggregate amount not to exceed at any one time outstanding the amount set forth on Schedule I under the heading "Commitment", as such amount may be adjusted from time to time pursuant to subsection 2.6, 2.8 or 9.7; and, as to Fleet in its capacity as issuing bank, its obligation to maintain L/Cs in an aggregate amount not to exceed at any time outstanding the L/C Sublimit, as such amount may be reduced from time to time pursuant to subsection 2.6. "Commitment Percentage" as to any Bank, shall mean the percentage set forth on Schedule I under the heading "Commitment Percentage" as such percentage may increase or decrease from time to time pursuant to subsection 9.7. "Commonly Controlled Entity" shall mean an entity, whether or not incorporated, which is under common control with the Company or any Subsidiary within the meaning of Section 4001(a)(14) of ERISA or Code Section 414(m) or 414(o). "Company" shall have the meaning ascribed thereto in the preamble hereto. "Consolidated Current Assets" shall mean, at any date, the amount which, in conformity with GAAP, would be set forth opposite the caption "total current assets" (or any like caption) on a consolidated balance sheet of the Company and its consolidated Subsidiaries as at such date. "Consolidated Current Liabilities" shall mean, at any date, the amount which, in conformity with GAAP, would be set forth opposite the caption "total current liabilities" (or any like caption) on a consolidated balance sheet of the Company and its consolidated Subsidiaries as at such date; provided, however, that the Loans, the L/Cs and any current liabilities resulting from the transactions contemplated by the Merger Agreement shall at all times be excluded from the definition of Consolidated Current Liabilities. "Consolidated EBIT" shall mean, for any period, the sum of (a) Consolidated Net Income for such period, plus (b) all taxes based upon income deducted in calculating such Consolidated Net Income plus (c), to the extent deducted in calculating Consolidated Net Income, Consolidated Interest Expense and consolidated amortization of Debt Discount and of expenses incurred in connection with the incurrence of Indebtedness for such period, plus (d) all extraordinary losses and the unusual losses set forth in clauses (i) through (ix) below in each case to the extent deducted in calculating Consolidated Net Income, minus (e) all extraordinary gains and the unusual gains set forth in clauses (i) through (ix) below in each case to the extent included in calculating Consolidated Net Income: (i) gain or loss arising from the sale, abandonment or other disposition of any property or asset outside of the ordinary course of business or realized on the disposition of a segment of a business; (ii) gain or loss resulting from any extinguishments of debt; (iii) gain or loss resulting from a casualty, including but not limited to fire, earthquake or hurricane; (iv) loss resulting from write-off of intangible assets; (v) gain arising from the write-up in the book value of any asset; (vi) provisions for plant closings and realignment of operations or restructuring costs; (vii) cumulative effects of changes in accounting principles; (viii) losses from expropriation or condemnation; and (ix) gain or loss arising from a change from FIFO to LIFO inventory accounting. "Consolidated EBITDA" shall mean, for any period, the sum of (a) Consolidated EBIT, plus (b) depreciation expense plus (c) amortization expense, in each case of the Company and its Subsidiaries determined on a consolidated basis in accordance with GAAP for such period. "Consolidated Interest Expense" shall mean, for any period, (a) the aggregate amount of all interest charges paid or accrued during such period (including imputed interest on obligations consisting of Financing Leases and all amounts accrued or paid pursuant to Hedge Agreements but excluding amortization of Debt Discount and of expenses incurred in connection with the incurrence of Indebtedness) on Indebtedness of the Company and its consolidated Subsidiaries, minus (b) the sum of (i) interest income and (ii) all amounts received or receivable pursuant to Hedge Agreements, in each case of the Company and its Subsidiaries determined on a consolidated basis. "Consolidated Net Income" shall mean, for any period, the amount which, in conformity with GAAP, would be set opposite the caption "net income" (or any like caption) on a consolidated statement of income of the Company and its consolidated Subsidiaries for such period. "Consolidated Net Worth" shall mean, at a particular date, (a) all amounts which would, in conformity with GAAP, be included under stockholders' equity on a consolidated balance sheet of the Company and its consolidated Subsidiaries at such date, plus (b) any unrealized losses to the extent reflected in the calculation of stockholders' equity, minus (c) the sum of (i) any unrealized gains to the extent reflected in the calculation of shareholders' equity, and (ii) any investments made by the Company or any of its Subsidiaries in Nortek or any of its Subsidiaries (other than Subsidiaries consisting of the Company or any of its Subsidiaries). "Contingent Obligation" as to any Person shall mean any obligation of such Person guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or other contractual obligations ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent, (a) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (d) otherwise to assure or hold harmless the owner of such primary obligation against loss in respect thereof; provided, however, that the term Contingent Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith. "Contractual Obligation" of any Person shall mean any provision of any security issued by such Person or of any agreement, instrument or undertaking to which such Person is a party or by which it or any of its property is bound (including, without limitation, in the case of each of the Loan Parties and their respective Subsidiaries, the Nortek Indentures). "Debt Discount" shall mean debt discount with respect to Subordinated Indebtedness permitted by the provisions hereof. "Default" shall mean any of the events specified in Section 7, whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "Designated Subsidiary" shall mean, initially, each of the following Subsidiaries: Sagebrush Sales, Inc., a New Mexico corporation; SNE Enterprises, Inc., a Delaware corporation; Variform, Inc., a Missouri corporation; and Great Lakes Window, Inc., an Ohio corporation. Subject to the reasonable approval of the Agent and all of the Banks with respect to the financial condition and maximum borrowing limit of a Subsidiary, the Company may at any time designate as a Designated Subsidiary any whollyowned Material Operating Subsidiary which is not then a Designated Subsidiary by notice to the Agent, provided that the Company contemporaneously delivers to the Agent a Solvency Certificate with respect to such Subsidiary and causes such Subsidiary to deliver to the Agent duly executed Notes payable to the order of the Banks, a duly executed Guaranty and a duly executed Security Agreement supplement, each in form and substance satisfactory to the Agent, and provided further that each Designated Subsidiary shall be a wholly-owned Subsidiary of the Company so long as it is a Designated Subsidiary. The Company may at any time remove any Subsidiary from the list of Designated Subsidiaries by notice to the Agent, effective, however, only upon (a) payment in full of any Obligations owed to the Agent and the Banks hereunder by such Designated Subsidiary and the expiration or other termination of any L/C with respect to which such Designated Subsidiary is the Account Party or (b) subject to the consent of the Agent and the Required Banks (such consent not to be unreasonably withheld), the assumption, in a writing satisfactory in form and substance to the Agent, by the Company or another Designated Subsidiary of any obligations not so paid, so long as such assumption shall not violate any provision of the Nortek Indentures or any other indenture or agreement binding upon the Company or any of its Subsidiaries, provided that, concurrently with such assumption, the Company shall certify, and shall furnish an opinion of counsel, in each case to the Agent and the Banks, to the effect that such assumption does not violate the Nortek Indentures or any other indenture or agreement binding on the Company or any of its Subsidiaries and otherwise in form and substance satisfactory to the Agent. Any representation, warranty or covenant in this Agreement applicable at any time to the Designated Subsidiaries shall be deemed applicable to those Subsidiaries which, at such time, are Designated Subsidiaries as defined herein. "Designated Subsidiary Borrowing Limit" shall mean, initially, the following amounts for the indicated Subsidiaries: Designated Subsidiaries Borrowing Limit Sagebrush Sales, Inc. $ 6,000,000 SNE Enterprises, Inc. $ 45,000,000 Variform, Inc. $ 49,000,000 Great Lakes Window, Inc. $ 30,000,000 The Designated Subsidiary Borrowing Limit for any Designated Subsidiary may be increased from time to time up to an amount not to exceed the aggregate amount of the Commitments at such time, subject to the consent of the Company and the Agent and so long as such increase shall not violate any provision of the Nortek Indentures or any other indenture or agreement binding upon the Company or any of its Subsidiaries, provided that, concurrently with such increase, the Company shall certify, and shall furnish an opinion of counsel, in each case to the Agent and the Banks, to the effect that such increase does not violate the Nortek Indentures or any other indenture or agreement binding on the Company or any of its Subsidiaries and otherwise in form and substance satisfactory to the Agent. "Disposal" shall mean the discharge, deposit, injection, dumping, spilling, leaking or placing of any hazardous materials into or on any land or water so that such hazardous materials or constituent thereof may enter the environment or be emitted into the air or discharged into any waters, including ground waters. "Dollars" and "$" shall mean dollars in lawful currency of the United States of America. "Domestic Lending Office," shall mean, initially, the office of each Bank designated as such on Schedule I under the heading "Domestic Lending Office and Address for Notices"; thereafter, such other office of such Bank, if any, which shall be making or maintaining Loans. "Drawing Fee" shall have the meaning ascribed thereto in subsection 2.1(c)(v). "Eligible Assignee" shall mean (a) any Bank and any entity controlled by or under common control with such Bank and (b) a commercial bank having a combined capital and surplus of at least $500,000,000, in either case which does not, either directly or indirectly, engage in business competitive with the business of the Company or any of its Subsidiaries and to which the Company and the Agent shall have consented, such consent not to be unreasonably withheld. "Eligible Participant" shall mean (a) any entity controlled by or under common control with any Bank and (b) a commercial bank having a combined capital and surplus of at least $200,000,000, in either case, which does not, either directly or indirectly, engage in business competitive with the business of the Company or any of its Subsidiaries. "Environmental Laws and Regulations" shall mean all federal, state and local, environmental, health and safety laws, regulations, ordinances, orders, judgments and decrees applicable to the Company or any Subsidiary, or any of their respective assets or properties. "Environmental Liability" shall mean any liability under any applicable Environmental Laws and Regulations for any Disposal, Release or threatened Release of a Hazardous Substance, pollutant or contaminant as those terms are defined under CERCLA and any liability which would require a removal, remedial or response action, as those terms are defined under CERCLA, by any Person or any environmental regulatory body having jurisdiction over the Company or any other Subsidiary, and/or any liability arising under any Environmental Laws and Regulations for the Company's or any other Subsidiary's failure to comply with such laws and regulations including, without limitation, the failure to comply with or obtain any applicable environmental permit. "Environmental Proceeding" shall mean any judgment, action or proceeding pending before any court or other Governmental Authority or any notice, demand or order, with respect to the Company or any Subsidiary and arising under or relating to any Environmental Laws and Regulations. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. "Eurocurrency Reserve Requirements" for any day after the Closing Date as applied to a Eurodollar Loan shall mean the aggregate (without duplication) of the rates (expressed as a decimal) of reserve requirements in effect on such day (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of the Board of Governors of the Federal Reserve System or other Governmental Authority having jurisdiction with respect thereto), dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D) maintained by a member bank of such System. The Banks confirm to the Company and the Designated Subsidiaries that no Eurocurrency Reserve Requirements exist as of the date hereof. "Eurodollar Rate" shall mean, for any day during the Interest Period for any Eurodollar Loan, an interest rate per annum equal to the rate per annum (rounded upward, if necessary, to the nearest l/100 of one percent) obtained by dividing (a) the rate per annum at which deposits in U.S. dollars are offered in London, England to prime banks in the London interbank market, as set forth on the "LIBO" page on the Reuters Monitor Money Rates Service screen, at 11:00 A.M. (London time) two Business Days before the first day of such Interest Period in an amount substantially equal to Fleet's Eurodollar Loan to be outstanding during such Interest Period (or, if Fleet shall not have such a Eurodollar Loan, $1,000,000) and for a period equal to such Interest Period by (b) a percentage equal to one minus the Eurocurrency Reserve Requirements for such day. "Eurodollar Lending Office" shall mean, with respect to each Bank, initially, the office of such Bank designated as such on Schedule I under the heading "Eurodollar Lending Office"; thereafter, such other office of such Bank, if any, which shall be making or maintaining Eurodollar Loans. "Eurodollar Loans" shall mean Loans hereunder at such time as they bear interest based upon the Eurodollar Rate. "Event of Default" shall mean any of the events specified in Section 7, provided that any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "Existing Banks" shall have the meaning ascribed thereto in the preamble hereto. "Existing Designated Subsidiaries" shall have the meaning ascribed thereto in the preamble hereto. "Facility Fee" shall mean at any time of determination a fee equal to the relevant annual fee percentage determined by reference to the applicable ratio of Senior Funded Debt to Consolidated EBITDA set forth in the table below multiplied by the aggregate amount of the Commitments at such time (whether used or unused): Ratio Annual Percentage Fee Level I 3.25:1.00 or greater 0.300% Level II 3.00:1.00 or greater but less than 3.25:1.00 0.275% Level III 2.50:1.00 or greater but less than 3.00:1.00 0.250% Level IV 2.00:1.00 or greater but less than 2.50:1.00 0.225% Level V 1.50:1.00 or greater but less than 2.00:1.00 0.225% Level VI less than 1.50:1.00 0.200% The determination of the applicable fee pursuant to the table set forth above shall be made on a quarterly basis based on an examination of the consolidated financial statements of the Company and its Subsidiaries delivered pursuant to and in compliance with subsection 5.1; provided, however, that the initial Facility Fee shall be at Level II in such table until such time as audited annual consolidated financial statements of the Company and its Subsidiaries indicating a Facility Fee at a different Level in such table are first delivered to the Agent and the Banks pursuant to and in compliance with subsection 5.1. Each change in the Facility Fee shall be effective as of the first day of the calendar month following the date of the Company's financial statements reflecting any change in the ratio of Senior Funded Debt to Consolidated EBITDA. In the event that financial statements for the four fiscal quarters most recently completed prior to such date of determination either: (a) have not been delivered to the Agent in compliance with subsection 5.1, or (b) if delivered, do not comply in form or substance with subsection 5.1, then the Agent may determine, in its reasonable judgment, the ratio of Senior Funded Debt to Consolidated EBITDA referred to above that would have been in effect as at such date, and, consequently, the Facility Fee in effect for the period commencing on such date. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day for such transactions received by the Agent from three Federal funds brokers of recognized standing selected by it. "Fee Letter" shall mean the letter agreement between the Agent and Nortek (on its behalf and on behalf of the Company) dated August 14, 1997. "Fifth Third Letters of Credit" shall mean the existing letters of credit issued by Fifth Third Bank as to which the Company or Great Lakes Window, Inc. is the account party. "Financing Lease" shall mean (a) any lease of property, real or personal, the then present value of the minimum rental commitment of which should, in accordance with GAAP, be capitalized on a balance sheet of the lessee, and (b) any other such lease the obligations under which are capitalized on a consolidated balance sheet of the Company and its Subsidiaries. "First American Letter of Credit" shall mean the existing letter of credit issued by M&I First American Bank as to which SNE Transportation Company, Inc. is the account party. "Fleet" shall have the meaning ascribed thereto in the preamble hereto. "GAAP" shall mean generally accepted accounting principles in the United States of America as in effect and applied in the Company's certified financial statements as at December 31, 1996. "Governmental Authority" shall mean any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guarantor" shall have the meaning ascribed thereto in subsection 2.20 hereof. "Guaranty" shall have the meaning ascribed thereto in subsection 2.20 hereof. "Hazardous Materials" shall mean any Toxic Chemical, Hazardous Substances, contaminants or pollutants, medical wastes, infectious wastes or Hazardous Wastes. "Hazardous Substance" shall have the same meaning as set forth in Section 101(14) of the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601(14) or state or local law. "Hazardous Waste" shall have the same meaning as set forth by the Resource Conservation and Recovery Act, 42 U.S.C. 6903(5), and the Environmental Protection Agency's implementing regulations, or state or local law. "Hedge Agreement" shall mean any interest rate swap, cap or collar agreement, interest rate future or option contract and any or other similar agreement. "Hedge Bank" shall mean any Bank or any of its Affiliates or any other financial institution acceptable to the Required Banks that has become a party to the Security Agreement and has appointed Fleet as its custodian thereunder, in each case, in its capacity as a party to a Hedge Agreement with a Loan Party. "Indebtedness" of a Person, at a particular date, shall mean the sum (without duplication) at such date of (a) indebtedness of such Person for borrowed money or evidenced by notes, bonds, debentures or like instruments, (b) indebtedness of such Person for the deferred purchase price of property or services, except (i) accounts payable and accrued expenses arising in the ordinary course of business, (ii) obligations incurred in connection with additions to property, plant or equipment which are deferred for no more than 100 days after the later of the acquisition or completion of installation of such additions, (iii) other obligations (not including taxes) which are deferred for no more than 100 days after the date on which they would first be reflected as liabilities on a balance sheet of such Person and (iv) obligations to pay for services of officers, directors or employees of the Company or any Subsidiary, (c) obligations of such Person under any Financing Lease and (d) indebtedness of such Person arising under acceptance facilities. Without limitation, Indebtedness shall include undrawn letters of credit and unreimbursed draws on letters of credit. "Initial Banks" shall mean the financial institutions that have executed the signature pages hereto. "Insolvency" or "Insolvent", as to any Multiemployer Plan, shall have the respective meanings assigned to such terms in Section 4245 of ERISA. "Interest Payment Date" shall mean (a) as to any Prime Rate Loan, each of (i) the date on which such Loan is paid, refinanced or converted and (ii) the last day of each March, June, September and December after the date such Prime Rate Loan is made and (b) as to any Eurodollar Loan, each of (i) the date on which such Loan is paid, refinanced or converted and (ii) in the case of any Eurodollar Loan in respect of which the Company or any Designated Subsidiary (as applicable) has selected an Interest Period of one, two or three months, the last day of such Interest Period, and, in the case of any Eurodollar Loan in respect of which the Company or any Designated Subsidiary (as applicable) has selected an Interest Period of duration of more than three months, each date which is three months from the first day of such Interest Period. "Interest Period" shall mean, with respect to any Eurodollar Loan, the period commencing on the date of the making of such Eurodollar Loan or the date of the conversion of any Prime Rate Loan into such Eurodollar Loan, and ending one, two, three or six months (or, to the extent permitted by subsection 2.3(c), one week) thereafter as selected by the Company or a Designated Subsidiary, as applicable, in its notice of borrowing as provided in subsection 2.3 and, thereafter, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period selected by the Company or a Designated Subsidiary, as applicable, in its notice of conversion as provided in subsection 2.3; provided, however, that the foregoing provision relating to Interest Periods is subject to the following: (a) if the Interest Period in respect of any Eurodollar Loan would otherwise end on a day which is not a Working Day, that Interest Period shall be extended to the next succeeding Working Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Working Day; (b) any Interest Period pertaining to a Eurodollar Loan that would otherwise extend beyond the Termination Date shall end on the Termination Date; (c) any Interest Period in respect of a Eurodollar Loan that begins on the last Working Day of a calendar month (or on a day for which there is no numerically corresponding day in the succeeding calendar month at the end of such Interest Period) shall end on the last Working Day of such succeeding calendar month; and (d) the number of Eurodollar Loan Tranches in effect at the same time shall not be in excess of the Tranche Limit. In the event that the Company or the Designated Subsidiary, as applicable, fails to select the duration of an Interest Period for any Eurodollar Loan within the time period and otherwise as provided in subsection 2.3, such Eurodollar Loan will be automatically converted into a Prime Rate Loan on the last day of the current Interest Period for such Eurodollar Loan. "investments" shall have the meaning ascribed thereto in subsection 6.7. "Issuance Fee" shall mean at any time of determination a fee at an annual rate determined by reference to the applicable ratio of Senior Funded Debt to Consolidated EBITDA set forth in the table below payable on the undrawn amount of each stand- by L/C issued or deemed issued by Fleet: Ratio Annual Fee Level I 3.25:1.00 or greater 0.950% Level II 3.00:1.00 or greater but less than 3.25:1.00 0.725% Level III 2.50:1.00 or greater but less than 3.00:1.00 0.625% Level IV 2.00:1.00 or greater but less than 2.50:1.00 0.525% Level V 1.50:1.00 or greater but less than 2.00:1.00 0.400% Level VI less than 1.50:1.00 0.300% The determination of the applicable fee pursuant to the table set forth above shall be made on a quarterly basis based on an examination of the consolidated financial statements of the Company and its Subsidiaries delivered pursuant to and in compliance with subsection 5.1; provided, however, that the initial Issuance Fee shall be at Level II in such table until such time as audited annual consolidated financial statements of the Company and its Subsidiaries indicating an Issuance Fee at a different Level in such table are first delivered to the Agent and the Banks pursuant to and in compliance with subsection 5.1. Each change in the Issuance Fee shall be effective as of the first day of the calendar month following the date of the Company's financial statements reflecting any change in the ratio of Senior Funded Debt to Consolidated EBITDA. In the event that financial statements for the four fiscal quarters most recently completed prior to such date of determination either: (a) have not been delivered to the Agent in compliance with subsection 5.1 or (b) if delivered, do not comply in form or substance with subsection 5.1, then the Agent may determine, in its reasonable judgment, the ratio of Senior Funded Debt to Consolidated EBITDA referred to above that would have been in effect as at such date, and, consequently, the Issuance Fee in effect for the period commencing on such date. "L/C Participant" shall have the meaning ascribed thereto in subsection 2.19(c). "L/C Sublimit" shall mean initially the aggregate face amount of all L/Cs outstanding on the Closing Date, as such amount may be permanently reduced from time to time pursuant to subsection 2.6. "L/Cs" shall have the meaning ascribed thereto in subsection 2.1(c)(i). "Leverage Ratio" shall have the meaning ascribed thereto in subsection 6.10. "Lien" shall mean any mortgage, deed of trust, pledge, hypothecation, assignment or deposit by way of security, encumbrance, lien (statutory or other), or preference, priority or other security interest or security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any Financing Lease and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction). "Loan Documents" shall mean (a) for purposes of this Agreement and the Notes and any amendment, supplement or modification hereof or thereof and for all other purposes (other than for purposes of the Guaranties and the Security Documents), (i) this Agreement, (ii) the Notes, (iii) the Guaranties, (iv) the Security Documents and (v) each Application and (b) for purposes of the Guaranties and the Security Documents, (i) this Agreement, (ii) the Notes, (iii) the Guaranties, (iv) the Security Documents, (v) each Application and (vi) each Hedge Agreement to which a Hedge Bank is a party, in each case as amended, supplemented or otherwise modified from time to time. "Loan Parties" means the Company, the Designated Subsidiaries, the Guarantors and the Collateral Grantors. "Loans" shall have the meaning ascribed thereto in subsection 2.1(a)(i) hereof. "Material Adverse Effect" shall mean a material adverse effect on (i) the business, condition (financial or otherwise), operations, performance or properties of Company and its Subsidiaries, taken as a whole, (ii) the ability of the Company, individually, or the Company and the other Loan Parties, taken as a whole, to perform its or their respective obligations in any material respect under any Loan Document or Related Document to which the Company or such other Loan Party is a party or (iii) the rights and remedies of the Agent and the Banks under any Loan Document or Related Document. "Material Operating Subsidiaries" shall mean (a) each Designated Subsidiary; (b) any Subsidiary of the Company which conducts business operations and is material to the operations of the business of the Company and its Subsidiaries, taken as a whole; and (c) each Subsidiary of the Company which the Company designates as a Material Operating Subsidiary. "Merger" and "Merger Agreement" shall have the respective meanings ascribed thereto in the preamble hereto. "Multiemployer Plan" shall mean a Plan which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Net Proceeds" shall mean the aggregate cash proceeds received from time to time (whether as initial consideration or through payment or disposition of any deferred payment obligation) by the Company or any Subsidiary in respect of any sale or other disposition of its assets (whether at the time of any such sale or disposition or at any time thereafter), in each case net of (a) the reasonable expenses (including legal fees and brokers' and underwriters' commissions paid to third parties) incurred in effecting such asset sale or other disposition, (b) any taxes reasonably attributable to such asset sale or other disposition, (c) the amount of any Indebtedness (other than the Obligations) secured by a Lien on any such asset that, by the terms of the instrument evidencing such Indebtedness, is required to be repaid upon such sale or other disposition and (d) to the extent the Company or such Subsidiary is required to maintain reserves for liabilities resulting from such asset sale or other disposition, reasonable reserves so long as such reserves are required to be so maintained; provided, however, that (i) the amount of any liabilities existing at the time of an asset sale or disposition which relate to the assets sold, which are not assumed by the purchaser and which the seller remains obligated to pay, shall be deducted from the aggregate cash proceeds of such sale or disposition; (ii) if any deferred payment obligation is evidenced by any note or other obligation of the purchaser or any third party, then any document or instrument evidencing such obligation shall be pledged by the Company or the Subsidiary involved to the Agent for the benefit of the Banks pursuant to the Security Agreement or a security agreement similar to the Security Agreement but only as collateral for the obligation to prepay pursuant to subsection 2.8(d) with respect to the asset sale or disposition to which such document or instrument relates (but subject to release if any such document is sold by the Company or the Subsidiary involved so long as the proceeds are applied in accordance with such subsection 2.8(d)); and provided that the Company will be entitled, except after the occurrence and during the continuance of an Event of Default, to receive all payments with respect to such instruments, subject to the prepayment obligations in subsection 2.8(d); and (iii) Net Proceeds shall not include cash proceeds of (A) asset sales permitted by subsections 6.4(a), (c) and (g) and (B) mergers permitted by subsections 6.4(b) and (f). "Non-Core Subsidiaries" shall mean each Subsidiary of the Company identified as such on Schedule 3.12. "Nortek" shall have the meaning ascribed thereto in the preamble hereto. "Nortek Indentures" shall mean (a) the Indenture dated as of February 14, 1994 between Nortek and State Street Bank and Trust Company (the "Trustee") pursuant to which Nortek's 9-7/8% Senior Subordinated Notes due March 1, 2004 were issued, (b) the Indenture dated as of March 17, 1997 between Nortek and the Trustee pursuant to which Nortek's 9-1/4% Senior Notes due March 15, 2007 were issued and (c) the Indenture dated as of August 26, 1997 between Nortek and the Trustee pursuant to which Nortek's 9-1/8% Senior Notes due September 1, 2007 will be issued, in each case as amended, supplemented or otherwise modified from time to time in accordance with its terms. "Notes" shall have the meaning ascribed to such term in subsection 2.2. "Notice of Borrowing/Conversion" shall have the meaning ascribed to such term in subsection 2.3. "Obligations" shall mean the unpaid principal of and interest on the Notes and all other obligations and liabilities of the Company and the other Loan Parties to the Agent or to the Banks, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, the Credit Agreement, the other Loan Documents and any other document made, delivered or given in connection therewith or herewith, whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses (including, without limitation: (a) any interest accruing thereon after the date of filing any petition by or against the Company or any Subsidiary in connection with any bankruptcy or other proceeding, whether or not a claim by the Agent or any of the Banks is enforceable in such proceeding; and (b) all fees and disbursements of counsel to the Agent or to the Banks that are required to be paid by the Company pursuant to the terms of the Credit Agreement) or otherwise. "Participant" shall have the meaning ascribed thereto in subsection 9.7(d). "Participating Interest" shall have the meaning ascribed thereto in subsection 9.7(d). "Patent Rights" shall have the meaning ascribed thereto in subsection 3.17. "PBGC" shall mean the Pension Benefit Guaranty Corporation (or any successor) established pursuant to Subtitle A of Title IV of ERISA. "Permitted Shareholders" means Nortek and the Purchaser, so long as it is a wholly-owned Subsidiary of Nortek. "Person" shall mean an individual, a partnership, a corporation, a limited liability company, a business trust, a joint stock company, a trust, an unincorporated association, a joint venture, a Governmental Authority or any other entity of whatever nature. "Plan" shall mean at any particular time, any employee benefit plan which is covered by ERISA and in respect of which the Company, any Subsidiary or a Commonly Controlled Entity is (or, if such Plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Post-Default Rate" shall have the meaning ascribed thereto in subsection 2.10(d). "Pre-Commitment Information" shall mean all of the information relating to Nortek, the Company or any of their respective Subsidiaries furnished to the Agent by Nortek or the Company on or before August 14, 1997. "Prime Rate" shall mean a fluctuating interest rate per annum in effect from time to time, which rate shall at all times be equal to the higher of (a) the rate of interest publicly announced by Fleet in Boston, Massachusetts from time to time as its prime rate and (b) one half of one percent (1/2%) per annum above the Federal Funds Rate. The Prime Rate is not intended to be the lowest rate of interest charged by Fleet in connection with extensions of credit to debtors. Each change in any interest rate provided for herein based upon the Prime Rate shall take effect at the time of such change in the Prime Rate. "Prime Rate Loans" shall mean Loans hereunder at such time as they bear interest based upon the Prime Rate. "Purchaser" shall have the meaning ascribed thereto in the preamble hereto. "Regulation A", "Regulation D", "Regulation G", "Regulation U" and "Regulation X" shall mean, respectively, Regulation A, Regulation D, Regulation G, Regulation U and Regulation X of the Board of Governors of the Federal Reserve System, as from time to time in effect. "Regulatory Change" shall mean the introduction of, or any change in, United States federal, state or local laws or regulations (including Regulation D) or treaties or foreign laws or regulations after the date of this Agreement or the adoption or making after such date of any interpretations, directives, guidelines or requests applying generally to a class of banks of or under any United States federal, state or local laws or regulations or any treaties or foreign laws or regulations (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof. "Related Documents" shall mean the Merger Agreement and each of the documents evidencing Subordinated Indebtedness. "Release" shall have the same meaning as set forth in Section 101(22) of the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601(22), or state or local law. "Reorganization", as to any Multiemployer Plan, shall have the meaning assigned to such term in Section 4241 of ERISA. "Reportable Event" shall mean any of the events set forth in Section 4043(c) of ERISA other than those events as to which the 30-day notice period is waived. "Required Banks" shall mean, at any date, Banks having at least 51% of the aggregate amount of the Commitments, and, if the Commitments are terminated and Loans and/or Bank L/C Obligations are outstanding, Banks holding at least 51% of the aggregate principal amount of outstanding Loans and/or Commitment Percentages relating to Bank L/C Obligations, as the case may be. "Requirement of Law" for any Person shall mean the Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or guideline, or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Responsible Officer" shall mean the chief executive officer, president, chief financial officer or treasurer, or any executive vice president, of the Company. "SEC Reports" shall mean the Company's annual report on Form 10-K for the fiscal year ended December 31, 1996 and other documents filed by the Company with the Securities and Exchange Commission during 1996. "Secured Parties" shall mean the Agent, the Banks, Fleet in its capacity as issuer of L/Cs hereunder and the Hedge Banks. "Security Agreement" shall have the meaning ascribed thereto in subsection 2.21. "Security Documents" shall mean, collectively, the Security Agreement and any other agreement that creates or purports to create a Lien in favor of the Agent for the benefit of the Secured Parties. "Senior Funded Debt" shall mean, at any time of determination, the average (calculated for the two most recent consecutive full fiscal quarters of the Company for which consolidated financial statements of the Company and its Subsidiaries have been delivered to the Agent and the Banks pursuant to and in compliance with subsection 5.1) (a) aggregate Indebtedness of the Company and its Subsidiaries less (b) the aggregate Subordinated Indebtedness of the Company and its Subsidiaries, in each case calculated on a consolidated basis in accordance with GAAP. "Single Employer Plan" shall mean any Plan which is covered by Title IV of ERISA, but which is not a Multiemployer Plan. "Solvency Certificate" shall mean a certificate substantially in the form of Exhibit G hereto. "Solvent" and "Solvency" shall mean with respect to any Person at the time of determination: (a) the then fair market value of its assets is greater than its probable liability on its existing debts (including contingent debts) as such debts become absolute and matured; (b) the then present fair saleable value of its assets is not less than the amount that will be required to pay its probable liability on its existing debts (including contingent debts) as such debts become absolute and matured; (c) it is then able and expects to be able to pay its debts (including, without limitation, contingent debts and other commitments) as they mature; and (d) it has capital sufficient to carry on its business as conducted and as proposed to be conducted. The amount of contingent debts and other commitments at any time shall be computed as that amount that represents the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith. "Special Subsidiary Loans" shall mean loans by the Company and/or any of its Subsidiaries to Subsidiaries which are not, directly or indirectly, wholly-owned Subsidiaries. "Specified L/C Obligations" at any date shall mean the sum of (a) the aggregate undrawn amount of all L/Cs as to which the Company or any Subsidiary is an account party at such date (excluding (i) the Fifth Third Letters of Credit and the First American Letter of Credit and (ii) any renewals, extensions and replacements of any of the Fifth Third Letters of Credit or the First American Letter of Credit), plus (b) the amount of all Unpaid Drawings. "Subordinated Indebtedness" shall mean the Indebtedness permitted pursuant to subsection 6.1(f). "Subsidiary" of any Person shall mean a corporation or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the directors of such corporation, or other Persons performing similar functions for such entity, are owned, directly or indirectly, by such Person. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries", in this Agreement shall refer to a Subsidiary or Subsidiaries of the Company. "Taxes" shall have the meaning ascribed thereto in subsection 2.13. "Tender Offer" shall have the meaning ascribed thereto in the preamble hereto. "Termination Date" shall mean August 26, 2002 or, if such day is not a Business Day, the Business Day next preceding such day. "Toxic Chemical" shall mean any substance on the list described in Section 313(c) of the Emergency Planning and Community Right-to-Know Act, 42 U.S.C. 11023(c). "Tranche" shall mean all Eurodollar Loans of the same borrower with the same Interest Period, which Interest Period ends on the same day. "Tranche Limit" at any time shall mean a number equal to the sum of the number of Designated Subsidiaries at such time plus six; provided that the Tranche Limit shall not be less than 10. "Type" shall mean, as to any Loan, its nature as a Prime Rate Loan or Eurodollar Loan, as the case may be. "Unpaid Drawings" shall have the meaning ascribed thereto in subsection 2.1(c)(i) hereof. "Working Day" shall mean any Business Day on which dealings in foreign currency and exchange between banks may be carried on in London, England and Boston, Massachusetts. 1.2 Other Definitional Provisions. (a) All terms defined in this Agreement shall have such defined meanings when used in the Loan Documents or any certificate or other document made or delivered pursuant hereto unless otherwise defined therein. (b) As used herein, in the Loan Documents and in any certificate or other document made or delivered pursuant hereto, accounting terms not defined in subsection 1.1, and accounting terms partly defined in subsection 1.1 to the extent not defined, shall have the respective meanings given to them under GAAP. (c) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement; and Section, subsection, Schedule and Exhibit references contained in this Agreement are references to Sections, subsections, Schedules and Exhibits in or to this Agreement unless otherwise specified. (d) In this Agreement in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding". SECTION 2. AMOUNTS AND TERMS OF COMMITMENTS 2.1 Commitments. (a) (i) Subject to the terms and conditions of this Agreement, each Bank severally agrees to make a single term loan (individually, a "Loan", collectively, the "Loans") to each of the Company and the Designated Subsidiaries on the Closing Date in an aggregate principal amount which, when added to such Bank's Commitment Percentage of the Bank L/C Obligations which are to be outstanding immediately after giving effect to the borrowing and application of such Loans, will not exceed the amount of its Commitment set forth on Schedule I, as such amount may be reduced from time to time as provided herein. Amounts borrowed under this subsection 2.1(a) and repaid or prepaid may not be reborrowed. (ii) Intentionally omitted. (b) The Loans may be made as (i) Eurodollar Loans, (ii) Prime Rate Loans or (iii) subject to the other provisions hereof, any combination thereof, as determined by the Company and notified to the Agent in accordance with subsection 2.3, provided that Loans made on the Closing Date shall be made as Prime Rate Loans and shall be made in an amount not to exceed the amount by which the Commitments on the Closing Date exceed the L/C Sublimit on the Closing Date. (c) (i) Effective as of the Closing Date, (A) the "L/Cs" issued for the account of any Account Party by Fleet pursuant to the Existing Credit Agreement (such "L/Cs" as are outstanding thereunder on the date hereof and set forth on Schedule 2.1 being, collectively, the "L/Cs", and individually, an "L/C"), will be deemed to be L/Cs hereunder for the account of such Account Party, (B) the L/Cs will no longer be Obligations outstanding under the Existing Credit Agreement and (C) Fleet will be deemed to have sold and transferred an undivided interest and participation in respect of each L/C issued by it and each Bank hereunder will be deemed to have purchased and received, without further action on the part of any party, an undivided interest and participation in such L/C, based on such Bank's Commitment Percentage of such L/C. Fleet shall notify the Company of any payment or disbursement made by Fleet under any L/C in accordance with its customary practice. The applicable Account Party shall reimburse Fleet in immediately available funds at its office indicated on its Schedule I on the same day as any draw is paid by Fleet under the L/Cs (all such amounts so paid or disbursed until paid, are hereinafter referred to as "Unpaid Drawings"). (ii) Intentionally omitted. (iii) If, notwithstanding the other provisions of this subsection 2.1(c), on the Termination Date there are outstanding any L/Cs which have not expired or been terminated with the consent of the Company and the respective beneficiaries thereof, then this Agreement (including, without limitation, this subsection 2.1(c) and subsection 2.22) and the respective rights, obligations and covenants of the Company, and the Desig-nated Subsidiaries, Fleet and the Banks under this Agreement shall remain in full force and effect until the date on which the last of the L/Cs expire or is terminated with the consent of the Company and the respective beneficiaries thereof and all payments made by Fleet under the L/Cs are reimbursed in full by the Company or one or more of the Designated Subsidiaries, except that the Commitment shall terminate on the Termination Date. (iv) Intentionally omitted. (v) Upon the presentation for payment of any draft drawn under a trade L/C, the Company shall pay to Fleet for the ratable benefit of the Banks a payment commission or fee (each a "Drawing Fee") equal to one quarter of one percent (1/4%) of the face amount of the draft. (vi) The Company shall pay to the Agent for the ratable benefit of the Banks an Issuance Fee for each stand-by L/C, on the undrawn amount of such L/C, at an annual rate equal to the percentage set forth in the definition of Issuance Fee, and payable on the date of issuance and thereafter in advance on the first day of each January, April, July and October so long as such L/C is outstanding; provided, however, that such Issuance Fee shall be pro rated for the portion of any quarter during which the undrawn amount of such L/C is reduced or the L/C is terminated and the Agent and the Banks shall refund to the Company any unearned portion of such Issuance Fee. (vii) In the event that at any time when a draft is drawn under an L/C, there are not sufficient funds in any account of the Account Party with Fleet or sufficient Available Commitments to permit creation of a Loan sufficient to fund payment of such draft, any funds advanced by Fleet, in payment thereof shall be due and payable immediately and shall bear interest until paid in full at the Post-Default Rate. In the event of any conflict, discrepancy or any omission of terms provided herein between the terms established by Fleet in its Application or otherwise and this Agreement, the terms provided herein shall prevail. (viii) The obligations of each Account Party under this subsection 2.1(c) to reimburse Fleet with respect to Unpaid Drawings (including interest thereon) shall, subject to the other provisions of this Agreement, including without limitation subsection 2.22, be absolute and unconditional under any and all circumstances and (but as so subject) irrespective of any setoff, counterclaim or defense to payment which the Company or any Designated Subsidiary may have or have had against Fleet, including (without limitation, but as so subject) any defense based on the failure of any drawing under the L/C to conform to the terms of such L/C or any non-application or misapplication by the beneficiary of the L/C of the proceeds of such drawing. 2.2 Notes. The Loans made by each Bank shall be evidenced by promissory notes, substantially in the form of Exhibit A with appropriate insertions as to date, name of Bank and principal amount (individually, a "Note" and, collectively, the "Notes"), payable to the order of such Bank and evidencing the obligation of the Company or the applicable Designated Subsidiary, as the case may be, to pay the outstanding principal amount thereof with interest on the unpaid principal amount from time to time outstanding of such Note as prescribed in subsection 2.10. Each Bank is hereby authorized to record the date, Type and amount of each Loan, the maturity date therefor and the date and amount of each repayment of principal thereof, and, in the case of Eurodollar Loans, the interest rate with respect thereto, either on its own books and records or on the schedule (or any continuations thereof) annexed to and constituting a part of its Note, and any such recordation shall constitute prima facie evidence of the accuracy of the information so recorded; provided that the failure to make any such recordation shall not in any way affect the obligation of the Company and the Designated Subsidiaries to repay the Loans. Each Note shall (a) be dated the date hereof, (b) be payable with respect to principal as set forth in subsection 2.9, and (c) bear interest on the unpaid principal amount thereof from time to time outstanding until payment in full of the principal amount thereof at the applicable interest rate per annum determined as provided in subsection 2.10. Interest on the Notes shall be payable on the dates specified in subsection 2.10. 2.3 Procedure for Loan Borrowings. (a) The Company may request for itself or any Designated Subsidiary a borrowing under the Commitments on the Closing Date, by giving irrevocable notice to the Agent (which notice must be received by the Agent prior to 2:00 p.m., Boston, Massachusetts time) one Business Day prior to the Closing Date; provided, however, that from time to time the Company may request for itself or on behalf of any Designated Subsidiary that all or any portion of the Loans of one Type be converted into Loans of the other Type by giving irrevocable notice to the Agent, three Working Days prior to the requested conversion date, in the case of Eurodollar Loans, and one Business Day prior to the requested conversion date, in the case of Prime Rate Loans, provided that (i) in the case of any conversion from a Prime Rate Loan to a Eurodollar Loan, (A) the Interest Period available for such Eurodollar Loan shall be subject to subsection 2.3(c), (B) the obligation of the Banks to make Eurodollar Loans shall not then be suspended pursuant to subsection 2.12 or 2.14 and (C) the number of Eurodollar Loan Tranches in effect after giving effect to such conversion shall not exceed the Tranche Limit then in effect and (ii) in the case of any conversion from a Eurodollar Loan to a Prime Rate Loan, (A) such conversion shall only be made on the last day of an Interest Period for such Eurodollar Loan and (B) after giving effect to such conversion, the aggregate amount of all Eurodollar Loans having the same Interest Period ending on the same date is at least $1,000,000. Each such notice of borrowing or conversion (a "Notice of Borrowing/Conversion") shall specify: (1) the borrower and the amount to be borrowed or converted, (2) the requested borrowing or conversion date, (3) whether the Type of Loan to be borrowed, or into which a Loan shall be converted, is to be a Eurodollar Loan, Prime Rate Loan or a combination thereof and, if a combination, the respective amount of each Type of borrowing and (4) in the case of Eurodollar Loans, the length of the Interest Period with respect thereto. The aggregate borrowings under the Commitments on the Closing Date shall be in an aggregate principal amount of not more than the then Available Commitments. The aggregate amount of Loans to any Designated Subsidiary at any time outstanding shall not exceed the Designated Subsidiary Borrowing Limit for such Designated Subsidiary in effect at such time. Each Bank will make the amount of its pro rata share of each borrowing available to the Agent for the account of the Company at the office of the Agent in Boston, Massachusetts as set forth in subsection 9.2 by 11:00 a.m., Boston, Massachusetts time, on the Closing Date in funds immediately available to the Agent. The proceeds of all such Loans will then be made available to the Company or the applicable Designated Subsidiary, as the case may be, by the Agent at such office of the Agent by crediting the account of the Company or such Designated Subsidiary on the books of such office with the aggregate of the amounts made available to the Agent by the Banks and in like funds as received by the Agent. (b) The provisions of subsection 2.3(a) notwithstanding, if the Company shall not have given a timely notice of the next Interest Period for any outstanding Eurodollar Loan, then unless the Agent shall have received notice that the Company elects not to continue such Loan on the last day of such Interest Period as a Eurodollar Loan (such notice to have been received at least one Business Day prior to the last day of such Interest Period) the Company shall be deemed irrevocably to have requested that Prime Rate Loans be made by the Banks on the last day of such Interest Period in the same aggregate amount as the Eurodollar Loans the last day of the Interest Period of which is on such day (subject, however, to the requirement that the aggregate amount of the Loans outstanding at any time pursuant to subsection 2.1 may not exceed the amounts of the Available Commitments then in effect). (c) Anything in subsection 2.3 (a) above to the contrary notwithstanding, (i) during the period from the Closing Date to the date that is the earlier of 30 days after the Closing Date and the date on which the Agent notifies the Company and the Banks that the Commitments are fully syndicated, the Company may request for itself or any Designated Subsidiary that (A) any Prime Rate Loan hereunder be converted into a Eurodollar Loan having an initial Interest Period of one week or (B) the next Interest Period for any outstanding Eurodollar Loan be one week, and (ii) thereafter, the Company may, in accordance with the provisions in the definition of "Interest Period," request Interest Periods for any Eurodollar Loan if the aggregate amount of all Eurodollar Loans having the same Interest Period is at least $1,000,000 and if the obligation of the Banks to make Eurodollar Loans shall not then be suspended pursuant to subsection 2.12 or subsection 2.14. (d) The proceeds of the Loans hereunder shall be applied to the payment in full of the principal and interest payable with respect to the Indebtedness under the Existing Credit Agreement. 2.4 Intentionally Omitted. 2.5 Intentionally Omitted. 2.6 Termination or Reduction of Commitments. (a) Optional. The Company shall have the right, upon not less than three Business Days' notice to the Agent, to terminate the Commitments or, from time to time, to reduce the amount of the Commitments, provided that no such reduction or termination shall be permitted if, after giving effect thereto, and to any prepayments of the Loans made on the effective date thereof, the then outstanding principal amount of the Loans and Bank L/C Obligations would exceed the amount of the Commitments then in effect. Any such reduction shall be in an amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof and shall reduce permanently the amount of the Commitments then in effect. The Commitments once terminated or reduced may not be reinstated. (b) Mandatory. After giving effect to the Loans made on the Closing Date and the L/Cs outstanding on the Closing Date, upon each repayment or prepayment of the Loans or of Unpaid Drawings and upon each expiration or termination of an L/C (without any drawing in connection therewith), (i) the aggregate Commitments of the Banks shall be automatically and permanently reduced, on a pro rata basis, by an amount equal to the amount by which the aggregate Commitments immediately prior to such reduction exceed the aggregate unpaid principal amount or face amount, as the case may be, of the Loans, Unpaid Drawings and L/Cs then outstanding and (ii) the L/C Sublimit shall be automatically and permanently reduced to an amount equal to the principal amount or face amount of the Unpaid Drawings and L/Cs outstanding immediately after such repayment, expiration or termination. The Commitments once terminated or reduced may not be reinstated. 2.7 Fees. (a) The Company agrees to pay to the Agent for the account of each Bank the Facility Fee for the period commencing on the date hereof extending to but not including the earlier of (i) the date the Commitments are terminated or (ii) the Termination Date. The accrued Facility Fee shall be payable on the last day of each March, June, September or December and on the Termination Date or such earlier date as the Commitments shall terminate as provided herein, commencing on the first of such dates to occur after the date hereof. (b) The Company agrees to pay to the Agent the additional fees in the amounts and upon the terms set forth in the Fee Letter. 2.8 Optional and Mandatory Prepayments. (a) The Company and each Designated Subsidiary may at any time and from time to time prepay the Loans then outstanding, in whole or in part, without premium or penalty, provided, however, that if the Company or any Designated Subsidi-ary prepays any Eurodollar Loans on any day other than the last day the Interest Period therefor, the Company or such Designated Subsidiary shall concurrently pay any amounts due under subsection 2.16 incurred in connection therewith. Optional prepayments pursuant to this subsec-tion 2.8(a) shall be made upon at least three Working Days' prior irrevocable notice to the Agent in the case of Eurodollar Loans, and one Business Day's prior irrevocable notice to the Agent in the case of Prime Rate Loans, specifying (i) the date and amount of such prepayment, (ii) whether the prepayment is of Eurodollar Loans, Prime Rate Loans or a combination thereof, and, if of a combination thereof, the amount of prepayment allocable to each Type and (iii) in the case of Eurodollar Loans, the Interest Periods affected. If any such notice is given, the Company or the Designated Subsidiary involved will make the prepayment spe-cified therein, and such prepayment shall be due and payable on the date specified therein, together with accrued interest to such date on the amount prepaid. Each prepayment of the Loans pursuant to this paragraph (a) shall be in an amount equal to $5,000,0000 or any whole multiple of $1,000,000 in excess thereof or the amount of all Loans then outstanding, provided that prepayments of Eurodollar Loans pursuant to this paragraph (a) shall be made in such a manner that, after giving effect to such prepayments, no Eurodollar Loans having the same Interest Period shall be maintained in an amount less than $1,000,000. (b) Intentionally omitted. (c) Intentionally omitted. (d) The Company shall prepay the Loans then outstanding and reduce the Commitments as set forth in subsection 2.6(b) upon the receipt by the Company or any Subsidiary of Net Proceeds of any sale or other disposition of any of its assets to the extent set forth below: (i) during such time as the Leverage Ratio (calculated based on the financial statements most recently delivered to the Agent and the Banks pursuant to and in compliance with subsection 5.1) is greater than or equal to 2.50:1.00, 75% of all such Net Proceeds shall be applied to prepay the installments required to be made on the Loans pursuant to subsection 2.9 in direct order of the maturity thereof; and (ii) during such time as the Leverage Ratio (calculated based on the financial statements most recently delivered to the Agent and the Banks pursuant to and in compliance with subsection 5.1) is less than 2.50:1.00, 50% of all such Net Proceeds shall be applied to prepay the installments required to be made on the Loans pursuant to subsection 2.9 in direct order of the maturity thereof. (e) Any payment of the Loans pursuant to this subsection 2.8 or to subsection 2.9 shall be applied first to the Prime Rate Loans then outstanding, and the balance of any payment shall be applied to the Eurodollar Loans in chronological order of the respective maturities thereof (or as the Company may otherwise specify in writing to the Agent), together with any payments required by subsection 2.16. 2.9 Repayment of Loans. The Company shall, and shall cause each Designated Subsidiary to, repay to the Agent for the ratable account of the Banks the aggregate outstanding principal amount of the Loans owing by the Company or such Designated Subsidiary, as the case may be, on the following dates in the aggregate amounts indicated for all such Loans being repaid on such date (which amounts shall be reduced as a result of the application of prepayments in accordance with the order of priority set forth in subsection 2.8(d)): Date Amount March 31, 1998 $1,000,000 June 30, 1998 $1,000,000 September 30, 1998 $1,000,000 December 31, 1998 $1,000,000 March 31, 1999 $1,000,000 June 30, 1999 $1,000,000 September 30, 1999 $1,000,000 December 31, 1999 $1,000,000 March 31, 2000 $1,250,000 June 30, 2000 $1,250,000 September 30, 2000 $1,250,000 December 31, 2000 $1,250,000 March 31, 2001 $1,500,000 June 30, 2001 $1,500,000 September 30, 2001 $1,500,000 December 31, 2001 $1,500,000 March 31, 2002 $3,000,000 June 30, 2002 $3,000,000 August 26, 2002 $96,728,225 provided, however, that the final principal installment shall be repaid on the earlier of the Termination Date and the date of the termination in full of the Commitments pursuant to subsection 2.6 or Section 7 and in any event shall be in an amount equal to the aggregate principal amount of the Loans, Unpaid Drawings and L/Cs outstanding on such date. 2.10 Interest Rates and Payment Dates. (a) Each Eurodollar Loan shall bear interest for the Interest Period with respect thereto on the unpaid principal amount thereof at a rate per annum equal to the Eurodollar Rate for such Interest Period plus the Applicable Margin in effect from time to time. (b) The Unpaid Drawings and each Prime Rate Loan shall bear interest on the aggregate unpaid principal amount thereof at a rate per annum equal to the Prime Rate in effect from time to time plus the Applicable Margin in effect from time to time. (c) Intentionally omitted. (d) If all or a portion of the principal amount of any of the Loans or Unpaid Drawings shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue principal amount shall, without limiting the rights of the Banks under Section 7, bear interest at a rate per annum which is two percent (2%) above the otherwise applicable rate (the "Post-Default Rate"), from the date of such non-payment until paid in full (before, as well as after, judgment); provided that if such overdue principal amount is of Eurodollar Loans, then, at the end of the Interest Period relating thereto, such Eurodollar Loans may be continued only as Prime Rate Loans and shall bear interest at a rate per annum which is two percent (2%) above the rate required to be paid on Prime Rate Loans pursuant to subsection 2.10(b) until paid in full (before as well as after judgment). (e) Interest on each Loan shall be payable in arrears on each Interest Payment Date applicable thereto. (f) Anything herein to the contrary notwithstanding, the obligation of the Company and each Designated Subsidiary to make payments of interest shall be subject to the limitation that payments of interest shall not be required to be made to any Bank to the extent that such Bank's receipt thereof would not be permissible under the law or laws applicable to such Bank limi-ting rates of interest which may be charged or collected by such Bank; provided that nothing in this subsection 2.10(f) shall release the Company or any Designated Subsidiary, as applicable, from paying any portion of interest then payable to the extent that such Bank's receipt thereof would be permissible under such law or laws. Any such payments of interest which are not made to any Bank as a result of the limitation referred to in the preceding sentence shall be made by the Company and each Designated Subsidiary to such Bank on the earliest Interest Payment Date or Dates on which the receipt thereof would be permissible under the laws applicable to such Bank limiting rates of interest which may be charged or collected by the Agent. 2.11 Computation of Interest and Fees. (a) The Facility Fee and interest in respect of Prime Rate Loans shall be calculated on the basis of a 365 (or 366, as the case may be) day year for the actual days elapsed. Interest on all Eurodollar Loans and Issuance Fees and the fees payable pursuant to subsection 2.7(b) shall be calculated on the basis of a 360-day year for the actual days elapsed. The Agent shall as soon as practicable, but not later than the close of business on the date of determination, notify the Company and the Designated Subsidiaries and the Banks of each determination of a Eurodollar Rate. Any change in the interest rate on the Loans resulting from a change in the Prime Rate or the Eurocurrency Reserve Requirements shall become effective as of the opening of business on the day on which such change in the Prime Rate is announced, or such change in the Eurocurrency Reserve Requirements shall become effective, as the case may be. The Agent shall as soon as practicable, but not later than three Business Days before the close of business on the effective date, notify the Company and the Designated Subsidiaries and the Banks of the effective date and the amount of each such change. (b) Each determination of an interest rate by the Agent pursuant to any provision of this Agreement shall be prima facie evidence of the accuracy of the facts so determined. 2.12 Inability to Determine Interest Rate. Notwithstanding any other provision of this Agreement, in the event that the Required Banks shall reasonably have determined (which determination shall be prima facie evidence of the facts so deter-mined) that the rates quoted by Fleet for the purpose of compu-ting the Eurodollar Rate do not adequately and fairly reflect the cost to the Banks of funding any Loans that the Company or any Designated Subsidiary has requested be converted into Eurodollar Loans, such Banks shall notify the Agent thereof and the Agent shall promptly give telecopier or telephonic notice of such determination, confirmed in writing to the Company or such Designated Subsidiary and the Banks at least one Business Day prior to the requested conversion date for such Eurodollar Loans. Unless the Company or such Designated Subsidiary shall have notified the Agent promptly after receipt of such telecopier or telephonic notice that it wishes to rescind or modify its request regarding such Eurodollar Loans, any requested Eurodollar Loans shall be made as Prime Rate Loans. Until any such notice has been withdrawn by the Agent, no further Eurodollar Loans shall be made. The Agent shall withdraw such notice promptly after it determines that the circumstances giving rise to the delivery of such notice no longer exist. 2.13 Taxes. (a) All payments made by the Company and each Designated Subsidiary under this Agreement shall be made free and clear of, and without reduction for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority excluding, in the case of the Agent and each Bank, net income and franchise taxes imposed on the Agent and such Bank by the jurisdiction under the laws of which such Agent or such Bank is organized or any political subdivision or taxing authority thereof or therein or by any jurisdiction in which such Bank's Domestic Lending Office or Eurodollar Lending Office, as the case may be, is located or any political subdivision or taxing authority thereof or therein (all such non-excluded taxes, levies, imposts, deductions, charges or withholdings being hereinafter called "Taxes"). If any Taxes are required to be withheld from any amounts payable to any Bank hereunder or under the Notes, the amounts so payable to such Bank shall be increased to the extent necessary to yield to such Bank (after payment of all Taxes, including Taxes on such increased amount) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement and the Notes. Whenever any Taxes are payable by the Company or any Designated Subsidiary, as promptly as possible thereafter, the Company or such Designated Subsidiary shall send to the Agent for the account of such Bank a certified copy of an original official receipt received by the Company or such Designated Subsidiary showing payment thereof. If the Company or any Designated Subsidiary fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to the Agent the required receipts or other required documentary evidence, the Company or such Designated Subsidiary shall indemnify the Agent and the Banks for any incremental taxes, interest or penalties that may become payable by the Agent or any Bank as a result of any such failure. Each Bank confirms to the Company and the Designated Subsidiaries that tax withholding requirements do not currently apply to payments to be made to it hereunder. (b) If the Company or any Designated Subsidiary shall at any time be required to withhold any Taxes in respect of any amount payable to any Bank hereunder or under the Notes, the Company or such Designated Subsidiary shall be entitled to prepay the Loans allocable to such Bank, and the Company or such Designated Subsidiary shall be entitled to terminate the Commit-ment of such Bank (such prepayment to be made together with all other amounts due to such Bank hereunder and under the Notes, including, without limitation, interest, fees and any amounts payable pursuant to subsection 2.16). (c) Each Bank agrees to use reasonable efforts (including reasonable efforts to change its Domestic Lending Office or Eurodollar Lending Office, as the case may be) to avoid the imposition of any Taxes on payments hereunder or to minimize any amounts which might otherwise be payable pursuant to this subsection 2.13; provided, however, that such efforts shall not cause the imposition on such Bank of any additional costs or legal or regulatory burden deemed by such Bank to be material. (d) If the Company or any Designated Subsidiary makes any additional payment to the Agent or any Bank pursuant to this subsection 2.13 in respect of any Taxes, and the Agent or such Bank determines that it has received (i) a refund of such Taxes or (ii) a credit against or relief or remission for, or a reduction in the amount of, any tax or other governmental charge solely as a result of any deduction or credit for any Taxes with respect to which it has received payments under this subsection 2.13, the Agent and such Bank shall, to the extent that they can do so without prejudice to the retention of such refund, credit, relief, remission or reduction, pay to the Company or such Designated Subsidiary such amount as the Agent and such Bank shall have determined to be attributable to the deduction or withholding of such Taxes. If the Agent or such Bank later determines that it was not entitled to such refund, credit, relief, remission or reduction to the full extent of any payment made pursuant to the first sentence of this subsection 2.13(d), the Company or such Designated Subsidiary shall upon demand of the Agent or such Bank promptly repay the amount of such overpayment. Any determination made by the Agent or such Bank pursuant to this subsection 2.13(d) shall constitute prima facie evidence of the accuracy thereof, and nothing in this subsection 2.13(d) shall be construed as requiring the Agent or any Bank to conduct its respective business or to arrange or alter in any respect its respective tax or financial affairs so that it is entitled to receive such a refund, credit or reduction or as allowing any person to inspect any records, including tax returns, of the Agent or any Bank. 2.14 Illegality. Notwithstanding any other provision herein, if any Regulatory Change shall make it unlawful for any Bank to make or maintain Eurodollar Loans as contemplated by this Agreement or to accept deposits in order to make or maintain such Eurodollar Loans, (a) the agreements of such Bank hereunder to make Eurodollar Loans shall forthwith be suspended for the duration of such illegality and (b) each Eurodollar Loan then outstanding, if any, shall be converted into a Prime Rate Loan on the last day of the Interest Period therefor or within such earlier period as required by law for the duration of such illegality. If any such conversion of a Eurodollar Loan is made on a day which is not the last day of the Interest Period therefor, the Company and each Designated Subsidiary hereby agrees to pay promptly to any Bank, upon its demand, any amounts required to be paid by the Company and each Designated Subsidiary pursuant to subsection 2.16 (such Bank's reasonable notice of such costs and the manner in which they were calculated, as certified to the Company, shall constitute prima facie evidence of the accuracy of the amounts set forth therein). This agreement shall survive termination of this Agreement and the payment of the outstanding Notes. Each Bank shall use its reasonable efforts to promptly notify the Company as soon as practicable as to any Regulatory Change described in this subsection 2.14. 2.15 Increased Costs. (a) In the event that any Regulatory Change: (i) subjects any Bank to any tax of any kind whatso-ever with respect to this Agreement, its Notes or any Loans made by it, or changes the basis of taxation of payments to such Bank of principal, interest, fees or any other amount pay-able hereunder (except for changes in Taxes and except for taxes measured by the net income of such Bank); (ii) imposes, modifies or holds applicable to such Bank any reserve, Federal Deposit Insurance Corporation premium or assessment, special deposit, compulsory loan or similar requirement against any Eurodollar Loans made, or assets held by, or credit extended by, or deposits or other liabilities in or for the account of, or acquisition of funds by or for the account of, any office of such Bank (or any Person controlling such Bank) (but only to the extent not otherwise included in the determination of the Eurodollar Rate); or (iii) imposes on such Bank any other condition affecting this Agreement or any Loans made hereunder; and the result of any of the foregoing is to increase the cost to such Bank of making or maintaining Loans or Commitments or to reduce any amount receivable by it in respect of Loans or Commitments, then, in any such case, the Company or the applicable Designated Subsidiary shall promptly pay the Bank, upon its demand pursuant to subsection 2.15(c), any additional amounts necessary to compensate such Bank (or any Person controlling such Bank) for such additional cost or reduced amount receivable plus interest thereon at the Prime Rate, for five (5) Business Days from the date demanded and thereafter, at the Post-Default Rate, in each case until payment in full thereof. (b) In the event that any Bank (or any Person controlling such Bank) shall have reasonably determined that any Regulatory Change does or shall have the effect of reducing the rate of return on such Bank's (or such Person's) capital as a consequence of its obligations hereunder to a level below that which such Bank (or such Person) could have achieved on the date hereof but for such Regulatory Change (taking into consideration such Bank's policies with respect to capital adequacy) by any amount reasonably deemed by such Bank to be material, then from time to time, within 15 days after demand by such Bank pursuant to subsection 2.15(c), the Company or the applicable Designated Subsidiary shall promptly pay the Bank such additional amount or amounts as will compensate such Bank (or such Person) for such reduction. (c) If any Bank (or any Person controlling such Bank) becomes entitled to claim any additional amounts pursuant to this subsection 2.15, it shall promptly after becoming aware thereof notify the Company of the event by reason of which it has become so entitled. Any such claim for additional amounts by such Bank shall be accompanied by a certificate setting forth in reasonable detail the calculation thereof (provided, however, that such Bank shall not be required to disclose proprietary or confidential information in such certificate), submitted by such Bank to the Company, and such certificate shall constitute prima facie evidence of the accuracy of the amount of such claim. This agreement shall survive termination of the Commitments and the payment in full of the outstanding Notes for 180 days (but not longer). (d) If the Company or any Designated Subsidiary shall at any time be required to pay amounts pursuant to this subsection 2.15 to any Bank (or any Person controlling such Bank), the Company or such Designated Subsidiary shall be entitled to prepay the Loans allocable to such Bank, and thereupon the Company or such Designated Subsidiary shall be entitled to terminate the Commitment of such Bank (such prepayment to be made together with all other amounts due to such Bank hereunder and under the Notes, including, without limitation, interest, fees and any amounts payable pursuant to subsection 2.16). 2.16 Indemnity. Each of the Company and each Designated Subsidiary agrees to indemnify each Bank for, and to hold such Bank harmless from, any loss or expense (but not including loss of Applicable Margin) which such Bank may sustain or incur as a consequence of (a) any default by the Company or any Designated Subsidiary in borrowing or failure to borrow for any reason such Eurodollar Loans after the Company or such Designated Subsidiary has given a notice in respect thereof in accordance with subsection 2.3, (b) receipt by such Bank of any prepayment (whether optional or mandatory) of any Eurodollar Loan on a day which is not the last day of an Interest Period applicable to such Eurodollar Loan, (c) default by the Company or any Designated Subsidiary in making any prepayment of a Eurodollar Loan after it has given a notice in accordance with subsection 2.8(a) or (d) acceleration of any Eurodollar Loans, and each Bank shall use reasonable efforts to minimize any amounts due to such Bank pursuant to this subsection 2.16. The Company and each Designated Subsidiary shall promptly pay to each Bank, upon its demand (accompanied by the certificate described below), any amounts necessary to compensate such Bank for such losses or expenses incurred by such Bank in making or maintaining any Loans in accordance with this subsection 2.16, including, without limitation, any interest or fees payable by such Bank to lenders of funds obtained by it in order to make or maintain its Eurodollar Loans. Any claim for additional amounts pursuant to the foregoing sentence by such Bank shall be accompanied by a certificate setting forth in reasonable detail the calculation thereof (provided, however, that such Bank shall not be required to disclose proprietary or confidential information in such certificate), submitted by such Bank to the Company or such Designated Subsidiary, and such certificate shall constitute prima facie evidence of the accuracy of the amount of such claim, provided that the determination of such amount is made on a reasonable basis. This subsection 2.16 shall survive termination of the Commitments and the payment in full of the outstanding Notes for 180 days (but not longer). 2.17 Maximum Number of Tranches. Notwithstanding any other provision hereof, there shall not at any time be outstand-ing hereunder Tranches in excess of the Tranche Limit. 2.18 Use of Proceeds. The proceeds of the Loans may only be used to refinance existing Indebtedness of the Company and/or its Subsidiaries under the Existing Credit Agreement. 2.19 Pro Rata Treatment and Payments; L/C Participation. (a) Each borrowing of Loans by the Company or any Designated Subsidiary from the Banks, each payment by the Company on account of any fees hereunder (including, without limitation, any Issuance Fees and Drawing Fees in respect of L/Cs (but excluding fees payable pursuant to subsection 2.7(b))), and any reduction of the Commitments of the Banks hereunder shall be made pro rata according to the respective Commitment Percentages of the Banks. Each payment (including each prepayment) by the Company or any Designated Subsidiary on account of principal of and interest on the Loans and other amounts due hereunder (other than payments made pursuant to subsection 2.13, 2.14, 2.15 or 2.16) shall be made pro rata according to the respective outstanding principal amounts of the Loans held by each Bank. All payments (including prepayments) to be made by the Company or any Designated Subsidiary on account of principal and interest on the Notes or on account of any fees or other amounts due hereunder shall be made without set- off or counterclaim and shall be made to the Agent, for the account of the Banks, at the Agent's office in Boston, Massachusetts as set forth in subsection 9.2, in lawful money of the United States of America and in immediately available funds not later than 11:00 a.m. Boston, Massachusetts time, on the date on which such payment shall become due. The Agent shall distribute such payments to the Banks promptly upon receipt in like funds as received. If any payment hereunder (other than payments on Eurodollar Loans) becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day, and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. If any payment on a Eurodollar Loan becomes due and payable on a day other than a Working Day, the maturity thereof shall be extended to the next succeeding Working Day unless the result of such extension would be to extend such payment into another calendar month in which event such payment shall be made on the immediately preceding Working Day and with respect to payments of principal interest thereon shall be payable at the then applicable rate during such extension. (b) Unless the Agent shall have been notified in writing by any Bank prior to a borrowing date that such Bank will not make the amount which would constitute its Commitment Percentage of the Loans on such date available to the Agent, the Agent may assume that such Bank has made such amount available to the Agent on such borrowing date, and the Agent may, in reliance upon such assumption, make available to the Company or a Designated Subsidiary, as applicable, a corresponding amount. If such amount is made available to the Agent on a date after such borrowing date, such Bank shall pay to the Agent on demand an amount equal to the product of (i) the daily Federal Funds Rate during such period, times (ii) the amount of such Bank's Commitment Percentage of such borrowing, times (iii) a fraction the numerator of which is the number of days that elapse from and including such borrowing date to the date on which such Bank's Commitment Percentage of such borrowing shall have become immediately available to the Agent and the denominator of which is 365. A certificate of the Agent submitted to any Bank with respect to any amounts owing under this subsection 2.19(b) shall be conclusive, absent manifest error. If such Bank's Commitment Percentage of such borrowing is not in fact made available to the Agent by such Bank within three Business Days of such borrowing date, the Agent shall be entitled to recover such amount with interest thereon at the rate per annum applicable to the Loans hereunder, on demand, from the Company or a Designated Subsidiary, as applicable. Except as set forth in the immediately preceding sentence, neither the Company nor the Subsidiaries shall have any liability to any Person under this subsection 2.19(b). (c) (i) Fleet, as the issuing bank with respect to each L/C, irrevocably agrees to grant and hereby grants to each Bank (each Bank, in such capacity, an "L/C Participant") and, to induce Fleet to maintain L/Cs hereunder, each L/C Participant irrevocably agrees to accept and purchase and hereby accepts and purchases from Fleet, on the terms and conditions hereinafter stated, for such L/C Participant's own account and risk an undivided interest equal to such L/C Participant's Commitment Percentage in Fleet's obligations and rights under each L/C issued or deemed issued by it hereunder and the amount of Unpaid Drawings with respect to any draft paid by Fleet thereunder, effective on the Closing Date. Each L/C Participant unconditionally and irrevocably agrees with Fleet with respect to any L/C that, if a draft is paid under such L/C for which Fleet is not reimbursed in full by the relevant Account Party on the date required by subsection 2.1(c)(vii), such L/C Participant shall pay to Fleet upon notification or demand at Fleet's address for notices specified herein an amount equal to such L/C Participant's Commitment Percentage of the amount of such draft, or any part thereof, which is not so reimbursed. (ii) If any amount required to be paid by any L/C Participant to Fleet with respect to any L/C pursuant to subsection 2.19(c)(i) in respect of any unreimbursed portion of any payment made by Fleet under such L/C is paid to Fleet within three Business Days after the date such payment is due by such L/C Participant, such L/C Participant shall pay to Fleet on demand an amount equal to the product of (A) such amount, times (B) the daily average Federal Funds Rate during the period from and including the date such payment is required to the date on which such payment is immediately available to Fleet, times (C) a fraction the numerator of which is the number of days that elapse during such period and the denominator of which is 365. If any such amount required to be paid by any L/C Participant pursuant to subsection 2.19(c)(i) is not in fact made available to Fleet by such L/C Participant within three Business Days after the date such payment is due by such L/C Participant, Fleet shall be entitled to recover from such L/C Participant, on demand, such amount with interest thereon calculated from such due date at the rate per annum applicable to Prime Rate Loans hereunder. A certificate of Fleet submitted to any L/C Participant with respect to any amounts owing under this subsection shall be conclusive in the absence of manifest error. (iii) Whenever, at any time after Fleet has made payment under any L/C and has received from any L/C Participant its pro rata share of such payment in accordance with subsection 2.19(c)(i), Fleet receives any payment related to such L/C (whether directly from the Company, a Designated Subsidiary or otherwise, including by means of set-off or the proceeds of collateral applied thereto by Fleet), or any payment of interest on account thereof, Fleet will distribute to such L/C Participant its pro rata share thereof; provided, however, that in the event that any such payment received by Fleet shall be required to be returned by it, such L/C Participant shall return to Fleet the portion thereof previously distributed by Fleet to it. Neither the Company nor any Subsidiary shall have any liability or obligation to any person under this subsection 2.19(c). 2.20 Guaranties. The due payment and performance of the Obligations shall be guaranteed to the Banks and the Agent by the Company and each of the Material Operating Subsidiaries listed on Schedule 2.20 hereto (hereinafter, together with any other Material Operating Subsidiary that executes and delivers a Guaranty, referred to, individually, as a "Guarantor" and, collectively, as the "Guarantors"), by the execution and delivery to the Agent, simul-taneously with the execution and delivery of this Agreement, by each Guarantor of a Guaranty in form and substance satisfactory to the Agent(as amended, supplemented or otherwise modified from time to time with its terms, individually, a "Guaranty" and, collectively, as to all the Guarantors, the "Guaranties"). In addition, each Material Operating Subsidiary that becomes a Material Operating Subsidiary after the date hereof shall, concurrently with becoming a Material Operating Subsidiary, execute and deliver to the Agent a Guaranty, in form and substance satisfactory to the Agent, and upon such execution and delivery, such Material Operating Subsidiary shall become a Guarantor under the Loan Documents. 2.21 Security. In order to secure the due payment and performance by the Company and each Designated Subsidiary of its respective Obligations, simultaneously with the execution and delivery of this Agreement, each of the Company, each other Guarantor and each Additional Subsidiary Grantor (collectively, together with any other Subsidiary that executes and delivers a Security Agreement or otherwise becomes a party to a Security Agreement, being referred to herein as "Collateral Grantors" and, individually, a "Collateral Grantor") shall, pursuant to an amended and restated security agreement in form and substance satisfactory to the Agent and the Banks dated as of the Closing Date (as amended, supplemented or otherwise modified from time to time in accordance with its terms, the "Security Agreement"), grant to the Agent for the ratable benefit of the Secured Parties a first priority lien on and security interest in the following: (a) all of the issued and outstanding shares of capital stock of each Guarantor (other than the Company); (b) all present and future accounts receivable and inventory of such Collateral Grantor; and (c) all proceeds and products of the property and assets described in clauses (a) and (b) above. Each Collateral Grantor shall execute and deliver or cause to be executed and delivered such other agreements, instruments and documents as the Agent may reasonably require in order to effect the purposes of the Security Agreement, this subsection 2.21 and this Agreement. In addition, each Material Operating Subsidiary that becomes a Material Operating Subsidiary after the date hereof shall, concurrently with becoming a Material Operating Subsidiary, execute and deliver a Security Agreement supplement, in form and substance satisfactory to the Agent, pursuant to which such Material Operating Subsidiary will grant to the Agent for the ratable benefit of the Secured Parties a first priority lien on and security interest in the assets described in clauses (b) and (c) above, and upon such execution and delivery, such Material Operating Subsidiary shall become a Collateral Grantor under the Loan Documents. 2.22 Additional L/C Provisions. (a) Without limiting the generality of subsection 2.15, if: (i) any Regulatory Change shall (A) impose, modify or deem applicable any reserve, special deposit, capital mainten-ance, deposit insurance premium or assessment, or similar requirement against letters of credit issued or deemed issued by, or assets held by, or deposits made with or for the account of, Fleet, (B) impose on Fleet any other condition regarding the L/Cs or (C) subject Fleet to any tax, charge, fee, deduction or withholding of any kind whatsoever (except for changes in Taxes and except for taxes measured by the net income of Fleet); and (ii) the result of any such event shall be to increase the cost to Fleet of the issuance or maintenance of the L/Cs, or reduce the amount of principal, interest, or any fee or compensation receivable by Fleet in respect of the L/Cs; then, upon demand of Fleet, the Company or the applicable Designated Subsidiary shall pay to Fleet, from time to time as specified by Fleet, all additional amounts which are necessary to compensate Fleet for such increased cost or reduction incurred by Fleet, accruing from and after the date initially demanded by Fleet. All payments of compensation for such increased cost or reduction shall be accompanied by interest thereon, at the Prime Rate from the date demanded for five (5) Business Days, and thereafter, at the Post- Default Rate, in each case until payment in full thereof. A certificate as to such increased cost incurred by Fleet showing in reasonable detail the calculation thereof shall be submitted by Fleet to the Company and shall constitute prima facie evidence of the accuracy of the amounts set forth therein. For purposes of this subsection 2.22, all references to L/Cs shall be deemed to refer to participations in L/Cs, and all references to "Fleet" shall be deemed to include any L/C Participant, except that amounts payable by the Company and the Designated Subsidiaries shall only be paid to Fleet and then delivered to any L/C Participant having such cost. In the event of any inconsistency between the terms of this subsection 2.22 and subsection 2.15, the provisions of subsection 2.15 shall govern. This Agreement shall survive termination of the Commitment and payment of the outstanding Notes for 180 days (but not longer). (b) The obligations of the Company and each Designated Subsidiary under this Agreement with respect to the L/Cs shall, absent gross negligence or willful misconduct by Fleet, (x) be absolute, unconditional and irrevocable and (y) be per-formed strictly in accordance with the terms of this Agreement, under all circumstances whatsoever, including, without limitation, the following circumstances: (i) the L/Cs, the Notes, this Agreement or any other Loan Documents or agreements, instruments or documents relating thereto proving to be forged, fraudulent, invalid, unenforceable or insufficient in any respect; (ii) any amendment or waiver of, or any consent to the departure from, all or any of the Security Documents and any subsequent such agreements; (iii) the existence of any claim, setoff, defense or other rights which the Company or any Designated Subsidiary may have at any time against any beneficiary or any transferee of any beneficiary (or any Persons or entities for whom any beneficiary or any such transferee may be acting); (iv) any demand presented under any L/C (or any endorsement thereon) proving to be forged, fraudulent, invalid, unenforceable or insufficient in any respect or any statement therein being inaccurate in any respect whatsoever; (v) the failure of any document to bear reference, or to bear adequate reference, to the applicable L/C; (vi) the use to which the L/Cs may be put or any acts or omissions of the Company or any Designated Subsidiary or beneficiaries in connection therewith; or (vii) any other similar circumstances, provided that such circumstances or happening shall not have constituted gross negligence or willful misconduct of Fleet. (c) Fleet shall not be responsible: (i) for the validity or insufficiency of any instrument transferring or assigning or purporting to transfer or assign the L/Cs or the rights or benefits thereunder or proceeds thereof in whole or in part, which may prove to be invalid or ineffective for any rea-son; (ii) for errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable tele-graph, telex or otherwise, whether or not they be in cipher; (iii) for any loss or delay in the transmission or otherwise of any document or draft required in order to make a draw under the L/Cs or of proceeds thereof; and (iv) for any consequence arising from causes beyond the control of Fleet provided that this para-graph (c) shall not apply to the gross negligence or willful mis-conduct of Fleet. None of the above shall affect, impair or prevent the vesting of any of Fleet's rights or powers hereunder. (d) In furtherance and extension and not in limitation of the specific provisions hereinabove set forth, any action taken or omitted by Fleet under or in connection with the L/Cs or the related drafts or documents, unless constituting gross negligence or willful misconduct, shall be binding upon the Company and the Designated Subsidiaries and shall not put Fleet under any resulting liability to the Company and the Designated Subsidiaries. (e) The Company and each Designated Subsidiary shall at all times protect, indemnify and save harmless Fleet and each Bank from and against any and all claims, actions, suits and other legal proceedings, and from and against any and all losses, claims, demands, liabilities, damages, costs, charges, counsel fees and other expenses which Fleet or any Bank may, at any time, sustain or incur by reason of or in consequence of or arising out of the issuance of the L/Cs; it being the intention of the parties that this Agreement shall be construed and applied to protect and indemnify Fleet and each Bank against any and all risk involved in the issuance of the L/Cs, all of which risks are hereby assumed by the Company and each Designated Subsidiary, including, without limitation, any and all risks of the acts or omissions, whether rightful or wrongful, of any present or future Governmental Authority (all such acts and omissions, herein called the "Governmental Acts"); provided, however, that the Company and each Designated Subsidiary shall not be required to indemnify Fleet or any Bank for (i) any claims, damages, losses, liabilities, costs or expenses to the extent, but only to the extent, caused by the willful misconduct or gross negligence of Fleet (with respect to which, however, Fleet shall be liable to the other Banks) or (ii) any breach of obligations of Fleet to other Banks. Notwithstanding any other provision contained in this Agreement, the obligations of the Company and each Designated Subsidiary under this subsection 2.22 shall survive the termination of this Agreement. (f) In the event that the credit rating of Fleet is downgraded to less than "A-" by Standard & Poor's, a division of The McGraw-Hill Companies, Inc. or any successor to the rating agency business thereof and such down-grading will cause the Company or any Designated Subsidiary to incur any additional expense or otherwise be adversely affected, the Company or any Designated Subsidiary may replace any L/C issued or deemed issued by Fleet with an L/C issued by any Bank or any other bank, in each case with a credit rating of "A-" or better, provided that any such letter of credit shall not be entitled to the benefits of this Agreement, and shall constitute Specified L/C Obligations (to the extent provided in the definition thereof) with the effect of reducing the Available L/C Commitment (in accordance with the definition thereof). 2.23 Several Obligations. The failure of any Bank to make any Loan or fund the L/C participation to be made or funded by it on the date specified therefor shall not relieve the other Banks of their respective obligations to make their Loans or fund their L/C participations on such date, but no Bank shall be responsible for the failure of the other Banks to make the Loans or fund the L/C participations to be made by such other Banks. SECTION 3. REPRESENTATIONS AND WARRANTIES To induce (a) each Bank to enter into this Agreement and to make the Loans and (b) Fleet to maintain L/Cs hereunder, the Company and each Designated Subsidiary, as applicable, hereby represents and warrants to such Bank that, except as disclosed in the SEC Reports: 3.1 Financial Condition. The consolidated balance sheet of the Company and its consolidated Subsidiaries as at December 31, 1996 and the related consolidated statements of income, stockholders' equity and cash flows for the fiscal year ended on such date, certified by Grant Thornton, copies of which have heretofore been furnished to each Bank, and the unaudited consolidated balance sheet and related consolidated statements of income, stockholders equity and cash flow of the Company and its consolidated Subsidiaries for the ending quarter June 30, 1997 present fairly, in conformity with GAAP, the consolidated financial condition of the Company and its consolidated Subsidiaries as at such date, and the consolidated results of their operations and cash flows for the period then ended (subject to normal year-end adjustments as to such June 30, 1997 financial statements). All such financial statements have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as approved by such accountants and as disclosed therein). Neither the Company nor any of its consolidated Subsidiaries had, at the dates of the balance sheets referred to above, any Contingent Obligation, con-tingent liability or liability for taxes, long-term lease or unusual forward or long-term commitment, required to be reflected under GAAP which is not reflected in the foregoing statements or in the notes thereto and which was material to the Company and its consolidated Subsidiaries taken as a whole (including, without limitation, any Environmental Liability). 3.2 No Change. Since December 31, 1996 there has been no material adverse change in the business, operations, property, performance or condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole. 3.3 Corporate Existence; Compliance with the Law. Each of the Company and its Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (b) has the corporate power and authority and the legal right to own and operate its prop-erty, to lease the property it operates as lessee and to conduct the business in which it is currently engaged, (c) is duly quali-fied as a foreign corporation and in good standing under the laws of each jurisdiction where qualification is required by the nature of its business or the character and location of its property or business and in which the failure to so qualify could have a Material Adverse Effect and (d) is in compliance with all Requirements of Law, including, without limitation, all applicable Environmental Laws and Regulations, except to the extent that the failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. 3.4 Corporate Power; Authorization; Enforceable Obligations. Each of the Company and its Subsidiaries has the corporate power and authority to make, deliver and perform each of this Agreement, the Notes, the other Loan Documents, the Related Documents and the other documents contemplated hereby to which it is a party and to consummate (a) the transactions contemplated by the Loan Documents and Related Documents to which it is a party and (b) in the case of the Company, the Merger and the other transactions contemplated thereby. Each of the Company and its Subsidiaries has taken all necessary corporate action to authorize the execution, delivery and performance of each of this Agreement, the Notes, the other Loan Documents and the other docu-ments contemplated hereby to which it is a party. No consent or authorization of, or filing with, any Person (including, without limitation, any Governmental Authority), is required in connection with the execution, delivery, performance, validity or enforceability of this Agreement, the Notes, the other Loan Documents or the other documents contemplated hereby or with the consummation of the Tender Offer or Merger or the other transactions contemplated hereby or thereby, other than (i) the Certificate of Ownership and Merger merging the Purchaser with and into the Company and (ii) those consents, authorizations and filings which the failure to obtain, take, give or make could not, either individually or in the aggregate, be reasonably likely to (A) have a Material Adverse Effect, (B) affect the enforceability, validity or binding effect of any of the Loan Documents or (C) expose the Agent or any Bank to personal liability. This Agreement has been duly executed and delivered on behalf of the Company and each Designated Subsidiary, and this Agreement, the Notes, the other Loan Documents, the Related Documents and the other documents contemplated hereby constitute, legal, valid and binding obligations of the Company and each Subsidiary party thereto, enforceable against the Company and each Subsidiary party thereto in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). 3.5 No Legal Bar. The execution, delivery and performance of this Agreement, the Notes, the other Loan Documents, the Related Documents and the other documents contemplated hereby, the borrowings hereunder and the use of the proceeds thereof, and the consummation of the Merger and the other transactions contemplated hereby and thereby, will not violate any Requirement of Law or any Contractual Obligation of the Company or any of its Subsidiaries, and will not result in or require the creation or imposition of any Lien on any of its or their respective properties pursuant to any Requirement of Law or any Contractual Obligation, except, with respect to the foregoing other than with respect to the Loan Documents, such violations as could not, either individually or in the aggregate, be reasonably likely to (i) have a Material Adverse Effect, (ii) subject any Loan Party or any of its Subsidiaries to any criminal penalties or (iii) subject the Agent or any Bank to any civil or criminal penalties. 3.6 No Litigation. No action, suit, litigation, investigation or proceeding, including, without limitation, any Environmental Proceeding, of or before any arbitrator or Governmental Authority is pending or, to the knowledge of the Company, threatened, by or against the Company or any of its Subsidiaries or against any of their respective properties or revenues that could reasonably be expected to have a Material Adverse Effect. 3.7 Federal Regulations. No part of the proceeds of any Loans hereunder will be used in violation of the provisions of the Regulations of the Board of Governors of the Federal Reserve System, including, without limitation, Regulations G, U and X. 3.8 Investment Company Act. Neither the Company nor any Subsidiary is an "investment company", or a company "con-trolled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 3.9 Disclosure. The financial statements, certifi-cates, opinions, and other statements furnished in writing to the Agent or the Banks by or on behalf of the Company or any Subsidiary in connection with this Agreement or the transactions contemplated hereby do not, taken as a whole, contain any untrue statement of a fact, or omit to state any fact necessary in order to make the statements contained therein or herein not mislead-ing, except for matters that could not reasonably be expected to have a Material Adverse Effect. 3.10 No Default. Neither the Company nor any of its Subsidiaries is in default under or with respect to any Contractual Obligation in any respect which could reasonably be expected to have a Material Adverse Effect. After giving effect to the amendment and restatement of the Existing Credit Agreement as this Agreement, no Default or Event of Default has occurred and is continuing. 3.11 Taxes. Except as set forth on Schedule 3.11 hereto, each of the Company and its Subsidiaries has filed or caused to be filed all material tax returns which to its knowledge are required to be filed, and has paid all taxes shown to be due and payable on said returns or on any assessments made against it or any of its property and all other material taxes, fees or other charges which to its knowledge have been imposed on it or any of its property by any Governmental Authority (other than those the amount or validity of which is currently being contested in good faith by appropriate proceedings diligently pursued and with respect to which reserves in conformity with GAAP have been provided in its books); no material tax liens have been filed and, to the knowledge of the Company, no claims are being asserted with respect to any such taxes, fees or other charges, except for claims not material to the Company and its Subsidiaries taken as a whole. 3.12 Subsidiaries. At the date of this Agreement, the Company has no Subsidiaries except those listed on Schedule 3.12, and the Company owns directly or indirectly 100% of the outstanding voting shares of each such Subsidiary except as disclosed therein. 3.13 Ownership of Property; Liens. Except as permitted in subsection 6.2, each of the Company and its Subsidiaries has good title in fee simple to, or valid leasehold interest in, all its real property, and good title to all its other property, and none of such owned property is subject to any Lien, except for the security interest granted pursuant to the Security Documents. 3.14 ERISA. Except as described on Schedule 3.14, as it may be updated from time to time by the Company pursuant to subsection 5.8(c), neither the Company, nor any Commonly Controlled Entity, is a participating employer in any Plan in which more than one employer makes contributions as described in Sections 4063 and 4064 of ERISA, which, together with all other liabilities described in this subsection, could give rise to a liability which is material. For purposes of this subsection, a liability is material if it, together with all other liabilities described in this subsection, could subject the Company or any of its Subsidiaries to any tax, penalty, or other liabilities that could reasonably be expected to have a Material Adverse Effect. Except as described on Schedule 3.14, as it may be updated from time to time, neither the Company or any Subsidiary nor any Commonly Controlled Entity has any contingent liability with respect to any post-retirement benefit under any employee welfare benefit plan (as defined in Section 3(l) of ERISA) other than (a) liability for health plan continuation coverage as described in Part 6 of Title 1 of ERISA, (b) liability under any severance plan, (c) liability under plans or programs required by law, and (d) disability benefits under any tax-qualified pension plans in an amount which together with all other liabilities described in this subsection, could give rise to a liability which is material. Neither the Company or any Subsidiary nor any Commonly Controlled Entity has received any notice from the PBGC that any of the Single Employer Plans is being involuntary terminated and no event shall have occurred, and there exists no condition or set of circumstances, which present a material risk of the distress termination (within the meaning of Section 4041(c) of ERISA) or the involuntary termination of any of the Single Employer Plans. Neither the Company or any Subsidiary nor any Commonly Controlled Entity has incurred any liability to the PBGC which remains outstanding other than the payment of premiums, and there are no premiums which have become due which are unpaid. Each Single Employer Plan that is intended to be qualified under Section 401(a) of the Code has been determined by the Internal Revenue Service to be so qualified and each trust related to such plan has been determined to be exempt under Section 501(a) of the Code, or the period for obtaining such a determination letter has not expired; and no event has occurred and no condition currently exists which might reasonably be expected to give rise to a liability that is material as a result of the failure of any plan that is intended to be qualified under Section 401(a) of the Code to be so qualified. No Plan is being audited or investigated by any government agency or subject to any pending or threatened claim or suit, which audit, investigation, pending claim or suit could reasonably be expected to give rise to a liability, which together with all other liabilities described in this subsection would be material. Each Single Employer Plan currently meets and during the preceding six years has met the minimum funding standard of Section 302 of ERISA and Section 412 of the Code (without regard to any funding waiver). With respect to each Multiemployer Plan, the Company, each Subsidiary and each Commonly Controlled Entity have paid or accrued to the extent required by GAAP all contributions pursuant to the terms of each applicable collective bargaining agreement. No Reportable Event has occurred during the six-year period prior to the date on which this representa-tion is made or deemed made with respect to any Single Employer Plan which Reportable Event, together with all other liabilities described in this subsection, could give rise to a liability which is material, and each Single Employer Plan has complied in all material respects with the applicable provisions of ERISA and the Code. The present value of all benefit liabilities (within the meaning of Title IV of ERISA) under each Single Employer Plan maintained by the Company, any Subsidiary or any Commonly Controlled Entity (based on those assumptions used to fund the respective Single Employer Plans) did not, as of the last annual valuation date, exceed the value of the assets of such Single Employer Plan allocable to such benefit liabilities by more than $2,500,000. Except as described on Schedule 3.14, neither the Company or any Subsidiary nor any Commonly Controlled Entity has any unsatisfied liability with respect to a complete or partial withdrawal from any Multiemployer Plan, which together with all other liabilities described in this subsection would be material, and, to the best of the Company's knowledge, the liability to which the Company, any Subsidiary or any Commonly Controlled Entity would become subject under ERISA if the Company, any Subsidiary or any such Commonly Con-trolled Entity were to withdraw completely from all Multiemployer Plans as of the valuation date most closely preceding the date hereof would not, together with all other liabilities described in this subsection, be material. Neither the Company or any Subsidiary nor any Commonly Controlled Entity has failed to make any payment when due with respect to any complete or partial withdrawal from any Multiemployer Plan. No such Multiemployer Plan is in Reorganization or Insolvent, where the liability which could reasonably be expected to result is in an amount which, taken together with all the liabilities described in this subsection, is material. Neither the Company or any Subsidiary nor any Commonly Controlled Entity is required to provide security to a Single Employer Plan pursuant to Section 307 of ERISA or Section 401(a)(29) of the Code. Neither the Company or any Subsidiary nor any Commonly Controlled Entity has engaged in a transaction which could reasonably be expected to subject it to liability under Section 4069 or 4212(c) of ERISA which liability together with all other liabilities described in this subsection is material. Except as disclosed in Schedule 3.14, as it may be updated from time to time there are no agreements which will provide payments to any officer, employee, shareholder or highly compensated individual which will be parachute payments under Section 280G of the Code that are nondeductible to the Company or any Subsidiary and which will be subject to the tax under Section 4999 of the Code for which the Company or any Subsidiary would have a material withholding liability. 3.15 Nortek Indentures. There have been delivered to the Agent and each Bank a true and correct copy of each of the Nortek Indentures, including all amendments, waivers and supplements thereto. To the knowledge of the Company, the Nortek Indentures and all such other documents have been duly executed and delivered by the parties thereto and are in full force and effect at the date hereof. 3.16 SEC Reports. The Company has furnished the Agent with true copies of the SEC Reports. 3.17 Intangible Assets. Each of the Company and the Subsidiaries possesses all patents, trademarks, service marks, trade names, and copyrights and rights with respect to the foregoing (collectively, "Patent Rights"), necessary to conduct its business as now conducted and as proposed to be conducted, except for technology not material to the operations of the Company and its Subsidiaries taken as a whole. To the best knowledge of the Company, the Patent Rights do not conflict with the patents, trademarks, service marks, trade names, copy-rights and other rights with respect to the foregoing of any other Person, except for conflicts which are not material to the operations of the Company and its Subsidiaries taken as a whole. 3.18 Name Changes, Mergers, Acquisitions. Except for the Merger and except as set forth on Schedule 3.18, neither the Company nor any of the Material Operating Subsidiaries has within the six-year period immediately preceding the date of this Agreement changed its name, been the surviving entity of a merger or consolidation, or acquired all or substantially all of the assets of any Person. 3.19 Licenses and Approvals. The Company and each of the Subsidiaries has all necessary licenses, permits and govern-mental authorizations, including, without limitation, licenses, permits and authorizations required to comply with all Environ- mental Laws and Regulations, to own and operate its properties and to carry on its business as now conducted, except for licenses, permits and authorizations, which the failure to have does not materially adversely affect the operations of the Company and its Subsidiaries taken as a whole. 3.20 Labor Disputes; Collective Bargaining Agreements; Employee Grievances. Except as set forth on Schedule 3.20, there is no pending strike, work stoppage, material unfair labor practice claim or charge, arbitration or other material labor dispute against or affecting the Company or any Subsidiary or their representative employees. 3.21 Solvency. To the best of the knowledge of the Company, each Loan Party is Solvent, individually and together with its Subsidiaries and, after giving effect to the receipt and application of the Loans and the issuance or deemed issuance of L/Cs in accordance with the terms of this Agreement, each Loan Party, individually and together with its Subsidiaries, shall continue to be Solvent. 3.22 Outstanding Indebtedness for Borrowed Money. Schedule 3.22 sets forth a complete and accurate list of all Indebtedness of the Company and its Subsidiaries for borrowed money, and all available committed credit lines, outstanding on the date hereof. 3.23 Hazardous Materials. Except as described in the Phase I Environmental Assessments & Transaction Screens of Ply Gem Industries, Inc. and its Subsidiaries across the United States draft dated June 20, 1997 prepared by Dames & Moore, Hazardous Materials have not been released, discharged or disposed of at, or transported to or from, any of the real property currently owned, leased or occupied by the Company or its Subsidiaries so as to give rise to any liability under Environmental Laws and Regulations, except in such case where the liability would not have a Material Adverse Effect. SECTION 4. CONDITIONS PRECEDENT 4.1 Conditions to Initial Loans and L/Cs. The agreement of each Bank to make its initial Loan hereunder and of Fleet to maintain L/Cs on the Closing Date shall be subject to the satisfaction, immediately prior to or concurrently with the making of such Loan or the issuance or deemed issuance of any such L/C, of each of the following conditions precedent: (a) Tender Offer and Merger. The Tender Offer shall have been consummated in accordance with the Merger Agreement without any waiver or amendment of any term or condition therein not consented to by the Banks and in compliance with all applicable laws and necessary approvals. The Banks shall be satisfied that the restrictions in Section 203 of the Delaware General Corporation Law, any other applicable state takeover law and any supermajority charter provisions are not applicable to the Merger or that any conditions for avoiding the restrictions set forth therein have been satisfied. (b) Corporate Structure. The Agent and the Banks shall be satisfied with the corporate and legal structure and capitalization of the Company and each of the other Loan Parties, including, without limitation, the terms and conditions of the charter, bylaws and each class of capital stock of the Company and each other Loan Party and each agreement or instrument relating to such structure or capitalization. (c) No Material Adverse Change. Since December 31, 1996, there shall have occurred no material adverse change in the business, condition (financial or otherwise), operations, performance or properties of the Company and its Subsidiaries, taken as a whole. (d) Pre-Commitment Information. All of the Pre- Commitment Information shall be true and correct in all material aspects; and no additional information shall have come to the attention of the Agent or any of the Banks that is inconsistent in any material respect with the Pre-Commitment Information or that could reasonably be expected to have a Material Adverse Effect. (e) Capital Structure. The Banks shall be satisfied with the terms and conditions of (i) the $310,000,000 of senior notes issued by Nortek pursuant to that certain Nortek Indenture described in clause (c) of the definition thereof and (ii) the at least $400,000,000 of equity to be contributed by Nortek to the Company in connection with the Merger, including, without limitation, the payment terms, covenants and events of default thereof. The Company shall have received at least $400,000,000 in gross cash proceeds from the sale of its common stock to Nortek and all such proceeds shall have been used or shall be used simultaneously with the occurrence of the Closing Date under this Agreement in accordance with the terms of the Merger Agreement. (f) Compliance; No Litigation. The Agent and the Banks shall be satisfied that the Company and its Subsidiaries are, and will be after giving effect to the occurrence of the Closing Date, in compliance with all applicable laws, including, without limitation, ERISA and all Environmental Laws and Regulations, except where the failure to so comply could not reasonably be expected to have a Material Adverse Effect. There shall exist no action, suit, investigation, litigation or proceeding affecting the Company or any of its Subsidiaries pending or threatened before any court, governmental agency or arbitrator that (i) could be reasonably expected to have a Material Adverse Effect or (ii) purports to affect the legality, validity or enforceability of the Tender Offer, the Merger, this Agreement, any Note, any other Loan Document, any Related Document or the consummation of the transactions contemplated hereby or thereby. (g) Insurance. The Agent and the Banks shall be satisfied with the amount, types and terms and conditions of all insurance maintained by the Company and its Subsidiaries. (h) Fees and Expenses. All accrued fees and expenses of the Agent and the Banks (including the fees and expenses of counsel for the Agent and the Banks) for which statements have been rendered on or prior to the Closing Date shall have been paid. (i) Consents and Approvals. All governmental and third party consents and approvals necessary in connection with this Agreement, the other Loan Documents, the Related Documents and the Nortek Indentures and the Tender Offer, the Merger and the other transactions contemplated hereby and thereby shall have been obtained (without the imposition of any conditions that are not acceptable to the Banks) and shall remain in full force and effect; all applicable waiting periods in connection with the Tender Offer, the Merger, and the other transactions contemplated hereby shall have expired without any action having been taken by any competent authority restraining, preventing or imposing materially adverse conditions upon the Tender Offer, the Merger or the rights of the Company or its Subsidiaries freely to transfer or otherwise dispose of, or to create any Lien on, any properties now owned or hereafter acquired by any of them. (j) Agreement. The Agent and each Bank shall have received this Agreement, duly executed and delivered by the Company and each Designated Subsidiary. (k) Notes. The Agent shall have received, for the account of each Bank, a Note conforming to the requirements hereof and executed and delivered by a duly authorized officer of the Company and each Designated Subsidiary. (l) Guaranty. The Agent and each Bank shall have received a Guaranty, executed and delivered by a duly authorized officer of the Company and each other Guarantor. (m) Collateral. The Agent and each Bank shall have received the Security Agreement, duly executed and delivered by the Collateral Grantors shall have received each of the following: (i) certificates representing the Pledged Shares (as defined in the Security Agreement) accompanied by undated stock powers executed in blank and instruments evidencing the Pledged Debt referred to therein indorsed in blank; (ii) duly executed copies of proper financing statements, to be filed under the Uniform Commercial Code of all jurisdictions that the Agent may deem necessary or desirable in order to perfect and protect the first priority liens and security interests created under the Security Agreement, covering the Collateral (as defined in the Security Agreement); (iii) completed requests for information to the extent the same shall be available, dated on or before the Closing Date, listing all effective financing statements filed in the jurisdictions referred to in clause (B) above that name the Company or any other Collateral Grantor as debtor, together with copies of such financing statements; (iv) evidence of the completion of all other recordings and filings of or with respect to the Security Agreement that the Agent may deem necessary or desirable in order to perfect and protect the Liens created thereby; (v) evidence of the insurance required by the terms of the Security Agreement; and (vi) evidence that all other action (other than those actions required to be taken under subsection 5.16) that the Agent may deem necessary or desirable in order to perfect and protect the first priority liens and security interests created under the Security Agreement has been taken (including, without limitation, evidence satisfactory to the Agent that all Liens on the Collateral in favor of any Person (other than the Agent for the benefit of the Secured Parties) shall have been terminated). (n) Borrowing Certificates. The Agent and each Bank shall have received (i) a certificate of the Company in substantially the form of Exhibit D-1 dated the Closing Date and executed and delivered by a duly authorized officer of the Company and (ii) a certificate of each other Loan Party in substantially the form of Exhibit D-2 dated the Closing Date and executed and delivered by a duly authorized officer of each other Loan Party. (o) Notice of Borrowing. The Agent shall have received a notice of requested borrowing in accordance with subsection 2.3(a). (p) Legal Opinions. (i) The Agent and each Bank shall have received the executed legal opinion of (A) Charles M. Modlin, Esq., counsel to the Company and each Subsidiary, dated the Closing Date, in substantially the form of Exhibit F-1, and (B) Ropes & Gray, counsel to Nortek, dated the Closing Date, in substantially the form of Exhibit F-2, in each case together with copies of the legal opinions, if any, upon which such counsel relies, with such changes thereto as may be approved by, and otherwise in form and substance satisfactory to the Agent and its counsel and covering such matters incident to the transactions contemplated by this Agreement, the Notes, the other Loan Documents, the Related Documents and the Nortek Indentures and by the Tender Offer and Merger as the Agent may reasonably require. (ii) The Agent and each Bank shall have received the executed legal opinion of Shearman & Sterling, counsel to the Agent, dated the Closing Date, in form and substance satisfactory to the Agent. (q) Related Agreements. The Agent and each Bank shall have received true and correct copies, certified as to authenticity by the Company and each Subsidiary, of the Certificate of Incorporation and By- laws of the Company and each such Subsidiary and such other documents or instruments to which the Company or any of its Subsidiaries is a party or by which any of them is bound as may be reasonably requested by the Agent. (r) Corporate Proceedings. The Agent and each Bank shall have received a copy of the resolutions, in form and substance reasonably satisfactory to the Agent, of the Board of Directors of the Company, each other Loan Party and each Subsidiary authorizing the execution, delivery and performance of this Agreement, the Notes, the other Loan Documents, the Related Documents and all documents and instruments to be delivered in connection herewith, in each case to which it is a party, and the consummation of the Merger and the other transactions contemplated hereby and thereby, certified by the Secretary or an Assistant Secretary of the Company or such other Loan Party (as applicable), as of the Closing Date; and each such certificate shall state that the resolutions thereby certified have not been amended, modified, revoked or rescinded as of the date of such certificate. (s) Related Documents and Nortek Indentures. The Agent shall have received, with a copy for each Bank, a certified copy of each Related Document and each Nortek Indenture, together with all amendments, waivers or supplements thereto. (t) Consents. The Agent, with a copy for each Bank, shall have received true copies (in each case certified as to authenticity on such date by a duly authorized officer of the Company or by such other Person as may be appropriate or may be required by the Agent) of all documents and instruments, including all consents, authorizations, filings and orders, required under any Requirement of Law or by Contractual Obligations of the Company or any Subsidiary, in connection with the execution, delivery, performance, validity and enforceability of this Agreement, the Notes, the other Loan Documents and the Related Documents and such consents, authorizations, filings and orders shall be satisfactory in form and substance to the Agent and shall be in full force and effect. (u) Other Fees. The Agent shall have received for itself or for the account of each Bank, as appropriate, the fees payable on the Closing Date pursuant to subsection 2.7. (v) Good Standings. The Agent and each Bank shall have received good standing certificates as of dates not more than fortyfive (45) days prior to the Closing Date, with respect to each of the Company and each other Loan Party from the Secretaries of State of their respective states of incorporation and each state in which each of them is qualified to do business. (w) Incumbency Certificates. The Agent and each Bank shall have received an incumbency certificate (with specimen signatures) with respect to the Company and each other Loan Party. (x) Solvency Certificate. The Agent and each Bank shall have received from the Company and each other Loan Party a Solvency Certificate, in form and substance satisfactory to the Banks, attesting to the Solvency of the Company or such other Loan Party, as the case may be, in each case individually and together with its Subsidiaries, taken as a whole, immediately before and immediately after giving effect to the Tender Offer and the Loan Documents, from the treasurer of the Company or an authorized officer of each other Loan Party, as the case may be. (y) Ownership, Liens. A majority of the capital stock of the Company and the Company's Subsidiaries shall be directly or indirectly owned by Nortek, the Company or one or more of the Company's Subsidiaries, in each case free and clear of any lien, charge or encumbrance, other than the liens and security interests created under the Loan Documents. (z) Projections. The Agent and the Banks shall have received a copy of the Company's five year projections (including, without limitation, a balance sheet, an income statement and a statement of cash flows, as well as management assumptions with respect thereto) on a consolidated basis with respect to the Company and its Subsidiaries, all in form and substance reasonably satisfactory to the Agent. (aa) Other Documentation. Such other documentation as the Agent or the Banks shall reasonably request, including, without limitation, the Assignment and Agreement, duly executed by each party thereto. 4.2 Conditions to All Loans. The agreement of each Bank to make any Loan (including the initial Loans) and of Fleet to issue or maintain any L/Cs requested to be made or issued or deemed issued hereunder is subject to the satisfaction, immediately prior to or concurrently with the making of such Loan or issuance of such L/C, of the following additional conditions precedent: (a) Representations and Warranties. Each of the representations and warranties made by the Company and each other Loan Party in or pursuant to this Agreement (other than subsections 3.21 and 3.22) and the other Loan Documents shall be true and correct in all material respects on and as of such date as if made on and as of such date (except any such representations and warranties that, by their terms, refer to a specific date other than the date of the relevant Loan, in which case as of such specific date). (b) No Default or Event of Default. No Default or Event of Default shall have occurred and be continuing on such date or after giving effect to the Loans or L/Cs requested to be made or issued or deemed issued on such date. (c) No Violations of Law. Such Loan or L/C and the use of proceeds thereof or any drawing thereon shall not contravene, violate or conflict with, nor involve any Bank in a violation of, any law, rule, injunction, or regulation, or determination of any court of law or other Governmental Authority (including, without limitation, Regulation U). (d) Other. All corporate or other proceedings, and all documents, instruments and other legal matters in connection with the transactions contemplated by this Agreement, the Notes and the other Loan Documents shall be reasonably satisfactory in form and substance to the Agent and its counsel. Each borrowing by the Company and each Designated Subsidiary hereunder or issuance or deemed issuance of an L/C hereunder shall constitute a representation and warranty by the Company and each borrowing Designated Subsidiary as of the date of such borrowing or issuance or deemed issuance that the conditions to such or issuance or deemed issuance contained in subsections 4.2(a), (b) and (c) have been satisfied. 4.3 Conditions to Loans to New Designated Subsidiaries. The agreement of each Bank to make any Loan to any new Designated Subsidiary shall be subject to the receipt by each Bank, as appropriate, of (a) a Note issued by such Designated Subsidiary, (b) corporate documents of such new Designated Subsidiary, (c) a copy of an opinion of counsel to the Company in substantially the form provided with respect to Designated Subsidiaries on the Closing Date (including, without limitation, an opinion to the effect that the execution, delivery and performance of the Loan Documents by such Designated Subsidiary, including without limitation any borrowing made by it thereunder, do not violate the requirements of the Nortek Indentures or any indentures or other agreements binding upon such Designated Subsidiary) and (d) any other documents reasonably requested by the Agent or any of the Banks in connection therewith. SECTION 5. AFFIRMATIVE COVENANTS The Company and each Designated Subsidiary hereby covenant and agree with the Agent and the Banks that, from and after the date of this Agreement until the Obligations are paid in full and the Commitments are terminated and all L/Cs have expired or been duly terminated, the Company shall, and, in the case of the agreements set forth in subsections 5.3, 5.5, 5.6, 5.7, 5.11, 5.13, and 5.16, such Designated Subsidiary shall (and each of the Company and such Designated Subsidiary shall cause each of its respective Subsidiaries to): 5.1 Financial Statements. Furnish to the Agent and each Bank: (a) as soon as available, but in any event within 90 days after the end of each fiscal year of the Company, copies of (i) the consolidated balance sheets of the Company and its consolidated Subsidiaries as at the end of such fiscal year and the related consolidated statements of income, stockholders' equity and cash flows for such fiscal year, in each case setting forth in comparative form the figures for the previous year, certified, without qualification, by Arthur Andersen, L.L.P. or another independent certified public accountant of recognized standing reasonably acceptable to the Banks, and (ii) the consolidating balance sheet of the Company and its consolidated Subsidiaries as at the end of such fiscal year and the related consolidating statement of income for such fiscal year, in each case showing intercompany eliminations, certified by the chief financial officer of the Company as being, to the best of such officer's knowledge, fairly stated in all material respects when considered in relation to the consolidated financial statements of the Company and its consolidated Subsidiaries; and (b) as soon as available, but in any event within 45 days after the end of each of the first three fiscal quarters of the Company, copies of (i) the unaudited consolidated balance sheets of the Company and its consolidated Subsidiaries as at the end of such fiscal quarter and the related unaudited consolidated statements of income and cash flows for such fiscal quarter and for the portion of the fiscal year through such fiscal quarter, certified by the chief financial officer of the Company as presenting fairly, to the best of such officer's knowledge, the financial condition and results of operations of the Company and its consolidated Subsidiaries (subject to normal year- end audit adjustments) and (ii) the unaudited consolidating balance sheet of the Company and its consolidated Subsidiaries as at the end of such fiscal quarter and the related unaudited consolidating state- ment of income for the portion of the fiscal year through such fiscal quarter, in each case showing intercompany eliminations, certified by the chief financial officer of the Company as being, to the best of such officer's knowledge, fairly stated in all material respects when considered in relation to the consolidated financial statements of the Company and its consolidated Subsidiaries; all such financial statements to be prepared in reasonable detail and (in the case of such consolidated financial statements) in accordance with GAAP applied consistently throughout the periods reflected therein (except as approved by the Company's accoun-tants or such financial officer, as the case may be, and disclosed therein and subject to year-end adjustments). 5.2 Certificates; Other Information. Furnish to the Agent and each Bank: (a) concurrently with the delivery of each set of the financial statements referred to in clause (i) of paragraph (a) of subsection 5.1, a certificate of the independent certified public accountants reporting on such financial statements stating that in making the examination necessary therefor no knowledge was obtained of any Default or Event of Default, except as specified in such certificate; (b) concurrently with the delivery of each set of the financial statements referred to in paragraphs (a) and (b) of subsection 5.1, a certificate of the chief financial officer of the Company (i) stating that, to the best of such officer's knowledge, during such fiscal quarter the Company has observed or performed in all material respects all of its covenants and other agreements, and satisfied every condition contained in this Agree-ment to be observed, performed or satisfied by it, and that such officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate, and (ii) showing in reasonable detail the calculations supporting such statement in respect of subsections 6.9, 6.10, 6.11, 6.12 and 6.18; (c) within five days after the same are filed, copies of all financial statements and reports which the Company may make to, or file with, the Securities and Exchange Commission or any successor or analogous Governmental Authority; (d) not later than 90 days after the end of each fiscal year of the Company, a copy of the projections by the Com-pany of the operating budget and cash flow of the Company and its Subsidiaries for the next succeeding fiscal year, such projec-tions to be accompanied by a certificate of a Responsible Officer to the effect that such projections have been prepared on a basis consistent with the Company's past practice (or otherwise stating the basis on which such projections have been prepared); and (e) promptly, such additional financial and other information as the Agent or any Bank may from time to time reasonably request. 5.3 Payment of Obligations. Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all (a) lawful taxes, assessments and governmental charges or levies upon it or its property or assets, and (b) claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like Persons which, in any such case, if unpaid would by law give rise to a Lien upon any of its property or assets, except when the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of the Company or its Subsidiaries, as the case may be. 5.4 Material Operating Subsidiaries. Give notice to the Agent (which upon receipt shall give a copy thereof to the Banks) of the occurrence of any Subsidiary becoming a Material Operating Subsidiary concurrently with such occurrence. 5.5 Conduct of Business and Maintenance of Existence. Except as permitted by subsection 6.4, continue to engage in the Business of the Company, and preserve, renew and keep in full force and effect its corporate existence and take all reasonable action to maintain all rights, privileges and franchises neces- sary or desirable in the normal conduct of its business; and comply with all Contractual Obligations and Requirements of Law including, without limitation, ERISA and all Environmental Laws and Regulations except to the extent that the failure to comply therewith would not, in the aggregate, have a Material Adverse Effect. 5.6 Maintenance of Property; Insurance. Keep all property useful and reasonably necessary in its business in good working order and condition except to the extent that breach of this clause would not materially adversely affect the operations of the Company and its Subsidiaries taken as a whole; maintain with reputable insurance companies believed by the Company to be financially sound insurance on all its property in at least such amounts and with only such deductibles and self insurance as are usually maintained by, and against at least such risks (but including in any event product liability) as are usually insured against in the same general area by, companies engaged in the same or a similar business; and, furnish to the Agent and each Bank, upon written request, full information as to the insurance carried. 5.7 Inspection of Property; Books and Records; Discussions. Keep proper books of record and account in which full, true and correct entries in conformity with GAAP and all material Requirements of Law shall be made of all dealings and transactions in relation to its business and activities; and permit representatives of the Agent or any Bank as the representative of the Agent to visit and inspect any of its properties and examine and make abstracts from such of its books and records as the Agent or such Bank may reasonably request at any reasonable time and as often as may reasonably be desired, and to discuss the aspects of the business, operations, properties and financial and other condition of the Company and its Subsidiaries as the Agent or such Bank may reasonably request with officers and employees of the Company and its Subsidiaries and with its independent certified public accountants, provided that mutually satisfactory advance arrangements for any such visit or inspection shall be made with appropriate representatives of the Company. 5.8 Notices. Give notice to the Agent (which upon receipt shall give a copy thereof to each of the Banks) promptly after a Responsible Officer has actual knowledge thereof, but in any event within five (or 30, in the case of any event described in clause (c)(i) below) Business Days after such officer shall have obtained such actual knowledge: (a) of the occurrence of any Default or Event of Default; (b) of any (i) default or event of default under any Contractual Obligation of the Company or any of its Subsidiaries or (ii) litigation, investigation or proceeding which may exist at any time between the Company or any of its Subsidiaries and any Governmental Authority, which, in either case, if not cured or if adversely determined, would have a Material Adverse Effect; (c) of the following events: (i) the occurrence of any Reportable Event with respect to any Single Employer Plan, which Reportable Event, together with all other Reportable Events, if any, could subject the Company or any of its Subsidiaries to any tax, penalty or other liabilities that in the aggregate could reasonably be expected to have a Material Adverse Effect, or any withdrawal from, or the receipt by the Company, any Subsidiary or any Commonly Controlled Entity of any notice regarding the termination, Reor- ganization or Insolvency of, any Multiemployer Plan; (ii) the receipt or filing by the Company, any Subsidiary or any Commonly Controlled Entity of any notice regarding the institution of proceedings or the taking of any other action by PBGC, the Company, any Subsidiary or any Commonly Controlled Entity or Multiemployer Plan with respect to the withdrawal from, or the termination, Reorganization or Insolvency of, any Plan subject to Title IV of ERISA; or (iii) that a prohibited transac-tion has occurred (as defined in Section 406 of ERISA or Section 4975 of the Code), which could subject the Company or any Sub-sidiary to tax or penalty which could reasonably be expected to have a Material Adverse Effect; and the Company shall update the schedules referred to in subsection 3.14 as of the date any representations set forth therein is deemed to be made; (d) of any litigation or proceeding affecting the Company or any of its Subsidiaries in which the amount involved is $10,000,000 or more and not covered by insurance or in which material injunctive or similar relief is sought; (e) of a material adverse change in the business, operations, property, performance or condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole from that reflected in the financial statements most recently delivered to the Banks pursuant to subsection 5.1; and (f) (i) any notice of any violation or administrative or judicial complaint or order having been filed against the Company or such other Subsidiary alleging violations of any Environmental Laws and Regulations, or (ii) any notice from any governmental body alleging that the Company or such other Subsidiary is or may be subject to any Environmental Liability; and promptly upon receipt thereof, provide the Agent with a copy of such notice. Upon the request of the Agent or any Bank, the Company will reasonably consult with the Agent as to the subject matter of notices pursuant to this subsection 5.8. 5.9 Copies of Corporate Documents. Promptly deliver to the Agent copies of any amendments or modifications to the certificate of incorporation or by- laws of the Company or any Subsidiary, certi-fied with respect to the certificate of incorporation by the Secretary of State of the state of incorporation of such Person and, with respect to the by-laws, by the secretary or assistant secretary of such Person. 5.10 Conditions Subsequent. Deliver to the Agent, in form and substance satisfactory to the Agent and in sufficient copies for the Agent and each Bank, as soon as possible and in any event within 45 days after the Closing Date (or such later date as may be agreed by the Company and the Agent): (a) acknowledgment copies of proper financing statements, duly filed under the Uniform Commercial Code of all jurisdictions that the Agent may deem necessary or desirable in order to perfect and protect the first priority liens and security interests created under the Security Agreement, covering the Collateral; (b) completed requests for information, listing the financing statements referred to in clause (a) above and all other effective financing statements filed in the jurisdictions referred to in clause (a) above that name the Company or any of the other Collateral Grantors as debtor, together with copies of such financing statements; and (c) evidence that all other action as the Agent may deem necessary or desirable in order to perfect and protect the first priority liens and security interests created under the Security Documents has been taken. 5.11 Hazardous Material. Operate all property owned, operated or leased by it in such a manner that (a) no Hazardous Material shall be placed, held, located or disposed of, on, under or at the real property owned, operated or leased by the Company or any Subsidiary or any part thereof, except for such Hazardous Materials which are necessary for the Company's operation of its business thereon and which shall be used, stored, treated and disposed of in compliance with all applicable Environmental Laws and Regulations or (b) such real property owned, operated or leased by the Company or any Subsidiary or any part thereof shall not be used as a collection, storage, treatment or disposal site for any Hazardous Material, except, (i) in the case of clause (b) above, in compliance with all Environmental Laws or Regula-tions and (ii) in each case to the extent failure to comply with this subsection 5.11, in the aggregate, would not have a material adverse effect on the business, operations, property or financial condition of the Company and its Subsidiaries taken as a whole. 5.12 Further Assurances. (a) Promptly upon request by the Agent, or any Bank through the Agent, correct, and cause each of its Subsidiaries promptly to correct, any material defect or error that may be discovered in any Loan Document or in the execution, acknowledgment, filing or recordation thereof. (b) Promptly upon request by the Agent, or any Bank through the Agent, do, execute, acknowledge, deliver, record, rerecord, file, re-file, register and re-register, and cause each of its Subsidiaries promptly to do, execute, acknowledge, deliver, record, re-record, file, re-file, register and re-register, any and all such further acts, pledge agreements, assignments, financing statements and continuations thereof, termination statements, notices of assignment, transfers, certificates, assurances and other instruments as the Agent, or any Bank through the Agent, may reasonably require from time to time in order to (i) carry out more effectively the purposes of this Agreement, the Notes or any other Loan Document, (ii) to the fullest extent permitted by applicable law, subject any of the Company's or any of its Subsidiaries' properties, assets, rights or interests to the Liens now or hereafter intended to be covered by any of the Security Documents, (iii) perfect and maintain the validity, effectiveness and priority of any of the Security Documents and any of the Liens intended to be created thereunder and (iv) assure, convey, grant, assign, transfer, preserve, protect and confirm more effectively unto the Agent and the Banks the rights granted or now or hereafter intended to be granted to the Agent and the Banks under any Loan Document or under any other instrument executed in connection with any Loan Document to which the Company or any of its Subsidiaries is or is to be a party; provided, however, that in any event this subsection 5.12 shall not require Liens on, and the execution and delivery of Security Documents covering, any property to the extent not otherwise required by the terms of the Loan Documents. 5.13 Compliance with Terms of Leaseholds. Make all payments and otherwise perform all obligations in respect of all leases of real property to which the Company or any of its Subsidiaries is a party, keep such leases in full force and effect and not allow such leases to lapse or be terminated or any rights to renew such leases to be forfeited or cancelled, notify the Agent of any default by any party with respect to such leases and cooperate with the Agent in all respects to cure any such default, except, in any case, where the failure to do so, either individually or in the aggregate, would not be reasonably likely to have a Material Adverse Effect. 5.14 Performance of Related Documents. Perform and observe all of the terms and provisions of each Related Document to be performed or observed by it, maintain each such Related Document in full force and effect, enforce such Related Document in accordance with its terms, take all such action to such end as may be from time to time reasonably requested by the Agent and, upon request of the Agent, make to each other party to each such Related Document such demands and requests for information and reports or for action as the Company or other Loan Party (as applicable) is entitled to make under such Related Document, except, in any case, where the failure to do so, either individually or in the aggregate, could not be reasonably expected to have a Material Adverse Effect. 5.15 Hedge Agreements. Maintain at all times Hedge Agreements with Persons acceptable to the Agent, covering a notional amount of not less than 40% of the Commitments and providing for such Persons to make payments thereunder for a period of no less than two years to the extent of increases in interest rates greater than 3% above the weighted average Eurodollar Rate on the date hereof. 5.16 Conditions Subsequent to Closing Date. Use its best efforts to deliver to the Agent, in form and substance satisfactory to the Agent and in sufficient copies for each Bank, as soon as possible and in any event within 45 days after the Closing Date (or such later date as may be agreed by the Company and the Agent): (a) acknowledgment copies of proper financing statements (including, without limitation, all UCC-1 financing statements and all UCC-3 termination statements), duly filed under the Uniform Commercial Code of all jurisdictions that the Agent may deem necessary or desirable in order to perfect and protect the first priority liens and security interests created under the Security Agreement, covering the Collateral described in the Security Agreement, (b) completed requests for information, listing the financing statements referred to in clause (a) above and all other effective financing statements filed in the jurisdictions referred to in clause (a) above that name any Loan Party as debtor, together with copies of such financing statements, (c) evidence that all other action as the Agent may deem necessary or desirable in order to perfect and protect the first priority liens and security interests created under the Security Agreement has been taken (including, without limitation, obtaining landlord's letters, bailee's letters or warehouseman's letters, each in form and substance reasonably satisfactory to the Agent), and (d) certificates representing the reissued Pledged Shares (as defined in the Security Agreement) of Allied Plywood Corporation, Goldenberg Group, Inc., Richwood Building Products, Inc. and Great Lakes Windows, Inc., respectively, together with undated stock powers executed in blank. SECTION 6. NEGATIVE COVENANTS Each of the Company and each Designated Subsidiary hereby covenants and agrees with the Agent and the Banks that, from and after the date of this Agreement until the Obligations are paid in full and the Commitments are terminated and all L/Cs have expired or been duly terminated, neither the Company nor any Designated Subsidiary shall, or shall permit any of its Subsidiaries to, directly or indirectly: 6.1 Limitation on Indebtedness. Create, incur, assume or suffer to exist any Indebtedness, except: (a) the Loans and the L/Cs; (b) Indebtedness of the Company to any Subsidiary, and of any Subsidiary to the Company, any other Subsidiary, so long as such Indebtedness remains subordinated to the Obligations under the Loan Documents on terms and conditions satisfactory to the Banks; (c) Indebtedness of the Company and any of its Subsidiaries under Financing Leases, or Indebtedness incurred upon refinancing or replacement of such Financing Leases, or Indebtedness incurred in connection with (and not later than 180 days following, in the case of the acquisition of land or improvements; or 45 days following, in the case of the acquisition of other property) the acquisition of property, or Indebtedness incurred to renew, extend, refund, refinance or replace the foregoing, in an aggregate principal amount not exceeding as to the Company and its Subsidiaries $35,000,000 at any one time outstanding; (d) certain Indebtedness outstanding on the date hereof and listed on Schedule 3.22, and extensions, renewals, refundings, refinancings and replacements thereof, provided that Indebtedness under the Existing Credit Agreement may not be outstanding after August 26, 1997; and Indebtedness incurred to finance property currently subject to existing operating leases existing on the date hereof, to the extent that (i) the corresponding operating lease is terminated, and (ii) the aggregate debt service under such Indebtedness does not exceed the aggregate rental payments saved as a consequence of the termination of such lease; (e) Indebtedness of a corporation which becomes a Subsidiary after the date hereof, provided that such Indebtedness existed at the time such corporation became a Subsidiary and was not created in anticipation thereof; (f) unsecured subordinated Indebtedness of the Company, provided that such Indebtedness is on such terms and pursuant to such documentation as the Required Banks shall approve, which approval shall not be unreasonably withheld; (g) Indebtedness of the Company and its Subsidiaries evidenced by promissory notes or other contractual obligations of the Company given to the sellers as part of the consideration for acquisitions permitted by subsection 6.7; and (h) other Indebtedness of the Company and its Subsidiaries not to exceed $10,000,000 in the aggregate at any one time outstanding; provided, however, that the aggregate Indebtedness of the Company under this clause (i), when added to the Indebtedness under clauses (e) and (g) of this subsection 6.1, shall not exceed, in the years indicated, the amounts set forth below: Year Amount 1997 $20,000,000 1998 $25,000,000 1999 $30,000,000 2000 $35,000,000 2001 (and each year thereafter) $40,000,000 provided, however, in each case that such Indebtedness shall not be owed to Nortek or any of its Subsidiaries (other than Subsidiaries consisting of the Company or any of its Subsidiaries, to the extent permitted above). 6.2 Limitation on Liens. Create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, other than: (a) Liens for taxes, assessments, fees or other governmental charges not yet due or which are being contested in good faith by appropriate proceedings or other appropriate actions, provided that adequate reserves with respect thereto are maintained on the books of the Company or its Subsidiaries, as the case may be, in conformity with GAAP; (b) statutory liens of landlords, carriers', warehouseman's, mechanics', materialmen's, repairmen's, or other like Liens arising in the ordinary course of business and not overdue for a period of more than 60 days or which are being contested in good faith by appropriate proceedings or other appropriate actions; (c) pledges or deposits in connection with workers' compensation, unemployment insurance and other social security legislation; (d) deposits to secure the performance of tenders, bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business or deposits incurred in connection with other obligations to the extent such other obligations are covered by insurance; (e) easements, (including, without limitation, reciprocal easement agreements and utility agreements), rights-ofway, covenants, consents, reservations, encroachments, minor defects or irregularities in title, variations and other restrictions, charges or encumbrances (whether or not recorded) affecting real or personal property, which individually or in the aggregate do not or are not reasonably likely to have a material adverse effect on the conduct by the Company and its Subsidiaries of their businesses taken as a whole; (f) Liens in existence on the date hereof listed on Schedule 6.2 securing Indebtedness permitted by subsection 6.1, provided that no such Lien is spread to cover any additional property (other than the proceeds thereof) after the date hereof and that the principal amount of Indebtedness secured thereby is not increased; (g) Liens securing Indebtedness of the Company and its Subsidiaries permitted by subsection 6.1(c) in respect of the deferred acquisition price of property, provided that (i) such Liens shall be created not later than (A) 180 days after the acquisition of such property in the case of land or improvements, and (B) 45 days after the acquisition of other property, (ii) such Liens do not at any time encumber any property other than the property financed by such Indebtedness and the proceeds of such property so financed, (iii) the principal amount of Indebtedness secured thereby is not increased and (iv) the principal amount of Indebtedness secured by any such Lien shall at no time exceed the original acquisition price of such property; (h) Liens on the property or assets of a corporation which becomes a Subsidiary after the date hereof securing Indebtedness permitted by subsection 6.1(e), provided that (i) such Liens existed at the time such corporation became a Subsidiary and were not created in anticipation thereof, (ii) no such Lien is spread to cover any property or assets of such corporation after the time such corporation becomes a Subsidiary (other than proceeds of the property or assets which were the original subjects of such Lien), and (iii) the principal amount of Indebted-ness secured thereby is not increased after such time; (i) Liens existing on property or assets prior to the acquisition thereof by the Company or any Subsidiary, provided that (i) such Liens were not created in anticipation thereof, (ii) no such Lien is spread to cover any additional property (other than the proceeds of the property or assets which were the original subject of such Lien) and (iii) the principal amount of Indebtedness secured thereby is not increased; (j) Liens arising out of the refinancing, extension, renewal, refunding or replacement of any Indebtedness secured by any Lien permitted by any of the other clauses of this subsection, provided that (i) no such Lien is spread to cover any additional property (other than the proceeds of the property which was the original subject of such Lien) and (ii) the principal amount of Indebtedness secured thereby is not increased; (k) Liens arising pursuant to any order of attachment, distraint or similar legal process arising in connection with court proceedings so long as the execution or other enforcement thereof is effectively stayed and the claims secured thereby are being contested in good faith by appropriate proceedings or other appropriate action; (1) Liens securing reimbursement obligations in connection with trade letters of credit issued on behalf of the Company or any Subsidiary in the ordinary course of its business, provided that such Liens attach solely to the goods the acquisition of which is financed by such letter of credit and to the proceeds thereof; (m) Intentionally omitted; (n) Liens arising under the Security Documents; (o) Financing Leases permitted under subsection 6.1; and (p) Other Liens securing obligations which do not constitute Indebtedness, the aggregate amount of which obligations does not exceed $2,500,000 at any time outstanding. 6.3 Limitation on Contingent Obligations. Create, incur, assume or suffer to exist any Contingent Obligation, except (a) Contingent Obligations in existence on the date hereof listed on Schedule 6.3, (b) Contingent Obligations of the Company in respect of obligations of any Material Operating Subsidiary or of any Subsidiary in respect of Obligations of the Company or any Material Operating Subsidiary and (c) Contingent Obligations of the Company and its Subsidiaries supporting primary obligations of other Persons the aggregate amount of which does not exceed $4,000,000 at any time. 6.4 Limitation on Fundamental Changes. Enter into any merger or consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer or otherwise dispose of its property, business or assets except the following: (a) The Company and any of its Subsidiaries may sell or otherwise dispose of (i) inventory and Cash Equivalents in the ordinary course of business, (ii) tangible assets to be replaced in the ordinary course of business within 12 months by other tangible assets of equal or greater value and (iii) tangible assets that are no longer used or useful in the business of the Company or the applicable Subsidiary, the fair market value of which shall not exceed $2,000,000 in any fiscal year of the Company. (b) Mergers constituting investments permitted by subsection 6.7. (c) Licensing of products and intangible assets for fair value in the ordinary course of business. (d) So long as immediately before and after giving effect thereto no Default or Event of Default exists, the Company and its Subsidiaries may sell assets having a fair market value not exceeding $25,000,000 in any fiscal year of the Company so long as the Net Proceeds thereof are applied to repay the Loans as required by subsection 2.8(d). (e) Asset Sales; provided, however, that (i) the Net Proceeds from all such sales or dispositions shall not exceed $150,000,000 in the aggregate during the term of this Agreement; (ii) the consideration received by the Company or its Subsidiaries from each such sale or disposition is at least equal to the fair market value of the assets sold or disposed of in such sale or disposition; (iii) the Net Proceeds from such sale or disposition in each case shall be applied in accordance with subsection 2.8(d); and (iv) any evidence of indebtedness referred to in the definition of Net Proceeds shall be pledged in accordance with the provisions of such definition. (f) Any Subsidiaries of the Company may be merged or consolidated with or into the Company (provided that the continuing or surviving corporation shall be the Company) or with or into any one or more wholly-owned Subsidiaries of the Company (provided that a wholly-owned Subsidiary shall be the continuing or surviving corporation and that any such wholly-owned Subsidiary shall be organized under a state of the United States). (g) Any wholly-owned Subsidiary may sell, lease, transfer or otherwise dispose of any or all of its assets (upon voluntary liquidation or otherwise) to the Company or a whollyowned Subsidiary of the Company. (h) The Company may merge with the Purchaser pursuant to, and in accordance with, the Merger Agreement. 6.5 Distributions. During such time as a Default or an Event of Default shall have occurred and be continuing, or if a Default or Event of Default would result therefrom, (a) declare or pay any dividends, (b) purchase, redeem, retire, defease or otherwise acquire for value any of its capital stock or any warrants, rights or options to acquire such capital stock, now or hereafter outstanding, (c) return any capital to its stockholders as such, (d) make any distribution of assets, capital stock, warrants, rights, options, obligations or securities to its stockholders as such, (e) issue or sell any capital stock or any warrants, rights or options to acquire such capital stock or (f) permit any of its Subsidiaries to purchase, redeem, retire, defease or otherwise acquire for value any capital stock of the Company or any warrants, rights or options to acquire such capital stock or to issue or sell any capital stock or any warrants, rights or options to acquire such capital stock; provided, however, that notwithstanding the foregoing provisions of this subsection 6.5, but in any event subject to the other provisions of this Agreement, during such time as a Default or an Event of Default shall have occurred and be continuing, or if a Default or Event of Default would result therefrom, the Company (i) may make any dividend payable solely in shares of its common stock and (ii) may pay dividends in an aggregate amount during any calendar year not to exceed the lesser of: (x) twenty ($.20) cents per share of outstanding common stock and (y) $4,000,000. 6.6 Limitation on Dividend Restrictions Regarding Subsidiaries. Except for any limitation or restriction pursuant to any applicable law or pursuant to this Agreement, permit any limitation or restriction to exist upon the ability of any Subsidiary to declare or pay dividends in respect of the capital stock of such Subsidiary, whether such limitation or restriction is imposed through a covenant limiting dividends, through financial covenants or otherwise. 6.7 Prohibition on Investments, Acquisitions, Loans and Advances. Make any advance, loan, extension of credit or capital contribution to, or purchase any stock, bonds, notes, debentures or other securities of, or make any other investment in, or purchase any assets constituting a going concern business from, any Persons (all of the foregoing being herein called "investments"), except: (a) extensions of trade credit in the ordinary course of business; (b) investments in Cash Equivalents; (c) loans and advances to employees of the Company or its Subsidiaries for travel, entertainment, relocation and similar expenses or otherwise, in the ordinary course of business; (d) investments by the Company in its Subsidiaries and investments by such Subsidiaries in the Company and in other Subsidiaries; provided that there shall not be outstanding at any time Special Subsidiary Loans in an aggregate principal amount in excess of $15,000,000; (e) investments not to exceed (i) $50,000,000 in the aggregate during any fiscal year of the Company and (ii) $100,000,000 in the aggregate during the term of this Agreement (the amount of any such investment to be determined at cost, which cost shall include the aggregate amount of any Indebtedness assumed or given in connection therewith) in connection with the acquisition of the stock of any corporation or of the assets of any Person, provided that (w) such acquisition shall have been approved or otherwise endorsed by the board of directors of such Person or not contested (if no board approval is required), (x) such corporation or assets are, prior to such acquisition, engaged or used, as the case may be, in a business of the type described in subsection 5.5, (y) the Company shall be in pro forma compliance with the covenants contained in subsections 6.9, 6.10, 6.11 and 6.12, calculated based on the most recent financial statements delivered to the Agent and the Bank pursuant to subsection 5.1, as though such acquisition had occurred at the beginning of the fourquarter period ending on the last day of the most recently completed fiscal quarter of the Company, and (z) immediately before and after giving effect to such acquisition, no Default shall have occurred and be continuing or would result therefrom; (f) investments made with capital stock of the Company in connection with the acquisition of the stock of any corporation which becomes a Subsidiary, which thereupon shall be deemed to be a Material Operating Subsidiary, or of the assets of any Person, provided that (i) such acquisition shall have been approved or otherwise endorsed by the board of directors of such Person or not contested (if no board approval is required) and (ii) such corporation or assets are, prior to such acquisition, engaged or used, as the case may be, in a business of the type described in subsection 5.5; (g) investments made with common stock of the Company in connection with the acquisition of the stock of any corpora-tion which does not become a Subsidiary as a result of such acquisition, provided that the aggregate amount of such invest-ments shall not exceed $10,000,000 during the term of this Agree- ment (the amount of the investment, in the case of each such acquisition, being the market value, on the date of such acquisition, of the common stock of the Company delivered as consideration in such acquisition); (h) other investments (but not a Special Subsidiary Loan) not to exceed $20,000,000 in the aggregate (valued at cost) at any one time outstanding and (except in the case of United States government securities) not to exceed $4,000,000 in the securities of any one issuer; and (i) so long as no Default or Event of Default has occurred and is continuing and so long as no Default or Event of Default would result therefrom, investments by the Company and its Subsidiaries in Nortek; provided that, notwithstanding the foregoing, during the occurrence and continuance of a Default or Event of Default, or if a Default or Event of Default would result therefrom, the Company and its Subsidiaries may make investments in Nortek to the extent that the Company and its Subsidiaries are otherwise permitted to make investments under this subsection 6.7. 6.8 Prohibition on Optional Prepayments. Prepay, purchase, redeem, retire, defease or otherwise acquire, or make any optional payment on account of any principal of, interest on, or premium payable in connection with the optional prepayment, redemption or retirement of any of its Subordinated Indebtedness, provided, however, that in each other case nothing in this subsection 6.8 shall be deemed to prevent the Company from: (a) making a commitment to prepay, redeem or otherwise acquire or pay any Subordinated Indebtedness which by its terms is convertible into common stock of the Company for the purpose of inducing the holders of such Indebtedness to so convert such Indebtedness; and (b) in connection with any induced conversions of convertible subordinated Indebtedness, acquiring or paying any such Indebtedness which is not converted into common stock of the Company as a result of such inducement, provided that the aggregate amount of money expended by the Company and its Subsidiaries in connection with such acquisition and payment does not exceed the sum of (i) the net cash proceeds to the Company of any substantially contemporaneous sale of its common stock, (ii) an amount equal to 2% of the aggregate principal amount of the issue of convertible subordinated Indebtedness being so acquired or paid outstanding immediately prior to the public announcement by the Company of such acquisition or payment and (iii) the fees and expenses incurred in connection with such acquisition or payment. 6.9 Consolidated Net Worth. Permit Consolidated Net Worth, at any time, to be less than an amount equal to the amount by which $375,000,000 exceeds the lesser of (a) losses on the sale of Non- Core Subsidiaries after the date hereof and (b) $25,000,000. 6.10 Leverage Ratio. Permit the ratio (the "Leverage Ratio") of (a) consolidated Indebtedness of the Company and its Subsidiaries to (b) Consolidated EBITDA for the four most recent consecutive full fiscal quarters of the Company at any time within any period set forth below to exceed the ratio set forth below for such period: Quarter Ending On Maximum Leverage Ratio September 30, 1997 3.25:1.00 December 31, 1997 3.00:1.00 March 31, 1998 3.00:1.00 June 30, 1998 3.00:1.00 September 30, 1998 3.00:1.00 December 31, 1998 2.75:1.00 March 31, 1999 2.75:1.00 June 30, 1999 2.50:1.00 September 30, 1999 2.50:1.00 December 31, 1999 2.50:1.00 March 31, 2000 2.50:1.00 June 30, 2000 and thereafter 2.00:1.00 6.11 Interest Coverage Ratio. Permit the ratio of (a) Consolidated EBITDA to (b) Interest Expense for the four most recent consecutive full fiscal quarters of the Company at any time to be less than 3.50:1.00. 6.12 Current Ratio. Permit the ratio of Consolidated Current Assets to Consolidated Current Liabilities at any time to be less than 2.0 to 1.0. 6.13 Intentionally Omitted. 6.14 Amendment, Etc. of Related Documents. Cancel or terminate any Related Document or consent to or accept any cancellation or termination thereof, amend, modify or change in any manner any term or condition of any Related Document or give any consent, waiver or approval thereunder, waive any default under or any breach of any term or condition of any Related Document, agree in any manner to any other amendment, modification or change of any term or condition of any Related Document or take any other action in connection with any Related Document, in each case, that would materially adversely affect the interest or rights of the Company or any Subsidiary thereunder or that would materially adversely affect the rights or interests of the Agent or any Bank under the Loan Documents. 6.15 Fiscal Year. Change its fiscal year, except (a) to conform to the fiscal year of Nortek following the Merger or (b) with the consent of the Agent, which will not be unreasonably withheld. 6.16 Transactions with Affiliates. Except as otherwise permitted by this Agreement, directly or indirectly: (a) make any investment in an Affiliate except that any investments permitted under subsection 6.7 shall be permitted hereunder; (b) transfer, sell, lease, assign or otherwise dispose of any assets to an Affiliate; (c) merge into or consolidate with or purchase or acquire assets from an Affiliate; or (d) enter into any other transaction directly or indirectly with any Affiliate; provided, however, that: (i) payments on investments permitted by subsection 6.7 shall be permitted hereunder, (ii) any Affiliate who is a natural person may serve as an employee or director of the Company, any Subsidiary, Nortek or any of its Subsidiaries and receive such compensation and benefits for his services in such capacity as the Board of Directors of the Company or such Subsidiary shall in good faith determine, (iii) any merger permitted under subsection 6.4 shall be permitted hereunder, (iv) any dividend or other distribution permitted under subsection 6.5 shall be permitted hereunder and (v) the Company or any Subsidiary may enter into any transaction with an Affiliate if the monetary or business consideration arising therefrom would be substantially as advantageous to the Company or a Subsidiary as the monetary or business consideration that would reasonably be expected by the Company or such Subsidiary to be obtained in a comparable arm's length transaction with a Person not an Affiliate. 6.17 Ownership of Designated Subsidiaries. Cease to own all of the issued and outstanding capital stock of any Designated Subsidiary so long as any such Subsidiary continues to be a Designated Subsidiary. 6.18 Limitation on Capital Expenditures. Make Capital Expenditures (i) in excess of $125,000,000 during the five-year period ending with the Termination Date, (ii) in excess of $37,500,000 during any fiscal year which follows the 1996 fiscal year, or (iii) in excess of $56,250,000 during any period of two consecutive fiscal years following the 1996 fiscal year. 6.19 Financing Leases. Create, incur, assume or suffer to exist any Financing Leases obligations that would cause the direct and contingent liabilities of the Company and its Subsidiaries, on a consolidated basis, in respect of all such Financing Leases to exceed $35,000,000 at any time outstanding. 6.20 Change in Nature of Business. Engage in any business other than the Business of the Company. 6.21 Charter Amendments. Amend its certificate of incorporation or bylaws in any manner that would materially adversely affect the rights of the Agent and the Banks under the Loan Documents. 6.22 Accounting Changes. Make or permit any change in accounting policies or reporting practices, except as required by generally accepted accounting principles and except for the purpose of conforming such policies and practices of the Company with those of Nortek following the Merger. 6.23 Intentionally Omitted. 6.24 Negative Pledge. Enter into or suffer to exist any agreement prohibiting or conditioning the creation or assumption of any Lien upon any of its property or assets other than (i) in favor of the Secured Parties or (ii) in connection with the Nortek Indentures. 6.25 Formation of Subsidiaries. Organize or invest in any new Material Operating Subsidiary or permit any existing Subsidiary to become a Material Operating Subsidiary unless such Subsidiary shall have executed and delivered a Guaranty and a Security Agreement supplement, each in form and substance satisfactory to the Agent, and shall have become a Guarantor and a Collateral Grantor under the Loan Documents. SECTION 7. EVENTS OF DEFAULT Upon the occurrence and during the continuance of any of the following events: (a) The Company or any Designated Subsidiary shall fail to pay any principal of any Note or any Unpaid Drawing when due in accordance with the terms of the Loan Documents or the Company or any other Loan Party shall fail to pay any interest, any fee or any other payment under any Loan Document, the amount of which is provided for herein, in the Fee Letter or in such Loan Document, within five (5) Business Days after any such amount becomes due in accordance with the terms hereof or thereof; or (b) Any representation or warranty made or deemed made by the Company or any of its Subsidiaries in this Agreement, any other Loan Document or in any certificate, document or financial or other statement furnished at any time under or in connection herewith or therewith shall prove to have been incorrect in any material respect on or as of the date made, deemed made or confirmed; or (c) The Company or any of its Subsidiaries shall default in the observance or performance of any covenant or agreement contained in subsection 5.8(a) or Section 6 of this Agreement; or (d) The Company or any of its Subsidiaries shall default in the observance or performance of any other covenant or agreement contained in this Agreement, or contained in any of the other Loan Documents (other than as set forth in clauses (a) through (c) of this Section 7) and such default shall continue unremedied for a period of 30 days after the earlier of the date on which (A) a Responsible Officer becomes aware of such failure or (B) written notice thereof shall have been given to the Company by the Agent or any Bank; or (e) The Company or any of its Subsidiaries shall (i) default in the payment of principal of or interest on any Indebtedness (other than the Notes) which Indebtedness is in an aggregate principal amount equal to or greater than $10,000,000 or in the payment of any Contingent Obligation (other than any Guaranty) relating to any primary obligation the aggregate principal amount of which is equal to or greater than $10,000,000, beyond the period of grace, if any, provided in the instrument or agreement under which such Indebtedness or Contingent Obligation was created or (ii) default in the observance or performance of any other agreement or condition relating to any such Indebtedness (other than the Notes) or Contingent Obligation (other than any Guaranty) or contained in any instrument or agreement evidencing, securing or relating thereto, or contained in any Nortek Indenture, or any other event shall occur or condition exist, the effect of which default or other event or condition described in either clause (i) or (ii) of this paragraph is to cause, or to permit the holder or holders of such Indebtedness or beneficiary or beneficiaries of such Contingent Obligation (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause such Indebtedness to become due prior to its stated maturity or such Contingent Obligation to become payable; or (f) (i) The Company or any of its Subsidiaries shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it as bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, wind-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trus-tee, custodian or other similar official for it or for all or any substantial part of its assets, or the Company or any of its Subsidiaries shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against the Company or any of its Subsidiaries any such case, proceeding or other action referred to in clause (i) which (A) results in the entry of an order for relief or any such adjudication or appoint-ment or (B) remains undismissed, unstayed, undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against the Company or any of its Subsidiaries any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) the Company or any of its Subsidiaries shall take any action authorizing, or in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth above in clause (i), (ii) or (iii) above; or (v) the Company or any of its Subsidiaries shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or (g) One or more judgments or decrees shall be entered against the Company or any of its Subsidiaries involving in the aggregate a liability (to the extent not paid or fully covered by insurance) of $5,000,000 or more and all such judgments or decrees shall not have been vacated, satisfied, discharged, stayed or bonded pending appeal within 60 days from the entry thereof; or (h) (i) Any Person shall engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan or engage in a transaction which could subject such person to liability under Section 502(l) of ERISA, (ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Single Employer Plan, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or institution of proceedings or appointment of a trustee is, in the reasonable opinion of the Agent, likely to result in the termination of any Single Employer Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall, other than in a standard termination, terminate for purposes of Title IV of ERISA, or the Company, any Subsidiary or any Commonly Controlled Entity shall file a notice of intent to terminate a Single Employer Plan in a distress termination under Section 4041(c) of ERISA, or (v) the Company or any Commonly Controlled Entity shall, or is, in the reasonable opinion of the Agent, likely to, incur any liability in connection with its failure to meet any obligation arising out of a withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan and in each case in clauses (i) through (v) above, such event or condition, together with all other such events or conditions, if any, which have occurred or exist could reasonably be expected to subject the Company or any of its Subsidiaries to any tax, penalty or other liabilities that in the aggregate could reasonably be expected to have a Material Adverse Effect; or (i) A Change of Control shall occur; or (j) any non-monetary judgment or decree shall be rendered against the Company or any of its Subsidiaries that could reasonably be likely to have a Material Adverse Effect, and such judgment or decree shall not have been vacated, satisfied, discharged, stayed or bonded pending appeal within 60 days from the entry thereof; or (k) (i) any provision of any Loan Document after delivery thereof pursuant to subsection 4.1 shall for any reason (other than pursuant to the terms thereof) cease to be valid and binding on, or enforceable against, any of the Company or its Subsidiaries which are party thereto; or (ii) any Security Document after delivery thereof pursuant to subsection 4.1 shall for any reason (other than pursuant to the terms thereof) cease to create a valid and perfected first priority (subject, during the first 45 days after the Closing Date (or such later date as agreed by the Agent and the Company as specified in subsection 5.16) only to the completion of the actions required under subsection 5.16) lien on and security interest in the Collateral purported to be covered thereby; or (iii) in the case of clause (i) or (ii) above, the Company or any Subsidiary shall so state in writing; then, and in any such event, (x) if such event is an Event of Default specified in paragraph (f) above with respect to the Company, automatically the Commitments shall immediately termin-ate and the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the Notes shall immediately become due and payable, and (y) if such event is any other Event of Default, either or both of the following actions may be taken: (1) with the consent of the Required Banks, the Agent may, or upon the request of the Required Banks, the Agent shall, by notice to the Company, declare the Commitments to be terminated forthwith, whereupon the Commitments shall immediately terminate; and (2) with the consent of the Required Banks, the Agent may, or upon the request of the Required Banks, the Agent shall, declare the Loans (with accrued interest thereon) and all other amounts owing under this Agreement and the Notes to be due and payable forthwith, whereupon the same shall immediately become due and payable. In addition, after the occurrence and during the continuance of an Event of Default, the Company and each Subsidiary shall, promptly upon demand by the Agent, deliver to the Agent cash collateral in such form as reasonably requested by the Agent, for deposit in a cash collateral account, in a maximum amount equal to the undrawn amount of all L/Cs then outstanding, to be maintained by the Agent as an interest-bearing deposit account under the sole dominion and control of the Agent as pledgee, and shall execute and deliver such documents and instruments (including a pledge agreement) as the Agent may reasonably request in order to perfect or protect the Agent's lien and security interest in such collateral account to secure payment of the Reimbursement Obligations with respect to L/Cs then outstanding. Such deposit shall be held by the Agent as such security for the ratable benefit of the Banks. Upon cure of the Event of Default, all such cash collateral (and interest accrued thereon) shall promptly be returned to the Company and its Subsidiaries). Except as expressly provided above in this Section 7, presentment, demand, protest and all other notices of any kind are hereby expressly waived. SECTION 8. THE AGENT 8.1 Appointment. Each Bank (in its capacity as a Bank and a potential Hedge Bank) hereby irrevocably designates and appoints Fleet as the Agent for such Bank under this Agreement and the other Loan Documents and each such Bank irrevocably authorizes Fleet, as Agent for such Bank, to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are expressly delegated to the Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Bank, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise exist against the Agent. 8.2 Delegation of Duties. The Agent may execute any of its duties under this Agreement and the other Loan Documents by or through agents or attorneys- in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. 8.3 Exculpatory Provisions. Neither the Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be (a) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or any of the other Loan Documents (except for its or such Person's own gross negligence or willful misconduct), or (b) responsible in any manner to any of the Banks for any recitals, statements, repre-sentations or warranties made by the Company, or any Subsidiary or any officer thereof contained in this Agreement or any of the other Loan Documents or in any certificate, report, statement or other document referred to or provided for in, or received by the Agent under or in connection with, this Agreement or any of the other Loan Documents or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any of the other Loan Documents or for any failure of the Company or any Subsidiary to perform its obligations hereunder or thereunder. The Agent shall be under no obligation to any Bank to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any of the other Loan Documents, or to inspect the properties, books or records of the Company or any Subsidiary. 8.4 Reliance by Agent. The Agent shall be entitled to rely, and shall be fully protected in relying, upon any Note, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Company and any Subsidiary), independent accountants and other experts selected by the Agent. The Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Agent. The Agent shall be fully justified in failing or refusing to take any action under this Agreement and the other Loan Documents unless it shall first receive such advice or concurrence of the Required Banks as it deems appropriate or it shall first be indemnified to its satisfaction by the Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Loan Documents in accordance with a request of the Required Banks, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Banks and all future holders of the Notes. 8.5 Notice of Default. The Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Agent has received notice from a Bank, the Company or any Subsidiary referring to this Agreement, describing such Default or Event of Default and sta-ting that the notice is a "notice of default". In the event that the Agent receives such a notice, the Agent shall give prompt notice thereof to the Banks. The Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Banks; provided that unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Banks. 8.6 Non-Reliance on Agent and Other Banks. Each Bank expressly acknowledges that neither the Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it and that no act by the Agent hereinafter taken, including any review of the affairs of the Company or any Subsidiary, shall be deemed to constitute any representation or warranty by the Agent to any Bank. Each Bank represents to the Agent that it has, indepen-dently and without reliance upon the Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, performance and other condition (financial or otherwise) and creditworthiness of the Company and each Subsidiary and made its own decision to make its Loans hereunder and enter into this Agreement. Each Bank also represents that it will, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agree-ment, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, performance and other condition (financial or otherwise) and creditworthiness of the Company and each Subsidiary. Except for notices, reports and other documents expressly required to be furnished to the Banks by the Agent hereunder, the Agent shall have no duty or responsibility to provide any Bank with any credit or other information concerning the business, operations, property, performance and other condition (financial or otherwise) or creditworthiness of the Company and its Subsidiaries which may come into the possession of the Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates. 8.7 Indemnification. The Banks agree to indemnify the Agent in its capacity as such (to the extent not reimbursed by the Company and without limiting the obligation of the Company to do so), ratably according to the respective amounts of their Commitments, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including without limitation at any time following the payment of the Notes) be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of this Agreement or any of the other Loan Documents or any documents contemplated by or referred to herein or the transactions contemplated hereby or any action taken or omitted by the Agent under or in connection with any of the foregoing; provided that no Bank shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the Agent's gross negligence or willful misconduct. The agreements in this subsection shall survive the payment of the Notes and all other amounts payable hereunder. 8.8 Agent in Its Individual Capacity. The Agent and its Affiliates may make loans to, accept deposits from, issue or maintain L/Cs on account of and generally engage in any kind of business with the Company and its Subsidiaries as though the Agent were not the Agent hereunder. With respect to its Loans made or renewed by it and any Note issued to it, the Agent shall have the same rights and powers under this Agreement as any Bank and may exercise the same as though it were not the Agent, and the terms "Bank" and "Banks" shall include the Agent in its individual capacity. 8.9 Successor Agent. The Agent may resign as an Agent upon 20 days' notice to the Banks. If the Agent shall resign as the Agent under this Agreement, then the Required Banks shall appoint from among the Banks a successor agent for the Banks which successor agent shall be approved by the Company, whereupon such successor agent shall succeed to the rights, powers and duties of the Agent which resigned, and the term "Agent", shall mean such successor agent effective upon its appointment, and the former Agent's rights, powers and duties as the Agent shall be terminated, without any other or further act or deed on the part of such former Agent or any of the parties to this Agreement or any holders of the Notes; provided, however, that upon the occurrence and during the continuance of an Event of Default the approval of the Company of the successor agent shall not be required hereunder. Upon its resignation hereunder, each Agent shall execute and deliver any documents relating to its actions as Agent which may be necessary to permit the successor agent to act as Agent hereunder. After any retiring Agent's resignation hereunder as the Agent, the provisions of this subsection 8.9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Agent under this Agreement. 8.10 Failure to Act. Except for action expressly required of the Agent hereunder, the Agent shall in all cases be fully justified in failing or refusing to act hereunder unless it shall be indemnified to its satisfaction by the Banks against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. SECTION 9. MISCELLANEOUS 9.1 Amendments and Waivers. With the written consent of the Required Banks, the Agent, the Company and the Designated Subsidiaries may, from time to time, enter into written amendments, supplements or modifications hereto for the purpose of adding any provisions to this Agreement or the other Loan Documents or changing in any manner the rights of the Banks or the Company and the Designated Subsidiaries hereunder, and the Agent may execute and deliver to the Company and the Designated Subsidiaries a written instrument waiving, on such terms and conditions as the Agent may specify in such instrument, any of the requirements of this Agreement or the other Loan Documents or any Default or Event of Default and its consequences; provided, however, that no such waiver and no such amendment, supplement or modification shall (a) extend the maturity of any Loan, or reduce the principal amount thereof, or change the amount or termination date of any Bank's Commitment, or release, amend or modify any Guaranty or any collateral covered by any of the Security Documents, or reduce the interest rate or Facility Fee, Issuance Fee or Drawing Fee payable hereunder or extend the time of payment of interest and any fees hereunder or the time of reimbursement of any draws under L/Cs or amend the definition of "Required Banks" or increase the L/C Sublimit, or amend, modify or waive any provision of subsection 4.1, 4.2 or 5.16 or this subsection 9.1, or consent to the assignment or transfer by the Company and each Designated Subsidiary of any of its rights and obligations under this Agreement, in each case without the written consent of all of the Banks, or (b) amend, modify or waive any provision of Section 8 or otherwise affect the rights and obligations of the Agent under the Loan Documents without the written consent of the then Agent (with any such change in any provision of Section 8 to be effective prospectively only). Any such waiver and any such amendment, supplement or modification shall be binding upon the parties to this Agreement and all holders of the Notes. In the case of any waiver, the parties to this Agreement shall be restored to their former position and rights hereunder and under the outstanding Notes, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. 9.2 Notices. All notices, consents, requests and demands to or upon the respective parties hereto to be effective shall be in writing or by telegraph or telecopy and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand, or four (4) Business Days after deposit in the mail, registered mail, return receipt requested, postage prepaid, or, in the case of telegraphic or telecopy notice, when received, addressed as follows in the case of the Company and the Designated Subsidiaries and the Agent, and as set forth on Schedule I in the case of the other parties hereto, or to such address or other address as may be hereafter notified by any of the respective parties hereto or any future holders of the Notes: The Company or any Designated Subsidiary: Ply Gem Industries, Inc. 777 Third Avenue New York, New York 10017 Attention: Treasurer Telephone: (212) 832-1550 Telecopy: (212) 888-0472 With copies to: Charles M. Modlin, Esq. EAB Plaza 12th Floor West Tower Uniondale, New York 11556-0132 Telephone: (516) 794-4600 Telecopy: (516) 794-4604 and Nortek, Inc. 50 Kennedy Plaza Providence, Rhode Island Attention: Richard J. Harris Vice President Telephone: (401) 751-1600 Telecopy: (401) 751-4724 and Ropes & Gray One International Place Boston, Massachusetts 02110 Attention: Douglas N. Ellis, Jr., Esq. Telephone: (617) 951-7000 Telecopy: (617) 951-7050 The Agent: Fleet National Bank One Federal Street Boston, Massachusetts 02211 Attention: John Mann, Agency Services Telephone: (617) 346-0429 Telecopy: (617) 346-4682 and Fleet NationalBank 111 Westminster Street Providence, Rhode Island 02903 Attention: Stephen Craven Vice President Telephone: 401-278-5913 Telecopy: 401-278-5726 with a copy to: Shearman & Sterling 599 Lexington Avenue New York, New York 10022 Attention: Pamela Borgeson, Esq. Telephone: (212) 848-7649 Telecopy: (212) 848-7179 provided that any notice, request or demand to or upon the Agent or the Banks pursuant to subsection 2.3, 2.6 or 2.8 shall not be effective until received. 9.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Agent or any Bank, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, reme-dies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 9.4 Survival of Representations and Warranties. All representations and warranties made hereunder and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the Notes and the making of the Loans and the issuance of L/Cs. 9.5 Payment of Expenses, Etc. The Company agrees (a) to pay or reimburse the Agent for all its reasonable out-of-pocket costs and expenses incurred in connection with the preparation, execution and delivery of, and any amendment, supplement or modification to, this Agreement, the other Loan Documents and any other documents prepared in connection herewith, and the consummation of the transactions contemplated hereby and thereby, including, without limitation, the reasonable fees and disbursements of counsel to the Agent in connection therewith, all reasonable and customary syndication expenses, including without limitation travel expenses incurred by the Agent in connection with due diligence and syndication member and prospective member meetings and typeset-ting duplication and binding expenses with respect to materials for syndicate members, (b) to pay or reimburse each Bank and the Agent for all its reasonable out-of-pocket costs and expenses incurred in connection with the enforcement or preservation of any rights against the Company or any of its Subsidiaries under this Agreement, the other Loan Documents and any such other documents, (c) to pay, indemnify, and to hold each Bank and the Agent and each of their Affiliates and their officers, directors, employees, agents and advisors (each an "Indemnified Party") harmless from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other taxes, if any, if legal, which may be payable or reasonably determined to be payable in connection with the execution and delivery of, or consummation of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement, the other Loan Documents and any such other documents, and (d) to pay, indemnify, and hold each Indemnified Party harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to, or arising out of, the Commitments, Loans and L/Cs, the actual or proposed use of proceeds thereof, the execution, delivery, enforcement and performance of this Agreement, the other Loan Documents or the consummation of the transactions contemplated thereby (including without limitation; the Tender Offer and the Merger) or related to any Environmental Liability or Environmental Proceeding (other than costs, expenses and disbursements incurred by Banks other than the Agent in negotiating and closing the transactions contemplated hereby) (all the foregoing, collectively, the "indemnified liabilities"); provided that the Company shall have no obligation hereunder to any Indemnified Party with respect to indemnified liabilities arising from (i) the gross negligence or willful misconduct of such Indemnified Party, (ii) legal proceedings commenced against such Indemnified Party by any security holder or creditor of such Indemnified Party arising out of and based upon rights afforded any such security holder or creditor solely in its capacity as such, (iii) any breach of obligations of any Bank (including, without limitation, the Agent in its capacity as such) to any other Bank or (iv) a successful claim by the Company or any of its Subsidiaries against such Indemnified Party as determined in a final, non appealable judgment by a court of competent jurisdiction. The Company acknowledges that the Agent and the Banks shall, prior to foreclosure of, or exercise by them of proxy rights with respect to, any of the shares of Subsidiaries securing the Loans, have no liability or responsibility for either: (A) damage, loss or injury to human health, the environment or natural resources caused by the presence, disposal, release or threatened release of Hazardous Materials on any part of the real property owned, operated or leased by the Company or its Subsidiaries; or (B) abatement and/or clean-up required under any applicable Environmental Laws and Regulations for a release, threatened release or disposal of any Hazardous Materials located at the real property owned, operated or leased by the Company or its Subsidiaries or used by or in connection with the Company's or any Subsidiary's business. The agreements in this subsection shall survive repayment of the Notes and all other amounts payable hereunder; provided, however, that nothing herein shall affect the provisions relating to 180-day periods contained in subsections 2.15, 2.16 and 2.22. 9.6 Binding Effect; No Assignment or Delegation by Company or any Designated Subsidiary. This Agreement shall be binding upon and inure to the benefit of the Company and each Designated Subsidiary and their successors and to the benefit of the Banks and the Agent and their respective successors and assigns. The rights and obligations of the Company and each Designated Subsidiary under this Agreement shall not be assigned or delegated without the prior written consent of the Agent, and each Bank, and any purported assignment or delegation without such consent shall be void. 9.7 Assignments and Participations by Banks; Pledge to Federal Reserve Bank. (a) Each Bank may assign to one or more banks or other entities all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment, the Loans owing to it, and the Note or Notes held by it); provided, however, that: (i) each such assignment shall be of a constant, and not a varying, percentage of all of the assigning Bank's rights and obligations under this Agreement, (ii) except in connection with the assignment by any Bank of its entire Commitment, the amount of the Commitment of the assigning Bank being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than $5,000,000 and shall be an integral multiple of $1,000,000, and (iii) each such assignment shall be to an Eligible Assignee. Upon the execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least three Business Days after the execution thereof: (x) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Accep- tance, have the rights and obligations of a Bank hereunder, and (y) the Bank assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Bank's rights and obligations under this Agreement, such Bank shall cease to be a party hereto); and provided further, that the Company shall not be required to pay any amount under this Agreement that is greater than the amount which it would otherwise have been required to pay had such assignment not been made. (b) By executing and delivering an Assignment and Acceptance, the Bank assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Bank makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; (ii) such assigning Bank makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Company and each Designated Subsidiary or the performance or observance by the Company and each Designated Subsidiary of any of their respective obligations under this Agreement or any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of such financial state-ments and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Agent, such assigning Bank or any other Bank and based on such documents and informa- tion as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Agent by the terms hereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Bank. Neither the Company nor any Subsidiary shall have any liability or obligation under this subsection 9.7(b). (c) Upon its receipt of an Assignment and Acceptance executed by an assigning Bank and an assignee representing that it is an Eligible Assignee, together with any original Note subject to such assignment, the Agent shall accept such Assignment and Acceptance, and give prompt notice thereof to the Company. Within five Business Days after its receipt of such notice, each of the Company and each Designated Subsidiary, at its own expense, shall execute and deliver to the Agent in exchange for the surrendered Note a new Note to the order of such Eligible Assignee in an amount equal to the Commitment assumed by it pursuant to such Assignment and Acceptance and, if the assign-ing Bank has retained a Commitment hereunder, a new Note to the order of the assigning Bank in an amount equal to the Commitment retained by it hereunder. Such new Note(s) shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Note, shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially in the form of Exhibit A. (d) The Company and each Designated Subsidiary acknowledges that any Bank may, in the ordinary course of its commercial banking business and in accordance with applicable law, at any time: (i) sell to one or more Eligible Participants participating interests in any Loan owing to such Bank, any Note held by such Bank, any Commitment of such Bank or any other interest of such Bank hereunder (each a "Participating Interest"), without in any such case the need for any approval by the Company, and (ii) subject to the Company's prior approval in each instance (but only when no Event of Default shall have occurred and is continuing), which approval shall not be unreasonably withheld, sell to one or more banks or other entities that do not, directly or indirectly, engage in business competitive with the business of the Company and its Subsidiaries (each such participant and each Eligible Participant is hereinafter referred to individually as a "Participant" and collectively as the "Participants") a Participating Interest provided that no Participant (other than an Affiliate of such Bank which is a Subsidiary of such Bank or the parent holding company of such Bank or a Subsidiary of such holding company) shall be entitled under the relevant participation agreement or any associated agreement to require such Bank to take or omit to take any action hereunder, except, to the extent that any Participant has any interest directly affected thereby, action that extends the final maturity of any Loan, reduces the rate or extends the time of payment of interest on any Loan, extends the time for payment or reduces any fee payable to such Bank hereunder, reduces the principal amount of any Loan or releases all or substantially all of the Collateral described in the Security Agreement. In the event of any such sale by such Bank of participating interests to a Participant, such Bank's obligations under this Agreement shall remain unchanged, such Bank shall remain solely responsible for the performance thereof, such Bank shall remain the holder of any such Note for all purposes under this Agreement, and the Company shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement. The Company and each Designated Subsidiary also agrees that each Participant shall be entitled to the benefits of subsections 2.13, 2.15, 2.16 and 2.22 with respect to its participation in the Commitments, and the Eurodollar Loans outstanding from time to time; provided that no Participant shall be entitled to receive any greater amount pursuant to such subsections than the transferor Bank would have been entitled to receive in respect of the amount of the participation transferred by such transferor Bank to such Participant had no such transfer occurred. (e) The Company and each Designated Subsidiary authorizes each Bank to disclose to any Eligible Assignee or Participant or potential Eligible Assignee or Participant any and all financial information in its possession concerning the Company and each Designated Subsidiary which has been delivered to it by the Company and each Designated Subsidiary pursuant to this Agreement or which has been delivered to it by the Company and each Designated Subsidiary in connection with its credit evaluation of the Company prior to entering into this Agreement; provided that the intended recipient first delivers confidentiality undertakings for the benefit of the Company to the effect of subsection 9.11 with respect to non-public information. (f) If, pursuant to subsection 9.7(a) or (b), any interest in this Agreement, a participation agreement or any Note is transferred to any Participant or Eligible Assignee which is organized under the laws of any jurisdiction other than the United States or any State thereof, the transferor Bank shall cause such Participant or Eligible Assignee concurrently with the effectiveness of such transfer, (i) to represent to the transferor Bank for the benefit of the Company and its Subsidiaries that under applicable law and treaties no taxes will be required to be withheld by the transferor Bank or the Company or each Designated Subsidiary with respect to any Loans, (ii) to furnish to the Bank and the Company either U.S. Internal Revenue Service Form 4224 or U.S. Internal Revenue Service Form 1001 (wherein such Participant claims entitlement to complete exemption from U.S. federal withholding tax on all interest payments hereunder) and (iii) to agree to provide the transferor Bank a new Form 4224 or Form 1001 upon the obsolescence of any previously delivered form and comparable statements in accordance with applicable U.S. laws and regulations and amendments duly executed and completed by such Participant, and to comply from time to time with all applicable U.S. laws and regulations with regard to such withholding tax exemption. (g) No person to whom a participation has been granted or who has received an assignment hereunder may grant any participation or make any assignment unless such participation or assignment would be permitted under this subsection 9.7 if made by a Bank. (h) Notwithstanding anything to the contrary herein, no assignment or participation will be permitted if, after giving effect thereto, the aggregate Commitment of the transferee (if other than the Agent in its capacity as a Bank), together with such transferee's participating interest in the Commitments, would exceed 25% of the aggregate Commitments. (i) Notwithstanding any other provision set forth in this Agreement, any Bank may at any time create a security interest in all or any portion of its rights under this Agreement (including, without limitation, the Loans owing to it and the Notes held by it) in favor of any Federal Reserve Bank in accordance with Regulation A. No such assignment shall release the transferor Bank from its obligations hereunder. 9.8 Further Assurances. At any time and from time to time, upon the request of the Agent, the Company and each Designated Subsidiary shall execute, deliver and acknowledge or cause to be executed, delivered and acknowledged, such further documents and instruments and do such other acts and things as the Agent may reasonably request in order to fully effect the purposes of this Agreement and the other Loan Documents and any other agreements, instruments and documents delivered pursuant hereto or in connection with the Loans or the L/Cs. 9.9 Adjustments; Set-off. (a) If any Bank (a "Benefited Bank") shall at any time receive any payment of all or part of any of its Loans or interest thereon, or receive any collateral in respect thereof or any payment under any Guaranty (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in paragraph (f) of Section 7, or otherwise) in a greater proportion than any such payment to and collateral received by any other Bank, if any, in respect of such other Bank's Loans, or interest on any of the foregoing, such Benefited Bank shall purchase for cash from each other Bank such portion of each such other Bank's Loans, or shall provide each such other Bank with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such Benefited Bank to share the excess payment or benefits of such collateral or proceeds ratably with the other Banks; provided, however, that if all or any portion of such excess payment or benefits is hereafter recovered from such Benefited Bank, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. The Company and each Designated Subsidiary agrees that each Bank so purchasing a portion of any other Bank's Loans may exercise all rights of payment (including, without limitation, rights of set-off) with respect to such portion as fully as if such Bank were the direct holder of such portion. Any payments received after the Banks have taken action pursuant to this subsection 9.9 shall be allocated ratably among the Loans and participations in L/Cs of all the Banks. (b) In addition to any rights and remedies of each Bank provided by law, upon the occurrence and during the continuation of an Event of Default, each Bank shall have the right, without prior notice to the Company or any Designated Subsidiary, any such notice being expressly waived to the extent permitted by applicable law, to set off and apply against any indebtedness, whether matured or unmatured, of the Company or any of its Subsidiaries to such Bank under this Agreement or any of the other Loan Documents, any amount owing from such Bank to the Company or any such Subsidiary at, or at any time after, the happening of any of the above-mentioned events, and such right of set-off may be exercised by such Bank against the Company or any such Subsidiary or against any trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, receiver, custodian or execution, judgment or attachment creditor of the Company or any such Subsidiary or against anyone else claiming through or against the Company or any such Subsidiary or such trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, receivers, or execution, judgment or attachment creditor, notwithstanding the fact that such right of set-off shall not have been exercised by such Bank prior to the making, filing or issuance, or service upon such Bank of, or of notice of, any such petition, assignment for the benefit of creditors, appointment or application for the appointment of a receiver, or issuance of execution, subpoena, order or warrant. Each Bank agrees promptly to notify the Company, any such Subsidiary, the Agent and each other Bank after any such set-off and application made by such Bank, provided that the failure to give such notice shall not affect the validity of such set-off and application. 9.10 Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remain-ing provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 9.11 Confidentiality. Each Bank agrees to maintain the confidentiality of information designated as confidential and provided to it by the Company, or any Subsidiary in connection with this Agreement or the other Loan Documents; provided, however, that any Bank may disclose such information (a) at the request of any bank regulatory authority or in connection with an examination of such Bank by any such authority, (b) pursuant to subpoena or other court process, (c) when required to do so in accordance with the provisions of any applicable law, (d) as required by any other Governmental Authority, (e) to such Bank's independent auditors, attorneys or other professional advisors upon receipt of a confidentiality undertaking for the benefit of the Company in conformity with this subsection 9.11 as to non-public information or (f) to any Eligible Assignee or Participant or potential Eligible Assignee or Participant; provided that such Eligible Assignee or Participant, as the case may be, agrees in writing to maintain the confidentiality of such information in conformity with this subsection 9.11. 9.12 Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Agreement signed by all the parties shall be lodged with the Company, the Designated Subsidiaries and the Agent. 9.13 GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF TRIAL BY JURY. (a) THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND ALL OTHER DOCUMENTS AND INSTRUMENTS EXECUTED AND DELIVERED IN CONNECTION HEREWITH AND THEREWITH, SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. (b) EACH OF THE COMPANY AND EACH DESIGNATED SUBSIDIARY IRREVOCABLY CONSENTS THAT ANY LEGAL ACTION OR PROCEEDING AGAINST IT UNDER, ARISING OUT OF OR IN ANY MANNER RELATING TO THIS AGREEMENT, AND THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN ANY COURT OF THE STATE OF NEW YORK, COUNTY OF NEW YORK, OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK. THE COMPANY AND EACH DESIGNATED SUBSIDIARY, BY THE EXECUTION AND DELIVERY OF THIS AGREEMENT, EXPRESSLY AND IRREVOCABLY ASSENTS AND SUBMITS TO THE PERSONAL NON- EXCLUSIVE JURISDICTION OF ANY OF SUCH COURTS IN ANY SUCH ACTION OR PROCEEDING. EACH OF THE COMPANY AND EACH DESIGNATED SUBSIDIARY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF ANY COMPLAINT, SUMMONS, NOTICE OR OTHER PROCESS RELATING TO ANY SUCH ACTION OR PROCEEDING BY DELIVERY THEREOF IN ACCORDANCE WITH APPLICABLE LAW. EACH OF THE COMPANY AND EACH DESIGNATED SUBSIDIARY HEREBY EXPRESSLY AND IRREVOCABLY WAIVES ANY CLAIM OR DEFENSE IN ANY SUCH ACTION OR PROCEEDING BASED ON ANY ALLEGED LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS OR ANY SIMILAR BASIS. EACH OF THE COMPANY AND EACH DESIGNATED SUBSIDIARY SHALL NOT BE ENTITLED IN ANY SUCH ACTION OR PROCEEDING TO ASSERT ANY DEFENSE GIVEN OR ALLOWED UNDER THE LAWS OF ANY STATE OTHER THAN THE STATE OF NEW YORK UNLESS SUCH DEFENSE IS ALSO GIVEN OR ALLOWED BY THE LAWS OF THE STATE OF NEW YORK. NOTHING IN THIS SUBSECTION SHALL AFFECT OR IMPAIR IN ANY MANNER OR TO ANY EXTENT THE RIGHT OF ANY BANK TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY OR ANY DESIGNATED SUBSIDIARY IN ANY JURISDICTION OR TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW. [THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK] (c) EACH OF THE COMPANY, THE DESIGNATED SUBSIDIARIES, THE BANKS AND THE AGENT WAIVES TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF, THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR ANY INSTRUMENT OR DOCUMENT DELIVERED PURSUANT TO THIS AGREEMENT, OR THE VALIDITY, PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. PLY GEM INDUSTRIES, INC. By Title: ACKNOWLEDGED AND AGREED AS TO EACH PROVISION RELATING TO ANY DESIGNATED SUBSIDIARY: SAGEBRUSH SALES, INC. By Title: SNE ENTERPRISES, INC. By Title: VARIFORM, INC. By Title: GREAT LAKES WINDOW, INC. By Title: FLEET NATIONAL BANK, as Agent and as a Bank By_____________________ Title EUROPEAN AMERICAN BANK By_____________________ Title BANK OF MONTREAL By______________________ Title THE YASUDA TRUST AND BANKING COMPANY, LIMITED NEW YORK BRANCH By___________________ Title EXECUTION COPY PLY GEM INDUSTRIES, INC. ____________________________________ ____________ AMENDED AND RESTATED CREDIT AGREEMENT Dated as of August 26, 1997 ________________________________________________ FLEET NATIONAL BANK, as Agent, and THE BANKS SIGNATORY HERETO TABLE OF CONTENTS Page SECTION 1. DEFINITIONS 2 1.1 Defined Terms 2 1.2 Other Definitional Provisions 24 SECTION 2. AMOUNTS AND TERMS OF COMMITMENTS 24 2.1 Commitments 24 2.2 Notes 26 2.3 Procedure for Loan Borrowings 26 2.4 Intentionally Omitted 28 2.5 Intentionally Omitted 28 2.6 Termination or Reduction of Commitments 28 2.7 Fees 29 2.8 Optional and Mandatory Prepayments 29 2.9 Repayment of Loans 30 2.10 Interest Rates and Payment Dates 31 2.11 Computation of Interest and Fees 32 2.12 Inability to Determine Interest Rate 32 2.13 Taxes 33 2.14 Illegality 34 2.15 Increased Costs 35 2.16 Indemnity 36 2.17 Maximum Number of Tranches 37 2.18 Use of Proceeds 37 2.19 Pro Rata Treatment and Payments; L/C Participation 37 2.20 Guaranties 39 2.21 Security 39 2.22 Additional L/C Provisions 40 2.23 Several Obligations 43 SECTION 3. REPRESENTATIONS AND WARRANTIES 43 3.1 Financial Condition 43 3.2 No Change 44 3.3 Corporate Existence; Compliance with the Law 44 3.4 Corporate Power; Authorization; Enforceable Obligations 44 3.5 No Legal Bar 45 3.6 No Litigation 45 3.7 Federal Regulations 45 3.8 Investment Company Act 45 3.9 Disclosure 45 3.10 No Default 46 3.11 Taxes 46 3.12 Subsidiaries 46 3.13 Ownership of Property; Liens 46 3.14 ERISA 46 3.15 Nortek Indentures 48 3.16 SEC Reports 48 3.17 Intangible Assets 48 3.18 Name Changes, Mergers, Acquisitions 48 3.19 Licenses and Approvals 49 3.20 Labor Disputes; Collective Bargaining Agreements; Employee Grievances 49 3.21 Solvency 49 3.22 Outstanding Indebtedness for Borrowed Money 49 3.23 Hazardous Materials 49 SECTION 4. CONDITIONS PRECEDENT 49 4.1 Conditions to Initial Loans and L/Cs 49 (a) Tender Offer and Merger 50 (b) Corporate Structure 50 (c) No Material Adverse Change 50 (d) Pre-Commitment Information 50 (e) Capital Structure 50 (f) Compliance; No Litigation 50 (g) Insurance 51 (h) Fees and Expenses 51 (i) Consents and Approvals 51 (j) Agreement 51 (k) Notes 51 (l) Guaranty 51 (m) Collateral 51 (n) Borrowing Certificates 52 (o) Notice of Borrowing 52 (p) Legal Opinions 52 (q) Related Agreements 53 (r) Corporate Proceedings 53 (s) Related Documents and Nortek Indentures 53 (t) Consents 53 (u) Other Fees 54 (v) Good Standings 54 (w) Incumbency Certificates 54 (x) Solvency Certificate 54 (y) Ownership, Liens 54 (z) Projections 54 (aa) Other Documentation 54 4.2 Conditions to All Loans 54 (a) Representations and Warranties 55 (b) No Default or Event of Default 55 (c) No Violations of Law 55 (d) Other 55 4.3 Conditions to Loans to New Designated Subsidiaries 55 SECTION 5. AFFIRMATIVE COVENANTS 56 5.1 Financial Statements 56 5.2 Certificates; Other Information 57 5.3 Payment of Obligations 57 5.4 Material Operating Subsidiaries 58 5.5 Conduct of Business and Maintenance of Existence 58 5.6 Maintenance of Property; Insurance 58 5.7 Inspection of Property; Books and Records; Discussions 58 5.8 Notices 59 5.9 Copies of Corporate Documents 60 5.10 Conditions Subsequent 60 5.11 Hazardous Material 60 5.12 Further Assurances 61 5.13 Compliance with Terms of Leaseholds 61 5.14 Performance of Related Documents 62 5.15 Hedge Agreements 62 5.16 Conditions Subsequent to Closing Date 62 SECTION 6. NEGATIVE COVENANTS 63 6.1 Limitation on Indebtedness 63 6.2 Limitation on Liens 64 6.3 Limitation on Contingent Obligations 66 6.4 Limitation on Fundamental Changes 67 6.5 Distributions 68 6.6 Limitation on Dividend Restrictions Regarding Subsidiaries 68 6.7 Prohibition on Investments, Acquisitions, Loans and Advances 68 6.8 Prohibition on Optional Prepayments 70 6.9 Consolidated Net Worth 71 6.10 Leverage Ratio 71 6.11 Interest Coverage Ratio 71 6.12 Current Ratio 71 6.13 Intentionally Omitted 71 6.14 Amendment, Etc. of Related Documents 71 6.15 Fiscal Year 72 6.16 Transactions with Affiliates 72 6.17 Ownership of Designated Subsidiaries 72 6.18 Limitation on Capital Expenditures 72 6.19 Financing Leases 72 6.20 Change in Nature of Business 73 6.21 Charter Amendments 73 6.22 Accounting Changes 73 6.23 Intentionally Omitted 73 6.24 Negative Pledge 73 6.25 Formation of Subsidiaries 73 SECTION 7. EVENTS OF DEFAULT 73 SECTION 8. THE AGENT 77 8.1 Appointment 77 8.2 Delegation of Duties 77 8.3 Exculpatory Provisions 77 8.4 Reliance by Agent 78 8.5 Notice of Default 78 8.6 Non-Reliance on Agent and Other Banks 78 8.7 Indemnification 79 8.8 Agent in Its Individual Capacity 79 8.9 Successor Agent 79 8.10 Failure to Act 80 SECTION 9. MISCELLANEOUS 80 9.1 Amendments and Waivers 80 9.2 Notices 81 9.3 No Waiver; Cumulative Remedies 83 9.4 Survival of Representations and Warranties 83 9.5 Payment of Expenses, Etc. 83 9.6 Binding Effect; No Assignment or Delegation by Company or any Designated Subsidiary 84 9.7 Assignments and Participations by Banks; Pledge to Federal Reserve Bank 85 9.8 Further Assurances 88 9.9 Adjustments; Set-off 88 9.10 Severability 89 9.11 Confidentiality 89 9.12 Counterparts 90 9.13 GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF TRIAL BY JURY 90 SCHEDULES I Initial Commitments and Loans 2.1 Existing Letters of Credit 2.20 Material Operating Subsidiaries 3.11 Taxes 3.12 Subsidiaries, including Non-Core Subsidiaries 3.14 Contingent Liability relating to Post- Retirement Benefit 3.18 Name Changes, Mergers, Acquisitions 3.20 Labor Disputes; Collective Bargaining Agreements; Employee Grievances 3.22 Indebtedness 6.2 Liens 6.3 Contingent Obligations EXHIBITS A Form of Note B Form of Assignment and Agreement C Form of Notice of Borrowing/Conversion D-1 Form of Borrowing Certificate for the Company D-2 Form of Borrowing Certificate for Subsidiaries E Form of Assignment and Acceptance F-1 Form of Legal Opinion of Charles M. Modlin F-2 Form of Legal Opinion of Ropes & Gray G Forms of Solvency Certificate COPY AS EXECUTED, TOGETHER WITH EXHIBIT B THERETO AND THE SECURITY AGREEMENT AND GUARANTY REFERRED THEREIN, EACH AS SEPARATELY EXECUTED PLY GEM INDUSTRIES, INC. ________________________________________________ AMENDED AND RESTATED CREDIT AGREEMENT Dated as of August 26, 1997 ________________________________________________ FLEET NATIONAL BANK, as Agent, and THE BANKS SIGNATORY HERETO -----END PRIVACY-ENHANCED MESSAGE-----