-----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, Avkbt1b0tKwphK+RQPPwcu5dyFT0FcYtTy21aYIlADAu3mvSXaESHl+CKwdap6ON piK1A5AfiUz7zEmFVD6WTA== 0000950172-02-002642.txt : 20021204 0000950172-02-002642.hdr.sgml : 20021204 20021204145728 ACCESSION NUMBER: 0000950172-02-002642 CONFORMED SUBMISSION TYPE: SC 13E3/A PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 20021204 GROUP MEMBERS: ALMON C. HALL GROUP MEMBERS: EDWARD J. COONEY GROUP MEMBERS: KELSO INVESTMENT ASSOCIATES VI, L.P. GROUP MEMBERS: KELSO NORTEK INVESTORS, LLC GROUP MEMBERS: KEP VI, LLC GROUP MEMBERS: KEVIN W. DONNELLY GROUP MEMBERS: NORTEK HOLDINGS, INC. GROUP MEMBERS: RICHARD L. BREADY GROUP MEMBERS: ROBERT E.G. RACTLIFFE SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: NORTEK HOLDINGS INC CENTRAL INDEX KEY: 0000072423 STANDARD INDUSTRIAL CLASSIFICATION: MILLWOOD, VENEER, PLYWOOD & STRUCTURAL WOOD MEMBERS [2430] IRS NUMBER: 161638891 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13E3/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-30364 FILM NUMBER: 02848637 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 FORMER COMPANY: FORMER CONFORMED NAME: NORTEK INC DATE OF NAME CHANGE: 19920703 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: K HOLDINGS INC CENTRAL INDEX KEY: 0001176878 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13E3/A BUSINESS ADDRESS: STREET 1: 320 PARK AVE 24TH FL CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2127513939 MAIL ADDRESS: STREET 1: 320 PARK AVE 24TH FL CITY: NEW YORK STATE: NY ZIP: 10022 SC 13E3/A 1 s435a.txt SC 13E3/A #4 =============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 AMENDMENT NO. 4 TO SCHEDULE 13E-3 RULE 13e-3 TRANSACTION STATEMENT UNDER SECTION 13(e) OF THE SECURITIES EXCHANGE ACT OF 1934 NORTEK HOLDINGS, INC. (Name of the Issuer) NORTEK HOLDINGS, INC. K HOLDINGS, INC. KELSO INVESTMENT ASSOCIATES VI, L.P. KEP VI, LLC KELSO NORTEK INVESTORS, LLC RICHARD L. BREADY EDWARD J. COONEY KEVIN W. DONNELLY ALMON C. HALL ROBERT E.G. RACTLIFFE (Names of Person(s) Filing Statement) COMMON STOCK, PAR VALUE $1.00 SPECIAL COMMON STOCK, PAR VALUE $1.00 (Title of Class of Securities) 656559101 656559200 (CUSIP Number of Class of Securities) --------------
MR. KEVIN DONNELLY MR. RICHARD L. BREADY MR. JAMES J. CONNORS II NORTEK HOLDINGS, INC. NORTEK HOLDINGS, INC. K HOLDINGS, INC. 50 KENNEDY PLAZA 50 KENNEDY PLAZA KELSO INVESTMENT ASSOCIATES VI, L.P. PROVIDENCE, RI 02903 PROVIDENCE, RI 02903 KEP VI, LLC (401) 751-1600 KELSO NORTEK INVESTORS, LLC 320 PARK AVENUE NEW YORK, NY 10022 (212) 751-3939 MR. EDWARD J. COONEY MR. ALMON C. HALL MR. ROBERT E.G. RACTLIFFE NORTEK HOLDINGS, INC. NORTEK HOLDINGS, INC. NORTEK HOLDINGS, INC. 50 KENNEDY PLAZA 50 KENNEDY PLAZA 50 KENNEDY PLAZA PROVIDENCE, RI 02903 PROVIDENCE, RI 02903 PROVIDENCE, RI 02903 (401) 751-1600 (401) 751-1600 (401) 751-1600
(Name, Address and Telephone Numbers of Person Authorized to Receive Notices and Communications on Behalf of Person(s) Filing Statement) This statement is filed in connection with (check the appropriate box): a. |X| The filing of solicitation materials or an information statement subject to Regulation 14A (ss.ss. 240.14a-1 through 240.14b-2), Regulation 14C (ss.ss. 240.14c-1 through 240.14c-101) or Rule 13e-3(c) (ss. 240.13e-3(c)) under the Securities Exchange Act of 1934. b. |_| The filing of a registration statement under the Securities Act of 1933. c. |_| A tender offer. d. |_| None of the above. Check the following box if the soliciting materials or information statement referred to in checking box (a) are preliminary copies: |X| Calculation of Filing Fee -------------------------------------------------------------------- | | | | Transaction Valuation* | Amount of Filing Fee** | |--------------------------------| ---------------------------------| | | | | $498,968,810 | $45,906 | -------------------------------------------------------------------- * The proposed maximum aggregate value of the transaction for purposes of calculating the filing fee only is $498,968,810. The filing fee was determined by adding (a) the product of (i) the 10,200,976 shares of common stock, par value $1.00 per share, of Nortek Holdings, Inc. ("Common Stock") and 508,255 shares of special common stock, par value $1.00 per share, of Nortek Holdings, Inc. ("Special Common Stock") that are proposed to be redeemed immediately following the recapitalization and (ii) the redemption consideration of $46.00 to be paid with respect to each share of Common Stock and Special Common Stock outstanding immediately prior to the recapitalization, plus (b) $6,344,184 expected to be paid upon cancellation of outstanding options (the "Total Consideration"). ** The filing fee equals the product of 0.000092 multiplied by the Total Consideration. [X] Check the box if any part of the fee is offset as provided by Section 240.0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid: $ 45,906 Form or Registration No.: Preliminary Proxy Statement on Schedule 14A Filing Party: Nortek, Inc. Date Filed: October 2, 2002 Neither the Securities and Exchange Commission nor any state securities commission has: (i) approved or disapproved of the acquisition of Nortek Holdings, Inc. by K Holdings and its designees and certain members of Nortek Holdings, Inc.'s management; (ii) passed on the merits or fairness of the acquisition or (iii) passed upon the adequacy or accuracy of the disclosure in this document. Any representation to the contrary is a criminal offense. INTRODUCTION This Rule 13e-3 transaction statement on Schedule 13E-3 (this "Schedule 13E-3") is being filed with the Securities and Exchange Commission (the "Commission") by Nortek Holdings, Inc. ("Nortek Holdings"), Richard L. Bready, Chairman of the Board, President and Chief Executive Officer of Nortek, Inc. ("Nortek") and Nortek Holdings, Edward J. Cooney, Vice President and Treasurer of Nortek and Nortek Holdings, Kevin W. Donnelly, Vice President, General Counsel and Secretary of Nortek and Nortek Holdings, Almon C. Hall, Vice President, Controller and Chief Financial Officer of Nortek and Nortek Holdings, Robert E.G. Ractliffe, Executive Vice President and Chief Operating Officer of Nortek and Nortek Holdings, K Holdings, Inc. ("K Holdings"), Kelso Investment Associates VI, L.P. ("KIA VI"), KEP VI, LLC ("KEP VI") and Kelso Nortek Investors, LLC ("Kelso Nortek Investors"). Nortek, Nortek Holdings and K Holdings have entered into a recapitalization agreement (the "Recapitalization Agreement"), dated as of June 20, 2002, as amended, pursuant to which affiliates of Kelso & Company, L.P. ("Kelso"), a New York based sponsor of private equity transactions, and certain members of Nortek's senior management team, including Mr. Bready, Mr. Cooney, Mr. Donnelly, Mr. Hall and Mr. Ractliffe, have agreed to acquire Nortek Holdings for $46.00 per share in cash. In accordance with the Recapitalization Agreement, prior to the date of the notice of the special meeting, Nortek was reorganized into a holding company structure and each outstanding share of capital stock of Nortek was converted into an identical share of capital stock of Nortek Holdings with Nortek Holdings becoming the successor public company and Nortek becoming a wholly owned subsidiary of Nortek Holdings. Some of the management investors will sell or cash out a portion of their equity interest in Nortek Holdings as part of the recapitalization, based upon the same $46.00 per share redemption payment to be made to the other public stockholders, and will retain the remainder of their equity interest in Nortek Holdings. As a result of the recapitalization, Nortek Holdings will be owned by affiliates of Kelso and the management investors and will cease to be a public company. Nortek Holdings will also apply to the New York Stock Exchange for the delisting of its shares of common stock and to the Commission for the deregistration of its common stock under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Nortek or Nortek Holdings will, however, continue to file periodic reports with the Securities and Exchange Commission as required by the indentures underlying the senior and senior subordinated notes of Nortek. On October 2, 2002, Nortek filed with the Commission a preliminary proxy statement on Schedule 14A pursuant to Section 14(a) of the Exchange Act relating to a special meeting of stockholders of Nortek Holdings. The proxy statement was subsequently revised and a definitive proxy statement was filed with the Commission by Nortek Holdings on December 4, 2002 (as revised, the "Proxy Statement"). At the meeting, stockholders of Nortek Holdings will consider and vote upon the approval of an amendment to Nortek Holdings' certificate of incorporation that will: o create a new class of common stock, Class A Common Stock, par value $1.00 per share, of Nortek Holdings, consisting of 19,000,000 authorized shares; o reclassify each share of common stock, par value $1.00 per share, and special common stock, par value $1.00 per share, of Nortek Holdings outstanding at the time such amendment becomes effective into one share of a new class of mandatorily redeemable common stock, Class B Common Stock, par value $1.00 per share, of Nortek Holdings consisting of 14,000,000 authorized shares; o require the immediate redemption of each share of Class B Common Stock for $46.00 per share in cash upon the completion of the recapitalization; and o increase the authorized number of shares of preference stock, par value $1.00 per share, to 19,000,000 authorized shares. The information in the Proxy Statement, including all annexes thereto, is hereby expressly incorporated by reference into this Schedule 13E-3, and the responses to each item are qualified in their entirety by the provisions of the Proxy Statement and the annexes thereto. Capitalized terms used but not defined in this Schedule 13E-3 shall have the meanings given to such terms in the Proxy Statement. ITEM 1. SUMMARY TERM SHEET. REGULATION M-A ITEM 1001 The information set forth in the Proxy Statement under the caption "SUMMARY TERM SHEET" is incorporated herein by reference. ITEM 2. SUBJECT COMPANY INFORMATION. REGULATION M-A ITEM 1002 (a) NAME AND ADDRESS. The information set forth in the Proxy Statement under the caption "SUMMARY - The Parties" is incorporated herein by reference. (b) SECURITIES. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference: THE SPECIAL MEETING - Purpose of the Special Meeting THE SPECIAL MEETING - Record Date; Who Is Entitled to Vote THE SPECIAL MEETING - Vote Required to Approve the Amendment to the Certificate of Incorporation (c) TRADING MARKET AND PRICE. The information set forth in the Proxy Statement under the caption "STOCK PRICE AND DIVIDEND INFORMATION; STOCK REPURCHASES" is incorporated herein by reference. (d) DIVIDENDS. The information set forth in the Proxy Statement under the caption "STOCK PRICE AND DIVIDEND INFORMATION; STOCK REPURCHASES" is incorporated herein by reference. (e) PRIOR PUBLIC OFFERINGS. None. (f) PRIOR STOCK PURCHASES. The information set forth in the Proxy Statement under the caption "STOCK PRICE AND DIVIDEND INFORMATION; STOCK REPURCHASES" is incorporated herein by reference. ITEM 3. IDENTITY AND BACKGROUND OF FILING PERSON. REGULATION M-A ITEM 1003 (a) NAME AND ADDRESS. The following sets forth the name, address and telephone number of the filing persons: Nortek Holdings, Inc., the subject company 50 Kennedy Plaza Providence, RI 02903 (401) 751-1600 K Holdings, Inc. Kelso Investment Associates VI, L.P. KEP VI, LLC Kelso Nortek Investors, LLC 320 Park Avenue, 24th Floor New York, NY 10022 (212) 751-3939 Mr. Richard L. Bready c/o Nortek Holdings, Inc. 50 Kennedy Plaza Providence, RI 02903 (401) 751-1600 Mr. Edward J. Cooney c/o Nortek Holdings, Inc. 50 Kennedy Plaza Providence, RI 02903 (401) 751-1600 Mr. Kevin W. Donnelly c/o Nortek Holdings, Inc. 50 Kennedy Plaza Providence, RI 02903 (401) 751-1600 Mr. Almon C. Hall c/o Nortek Holdings, Inc. 50 Kennedy Plaza Providence, RI 02903 (401) 751-1600 Mr. Robert E.G. Ractliffe c/o Nortek Holdings, Inc. 50 Kennedy Plaza Providence, RI 02903 (401) 751-1600 The following sets forth the names and titles of the directors and officers of Nortek and Nortek Holdings. The business address and telephone number of each such person listed is c/o Nortek Holdings, Inc., 50 Kennedy Plaza, Providence, RI 02903, (401) 751-1600. Richard L. Bready, Chairman of the Board, President and Chief Executive Officer Edward J. Cooney, Vice President and Treasurer Kevin W. Donnelly, Vice President, General Counsel and Secretary Almon C. Hall, Vice President, Controller and Chief Financial Officer Robert E.G. Ractliffe, Executive Vice President and Chief Operating Officer Phillip L. Cohen, Director Richard J. Harris, Director William I. Kelly, Director J. Peter Lyons, Director The following sets forth the names and titles of the directors and officers of K Holdings, Inc. The business address and telephone number of each such person listed is c/o Kelso & Company, L.P., 320 Park Avenue, 24th Floor, New York, NY 10022, (212) 751-3939. Michael B. Goldberg, President and Director Philip E. Berney, Vice-President and Director James J. Connors II, Vice-President and Director Frank J. Loverro, Vice-President Church M. Moore, Vice-President and Treasurer The following sets forth the name, address and telephone number of the general partner of Kelso Investment Associates VI, L.P. and the managing member of Kelso Nortek Investors, LLC: Kelso GP VI, LLC c/o Kelso & Company, L.P. 320 Park Avenue, 24th Floor New York, NY 10022 (212) 751-3939 The following sets forth the names and titles of each managing member of Kelso GP VI, LLC and KEP VI. The business address and telephone number of each such person listed is c/o Kelso & Company, L.P., 320 Park Avenue, 24th floor, New York, NY 10022, (212) 751-3939. Frank T. Nickell, President and Chief Executive Office, Managing Member Thomas R. Wall, IV, Managing Member George E. Matelich, Managing Member Michael B. Goldberg, Managing Member David I. Wahrhaftig, Managing Member Frank K. Bynum, Jr., Managing Member Philip E. Berney, Managing Member K Holdings, KIA VI, KEP VI and Kelso Nortek Investors do not believe that they are affiliates of Nortek Holdings at this time. They filed this Schedule 13E-3 solely in light of their relationship with Mr. Bready and the fact that they have noticed that in some instances involving similar transactions, persons similarly situated to them have filed a Schedule 13E-3. K Holdings, KIA VI, KEP VI and Kelso Nortek Investors do not believe this relationship, which consists of an understanding with Mr. Bready concerning Mr. Bready's retention of shares of Nortek Holdings common stock and options to acquire shares of Nortek Holdings common stock owned and controlled by him in the recapitalization and his agreement to vote to approve the amendment to the Nortek Holdings certificate of incorporation, renders K Holdings, KIA VI, KEP VI or Kelso Nortek Investors an affiliate. (b) BUSINESS AND BACKGROUND OF ENTITIES. The information set forth in the Proxy Statement under the caption "SUMMARY - The Parties" is incorporated herein by reference. KIA VI, a Delaware limited partnership, and KEP VI, a Delaware limited liability company, are private investment funds formed by Kelso. Kelso Nortek Investors is a Delaware limited liability company, the principal business of which is investing in Nortek Holdings following the recapitalization. Kelso GP VI, LLC is a Delaware limited liability company, the principal business of which is serving as the general partner of KIA VI. (c) BUSINESS AND BACKGROUND OF NATURAL PERSONS. The following sets forth the business and background of each executive officer and director of Nortek and Nortek Holdings: Richard L. Bready has been a director of Nortek Holdings since June 20, 2002 and has served as the Chairman of the Board, President and Chief Executive Officer of Nortek Holdings since November 20, 2002. In addition, Mr. Bready has been the Chairman of the Board, President and Chief Executive Officer of Nortek for more than the past five years. The address of Nortek Holdings and of Nortek is 50 Kennedy Plaza, Providence, RI 02903. Mr. Bready is a citizen of the United States. Edward J. Cooney has been Treasurer of Nortek Holdings since June 19, 2002 and has served as a Vice President of Nortek Holdings since November 20, 2002. In addition, Mr. Cooney has been Vice President and Treasurer of Nortek since May 2, 2002. From August 20, 2001 to May 2, 2002, Mr. Cooney served as the Treasurer of Nortek. The address of Nortek Holdings and of Nortek is 50 Kennedy Plaza, Providence, RI 02903. From 2000 to August 20, 2001, Mr. Cooney served as the Chief Financial Officer of Spiedel Inc. (a manufacturer of replacement watch bands and straps), 25 Fairmont Avenue, East Providence, RI 02914. Before joining Spiedel, Mr. Cooney worked for several years at Amtrol Inc. (a producer and marketer of flow and expansion control technology), 1400 Division Road, West Warwick, RI 02983. Most recently, he served as Amtrol's Executive Vice President of Sales (from 1998 to 2000) and Senior Vice President and Chief Financial Officer (from prior to 1997 to 1998). Mr. Cooney is a citizen of the United States. Kevin W. Donnelly has been Vice President, and Secretary of Nortek Holdings since June 19, 2002 and has served as General Counsel of Nortek Holdings since November 20, 2002. In addition, Mr. Donnelly has been Vice President, General Counsel and Secretary of Nortek for more than the past five years. The address of Nortek Holdings and of Nortek is 50 Kennedy Plaza, Providence, RI 02903. He is a citizen of the United States. Almon C. Hall has been Vice President, Controller and Chief Financial Officer of Nortek Holdings since November 20, 2002. From June 19, 2002 to November 20, 2002, Mr. Hall served as President of Nortek Holdings. In addition, Mr. Hall has been Vice President and Chief Financial Officer of Nortek since May 2, 2002. Prior to that date and for more than the past five years, Mr. Hall served as Vice President, Controller and Chief Accounting Officer of Nortek. The address of Nortek Holdings and of Nortek is 50 Kennedy Plaza, Providence, RI 02903. Mr. Hall is a citizen of the United States. Robert E.G. Ractliffe has been Executive Vice President and Chief Operating Officer of Nortek Holdings since November 20, 2002. In addition, Mr. Ratcliffe has been Executive Vice President and Chief Operating Officer of Nortek since January 9, 2002. The address of Nortek Holdings and of Nortek is 50 Kennedy Plaza, Providence, RI 02903. From 1997 to January 9, 2002, Mr. Ractliffe served as President and Chief Executive Officer of Ply Gem Industries, Inc. (a holding company that owns stock of building products manufacturers) and Chief Executive Officer of Nordyne Inc. (a commercial and residential HVAC manufacturer), each of which is a wholly owned subsidiary of Nortek, Inc. The address of Ply Gem Industries, Inc. is 50 Kennedy Plaza, Providence, RI 02903 and the address of Nordyne Inc. is 8000 Phoenix Parkway, O'Fallon, MO 63366. Mr. Ractliffe is a citizen of the United States. Phillip L. Cohen has been a director of Nortek Holdings since June 19, 2002 and of Nortek for more than the past five years. The address of Nortek Holdings and of Nortek is 50 Kennedy Plaza, Providence, RI 02903. Mr. Cohen was a partner with an international public accounting firm from 1965 until his retirement in June 1994 and has been a financial consultant since that date. Mr. Cohen's business address is 79 Ocean Avenue, Swampscott, MA 01907. From 1974 to 2001, he was a director and Treasurer of the Greater Boston Convention and Visitors Bureau (the "Bureau"), which promotes and markets greater Boston for the purpose of enhancing the overall economy through visitor development. The Bureau's address is 2 Copley Place, Suite 105, Boston, MA 02116. Mr. Cohen is a director of the following: (i) UniFirst Corporation (since 2000; a designer, manufacturer and servicer of occupational garments, career apparel and image-wear programs), 68 Jonspin Road, Wilmington, MA 01887 and (ii) Kazmaier Associates, Inc. (since 2000; a marketer, manufacturer and distributor of sports and recreational equipment), 676 Elm Street, Concord, MA 01742. He was a director of Bike Athletic Co. (from 1999 to May 28, 2002; a company that manufactures, procures and sells sporting goods), 2801 Red Dog Drive, Knoxville, TN 37914. Mr. Cohen is a citizen of the United States. Richard J. Harris has been a director of Nortek Holdings since June 19, 2002 and of Nortek for more than the past five years. Mr. Harris retired as an employee of Nortek on October 5, 2001. Prior to that date, he had been employed by Nortek as Senior Vice President - Administration and Treasurer since May 3, 2001, and as Vice President and Treasurer for more than five years prior to May 3, 2001. The address of Nortek Holdings and of Nortek is 50 Kennedy Plaza, Providence, RI 02903. He is a citizen of the United States. William I. Kelly has been a director of Nortek Holdings since June 19, 2002 and of Nortek for more than the past five years. The address of Nortek Holdings and of Nortek is 50 Kennedy Plaza, Providence, RI 02903. Mr. Kelly is Managing Director of American Express Tax and Business Services, a wholly owned subsidiary of American Express Company, which provides accounting, tax and consulting services to small and medium sized businesses. He has served this firm since January 2000, initially as its Director of Human Resources and was promoted to Managing Director in December 2001. The address of American Express Tax and Business Services is 2300 Crown Colony Drive, Suite 300, Quincy, MA 02169. Mr. Kelly has been a director of Scituate Federal Savings Bank, a federal savings bank located at 560 Plain Street, Marshfield, MA 02050, since prior to 1997. Mr. Kelly was Director of the Graduate School of Professional Accounting of Northeastern University for more than five years until August 1999. The school's address is 360 Huntington Avenue, Boston, MA 02115. He is a citizen of the United States. J. Peter Lyons has been a director of Nortek Holdings since June 19, 2002 and of Nortek for more than the past five years. The address of Nortek Holdings and of Nortek is 50 Kennedy Plaza, Providence, RI 02903. In addition, Mr. Lyons has been, for more than the past five years, Chairman of The Lyons Companies, 800 South Street, Waltham, MA 02453, which designs benefit plans and provides insurance services. He is a citizen of the United States. The following sets forth the business and background of each executive officer and director of K Holdings. The current principal business address and telephone number of each such person listed is c/o Kelso & Company, L.P., 320 Park Avenue, 24th floor, New York, NY 10022, (212) 751-3939. Michael B. Goldberg has been President and a director of K Holdings since April, 2002. In addition, Mr. Goldberg has been a Managing Director of Kelso since 1991. Mr. Goldberg is a director of the following: (i) ArmKel, LLC (since 2001; a marketer and manufacturer of branded personal care consumer products), c/o Church & Dwight Co., Inc., 469 North Harrison Street, Princeton, NJ, 08543-5297; (ii) Consolidated Vision Group, Inc. (since 1997; a eyeglass and contact lens business), c/o America's Best Contacts and Eyeglasses, 7255 Crescent Boulevard, Route 130, Pennsauken, NJ 08110; (iii) Endo Pharmaceuticals, Inc. (since 1997; a pharmaceutical company), 100 Painters Drive, Chadds Ford, PA 19317; (iv) Hilite Holdings, LLC (since 1999; an automotive parts supplier), c/o Carreras, Kestner & Co., Terminal Tower, 50 Public Square, 32nd Floor, Cleveland, OH 44113; (v) HCI Direct, Inc. (since 1994; a direct manufacturer of hosiery), 3369 Progress Drive, Bensalem, PA 19020; and (vi) Unilab Corporation (since 1999; a medical testing laboratory company), 18448 Oxnard Street, Tarzana, CA 91356. He also serves as a member of the Phoenix House Foundation Board of Directors and The Wilson Council of the Woodrow Wilson International Center for Scholars. Mr. Goldberg is a citizen of the United States. Philip E. Berney has been Vice President and a director of K Holdings since April 20, 2002. In addition, Mr. Berney has been a Managing Director of Kelso since 1999. From 1993 to 1999, he was a Senior Managing Director and Head of the High Yield Capital Markets group at Bear, Stearns & Co. (a financial services company), 383 Madison Avenue, New York, NY 10179. Mr. Berney is a director of the following: (i) ArmKel, LLC (since 2001; a marketer and manufacturer of branded personal care consumer products), c/o Church & Dwight Co., Inc., 469 North Harrison Street, Princeton, NJ, 08543-5297; (ii) CDT Acquisition Corp. (since 1999; a developer and manufacturer of display screens), Greenwich House, Madingley Rise, Madingley Road, Cambridge, England CB3-OHJ, UK; and (iii) Key Components, LLC. (since 2000; a manufacturer of furniture, locks, electrical and mechanical components), c/o Millbrook Capital Management, 152 West 57th Street, 17th Floor, New York, NY 10019. Mr. Berney is a citizen of the United States. James J. Connors II has been Vice President and a director of K Holdings since April, 2002. In addition, Mr. Connors has been Vice President and General Counsel of Kelso since 1993. Mr. Connors was a director of Scient, Inc. (from June, 2002 to October 1, 2002; an internet professional services provider), 405 Lexington Avenue, 26th Floor, New York, NY 10174. Mr. Connors is a citizen of the United States. Frank J. Loverro joined Kelso in 1993 and has served as Vice President since 1999. Prior to becoming Vice President, his title was Associate. Mr. Loverro is a director of Endo Pharmaceuticals, Inc. (since 2000; a pharmaceutical company), 100 Painters Drive, Chadds Ford, PA 19317. Mr. Loverro is a citizen of the United States. Church M. Moore joined Kelso in 1998. His current title is Associate. He worked, from July, 1997 to June, 1998, as an associate at Investcorp International, Inc. (a global investment group), 280 Park Avenue, New York, NY 10017. From August, 1994 to July, 1997, Mr. Moore was an associate in the corporate finance group at BT Securities Corporation (a financial services company), 130 Liberty Street, New York, NY 10006. Mr. Moore is a citizen of the United States. The following sets forth the business and background of each managing member of Kelso GP VI, LLC and KEP VI. The current principal business address and telephone number of each such person listed is c/o Kelso & Company, L.P., 320 Park Avenue, 24th floor, New York, NY 10022, (212) 751-3939. Frank T. Nickell joined Kelso in 1977. His current title is President and Chief Executive Officer. Mr. Nickell is a director of the following: (i) The Bear Stearns Companies Inc. (since 1993; a financial services company), 383 Madison Avenue, New York, NY 10179 ; (ii) BlackRock, Inc. (since 1999; a financial and risk management company), 40 East 52nd Street, New York, NY 10022; (iii) Earle M. Jorgensen Company (since 1993; a specialty metal distributor), 3050 E. Birch Street, Brea, CA 92821; and (iv) Peebles, Inc. (since 1995; a department store), One Peebles Street, South Hill, VA 23970-5001. Mr. Nickell was a director of Charter Communications Entities (from prior to 1997 to 1998; a cable television company), 12444 Powerscourt Drive, Suite 400, St. Louis, MO 63131. He is also a member of The Board of Visitors of the University of North Carolina and a trustee of the NYU Hospitals Center. Mr. Nickell is a citizen of the United States. Thomas R. Wall, IV joined Kelso in 1983. His current title is Managing Director. Mr. Wall is a director of the following: (i) Citation Corporation (since 1999; a foundry products company), 2 Office Park Circle, Suite 204, Birmingham, AL 35223; (ii) Consolidated Vision Group, Inc. (since 1997; an eyeglass and contact lens business), c/o America's Best Contacts and Eyeglasses, 7255 Crescent Boulevard, Route 130, Pennsauken, NJ 08110; (iii) Key Components, Inc. (since 2000; a manufacturer of furniture, locks, electrical and mechanical components), c/o Millbrook Capital Management, 152 West 57th Street, 17th Floor, New York, NY 10019; (iv) Mitchell Supreme Fuel Company (since prior to 1997; a fuel, oil and gas supplier to residences and businesses), 532 Freeman Street, Orange, NJ 07050; (v) Mosler, Inc. (since prior to 1997; a security company), 8509 Berk Boulevard, Hamilton, OH 45015; (vi) Peebles, Inc. (since 1995; a department store), One Peebles Street, South Hill, VA 23970-5001; (vii) TransDigm Inc. (since 1993; a solution provider for aerospace component applications), 26380 Curtiss Wright Parkway, Richmond Hts., OH 44143; and (viii) 21st Century Newspapers, Inc. (since 1997; a newspaper and related publications group), 48 West Huron, Pontiac, MI 48342. Mr. Wall was a director of the following: (i) iXL Enterprises, Inc. (from 1995 to 2001; an internet professional services provider), 1888 Emery Street, NW, Atlanta, GA 30318; (ii) Charter Communications Entities (from prior to 1997 to 1998; a cable television company), 12444 Powerscourt Drive, Suite 400, St. Louis, MO 63131; (iii) Cygnus Publishing, Inc. (from 1997 to 2001; a trade publication company), 405 Central Avenue, Suite 300, St. Petersburg, FL 33701; (iv) Hillside Broadcasting of North Carolina Holding Corp. (from 1995 to 1998; a television station), Two Park Place, 1888 Emery Street, 2nd Floor, Atlanta, GA 30318; and (v) AMF Bowling, Inc. (from prior to 1997 to July, 2002; an owner/operator of bowling centers and manufacturer/marketer of bowling products), 8100 AMF Drive, Richmond, VA 23111 . He is also a trustee of Choate Rosemary Hall. Mr. Wall is a citizen of the United States. George E. Matelich joined Kelso in 1985. His current title is Managing Director. Mr. Matelich is a director of FairPoint Communications, Inc. (since 1997; a world telephone company), 521 East Morehead Street, Suite 250, Charlotte, NC 28202. Mr. Matelich was a director of the following: (i) Charter Communications Entities (from prior to 1997 to 1998; a cable television company), 12444 Powerscourt Drive, Suite 400, St. Louis, MO 63131 and (ii) Humphreys Inc. (from prior to 1997 to 2001; a men's belt manufacturer), 2009 West Hastings Street, Chicago, IL 60608-1123. He is also a trustee of the University of Puget Sound. Mr. Matelich is a citizen of the United States. Michael B. Goldberg: see description under directors and officers of K Holdings, above. David I. Wahrhaftig joined Kelso in 1987 and has served as a Managing Director since 1998. Prior to becoming a Managing Director, his title was Vice President. Mr. Wahrhaftig is a director of the following: (i) Consolidated Vision Group, Inc. (since 1997; an eyeglass and contact lens business), c/o America's Best Contacts and Eyeglasses, 7255 Crescent Boulevard, Route 130, Pennsauken, NJ 08110; (ii) Endo Pharmaceuticals, Inc. (since 1997; a pharmaceutical company), 100 Painters Drive, Chadds Ford, PA 19317); and (iii) Unilab Corporation (since 1999; a medical testing laboratories company), 18448 Oxnard Street, Tarzana, CA 91356). Mr. Wahrhaftig was a director of Humphreys Inc. (from prior to 1997 to 2001; a men's belt manufacturer), 2009 West Hastings Street, Chicago, IL 60608-1123. Mr. Wahrhaftig is a citizen of the United States. Frank K. Bynum, Jr. joined Kelso in 1987 and has served as Managing Director since 1998. Prior to becoming a Managing Director, his title was Vice President. Mr. Bynum is a director of the following: (i) CDT Acquisition Corp. (since 1999; a developer and manufacturer of display screens), Greenwich House, Madingley Rise, Madingley Road, Cambridge, England CB3-OHJ, UK; (ii) Citation Corporation (since 1999; a foundry products company), 2 Office Park Circle, Suite 204, Birmingham, AL 35223; (iii) eMarkets, Inc. (since 1999; software and online tools for agrifoods industry), 1606 Golden Aspen Drive, Suite 108, Ames, IA 50010; (iv) FairPoint Communications, Inc. (since 1997; a world telephone company), 521 East Morehead Street, Suite 250, Charlotte, NC 28202; (v) HCI Direct, Inc. (from 1994 to May, 2002; a direct manufacturer of hosiery), 3369 Progress Drive, Bensalem, PA 19020; (vi) 21st Century Newspapers, Inc. (since 1997; a newspaper and related publications group), 48 West Huron, Pontiac, MI 48342; and (vii) PlantAmerica, Inc. (since September 24, 2002; a provider of websites to the green industry), 4350 North Fairfax Drive, Suite 350, Arlington, VA 22203. Mr. Bynum was a director of the following: (i) Cygnus Publishing, Inc. (from 1997 to 2001; a trade publication company), 405 Central Avenue, Suite 300, St. Petersburg, FL 33701; (ii) Hillside Broadcasting of North Carolina Holding Corp. (from 1995 to 1998; a television station), Two Park Place, 1888 Emery Street, 2nd Floor, Atlanta, GA 30318; and (iii) Scient, Inc. (formerly known as iXL Enterprises, Inc.) (from 1995 to October 1, 2002; an internet professional services provider), 405 Lexington Avenue, 26th Floor, New York, NY 10174. He is also a trustee of Prep for Prep. Mr. Bynum is citizen of the United States. Philip E. Berney: see description under directors and officers of K Holdings, above. During the last five years, none of the persons or entities referred to in this Item 3 has been (i) convicted in a criminal proceeding (excluding traffic violations and similar misdemeanors) or (ii) a party to any judicial or administrative proceeding that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws. ITEM 4. TERMS OF THE TRANSACTION. REGULATION M-A ITEM 1004 (a) MATERIAL TERMS. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference: SUMMARY TERM SHEET QUESTIONS AND ANSWERS ABOUT THE RECAPITALIZATION AND THE SPECIAL MEETING SUMMARY THE SPECIAL MEETING SPECIAL FACTORS THE RECAPITALIZATION AGREEMENT Annex A - Agreement and Plan of Recapitalization, dated as of June 20, 2002, as amended, by and among Nortek, Inc., Nortek Holdings, Inc. and K Holdings, Inc. Annex B - Certificate of Amendment to the Restated Certificate of Incorporation of Nortek Holdings, Inc. (c) DIFFERENT TERMS. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference: SUMMARY TERM SHEET QUESTIONS AND ANSWERS ABOUT THE RECAPITALIZATION AND THE SPECIAL MEETING SUMMARY - The Effects of the Recapitalization SUMMARY - Interests of Nortek Directors, Officers and Affiliates in the Recapitalization SUMMARY - How Options Will Be Treated SPECIAL FACTORS - Structure of the Recapitalization SPECIAL FACTORS - Certain Effects of the Recapitalization SPECIAL FACTORS - Post-Recapitalization Ownership and Control SPECIAL FACTORS - Series B Preference Stock SPECIAL FACTORS - Options Awards SPECIAL FACTORS - Interests of Nortek Directors, Officers and Affiliates in the Recapitalization (d) APPRAISAL RIGHTS. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference: SUMMARY TERM SHEET QUESTIONS AND ANSWERS ABOUT THE RECAPITALIZATION AND THE SPECIAL MEETING SUMMARY - Statutory Appraisal Rights THE SPECIAL MEETING - Statutory Appraisal Rights SPECIAL FACTORS - Reason for the Determination of the Board of Directors; Fairness of the Recapitalization SPECIAL FACTORS - Statutory Appraisal Rights (e) PROVISIONS FOR UNAFFILIATED SECURITY HOLDERS. None. (f) ELIGIBILITY FOR LISTING OR TRADING. Not applicable. ITEM 5. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS. REGULATION M-A ITEM 1005 (a) TRANSACTIONS. The information set forth in the Proxy Statement under the caption "SPECIAL FACTORS - Interests of Nortek Directors, Officers and Affiliates in the Recapitalization" is incorporated herein by reference. (b) SIGNIFICANT CORPORATE EVENTS. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference: SUMMARY TERM SHEET SUMMARY SPECIAL FACTORS - Background of the Recapitalization SPECIAL FACTORS - Interests of Nortek Directors, Officers and Affiliates in the Recapitalization THE RECAPITALIZATION AGREEMENT VOTING AGREEMENT (c) NEGOTIATIONS OR CONTACTS. The information set forth in the Proxy Statement under the caption "SPECIAL FACTORS - Background of the Recapitalization" is incorporated herein by reference. (e) AGREEMENTS INVOLVING THE SUBJECT COMPANY'S SECURITIES. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference: SUMMARY TERM SHEET QUESTIONS AND ANSWERS ABOUT THE RECAPITALIZATION AND THE SPECIAL MEETING SUMMARY - Structure of the Recapitalization SUMMARY - Post-Recapitalization Ownership and Control SUMMARY - Interests of Nortek Directors, Officers and Affiliates in the Recapitalization SUMMARY - How Options Will be Treated THE SPECIAL MEETING - Vote Required To Approve the Amendment to the Certificate of Incorporation SPECIAL FACTORS - Certain Effects of the Recapitalization SPECIAL FACTORS - Post-Recapitalization Ownership and Control SPECIAL FACTORS - Series B Preference Stock SPECIAL FACTORS - Financing of the Recapitalization SPECIAL FACTORS - Interests of Nortek Directors, Officers and Affiliates in the Recapitalization THE RECAPITALIZATION AGREEMENT VOTING AGREEMENT ITEM 6. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS. REGULATION M-A ITEM 1006 (b) USE OF SECURITIES ACQUIRED. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference: SUMMARY TERM SHEET QUESTIONS AND ANSWERS ABOUT THE RECAPITALIZATION AND THE SPECIAL MEETING SUMMARY - The Effects of the Recapitalization SPECIAL FACTORS - Structure of the Recapitalization SPECIAL FACTORS - Certain Effects of the Recapitalization SPECIAL FACTORS - Post-Recapitalization Ownership and Control SPECIAL FACTORS - Options Awards (c)(1)- (c)(8) PLANS. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference: SUMMARY TERM SHEET QUESTIONS AND ANSWERS ABOUT THE RECAPITALIZATION AND THE SPECIAL MEETING SUMMARY - Structure of the Recapitalization SUMMARY - The Effects of the Recapitalization SUMMARY - Post-Recapitalization Ownership and Control SUMMARY - Interests of Nortek Directors, Officers and Affiliates in the Recapitalization SUMMARY - How Options Will Be Treated SUMMARY - Conditions to the Recapitalization SUMMARY - Termination of the Recapitalization Agreement SUMMARY - Termination Fees SUMMARY - Non-Solicitation of Competing Acquisition Proposals THE SPECIAL MEETING - Vote Required to Approve the Amendment to the Certificate of Incorporation SPECIAL FACTORS - Certain Effects of the Recapitalization SPECIAL FACTORS - Post-Recapitalization Ownership and Control SPECIAL FACTORS - Interests of Nortek Directors, Officers and Affiliates in the Recapitalization SPECIAL FACTORS - Financing of the Recapitalization THE RECAPITALIZATION AGREEMENT VOTING AGREEMENT ITEM 7. PURPOSES, ALTERNATIVES, REASONS AND EFFECTS. REGULATION M-A ITEM 1013 (a) PURPOSES. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference: SUMMARY TERM SHEET QUESTIONS AND ANSWERS ABOUT THE RECAPITALIZATION AND THE SPECIAL MEETING SPECIAL FACTORS - Background of the Recapitalization SPECIAL FACTORS - Recommendation of the Board of Directors SPECIAL FACTORS - Reasons for the Determination of the Board of Directors; Fairness of the Recapitalization (b) ALTERNATIVES. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference: SPECIAL FACTORS - Background of the Recapitalization SPECIAL FACTORS - Recommendation of the Board of Directors SPECIAL FACTORS - Conduct of the Business of Nortek if the Recapitalization Is Not Completed (c) REASONS. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference: SPECIAL FACTORS - Background of the Recapitalization SPECIAL FACTORS - Recommendation of the Board of Directors SPECIAL FACTORS - Reasons for the Determination of the Board of Directors; Fairness of the Recapitalization (d) EFFECTS. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference: SUMMARY TERM SHEET QUESTIONS AND ANSWERS ABOUT THE RECAPITALIZATION AND THE SPECIAL MEETING SUMMARY - The Effects of the Recapitalization SUMMARY - Interests of Nortek Directors, Officers and Affiliates in the Recapitalization SUMMARY - Tax Consequences SUMMARY - Statutory Appraisal Rights THE SPECIAL MEETING - Statutory Appraisal Rights SPECIAL FACTORS - Certain Effects of the Recapitalization SPECIAL FACTORS - Post-Recapitalization Ownership and Control SPECIAL FACTORS - Series B Preference Stock SPECIAL FACTORS - Reason for the Determination of the Board of Directors; Fairness of the Recapitalization SPECIAL FACTORS - Interests of Nortek Directors, Officers and Affiliates in the Recapitalization SPECIAL FACTORS - Financial Advisory Agreement SPECIAL FACTORS - Material Federal Income Tax Consequences SPECIAL FACTORS - Statutory Appraisal Rights ITEM 8. FAIRNESS OF THE TRANSACTION. REGULATION M-A ITEM 1014 (a) FAIRNESS. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference: SUMMARY - Recommendation of the Board of Directors SUMMARY - Opinion of the Financial Adviser THE SPECIAL MEETING - Purpose of the Special Meeting SPECIAL FACTORS - Background of the Recapitalization SPECIAL FACTORS - Recommendation of the Board of Directors SPECIAL FACTORS - Reasons for the Determination of the Board of Directors; Fairness of the Recapitalization SPECIAL FACTORS - Opinions of K Holdings and the Management Investors SPECIAL FACTORS - Opinion of Financial Advisor (b) FACTORS CONSIDERED IN DETERMINING FAIRNESS. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference: SPECIAL FACTORS - Recommendation of the Board of Directors SPECIAL FACTORS - Reasons for the Determination of the Board of Directors; Fairness of the Recapitalization SPECIAL FACTORS - Interests of Nortek Directors, Officers and Affiliates in the Recapitalization SPECIAL FACTORS - Members of the Special Committee SPECIAL FACTORS - Opinions of K Holdings and the Management Investors SPECIAL FACTORS - Opinion of Financial Advisor (c) APPROVAL OF SECURITY HOLDERS. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference: SUMMARY TERM SHEET SUMMARY - The Special Meeting THE SPECIAL MEETING - Vote Required To Approve the Amendment to the Certificate of Incorporation (d) UNAFFILIATED REPRESENTATIVE. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference: SUMMARY TERM SHEET QUESTIONS AND ANSWERS ABOUT THE RECAPITALIZATION AND THE SPECIAL MEETING SUMMARY - Opinion of Financial Advisor SPECIAL FACTORS - Background of the Recapitalization SPECIAL FACTORS - Reasons for the Determination of the Board of Directors; Fairness of the Recapitalization SPECIAL FACTORS - Opinions of K Holdings and the Management Investors SPECIAL FACTORS - Opinion of Financial Advisor (e) APPROVAL OF DIRECTORS. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference: SUMMARY - Recommendation of the Board of Directors THE SPECIAL MEETING - Purpose of the Special Meeting SPECIAL FACTORS - Background of the Recapitalization SPECIAL FACTORS - Recommendation of the Committee and Board of Directors (f) OTHER OFFERS. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference: SPECIAL FACTORS - Background of the Recapitalization SPECIAL FACTORS - Reasons for the Determination of the Board of Directors; Fairness of the Recapitalization ITEM 9. REPORTS, OPINIONS, APPRAISALS AND NEGOTIATIONS. REGULATION M-A ITEM 1015 (a) REPORT, OPINION OR APPRAISAL. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference: SUMMARY TERM SHEET SUMMARY - Opinion of Financial Advisor SPECIAL FACTORS - Background of the Recapitalization SPECIAL FACTORS - Opinion of Financial Advisor THE RECAPITALIZATION AGREEMENT - Solvency Letter Annex C - Opinion of Morgan Stanley & Co. Incorporated, dated as of June 20, 2002. (b) PREPARER AND SUMMARY OF THE REPORT, OPINION OR APPRAISAL. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference: SUMMARY TERM SHEET SUMMARY - Opinion of Financial Advisor \ SPECIAL FACTORS - Background of the Recapitalization SPECIAL FACTORS - Opinion of Financial Advisor THE RECAPITALIZATION AGREEMENT - Solvency Letter Annex C - Opinion of Morgan Stanley & Co. Incorporated, dated as of June 20, 2002. (c) AVAILABILITY OF DOCUMENTS. The reports, opinions or appraisal referenced in this Item 9 will be made available for inspection and copying at the principal executive offices of Nortek Holdings, Inc. during its regular business hours. ITEM 10. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. REGULATION M-A ITEM 1007 (a)-(d) SOURCE OF FUNDS; CONDITIONS; EXPENSES; BORROWED FUNDS. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference: SUMMARY TERM SHEET QUESTIONS AND ANSWERS ABOUT THE RECAPITALIZATION AND THE SPECIAL MEETING SPECIAL FACTORS - Post-Recapitalization Ownership and Control SPECIAL FACTORS - Financing of the Recapitalization SPECIAL FACTORS - Interests of Nortek Directors, Officers and Affiliates in the Recapitalization SPECIAL FACTORS - Financial Advisory Agreement SPECIAL FACTORS - Estimated Fees and Expenses ITEM 11. INTEREST IN SECURITIES OF THE SUBJECT COMPANY. REGULATION M-A ITEM 1008 (a) SECURITIES OWNERSHIP. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference: SPECIAL FACTORS - Post-Recapitalization Ownership and Control SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (b) SECURITIES TRANSACTIONS. None. ITEM 12. THE SOLICITATION OR RECOMMENDATION. REGULATION M-A ITEM 1012 (d) INTENT TO TENDER OR VOTE IN A GOING-PRIVATE TRANSACTION. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference: SUMMARY TERM SHEET QUESTIONS AND ANSWERS ABOUT THE RECAPITALIZATION AND THE SPECIAL MEETING SUMMARY - Interests of Nortek Directors, Officers and Affiliates in the Recapitalization THE SPECIAL MEETING - Vote Required To Approve the Amendment to the Certificate of Incorporation SPECIAL FACTORS - Structure of the Recapitalization SPECIAL FACTORS - Certain Effects of the Recapitalization SPECIAL FACTORS - Interests of Nortek Directors, Officers and Affiliates in the Recapitalization VOTING AGREEMENT (e) RECOMMENDATION OF OTHERS. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference: SUMMARY TERM SHEET QUESTIONS AND ANSWERS ABOUT THE RECAPITALIZATION AND SUMMARY - Recommendation of the Board of Directors THE SPECIAL MEETING - Purpose of the Special Meeting SPECIAL FACTORS - Recommendation of the Board of Directors SPECIAL FACTORS - Reasons for the Determination of the Board of Directors; Fairness of the Recapitalization SPECIAL FACTORS - Interests of Nortek Directors, Officers and Affiliates in the Recapitalization THE RECAPITALIZATION AGREEMENT - Proxy Material VOTING AGREEMENT ITEM 13. FINANCIAL STATEMENTS. REGULATION M-A ITEM 1010 (a) FINANCIAL INFORMATION. The information set forth in the consolidated financial statements included in Nortek's Annual Report on Form 10-K for the fiscal year ended December 31, 2001, the audited consolidated balance sheets of Nortek, Inc. and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of operations, stockholders' investment, and cash flows for each of the three years in the period ended December 31, 2001 included in Nortek's Current Report on Form 8-K filed on October 11, 2002 and the Unaudited Condensed Consolidated Financial Statements included in Nortek's Quarterly Report on Form 10-Q for the fiscal quarters ended March 31, 2002, June 30, 2002 and September 28, 2002 are incorporated herein by reference. (b) PRO FORMA INFORMATION. None. (c) SUMMARY INFORMATION. The information set forth in the Proxy Statement under the caption "SUMMARY FINANCIAL DATA" is incorporated herein by reference. ITEM 14. PERSONS/ASSETS, RETAINED, EMPLOYED, COMPENSATED OR USED. REGULATION M-A ITEM 1009 (a) SOLICITATIONS OR RECOMMENDATIONS. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference: SUMMARY TERM SHEET QUESTIONS AND ANSWERS ABOUT THE RECAPITALIZATION AND THE SPECIAL MEETING SUMMARY - Recommendation of the Board of Directors SUMMARY - Opinion of Financial Advisor THE SPECIAL MEETING - Purpose of the Special Meeting THE SPECIAL MEETING - Costs of Soliciting These Proxies SPECIAL FACTORS - Background of the Recapitalization SPECIAL FACTORS - Recommendation of the Board of Directors SPECIAL FACTORS - Reasons for the Determination of the Board of Directors; Fairness of the Recapitalization SPECIAL FACTORS - Opinion of Financial Advisor SPECIAL FACTORS - Interests of Nortek Directors, Officers and Affiliates in the Recapitalization SPECIAL FACTORS - Potential Fraudulent Conveyance Challenge to the Recapitalization SPECIAL FACTORS - Estimated Fees and Expenses THE RECAPITALIZATION AGREEMENT - Solvency Letter THE RECAPITALIZATION AGREEMENT - Principal Conditions to the Completion of the Recapitalization Agreement Annex C - Opinion of Morgan Stanley & Co. Incorporated, dated as of June 20, 2002. (b) EMPLOYEES AND CORPORATE ASSETS. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference: SUMMARY TERM SHEET SUMMARY - Interests of Nortek Directors, Officers and Affiliates in the Recapitalization THE SPECIAL MEETING - Costs of Soliciting These Proxies SPECIAL FACTORS - Certain Effects of the Recapitalization SPECIAL FACTORS - Background of the Recapitalization SPECIAL FACTORS - Interests of Nortek Directors, Officers and Affiliates in the Recapitalization ITEM 15. ADDITIONAL INFORMATION. REGULATION M-A ITEM 1011 (b) OTHER MATERIAL INFORMATION. The entirety of the Proxy Statement, including all annexes thereto, is incorporated herein by reference. ITEM 16. EXHIBITS. REGULATION M-A ITEM 1016 (a)(1) Letter to Stockholders (incorporated herein by reference to the Definitive Proxy Statement on Schedule 14A filed on December 4, 2002) (a)(2) Notice of Special Meeting of Stockholders (incorporated herein by reference to the Definitive Proxy Statement on Schedule 14A filed on December 4, 2002) (a)(3) Definitive Proxy Statement (incorporated herein by reference to the Definitive Proxy Statement on Schedule 14A filed on December 4, 2002). (b)(1) Senior Secured Credit Facility Commitment Letter, dated May 31, 2002, by and among Nortek, Inc., Fleet Capital Corporation and Fleet Securities, Inc. (incorporated herein by reference to Exhibit 2 of the Schedule 13D filed by Richard L. Bready on June 24, 2002). (b)(2) Bridge Facility Commitment Letter, dated June 20, 2002, by and among Kelso & Company, L.P., UBS AG, Stamford Branch and UBS Warburg LLC (incorporated herein by reference to Exhibit 3 of the Schedule 13D filed by Richard L. Bready on June 24, 2002). (c)(1) Opinion of Morgan Stanley & Co. Incorporated, dated as of June 20, 2002 (incorporated herein by reference to Annex C to the Definitive Proxy Statement on Schedule 14A filed on December 4, 2002). (c)(2) Materials presented by Morgan Stanley & Co. to the Special Committee of the Board of Directors of Nortek, Inc. on June 20, 2002. (d)(1) Agreement and Plan of Recapitalization, dated as of June 20, 2002, by and among Nortek, Inc., Nortek Holdings, Inc. and K Holdings, Inc. (incorporated herein by reference to Exhibit 2 of the Form 8-K filed on June 24, 2002). (d)(2) Amendment No. 1 to Agreement and Plan of Recapitalization, dated as of September 16, 2002, by and among Nortek, Inc., Nortek Holdings, Inc. and K Holdings, Inc., (incorporated herein by reference to Exhibit 2 of the Form 8-K filed on September 16, 2002). (d)(3) Exchange Agreement, dated June 20, 2002, by and among Nortek, Inc., Nortek Holdings, Inc., K Holdings, Inc. and Richard L. Bready (incorporated herein by reference to Exhibit 5 of the Schedule 13D filed by Richard L. Bready on June 24, 2002). (d)(4) Amendment No. 1 to Exchange Agreement, by and among Nortek, Inc., Nortek Holdings, Inc., K Holdings, Inc. and Richard L. Bready, (incorporated herein by reference to Exhibit 2 of Amendment No. 16 to the Schedule 13D filed by Richard L. Bready on September 18, 2002). (d)(5) Form of Certificate of Amendment to the Restated Certificate of Incorporation of Nortek Holdings, Inc. (d)(6) Voting Agreement, dated as of June 20, 2002, by and among Nortek, Inc., K Holdings, Inc. and Richard L. Bready (incorporated herein by reference to Exhibit 9 of the Form 8-K filed by Nortek, Inc. on June 24, 2002). (d)(7) Form of Stockholders' Agreement, by and among Nortek Holdings, Inc., Kelso Investment Associates VI, L.P., KEP VI, LLC and Management Stockholders. (d)(8) Form of Certificate of Designations, Powers, Preferences and Rights of Series B Convertible Preference Stock of Nortek Holdings, Inc. (incorporated herein by reference to Exhibit 4 of Amendment No. 1 to the Schedule 13D filed by K Holdings, Inc. on September 18, 2002). (d)(9) Form of Nortek, Inc., Nortek Holdings, Inc. and Richard L. Bready Employment Agreement. (d)(10) Form of Nortek, Inc. and Nortek Holdings, Inc. Employment Agreement (to be used for Messrs. Hall and Donnelly). (d)(11) Form of Nortek Holdings, Inc. 2002 Stock Option Plan (d)(12) Form of Nortek Holdings, Inc. Stock Option Agreement (d)(13) Amendment No. 2 to Agreement and Plan of Recapitalization, dated as of November 20, 2002, by and among Nortek Inc., Nortek Holdings, Inc. and K Holdings, Inc. (d)(14) Form of Nortek Holdings, Inc. and K Holdings, Inc. Exchange Agreement (to be used for Messrs. Cooney, Donnelly, Hall and Ractliffe). (d)(15) Amendment No. 3 to Agreement and Plan of Recapitalization, dated as of December 4, 2002, by and among Nortek, Inc., Nortek Holdings, Inc. and K Holdings, Inc. (f) None. (g) None. ___________________ SIGNATURES After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: December 4, 2002 NORTEK HOLDINGS, INC. /s/ RICHARD L. BREADY ------------------------------------------ Name: Richard L. Bready Title: Chairman of the Board, President and Chief Executive Officer K HOLDINGS, INC. /s/ JAMES J. CONNORS ------------------------------------------ Name: James J. Connors II Title: Vice President KELSO INVESTMENT ASSOCIATES VI,L.P., BY: KELSO GP VI, LLC, ITS GENERAL PARTNER /s/ MICHAEL B. GOLDBERG ------------------------------------------ Name: Michael B. Goldberg Title: Managing Member KEP VI, LLC /s/ MICHAEL B. GOLDBERG ------------------------------------------ Name: Michael B. Goldberg Title: Managing Member KELSO NORTEK INVESTORS, LLC BY: KELSO GP VI, LLC, ITS MANAGING MEMBER /s/ MICHAEL B. GOLDBERG ------------------------------------------ Name: Michael B. Goldberg Title: Managing Member RICHARD L. BREADY /s/ RICHARD L. BREADY ------------------------------------------ Name: Richard L. Bready EDWARD J. COONEY /s/ EDWARD J. COONEY ------------------------------------------ Name: Edward J. Cooney KEVIN W. DONNELLY /s/ KEVIN W. DONNELLY ------------------------------------------ Name: Kevin W. Donnelly ALMON C. HALL /s/ ALMON C. HALL ------------------------------------------ Name: Almon C. Hall ROBERT E.G. RACTLIFFE /s/ ROBERT E.G. RACTLIFFE ------------------------------------------ Name: Robert E.G. Ractliffe EX-99 3 fpsc62002.txt EXHIBIT (C)(2) Exhibit (c)(2) SLIDE 1 PROJECT PATRIOT ========================================================= Presentation to the Special Committee 20 June 2002 ========================================================= Morgan Stanley SLIDE 2 _________________ Project Patriot ========================================================= Table of Contents --------------------------------------------------------- Section 1 Transaction Overview --------------------------------------------------------- Section 2 Process Overview --------------------------------------------------------- Section 3 Overview of Nevada --------------------------------------------------------- Section 4 Valuation Analysis --------------------------------------------------------- Appendix A Comparable Companies Analysis --------------------------------------------------------- Appendix B Precedent Transaction Analysis --------------------------------------------------------- Appendix C Discounted Cash Flow Analysis --------------------------------------------------------- Morgan Stanley SLIDE 3 _________________ Project Patriot ========================================================= Section 1 --------------------------------------------------------- TRANSACTION OVERVIEW ========================================================= Morgan Stanley
SLIDE 4 ________________ =================================================================================== Project Patriot Transaction Overview ----------------------------------------------------------------------------------- OVERVIEW OF KELSO PROPOSAL =================================================================================== =================================================================================== Summary Description and Key Terms and Conditions ----------------------------------------------------------------------------------- Description: o Recapitalization of Nevada by Kelso & Company, L.P. ---------------------------------------------------------------------------------------------- Consideration / o $46.00 per share cash Acquisition Premia: - 11.2% premium to current stock price of $41.35 (6/18/02) - 23.0% premium to unaffected stock price (4/5/02) of $37.41 - 29.7% premium to unaffected 30-day average stock price of $35.48 - 21.4% premium to unaffected LTM high of $37.88 - 130.0% premium to unaffected LTM low of $20.00 ----------------------------------------------------------------------------------------------- Equity Value: o $553 million ----------------------------------------------------------------------------------------------- Aggregate Value: o $1,386 million ----------------------------------------------------------------------------------------------- Transaction Revenue EBITDA Net Income ---------------- ---------------- ---------------- Multiples(1): LTM CYE02 LTM CYE02 LTM CYE02 ----- ----- ----- ----- ----- ----- 0.8x 0.8x 6.0x 6.1x 12.1x 10.0x ----------------------------------------------------------------------------------------------- Financing: o Kelso will fund the transaction through a combination of equity to be provided by Kelso, Nevada balance sheet cash and senior secured credit facilities o Prior to consummation of the transaction, Kelso will seek the confirmation of the holders of Nevada's publicly traded debt securities that Nevada will not be required to purchase the securities due to a change of control o In the event Nevada is unsuccessful in obtaining the necessary confirmations, Kelso has received a bridge commitment from UBS Warburg LLC to refinance the securities ---------------------------------------------------------------------------------------------- Note 1. Based on Nevada management's projections from continuing operations Morgan Stanley
SLIDE 5 ________________ ============================================================================================= Project Patriot Transaction Overview --------------------------------------------------------------------------------------------- OVERVIEW OF KELSO PROPOSAL (cont.) ============================================================================================= --------------------------------------------------------------------------------------------- Summary Description and Key Terms and Conditions (cont.) --------------------------------------------------------------------------------------------- Tax Treatment: o Taxable to Nevada shareholders --------------------------------------------------------------------------------------------- Conditions to Close: o No material adverse change or disruption in financial, banking or capital market conditions o Execution of stockholders agreement with certain members of Nevada management o No Material Adverse Effect on Nevada o Approval by Nevada common stock shareholders and special common stock shareholders, excluding management shareholders, voting separately and together as a class o HSR and other customary conditions --------------------------------------------------------------------------------------------- Other: o Non-solicitation provision with fiduciary out o Termination fee of $16.5 million plus expenses capped at $7.5 million ($24 million total), or 4.3% (1.7%) of Nevada's equity (aggregate) value o Recapitalization would be affected through a redemption --------------------------------------------------------------------------------------------- Morgan Stanley
SLIDE 6 _________________ Project Patriot ========================================================= Section 2 --------------------------------------------------------- PROCESS OVERVIEW ========================================================= Morgan Stanley
SLIDE 7 ________________ ======================================================================================== Project Patriot Process Overview ---------------------------------------------------------------------------------------- PROCESS SUMMARY ======================================================================================== o Since mid-May: ---------------------------------------------------------------------------------------- - 19 parties have been Process Summary contacted, including 9 financial sponsors Parties Contacted CA Signed/IM Sent Proposals Submitted and 10 strategic parties ---------------------------------------------------------------------------------------- - 9 parties have executed Confidentiality Agreements and received the Information Materials - 4 parties have submitted R E D A C T E D preliminary, non-binding indications of interest Morgan Stanley
SLIDE 8 ________________ ============================================================================================================== Project Patriot Process Overview -------------------------------------------------------------------------------------------------------------- INDICATIONS OF INTEREST COMPARISON ============================================================================================================== ------------------------------------------------------------------------------------------------------------------------- [First Bidder (Private Equity Firm)] [Second Bidder (Private Equity Firm)] ------------------------------------------------------------------------------------------------------------------------- Indicative Value: ------------------------------------------------------------------------------------------------------------------------- Price Per Share $45.00-$48.00 $42.00-$46.00 ------------------------------------------------------------------------------------------------------------------------- Equity Value ($MM) $540-$579 $500-$553 ------------------------------------------------------------------------------------------------------------------------- Aggregate Value ($MM) $1,372-$1,412 $1,333-$1,386 ------------------------------------------------------------------------------------------------------------------------- CYE02 EBITDA Multiple (x) 6.0x-6.2x 5.8x-6.1x ------------------------------------------------------------------------------------------------------------------------- Premium/(Discount) to: ------------------------------------------------------------------------------------------------------------------------- Current Proposal (2.2%)-4.3% (8.7%)-0.0% ------------------------------------------------------------------------------------------------------------------------- 1-Day Prior (Unaffected) 20.3%-28.3% 12.3%-23.0% ------------------------------------------------------------------------------------------------------------------------- 30-Day Avg. (Unaffected) 26.8%-35.3% 18.4%-29.7% ------------------------------------------------------------------------------------------------------------------------- Financing: o In discussions with [a named financial o In discussions with [a named financial institution] to provide financing institution] to provide financing o Anticipate capitalizing with o Anticipate keeping existing capital approximately 25% pro forma equity structure in place o Prepared to fund any change in control puts ------------------------------------------------------------------------------------------------------------------------- Conditions: o Successful completion of due diligence o Successful completion of due diligence o Completion of financing arrangements o Completion of financing arrangements o Negotiation of definitive documentation o Negotiation of definitive documentation o Final approval of [investment committee] ------------------------------------------------------------------------------------------------------------------------- Timing: o Not specified, assume willingness o Complete diligence and negotiate to move quickly transaction within 30 days ------------------------------------------------------------------------------------------------------------------------- Other: o Indicate willingness to work with o [Second Bidder] to act as lead with existing members of senior management [2 strategic buyers] potentially co-investing o Existing management role unclear ------------------------------------------------------------------------------------------------------------------------- Morgan Stanley
SLIDE 9 ________________ ============================================================================================================ Project Patriot Process Overview ------------------------------------------------------------------------------------------------------------ INDICATIONS OF INTEREST COMPARISON ============================================================================================================= --------------------------------------------------------------------------------------------------------------------------------- [Third Bidder (Industrial Company)] [Fourth Bidder (Group)] --------------------------------------------------------------------------------------------------------------------------------- Indicative Value: --------------------------------------------------------------------------------------------------------------------------------- Price Per Share $42.00-$46.00 $46.00 --------------------------------------------------------------------------------------------------------------------------------- Equity Value ($MM) $500-$553 $553 --------------------------------------------------------------------------------------------------------------------------------- Aggregate Value ($MM) $1,333-$1,386 $1,386 --------------------------------------------------------------------------------------------------------------------------------- CYE02 EBITDA Multiple (x) 5.8x-6.1x 6.1x --------------------------------------------------------------------------------------------------------------------------------- Premium/(Discount) to: --------------------------------------------------------------------------------------------------------------------------------- Current Proposal (8.7%)-0.0% 0% --------------------------------------------------------------------------------------------------------------------------------- 1-Day Prior (Unaffected) 12.3%-23.0% 23.0% --------------------------------------------------------------------------------------------------------------------------------- 30-Day Avg. (Unaffected) 18.4%-29.7% 29.7% --------------------------------------------------------------------------------------------------------------------------------- Financing: o Will likely fund transaction through o In discussions with [a named financial existing bank capacity institution] to provide financing o Anticipate that final bid will not be subject to financing --------------------------------------------------------------------------------------------------------------------------------- Conditions: o Successful completion of due diligence o Successful completion of due diligence o Negotiation of definitive documentation o Negotiation of definitive documentation o Approval of Board of Directors; have o Completion of financing arrangements reviewed transaction on preliminary basis --------------------------------------------------------------------------------------------------------------------------------- Timing: o Due diligence team available immediately o Not specified, assume willingness to move for management presentation and data quickly room visit --------------------------------------------------------------------------------------------------------------------------------- Other: o Strong strategic fit with [named portfolio companies] o Existing management role unclear --------------------------------------------------------------------------------------------------------------------------------- Morgan Stanley
SLIDE 10 _________________ Project Patriot ========================================================= Section 3 --------------------------------------------------------- OVERVIEW OF NEVADA ========================================================= Morgan Stanley SLIDE 11
_________________ ==================================================================================================== Project Patriot Overview of Nevada ---------------------------------------------------------------------------------------------------- OVERVIEW OF NEVADA ==================================================================================================== - ------------------------------------------ ========================================================================== Description Other - ------------------------------------------ -------------------------------------------------------------------------- Nevada is a diversified manufacturer of o NYSE Symbol: NTK residential and commercial building o Corporate Headquarters: Providence, RI products operating within three o CEO: Richard L. Bready principal segments (below). The Company o Employees: approximately 10,000 manufactures and sells, primarily in the o Manufacturing Location: 15 U.S. states, Canada, U.S. Canada and Europe, a wide variety People's Republic of China, England, France and Italy of products for the residential and o Corporate Credit Ratings: commercial construction, manufactured - Standard & Poors: B+ housing/structures, and do-it-yourself, - Moody's: B1 professional remodeling and renovation -------------------------------------------------------------------------- markets ========================================================================== o Residential Building Products Market Leadership Positions Product Market Position - manufactures and distributes -------------------------------------------------------------------------- built-in products primarily for o Kitchen Range Hoods #1 in the World the residential new construction, -------------------------------------------------------------------------- do-it-yourself and professional o Bath Fans #1 in the World remodeling and renovation markets -------------------------------------------------------------------------- with leading market positions o Residential Indoor-Air-Quality #1 in North America (over 80%) in range hoods and -------------------------------------------------------------------------- bath fans o Custom Designed Commercial HVAC #1 in North America -------------------------------------------------------------------------- o Air Conditioning & Heating Products o HVAC for Manufactured Housing #1 in North America -------------------------------------------------------------------------- - manufactures and distributes HVAC o Vinyl Siding Top 4 in North America systems and products for -------------------------------------------------------------------------- residential, light commercial and manufactured housing/structures ========================================================================== and for custom-designed commercial Historical Financial Information (From Continuing Operations) applications $MM YTD YTD 3/02 3/01 LTM 2001 2000 1999 o Windows, Doors and Siding -------------------------------------------------------------------------- Net Sales 429.1 395.2 1,821.3 1,787.4 1,782.1 1,595.5 - principally manufactures and -------------------------------------------------------------------------- distributes, for use in the Operating Earnings (1) 37.9 27.9 178.0 168.0 176.5 193.9 residential construction, -------------------------------------------------------------------------- do-it-yourself and professional Net Earnings from 9.5 4.4 52.3 47.2 54.5 64.7 renovation markets: (i) vinyl Continuing siding, skirting, soffit and Operations (1) accessories, (ii) vinyl and -------------------------------------------------------------------------- composite windows, (iii) vinyl EPS (Diluted) (1) 0.84 0.39 4.67 4.23 4.85 5.40 patio and steel entry doors, (iv) -------------------------------------------------------------------------- vinyl blocks, vents shutters and EBITDA 49.2 38.2 221.7 210.7 231.9 228.8 sunrooms, (v) fencing, railing and -------------------------------------------------------------------------- decking and (vi) aluminum trim Capital Expenditures 4.3 13.7 32.0 41.4 37.0 38.0 coil, soffit and accessories __________________________________________ __________________________________________________________________________ Note 1. Goodwill is not amortized (all periods) Morgan Stanley
SLIDE 12
_________________ ============================================================================================== Project Patriot Overview of Nevada ---------------------------------------------------------------------------------------------- NEVADA'S PRICE PERFORMANCE Last Twelve Months ============================================================================================== _________________________________ ============================================================================================== Nevada Price History Price Volume _________________________________ $ (000) ---------------------------------------------------------------------------------------------- Current (6/18/02) $41.35 60.00 ---------------- ----------------- ----------------- ------------- 600 - -------------------------------- | 18-Jun-01 | | 9-Jan-02 | | 2-Feb-02 | | 8-Apr-02 | LTM High (Unaffected) 37.88 | Announces | | Nevada announces| | Announces | | Announcement| - -------------------------------- | acquisition of | | appintment of | | earnings results| | of Kelso | LTM Low (Unaffected) 20.00 | Senior Air | | R. Ratcliffe to | | for 4Q01 and | | proposal | - -------------------------------- | Systems, UK- | | Executive VP and| | FY2001, net | | to acquire | 550 Average Unaffected Price: | based manu- | | COO position | | income of | | Nevada | - -------------------------------- | facturer of air| -----------------| | $3.09/ share vs.| ----------------- 30 Day (Unaffected) 35.48 | conditioning | | | $3.71/share | | - -------------------------------- | equipment | | | in 2000 | -------------- | 90 Day (Unaffected) 29.08 | ---------------- | ------------|---- | 3-Apr-02 | | - -------------------------------- 50.00|-------------------------------------|---------------|------| Nevada sells |------- 500 180 Day (Unaffected) 27.17 | ----------------------- | | | subsidiary, | | - -------------------------------- | | 31-Oct-01 | | | | Hoover | | 1 Year (Unaffected) 27.62 | | Nevada announces | | | | Treated Wood | | _________________________________ | | 3Q earnings of $2.41/ | | | | Products, | | | | share compred to | | | | Inc. | | 450 | | $3.29/share a year | | | -------------- | | | ago. Decline based on | | | | | | | general slowdown of | | | | | | | manufactured housing | | | | | | | market and cooler than| | | | X------------- 40.00|---------| normal weather plat- |---|---------------|---------|-----------------X 400 | | form | | | | | | -----------------------| | | | | | | | | X | | | | | | 350 | | | | | | | | | | | | | | | 30.00|---------------------------------|---|---------------|---------------------------| 300 X | -----X X | | | | | | | 250 | -------------- | | | 14-June-02 |--- ------------------------X | | Press | | 21-Sept-01 | | | speculation | 20.00 | Nevada sells |---------------X----------------------------| of |--- 200 | two of its | | additional | | fiberglass and | | parties | | steel door | | interest in | | manufacturing | | Nevada | | units to TPC | -------------- | acquisition | 150 ---------------- 10.00 --------------------------------------------------------------------------------- 100 50 0.00 --------------------------------------------------------------------------------- 0 17-Jun 30-Jul 17-Sept 29-Oct 11-Dec 25-Jan 11-Mar 23-Apr 17-Jun -01 -01 -01 -01 -01 -02 -02 -02 -02 __________________________________________________________________________________________ Morgan Stanley
SLIDE 13
_________________ ================================================================================== Project Patriot Overview of Nevada ---------------------------------------------------------------------------------- RELATIVE PRICE PERFORMANCE ================================================================================== ---------------------------------------------------------------------------------- Indexed Price Performance Last Twelve Months ---------------------------------------------------------------------------------- [GRAPH OMITTED] Nevada Peer Index S&P 500 42.83% C 22.55% (14.18%) ---------------------------------------------------------------------------------- ____ Nevada _______S&P 500 ____ Peer Index(1) ================================================================================== Source: FactSet Note 1. Peer Group includes Mohawk, Masco, Stanley Works, Black & Decker, Aaon, Lennox, Masonite, Simpson, American Standard, York and NCI Building
Morgan Stanley SLIDE 14
_________________ ================================================================================== Project Patriot Overview of Nevada ---------------------------------------------------------------------------------- HISTORICAL FORWARD P/E RATIOS Last 4 Years ================================================================================== o Nortek's P/E is near its 4 year ---------------------------------------------------------------------------------- average and continues to trade at Forward (Next Twelve Months) P/E a discount to its peers ---------------------------------------------------------------------------------- - Average 38% discount over the last 4 years [GRAPH OMITTED] ---------------------------------------------------------------------------------- ____ Nortek _______S&P 500 ____ Peer Index(1) ================================================================================== Source: Factset Note 1. Peer Group includes Mohawk, Masco, Stanley Works, Black & Decker, Aaon, Lennox, Masonite, Simpson, American Standard, York and NCI Building Morgan Stanley
SLIDE 15
_________________ ============================================================================================================ Project Patriot Overview of Nevada ----------------------------------------------------------------------------------------------------------- OVERVIEW OF NEVADA MANAGEMENT PROJECTIONS =========================================================================================================== ------------------------------------------------ ------------------------------------------------ Revenue EBITDA $MM $MM [BAR GRAPH OMITTED] [BAR GRAPH OMITTED] ------------------------------------------------ ------------------------------------------------ 2001 2002 2003 2004 2005 2006 2007 2001 2002 2003 2004 2005 2006 2007 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 1,787 1,824 1,943 1,891 1,958 2,033 2,106 221 229 226 203 206 225 234 % 2.0% 6.6% (2.7)% 3.6% 3.8% 3.6% % 12.4% 12.5% 11.6% 10.7% 10.5% 11.1% 11.1% Growth Margin ________________________________________________ ________________________________________________ ------------------------------------------------ ------------------------------------------------ EBIT Net Income $MM $MM [BAR GRAPH OMITTED] [BAR GRAPH OMITTED] ------------------------------------------------ ------------------------------------------------ 2001 2002 2003 2004 2005 2006 2007 2001 2002 2003 2004 2005 2006 2007 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 162 184 181 156 159 177 185 37 55 57 45 49 62 73 % 9.1% 10.1% 9.3% 8.3% 8.1% 8.7% 8.8% % 51.3% 17.3% (22.1)% 8.6% 26.9% 18.5% Margin Growth ________________________________________________ ________________________________________________ Note 1. 2002-2007 based on Nevada management projections Morgan Stanley
SLIDE 16 _________________ Project Patriot ========================================================= Section 4 --------------------------------------------------------- VALUATION ANALYSIS ========================================================= Morgan Stanley SLIDE 17
_________________ =========================================================================================================== Project Patriot Valuation Analysis ----------------------------------------------------------------------------------------------------------- NEVADA VALUATION MATRIX =========================================================================================================== ------------------------------------------------------------------------------------------------------------------------- Nevada Valuation Matrix P/E (Equity Value/Net Income)(3) AV/EBITDA(3) Price Equity Aggregate -------------------------------- ---------------------------- Premium to Per Share Value(1) Value(2) LTM 2002 LTM 2002 Initial Bid ($) ($MM) ($MM) (x) (x) (x) (x) ------------------------------------------------------------------------------------------------------------------------- Statistic: $ 46 $ 55 $ 232 $ 229 ------------------------------------------------------------------------------------------------------------------------- (6.5%) 37.41 440 1,273 9.6 8.0 5.5 5.6 ------------------------------------------------------------------------------------------------------------------------- (5.0%) 38.00 448 1,281 9.8 8.1 5.5 5.6 ------------------------------------------------------------------------------------------------------------------------- (2.5%) 39.00 461 1,294 10.1 8.4 5.6 5.7 ------------------------------------------------------------------------------------------------------------------------- 0.0% 40.00 474 1,307 10.4 8.6 5.6 5.7 ------------------------------------------------------------------------------------------------------------------------- 2.5% 41.00 487 1,320 10.7 8.8 5.7 5.8 ------------------------------------------------------------------------------------------------------------------------- 5.0% 42.00 500 1,333 11.0 9.1 5.7 5.8 ------------------------------------------------------------------------------------------------------------------------- 7.5% 43.00 513 1,346 11.2 9.3 5.8 5.9 ------------------------------------------------------------------------------------------------------------------------- 10.0% 44.00 526 1,359 11.5 9.5 5.9 5.9 ------------------------------------------------------------------------------------------------------------------------- 12.5% 45.00 540 1,372 11.8 9.8 5.9 6.0 ------------------------------------------------------------------------------------------------------------------------- 15.0% 46.00 553 1,386 12.1 10.0 6.0 6.1 ------------------------------------------------------------------------------------------------------------------------- 16.3% 46.50 559 1,392 12.2 10.1 6.0 6.1 ------------------------------------------------------------------------------------------------------------------------- 17.5% 47.00 566 1,399 12.4 10.3 6.0 6.1 ------------------------------------------------------------------------------------------------------------------------- 20.0% 48.00 579 1,412 12.7 10.5 6.1 6.2 ------------------------------------------------------------------------------------------------------------------------- 22.5% 49.00 592 1,425 13.0 10.7 6.1 6.2 ------------------------------------------------------------------------------------------------------------------------- 25.0% 50.00 605 1,438 13.3 11.0 6.2 6.3 ------------------------------------------------------------------------------------------------------------------------- Notes 1. Assumes fully diluted shares outstanding using treasury method 2. Assumes $1,052MM of debt and $219MM of unrestricted cash outstanding based on 3/31/02 10Q 3. Nevada management projections for 2002 as of 5/10/02; all numbers from continuing operations Morgan Stanley
SLIDE 18
_________________ ================================================================================== Project Patriot Valuation Analysis ---------------------------------------------------------------------------------- PRELIMINARY NEVADA VALUATION SUMMARY ================================================================================== ---------------------------------------------------------------------------------- Equity Value Per Share (1) $ ---------------------------------------------------------------------------------- [CHART OMITTED] 52-Week Trading Range (Unaffected) Selected Comparable Companies Analysis(1)(2) CY 2002 EBITDA Multiple 5.0x-6.0x CY 2002 P/E Multiple 6.4x-9.8x Selected Precedent Transaction Analysis(1) LTM EBITDA Multiple 5.5x-6.5x Break-up Analysis Discounted Cash Flow Analysis(1)(3) ================================================================================== Notes 1. Region with dotted line represents impact of unfunded severance obligation in the event of a change of control with the termination of senior Nevada management 2. Adjusted for Nevada's historical trading and relationship to its peers 3. Based on a terminal multiple of 5.5x to 6.5x LTM EBITDA and a discount rate of 10% Morgan Stanley
SLIDE 19
_________________ ================================================================================== Project Patriot Valuation Analysis ---------------------------------------------------------------------------------- DISCOUNTED CASH FLOW ANALYSIS Sensitivity Analysis ================================================================================== ---------------------------------------------------------------------------------- Value Per Nevada Share (1) 2003-2007 Net Sales Growth Rate -------------------------------------------------------------------------- 2.0% 3.0% 4.0% 5.0% -------------------------------------------------------------------------- 10.00% $19.94 $23.95 $28.13 $32.50 -------------------------------------------------------------------------- 2003-2007 10.50% 24.57 28.81 33.24 37.86 -------------------------------------------------------------------------- EBITDA 11.00% 29.20 33.68 38.34 43.22 -------------------------------------------------------------------------- Margin 11.50% 33.84 38.54 43.45 48.58 -------------------------------------------------------------------------- 12.00% 38.47 43.40 48.56 53.94 -------------------------------------------------------------------------- 12.50% 43.10 48.27 53.66 59.30 ========================================================================== Note 1. Assumes a 6.0x exit LTM EBITDA multiple on 12/31/07 Morgan Stanley
SLIDE 20
_________________ =================================================================================== Project Patriot Valuation Analysis ----------------------------------------------------------------------------------- BREAK-UP ANALYSIS =================================================================================== ---------------------------------------------------------------------------------------------------- Break-up Analysis Multiple Range Pre-Tax Value After-Tax Value(4) ----------------- 2002 ---------------- ----------------- Low - High EBITDA Low - High Low - High ----------------------------------------------------------------------------------------------------- Residential Building Products 5.5x - 6.0x 120 661 - 721 561 - 597 ----------------------------------------------------------------------------------------------------- Windows, Doors and Siding 6.0x - 6.5x 74 444 - 481 422 - 444 ----------------------------------------------------------------------------------------------------- Heating, Ventilation 6.0x - 6.5x 75 450 - 488 354 - 377 and Air Conditioning ----------------------------------------------------------------------------------------------------- Total After-Tax Proceeds 1,555 - 1,689 1,337 - 1,419 ---------------------------------------------------------------------------------------------------- Net Debt(1) (783) (783) ---------------------------------------------------------------------------------------------------- Corpoate Overhead (50) - (25) ---------------------------------------------------------------------------------------------------- Net Change of Control (52) - (35) Severance(2) ---------------------------------------------------------------------------------------------------- Costs to Tender (102) - (99) Outstanding Bonds ---------------------------------------------------------------------------------------------------- Tax on Sale of WD&S (118) - (147) and HVAC(3) ---------------------------------------------------------------------------------------------------- Equity Value 450 - 600 ---------------------------------------------------------------------------------------------------- Total Fully Diluted 13.1 - 13.1 Shares Outstanding ---------------------------------------------------------------------------------------------------- Value Per Share $34.38 - $45.82 ==================================================================================================== Notes 1. Assumes $1,052MM of debt and $219MM of unrestricted cash based on 3/31/02 10Q. Includes option proceeds of $50MM 2. Assumes change of control with termination of employment 3. Assumes stock tax basis of $404MM for Residential Building Products segment, $388MM for Windows, Doors and Siding segment, $205MM for Heating, Ventilation and Air Conditioning segment, and tax rate of 39% Morgan Stanley
SLIDE 21 _________________ Project Patriot ========================================================= Appendix A --------------------------------------------------------- COMPARABLE COMPANIES ANALYSIS ========================================================= Morgan Stanley SLIDE 22
_________________ Project Patriot ================================================================================================================ Comparable Companies Analysis ---------------------------------------------------------------------------------------------------------------- COMPARABLE COMPANY ANALYSIS (1) 2002 Multiples ================================================================================================================ ================================================================================================================ Price/Earnings ---------------------------------------------------------------------------------------------------------------- [BAR GRAPH OMITTED] HVAC Median 20.0 17.8 17.2 16.8 16.6 15.2 15.2 14.7 14.0 11.8 11.7 8.0 16.0x Lennox Masco Aaon Simpson Black & Stanley Mohawk American Masonite NCI York Nortek Decker Works Standard RBP & WDS Median 15.2X ================================================================================================================ ================================================================================================================ Aggregate Value/EBITDA --------------------------------------------------------------------------------------------------------------- [BAR GRAPH OMITTED] RBP & WDS Median 10.3 9.0 8.9 8.9 8.6 8.3 8.1 7.4 6.7 5.6 NA NA 8.9x Masco Mohawk Black& Stanley American Masonite Lennox York NCI Nortek Aaon Simmpson Decker Works Standard HVAC Median 8.1x ================================================================================================================ Note 1. Based on June 18, 2002 closing prices & I/B/E/S estimates; Nortek multiples calculated using unaffected price of $37.41 (4/5/02) Morgan Stanley
SLIDE 23 _________________ Project Patriot ========================================================= Appendix B --------------------------------------------------------- PRECEDENT TRANSACTION ANALYSIS ========================================================= Morgan Stanley SLIDE 24
_________________ ============================================================================================================= Project Patriot Precedent Transaction Analysis ------------------------------------------------------------------------------------------------------------- PRECEDENT TRANSACTIONS ANALYSIS Heating, Ventilation and Air Conditioning / Windows, Doors and Siding ============================================================================================================= ============================================================================================================= Heating, Premiums Paid in Selected Precedent Transacitons Ventilation Heating, Ventilation and Air Conditioning and Air Conditioning Equity Value/ Aggregate Value/LTM Equity Agg. LTM ----------------------- Value Value Net Revenue EBITDA EBIT Date Paid Paid Income ----------------------- Announced Acquiror Name Target Name ($MM) ($MM) (x) (x) (x) (x) ------------------------------------------------------------------------------------------------------------- 03/12/2001 SPX Corp United Dominion 954 1,830 10.1 0.8 6.0 8.1 Industries Ltd ------------------------------------------------------------------------------------------------------------- 10/27/1999 Lennox Service 157 258 10.6 0.5 5.8 7.7 International Experts Inc. Inc ------------------------------------------------------------------------------------------------------------- 06/24/1999 Carrier Corp International 495 732 15.6 1.0 10.1 13.2 (United Tech Corp) Comfort Products ------------------------------------------------------------------------------------------------------------- 03/23/1999 ServiceMaster Co American 91 248 8.2 0.5 7.5 11.5 Residential Services ------------------------------------------------------------------------------------------------------------- Mean 11.1 0.7 7.3 10.1 ------------------------------------------------------------------------------------------------------------- Median 10.3 0.6 6.7 9.8 ------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------- ============================================================================================================= Windows, Doors Premiums Paid in Selected Precedent Transacitons and Siding Windows, Doors and Siding ------------------------------------------------------------------------------------------------------------- Agg. Aggregate Value/ Value Sales EBITDA Date Target/Acquiror Target Business Description (US$MM) (x) (x) ------------------------------------------------------------------------------------------------------------- 3/17/02 Associated Materials/ Manufactures exterior residential 407.3 0.7 6.6 Harvest Partners building products; specializes in vinyl siding and vinyl windows ------------------------------------------------------------------------------------------------------------- 3/12/01 Anglian Group plc/ Manufactures, sells and installs 236.6 0.6 4.7 Naiglan Investments building products including double glazed windows, doors, conservatories and related products for domestic, public and commercial installation ------------------------------------------------------------------------------------------------------------- 10/2/00 Masonite/Premdor(1)(2) Leading manufacturer of molded door 523.0 1.7 7.0 facings and wood composite materials including siding and exterior trims ------------------------------------------------------------------------------------------------------------- Mean 1.0 6.1 ------------------------------------------------------------------------------------------------------------- Median 0.7 6.6 ------------------------------------------------------------------------------------------------------------- Notes 1. Masonite LTM figures derived from 6 month 2000 and half a year of full year 1999 2. Masonite aggregate value assumed to be transaction value Morgan Stanley
SLIDE 25
_________________ ================================================================================== Project Patriot Precedent Transaction Analysis ---------------------------------------------------------------------------------- PRECEDENT TRANSACTIONS ANALYSIS Residential Building Products ================================================================================== ================================================================================== Residential Premiums Paid in Selected Precedent Transacitons Building Residential Building Products Products ------------------------------------------------------------------------------------------------------------- Agg. Aggregate Value/ Value Sales EBITDA Date Target/Acquiror Target Business Description (US$MM) (x) (x) ------------------------------------------------------------------------------------------------------------- 11/20/2001 Dal-Tile International/ Manufactures ceramic tiles; 1,441.4 1.5 8.3 Mohawk Industries also sells installation materials and tools ------------------------------------------------------------------------------------------------------------- 12/19/2000 Johns Manville / Manufactures fiber glass products, 2,104.1 1.0 4.6 Berkshire Hathaway lumber, plywood, paper and paper products, light fixtures and roofing materals ------------------------------------------------------------------------------------------------------------- 11/29/2000 BSI Holdings and One of the Northeast's leading 719.0 1.0 5.7 Davenport Insulation/ providers of insulation installation Masco(1) services. Services include thermal performance calculations, air filtration and radon mitigation, fireplace design and insulation installation ------------------------------------------------------------------------------------------------------------- 9/6/2000 Shaw Industries/ World's largest residential and 3,338.3 0.8 6.4 Berkshire Hathaway commercial carpet maker ------------------------------------------------------------------------------------------------------------- 2/11/2000 Cameron Ashley/ Wholesale a broad line of building Guardian products, including millwork, 330.3 0.3 6.4 roofing, pool and patio enclosure materials, insulation, siding, steel products, and industrial metals that are used principally in home improvement, remodeling, repair work and new resident ------------------------------------------------------------------------------------------------------------- Mean 0.9 6.3 ------------------------------------------------------------------------------------------------------------- Median 1.0 6.4 ------------------------------------------------------------------------------------------------------------- Note 1. Assumes BSI and Davenport depreciation and amortization is 3% of sales Morgan Stanley
SLIDE 26 _________________ Project Patriot ========================================================= Appendix C --------------------------------------------------------- DISCOUNTED CASH FLOW ANALYSIS ========================================================= Morgan Stanley Slide 27
_________________ ======================================================================================================== Project Patriot Discounted Cash Flow Analysis -------------------------------------------------------------------------------------------------------- DISCOUNTED CASH FLOW ANALYSIS Based on Nevada Management Projections ======================================================================================================== ================================================================================================================================ Discounted Cash Flow Analysis LTM EBITDA 5.5 6.0 6.5 Multiple(x) ----------------------------------- ------------------------------ --------------------------------- ($MM) Discount Rate 9.0% 10.0% 11.0% 9.0% 10.0% 11.0% 9.0% 10.0% 11.0% ================================================================================================================================ Present Value _________________________________ __________________________________ _______________________________ Cash Flows - 2H 2002 | 48 48 47 | 48 48 47 | 48 48 47 | Cash Flows - 2003-2007 | 353 344 335 | 353 344 335 | 353 344 335 | Terminus | 800 760 723 | 872 829 789 | 945 899 855 | | -------------------------------|----------------------------------|------------------------------| Aggregate Value | 1,200 1,151 1,106 | 1,273 1,221 1,171 | 1,345 1,290 1,237 | | -------------------------------|----------------------------------|------------------------------| Total Debt (6/30/02) | (1,052) (1,052) (1,052) | (1,052) (1,052) (1,052) | (1,052) (1,052) (1,052)| Cash (6/30/02) | 219 219 219 | 219 219 219 | 219 219 219 | Cash From Option Holders | 50 50 50 | 50 50 50 | 50 50 50 | | -------------------------------|----------------------------------|------------------------------| Equity Value | 416 368 322 | 489 437 388 | 562 506 454 | Total Shares Outstanding | 13.1 13.1 13.1 | 13.1 13.1 13.1 | 13.1 13.1 13.1 | Price Per Share | 31.82 28.12 24.62 | 37.37 33.40 29.65 | 42.92 38.68 34.67 | | -------------------------------|----------------------------------|------------------------------| Terminal Value Analysis | | | | | | | | % Value in Terminus | 66.6% 66.0% 65.4% | 68.5% 68.0% 67.4% | 70.2% 69.7% 69.1%| % Value in Cash Flows | 33.4% 34.0% 34.6% | 31.5% 32.0% 32.6% | 29.8% 30.3% 30.9%| | | | | ____________________________|_________________________________|__________________________________|_______________________________ Morgan Stanley
EX-99 4 s421322.txt EXHIBIT (D)(5) Exhibit (d)(5) Exhibit B CERTIFICATE OF AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION OF NORTEK HOLDINGS, INC. Nortek Holdings, Inc., a Delaware corporation (hereinafter called the "Corporation"), hereby certifies as follows: FIRST: This Certificate of Amendment further amends the Restated Certifi cate of Incorporation of the Corporation to create two new classes of common stock and to reclassify all outstanding shares of all classes of common stock into one of such newly created classes of common stock under the terms herein set forth. SECOND: The amendment to the Restated Certificate of Incorporation contained herein was duly adopted in accordance with Section 242 of the General Corporation Law of the State of Delaware ("GCL"). THIRD: Article FIFTH of the Corporation's Restated Certificate of Incorpo ration is hereby amended to read in its entirety as set forth below: FIFTH: (A) Authorized Shares. The total number of shares of stock which the Corporation shall have authority to issue is 52,000,000, of which the Corporation shall have authority to issue (i) 19,000,000 shares of Class A Common Stock, par value $1.00 per share (the "Class A Common Stock"), (ii) 14,000,000 shares of Class B Common Stock, par value $1.00 per share (the "Class B Common Stock"), and (iii) 19,000,000 shares of Preference Stock, par value $1.00 per share (the "Preference Stock"). The Class A Common Stock and the Class B Common Stock are hereinafter referred to collectively as the "Common Stock." (B) Common Stock. Except as otherwise provided in this Article FIFTH, the Class A Common Stock and the Class B Common Stock shall have the same rights and privileges and shall rank equally, share ratably and be identical in all respects as to all matters. (1) Voting Rights; Directors. Except as expressly provided herein and subject to applicable law and the rights of any outstanding series of Preference Stock to vote, including as a separate class or series, the shares of Class A Common Stock and Class B Common Stock shall vote together as a single class and each share of Common Stock shall entitle the holder thereof to one (1) vote upon all matters upon which stockholders shall have the right to vote. Following the Reclassification (as defined herein), at every meeting of the stock holders called for the election of directors, (i) the holders of Common Stock, voting separately as a separate class, shall be entitled to elect 51% of the number of directors to be elected at such meeting; pro vided, however, that if 51% of such number of directors is not a whole number, then the holders of Common Stock shall be entitled to elect the next higher whole number of directors to be elected at such meet ing; provided further that at least one-third (or such next higher whole number) of the number of such directors shall be Independent (as defined below), and (ii) the holders of Series B convertible preference stock, par value $1.00 per share, of the Corporation (the "Series B Preference Stock"), voting separately as a separate class, shall be entitled to elect the remaining directors to be elected at such meeting; provided, however, that at least one-half (or such next higher whole number) of the number of such directors shall be Independent. Not withstanding anything herein to the contrary, the holders of Common Stock shall be entitled to elect the entire Board of Directors from and after the earlier of (A) the conversion of a sufficient number of shares of Series B Preference Stock into shares of Class A Common Stock (as provided for in Section 7(a) of the certificate of designations, powers, preferences and rights with respect to the Series B Preference Stock (the "Nortek Holdings COD")) such that the Kelso Holders (as defined in the Nortek Holdings COD) hold in the aggregate a greater number of outstanding shares of Class A Common Stock than Richard L. Bready ("RLB") and his affiliates and (B) such time as the number of shares of Common Stock into which the outstanding shares of Series B Preference Stock are convertible (regardless of whether such shares can be converted into Common Stock at such time) is equal to or less than 20% of the then outstanding shares of Common Stock (each, an "Elimination Event"). For purposes hereof, a director shall be deemed "Independent" as follows: (i) if elected by the holders of Common Stock, such director shall be deemed Independent if he or she (x) is not an affiliate of RLB and is not an officer or employee or consultant or advisor to, or a director of, the Corporation or an entity controlled by RLB or the Corporation at the time of the election in question or in the two years prior thereto (provided, that such a person (i) shall not be deemed to not be Independent solely by reason of being a director of the Corporation after the Closing (as defined in the Recapitalization Agreement (as defined below)) and (ii) shall be deemed Independent in any event if otherwise agreed to in writing at the time of election by Kelso (as defined below)) and (y) has not engaged in any transaction or transactions involving in excess of $100,000 in the aggregate with RLB or any such entities referred to in clause (i)(x) above in the two years prior to the time that he or she is elected to be a director; and (ii) if elected by the holders of Series B Preference Stock, such director shall be deemed Independent if he or she is not an affiliate of Kelso & Company, L.P. ("Kelso") and is not an employee, officer or director of, or an investor in, Kelso or in a fund formed at the direction of Kelso, or an officer or employee of a portfolio company thereof, other than any such person whose only relationship to Kelso is that he or she is an employee, officer or director of an institution otherwise unaffiliated with Kelso that has invested in a fund formed at the direction of Kelso or in any debt or equity securities of a portfolio company thereof. The good faith conclusion of the other members of the Board of Directors that a particular director is Independent shall be binding and conclusive. (2) Dividends and Distributions. Subject to the preferential and other dividend rights of any outstanding series of Preference Stock, holders of Class A Common Stock and Class B Common Stock shall be entitled to such dividends and other distributions in cash, stock or property of the Corporation when and as such dividends and other distributions may be declared thereon by the Board of Directors from time to time out of assets or funds of the Corporation legally available therefor. No dividend or other distribution may be declared or paid on any share of Class A Common Stock unless a like dividend or other distribution is simultaneously declared or paid, as the case may be, on each share of Class B Common Stock, nor shall any dividend or other distribution be declared or paid on any share of Class B Common Stock unless a like dividend or other distribution is simultaneously declared or paid, as the case may be, on each share of Class A Common Stock, in each case without preference or priority of any kind; provided, however, that all dividends and distributions on the Class A Common Stock and Class B Common Stock payable in shares of Common Stock of the Corporation shall be made in shares of Class A Common Stock and Class B Common Stock, respectively; provided, further, that the Redemption (as defined below) shall not constitute any such dividend or distribution and the shares of Class B Common Stock may be redeemed without any dividend or distribution being made to the holders of the Class A Common Stock. (3) Class B Common Stock Redemption. (a) Immediately following the Purchase Transactions and the Distribution (each as defined in the Agreement and Plan of Recapitalization, dated June 20, 2002, as may be amended from time to time by and among Nortek, Inc., the Corporation, and K Holdings, Inc. (the "Recapitalization Agreement")), the Corporation shall irrevocably call for redemption and, as of the time of such call for redemption, redeem (the "Redemp tion") in whole the outstanding shares of Class B Common Stock at a redemption price (the "Redemption Price") of $46.00 per share. The date and time of such Redemption is hereinafter referred to as the "Redemption Time." Promptly following the call for Redemption, the Corporation shall issue a press release to such effect and notify the Exchange Agent (as defined in the Recapitalization Agreement) thereof. (b) The Corporation shall promptly cause to be mailed a notice of such redemption by first class mail, postage prepaid, to each holder of record of the shares to be redeemed at such holder's address as the same appears on the stock register of the Corporation; provided that neither the failure to give such notice nor any defect therein shall affect the validity of the giving of notice for the redemption of any share of Class B Common Stock to be redeemed except as to the holder to whom the Corporation has failed to give said notice or except as to the holder whose notice was defective. Each such notice shall state: (i) the Redemption Time, (ii) the number of shares of Class B Common Stock to be redeemed; (iii) the Redemption Price; and (iv) the place or places where certificates for such shares are to be surrendered for payment of the Redemption Price, and such notice shall be accompanied by a letter of transmittal for use by the holder of Class B Common Stock in surrendering such shares. Upon the mail ing of any such notice of redemption, the Corporation shall become obligated to redeem at the Redemption Time specified thereon all shares of Class B Common Stock. (c) On or after the Redemption Time, each holder of shares of Class B Common Stock shall surrender the certificate evidencing such shares (together with a duly completed letter of transmittal) to the Exchange Agent or another bank or trust company designated by the Corporation, having a capital and surplus of at least $1,000,000,000, and shall thereupon be entitled to receive payment of the Redemption Price. If, at the Redemption Time, funds in cash in an amount suffi cient to pay the aggregate Redemption Price for all outstanding shares of Class B Common Stock shall be available therefor and shall have been irrevocably set aside and deposited with the Exchange Agent or another bank or trust company, having a capital and surplus of at least $1,000,000,000, for purposes of payment of such Redemption Price with irrevocable instructions and authority to such bank or trust company to pay to each holder of Class B Common Stock the Re demption Price upon surrender of each certificate for Class B Com mon Stock, then, notwithstanding that the certificates evidencing any shares so called for redemption shall not have been surrendered, as of the Redemption Time the shares shall no longer be deemed outstand ing, the holders thereof shall cease to be stockholders of the Corpora tion, and all rights whatsoever with respect to such redeemed shares (except the right of the holders to receive the Redemption Price, without interest, upon surrender of their certificates therefor) shall terminate, except if the Corporation shall default in payment of the Redemption Price to any holder of Class B Common Stock, in which case the rights of such holder to receive the Redemption Price shall continue unless and until such shares are redeemed and such Redemp tion Price is paid in accordance with the terms hereof. If at the Re demption Time, the Corporation does not have sufficient capital and surplus legally available to redeem all the outstanding shares of Class B Common Stock, the Corporation shall take all measures permitted under the GCL to increase the amount of its capital and surplus legally available, and the Corporation shall redeem as many shares of Class B Common Stock as it may legally redeem, ratably from the holders thereof in proportion to the number of shares held by them, and shall thereafter from time to time, as soon as it shall have funds available therefor, redeem as many shares of Class B Common Stock as it legally may until it has redeemed all of the outstanding shares of Class B Common Stock. (d) No share of Class B Common Stock acquired by the Corporation by reason of purchase, redemption, conversion or other wise shall be reissued, and all such shares shall be canceled, retired and eliminated from the shares which the Corporation shall be autho rized to issue and after any of the foregoing events occur that result in no shares of Class B Common Stock remaining outstanding, the Corporation shall not thereafter issue any additional shares of Class B Common Stock. (C) Preference Stock. The Board of Directors is expressly authorized to provide for the issuance of all or any shares of the Preference Stock in one or more classes or series, and to fix for each such class or series such voting powers, full or limited, or no voting powers, and such distinctive designations, preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions adopted by the Board of Directors provid ing for the issuance of such class or series and as may be permitted by the GCL, including, without limitation, the authority to provide that any such class or series may be (i) subject to redemption at such time or times and at such price or prices; (ii) entitled to receive dividends (which may be cumulative or non-cumulative) at such rates, on such conditions, and at such times, and payable in preference to, or in such relation to, the dividends payable on any other class or classes or any other series; (iii) entitled to such rights upon the dissolution of, or upon any distribution of the assets of, the Corporation; or (iv) convert ible into, or exchangeable for, shares of any other class or classes of stock, or of any other series of the same or any other class or classes of stock, of the Corporation at such price or prices or at such rates of exchange and with such adjustments; all as may be stated in such resolution or resolutions. FOURTH: Effective upon the time this Certificate of Amendment becomes effective, (i) each presently outstanding share of Common Stock, and each presently outstanding share of Special Common Stock shall, without any action on the part of the respective holders thereof, be reclassified as, and changed into (the "Reclassifica tion"), one share of Class B Common Stock. Upon consummation of the Reclassifi cation, the holders of shares of Class B Common Stock of the Corporation shall have all of the rights accorded to them by law, this Restated Certificate of Incorporation, as amended, and the Recapitalization Agreement. IN WITNESS WHEREOF, Nortek Holdings, Inc. has caused this Certificate to be duly executed in its corporate name this [____] day of [_____], 2002. Nortek Holdings, Inc. By:___________________ Name: Title: EX-99 5 exhibitd7.txt EXHIBIT (D)(7) Exhibit F --------- ============================================================================== STOCKHOLDERS AGREEMENT NORTEK HOLDINGS, INC. Dated as of [ ], 2002 ============================================================================== TABLE OF CONTENTS
Page ARTICLE I RESTRICTIONS ON TRANSFER OF COMPANY STOCK...........................................................2 1.1 General Restriction on Transfer by Stockholders................................2 1.2 Permitted Transferees..........................................................2 ARTICLE II RIGHTS OF MANAGEMENT TO SELL........................................................................5 2.1 Management Stockholders' Right to Sell.........................................5 2.2 Notice.........................................................................5 2.3 Payment........................................................................6 2.4 Termination of Right to Sell...................................................6 2.5 Postponement, etc..............................................................6 ARTICLE III PURCHASES BY THE COMPANY............................................................................7 3.1 Right to Purchase Shares from Management Stockholders..........................7 3.2 Notice.........................................................................8 3.3 Payment........................................................................8 3.4 Postponement, etc..............................................................8 ARTICLE IV PURCHASE PRICE......................................................................................9 4.1 Fair Market Value..............................................................9 (a) Appraisal.............................................................9 (b) Fair Market Value.....................................................9 (c) Notice to Stockholders...............................................10 (d) Withdrawal of Exercise Following Appraisal...........................10 4.2 Carrying Value................................................................10 4.3 Certain Defined Terms.........................................................11 (a) Cause................................................................11 (b) Good Reason..........................................................11 (c) Disability...........................................................12 ARTICLE V PROHIBITION ON PURCHASES...........................................................................13 5.1 Prohibited Purchases..........................................................13 ARTICLE VI SALES TO THIRD PARTIES.............................................................................15 6.1 General.......................................................................15 6.2 Intentionally Omitted.........................................................15 6.3 Agreements to Be Bound........................................................15 6.4 Involuntary Transfers.........................................................15 6.5 Tag and Drag Along Rights.....................................................16 (a) Tag-Along Rights......................................................16 (b) Drag-Along Rights.....................................................19 (c) Attorney Fees.........................................................23 ARTICLE VII REGISTRATION RIGHTS................................................................................23 7.1 Registration Rights...........................................................23 ARTICLE VIII CHARTER DOCUMENTS AND BOARD OF DIRECTORS...........................................................23 8.1 Charter Documents.............................................................23 8.2 Board of Directors............................................................23 ARTICLE IX TERMINATION........................................................................................28 9.1 Cessation of Ownership of Company Stock.......................................28 9.2 Other Termination Events......................................................28 ARTICLE X MISCELLANEOUS PROVISIONS...........................................................................29 10.1 Stock Certificate Legend......................................................29 10.2 Option Plan...................................................................29 10.3 New Management Stockholders...................................................29 10.4 Fee...........................................................................30 10.5 Certain Transactions..........................................................30 10.6 No Other Arrangements or Agreements...........................................30 10.7 Amendment and Modification....................................................31 10.8 Assignment....................................................................31 10.9 Recapitalizations, Exchanges, etc. Affecting the Company Stock................32 10.10 Transfer of Company Stock.....................................................32 10.11 Further Assurances............................................................33 10.12 Governing Law.................................................................33 10.13 Invalidity of Provision.......................................................33 10.14 Notices.......................................................................33 10.15 Headings; Execution in Counterparts...........................................34 10.16 Entire Agreement; Effect on Certain Other Agreements..........................34 10.17 Injunctive Relief.............................................................35 10.18 Attorneys' Fees...............................................................35 10.19 Third Party Beneficiaries.....................................................35 10.20 Sales to Competitors..........................................................35 10.21 Improper Transfer.............................................................36 10.22 Third Party Investors.........................................................36 10.23 Persons.......................................................................36 10.24 Options.......................................................................36 10.25 Freeman.......................................................................36 10.26 Other Agreements..............................................................37 10.27 Company Stock.................................................................37
STOCKHOLDERS AGREEMENT STOCKHOLDERS AGREEMENT, dated as of [ ], 2002, among Nortek Holdings, Inc., a Delaware corporation (the "Company"),* Kelso Investment Associates VI, L.P., a Delaware limited liability partnership ("KIA VI"), KEP VI, LLC, a Delaware limited liability company ("KEP VI"),** Third Party Investors (as defined in Section 10.21 herein) and the stockholders and optionholders of the Company listed in the Schedule of Management Stockholders attached hereto (such management stockholders and optionholders, together with any persons who become parties to this Agreement pursuant to Sections 10.2 and 10.3 of this Agreement and each of their respective permitted transferees who agree to be bound by the terms of this Agreement in accordance with Sections 1.2(b) and 6.3 hereof, are referred to herein, collectively, as the "Management Stockholders"). Such Schedule shall be updated from time to time to include each Management Stockholder who becomes a party to this Agreement after the date hereof. KEP VI and KIA VI, together with their affiliates and transferees, in each case, to the extent they own stock of the Company, are hereinafter referred to collectively as the "Kelso Group" and the Kelso Group, the Third Party Investors and the Management Stockholders are hereinafter referred to collectively as the "Stockholders". WHEREAS, the Company, Nortek, Inc., a Delaware corporation and a direct wholly owned subsidiary of the Company ("Nortek"), and K Holdings, Inc., a Delaware corporation, entered into an Agreement and Plan of Recapitalization dated as of June 20, 2002 (the "Recapitalization Agreement"), pursuant to which the parties agreed, upon the terms and subject to the conditions set forth therein, to consummate the Transactions (as defined therein); WHEREAS, after the consummation of the Transactions on the date hereof (the "Closing"), the Company shall have (i) [ ] shares of class A common stock, par value $1.00 per share, of the Company (the "Common Stock") issued and outstanding, of which [ ] shares of Common Stock will be owned by Third Party Investors and [ ] shares of Common Stock will owned by Management Stockholders and (ii) [ ] shares of series B convertible preference stock, par value $1.00 per share, of the Company (the "Series B Preference Stock," and, together with the Common Stock, the "Company Stock") issued and outstanding, of which [ ] shares will be owned by the Kelso Group; and - -------- * Since this Agreement will be executed at Closing, after the Holding Company Merger has been completed, Nortek has not been included as a party to this Agreement ** It is currently expected that, as permitted under the Recapitalization Agree ment, K Holdings will assign its right to acquire equity of the Company to these Kelso entities. WHEREAS, the Stockholders believe it to be in their respective best interests and in the best interests of the Company that they enter into this Agreement providing for certain rights and restrictions with respect to the shares of Company Stock owned by them or their permitted transferees. NOW, THEREFORE, in consideration of the mutual covenants and obligations set forth in this Agreement, the parties hereto agree as follows: ARTICLE I RESTRICTIONS ON TRANSFER OF COMPANY STOCK. 1.1 General Restriction on Transfer by Stockholders. (a) Prior to the closing of a bona fide public offering pursuant to an effective registration statement, other than a registration statement on Form S-4 or S-8 or any successor forms and other than a registration statement registering the sale of shares of Common Stock only to employees of the Company (a "Registration"), under the Securities Act of 1933 (the "Act"), filed after the Closing that covers shares of Common Stock (an "IPO"), no shares of Company Stock now or hereafter owned by any Stockholder or any interest therein may, directly or indirectly, be sold, assigned, mortgaged, transferred, pledged, hypothecated or otherwise disposed of or transferred (collectively "Transferred"), except for (i) Transfers pursuant to Section 1.2 to the applicable transferees specified therein (a "Permitted Transferee"), (ii) sales of shares of Company Stock to the Company or to members of the Kelso Group, or to their designees pursuant to Article II or III or (iii) Transfers by any member of the Kelso Group to any Person of shares of Company Stock, provided that such Transfers shall comply with Article VI to the extent expressly provided therein. (b) The period of time from the date of this Agreement until the consummation of an IPO shall hereinafter be referred to as the "Restricted Period". 1.2 Permitted Transferees. (a) Subject to paragraph (b) of this Section 1.2: (i) Subject to Section 6.5(a), the members of the Kelso Group may Transfer any shares of Company Stock or any interest therein or their rights to subscribe for the same to any of their affiliates (as defined in Section 1.2(c)); (ii) any Management Stockholder may Transfer any shares of Company Stock or any interest therein or his rights to subscribe for the same, if any, (A) to a trust, partnership, limited liability company or corporation the beneficiaries, partners, members or stockholders of which are such Management Stockholder, his spouse, parents, members of his immediate family or his lineal descendants, provided that the foregoing shall be subject to the limitation that the Company's Board of Directors (the "Board") acting in good faith does not conclude that such Transfer together with all other Transfers made after the Closing could result in or create a "significant risk" that the Company may become subject to, or after any Registration will continue by reason thereof to be subject to, the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act") or the registration requirements of the Investment Company Act of 1940 (the "40 Act") and provided, further that a Management Stockholder shall give advance notice to the Company in the event of any Transfer to any permitted transferee set forth in this clause (A), (B) in case of his death, by will, by transfer in trust or by the laws of intestate succession to executors, trustees, administrators, testamentary trustees, legatees or beneficiaries, or (C) with the prior written consent of the Board and the Kelso Group, to any transferee; and (iii) any Third Party Investor may Transfer any shares of Company Stock or any interest therein or its rights to subscribe for the same to any of its affiliates (as defined in Section 1.2(c)); In addition to the foregoing, any transferee of a Stockholder described above may Transfer shares of Company Stock back to such Stockholder or to another Permitted Transferee of such Stockholder. For the purposes of this Section 1.2, a "significant risk", as referred to above, shall be deemed to arise when the number of "holders of record" (as determined in accordance with the Exchange Act and the rules and regulations thereunder or the registration requirements of the 40 Act) is greater than 80% of the number of "holders of record" that would cause the application or continued application of the informational requirements of the Exchange Act under the then existing circumstances. (b) Any Transfer of shares of Company Stock made pursuant to paragraph (a) of this Section 1.2 to a Permitted Transferee shall be permitted and shall be effective only if such Permitted Transferee shall agree in writing to be bound by the terms and conditions of this Agreement in the same manner and capacity as its transferor, unless such Permitted Transferee is already a Stockholder, pursuant to an instrument of assumption reasonably satisfactory in form and substance to the Company and the Kelso Group. (c) An "affiliate" of, or a person "affiliated" with, a specified person, is a person that directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified. In addition, in the case of any member of the Kelso Group, the term "affiliate" shall be deemed to include, without limitation, (1) any partner of such member of the Kelso Group or (2) any limited partner of any blind investment fund organized by or at the direction of the Kelso Group (collectively, the "Kelso Funds") or (3) any director, officer, partner or employee of Kelso & Company, L.P. ("Kelso") or any of its affiliates (excluding any limited partner of the Kelso Funds), any individual retirement account of any such partner, director, officer or employee, any family member of any such partner, director, officer or employee, or any trust or family partnership for the benefit of any such partner, director, officer or employee or family member thereof. In the case of the Third Party Investors, affiliate shall be deemed to include any partner or member of such Person or any director, officer or employee of such Person, any individual retirement account of any such partner, director, officer or employee, any family member of any such partner, director, officer or employee or any trust or family partnership for the benefit of any such partner, director, officer or employee or family member thereof. For purposes of Section 6.5(a) hereof, Permitted Transferees shall exclude (i) any Person specified in clause (2) above (other than any such person who is also described in clause (3) above), except with respect to a Transfer for value involving a liquidation of a Kelso Fund or a redemption, in whole or in part, of a limited partner's interest in a Kelso Fund, (ii) any Kelso Fund other than KIA VI or KEP VI and (iii) the Company or any of its subsidiaries. (d) Any action to be taken under this Agreement by members of the Kelso Group may be taken on their behalf by the members of the Kelso Group holding a majority of the Company Stock held by the Kelso Group in the aggregate or by such other person as is designated by such majority holders to act on behalf of the Kelso Group. ARTICLE II RIGHTS OF MANAGEMENT TO SELL 2.1 Management Stockholders' Right to Sell. Subject to the provisions of this Article II and Article V, each Management Stockholder (other than the persons set forth on Exhibit B hereto) shall have the right to sell to the Company, and the Company shall have the obligation to purchase (or, in the event that such purchase is not made by the Company, members of the Kelso Group (or their designee(s), which designees shall become parties hereto in accordance with the terms hereof) shall have the option, but not the obligation, within 10 days of such failure to purchase by the Company, to purchase) from such Management Stockholder, all, but not less than all, of such Management Stockholder's shares of Company Stock: (a) at the fair market value of such shares, as determined pursuant to Section 4.1 ("Fair Market Value") if the employment of such Management Stockholder with the Company and all subsidiaries thereof is terminated as a result of (i) the retirement of such Management Stockholder upon or after reaching the age of 65 or, if different, the Company's normal retirement age ("Retirement"), (ii) the death or Disability (as defined in Section 4.3) of such Management Stockholder, (iii) the termination by the Company of such employment of such Management Stockholder without Cause (as defined in Section 4.3), or (iv) the resignation of such Management Stockholder for Good Reason (as defined in Section 4.3); and (b) at the lesser of (i) the Fair Market Value of such shares, and (ii) the Carrying Value (as defined in Section 4.2) of such shares if such Management Stockholder's employment with the Company and all subsidiaries thereof is terminated as a result of the resignation of such Management Stockholder without Good Reason; provided, however that no Management Stockholder shall have the right to sell such Management Stockholder's shares to the Company in the circumstances specified in this clause (b) unless such Management Stockholder is party to an employment agreement with the Company that expressly provides for the right to sell such shares to the Company in such circumstances. 2.2 Notice. If any Management Stockholder intends to sell shares of Company Stock pursuant to Section 2.1, he (or his estate, as the case may be) shall give the Company and the Kelso Group notice of such intention not more than 30 days or, in the case of a termination under clause (ii) of Section 2.1(a), 90 days, after the occurrence of the event giving rise to such Management Stockholder's right to sell his shares of Company Stock and shall therein specify the number of shares of Company Stock such Management Stockholder owns and, subject to Section 2.3, is selling to the Company. 2.3 Payment. (a) Subject to Article V and Section 2.5, payment for shares of Company Stock sold by a Management Stockholder pursuant to Section 2.1 shall be made on the date that is the 15th business day following the date of the determination of Fair Market Value pursuant to Section 4.1 or the determination of Carrying Value pursuant to Section 4.2, as applicable. (b) Any payments based on Fair Market Value required to be made by the Company under this Section 2.3 shall accrue interest at 6% simple interest per annum from the date of the exercise of the right to sell set forth in this Article II (or in the case of shares acquired upon the exercise of employee stock options, which shares have been held for less than six months from the exercise of such options and are sold pursuant to clause (i), (iii) or (iv) of Section 2.1(a) (the "Delayed Sale Shares"), from the six-month anniversary of such exercise of such options (such date, the "Delayed Sale Share Anniversary")) to the date the Company (or the Kelso Group or their designee(s)) makes such payments. 2.4 Termination of Right to Sell. A Management Stockholder's right to sell to the Company and the Company's obligation to purchase such Management Stockholder's shares of Company Stock pursuant to Section 2.1 shall terminate on the closing of an IPO. 2.5 Postponement, etc. The date of payment and closing of any purchase and sale under this Article II may be postponed to the extent necessary to permit such purchase and sale under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the regulations promulgated thereunder (the "HSR Act"). No party shall be required to consummate any purchase and sale under this Article II until such time as such transaction would not cause such party to violate applicable law, other than violations which would not have a direct or indirect material adverse effect on such party. Notwithstanding anything to the contrary in this Article II, in no event shall any sale of Delayed Sale Shares occur prior to the Delayed Sale Share Anniversary; provided, that in the event that Delayed Sale Shares are to be sold, then (x) the Company (or the members of the Kelso Group, or their designee(s), which designees shall become parties hereto in accordance with the terms hereof), as the case may be) will, at its option, either delay the purchase of all shares held by such Management Stockholder or delay only the purchase of the Delayed Sale Shares, until a date that shall not be earlier than the Delayed Sale Share Anniversary and (y) if pursuant to the foregoing clause (x) the purchase of all shares held by such Management Stockholder is delayed, then notwithstanding Section 2.3(b) above, no interest shall accrue prior to the Delayed Sale Share Anniversary with respect to any shares held by such Management Stockholder. ARTICLE III PURCHASES BY THE COMPANY 3.1 Right to Purchase Shares from Management Stockholders. Subject to all provisions of this Article III, the Company shall have the right to purchase (and, if the Company does not exercise such right by giving notice within the 45-day period referred to in Section 3.2, the members of the Kelso Group (or their designee(s), which designees shall become parties hereto in accordance with the terms hereof) shall have the right by giving notice not later than the end of the succeeding 10-day period to purchase) from a Management Stockholder (other than the persons set forth on Exhibit B hereto), and such Management Stockholder shall have the obligation to sell to the Company (or the members of the Kelso Group or their designee(s) if such right is exercised by the Kelso Group or their designee(s)), all, but not less than all, of such Management Stockholder's shares of Company Stock: (a) at the Fair Market Value of such shares if such Management Stockholder's employment with the Company and all subsidiaries thereof is terminated as a result of (i) the termination by the Company of such employment without Cause, (ii) the resignation of such Management Stockholder for Good Reason, (iii) the Retirement of such Management Stockholder, or (iv) the death or Disability of such Management Stockholder; (b) at the lesser of (i) the Fair Market Value of such shares, and (ii) the Carrying Value of such shares if such Management Stockholder's employment with the Company and all subsidiaries thereof is terminated as a result of the resignation of such Management Stockholder without Good Reason; and (c) at the lesser of the Fair Market Value and Carrying Value of such shares, if such Management Stockholder's employment with the Company and all subsidiaries thereof is terminated as a result of the termination by the Company of such employment with Cause. 3.2 Notice. If the Company desires to purchase shares of Company Stock from a Management Stockholder pursuant to Section 3.1, it shall notify such Management Stockholder (or his estate, as the case may be) not more than 45 days after the occurrence of the event giving rise to the Company's right to acquire such Management Stockholder's shares of Company Stock. If the Company does not deliver such notice within such 45-day period and the members of the Kelso Group (or their designee(s)) desires to purchase such shares, then the members of the Kelso Group (or their designee(s)) shall notify such Management Stockholder (or his estate, as the case may be) not later than the end of the succeeding 10-day period. 3.3 Payment. (a) Subject to Section 3.4 and Article V, payment for shares of Company Stock purchased pursuant to Section 3.1 shall be made on the date that is the 15th business day following the date of the determination of Fair Market Value pursuant to Section 4.1 or the determination of Carrying Value pursuant to Section 4.2, as applicable. (b) Any payments based on Fair Market Value required to be made by the Company under this Section 3.3 shall accrue interest at 6% simple interest per annum on the amounts not paid from the date of the exercise of the right to purchase set forth in this Article III (or in the case of shares acquired upon the exercise of employee stock options, which shares have been held for less than six months from the exercise of such options and are purchased pursuant to clause (i), (ii) or (iii) of Section 3.1(a) (the "Delayed Purchase Shares"), from the six-month anniversary of such exercise of such options (such date, the "Delayed Purchase Share Anniversary")) to the date the Company (or the members of the Kelso Group or their designee(s)) makes such payments. 3.4 Postponement, etc. The date of payment and closing of any purchase and sale under this Article III may be postponed to the extent necessary to permit such purchase and sale under the HSR Act. No party shall be required to consummate any purchase and sale under this Article III until such time as such transaction would not cause such party to violate applicable law, other than violations which would not have a direct or indirect material adverse effect on such party. Notwithstanding anything to the contrary in this Article III, in no event shall any purchase of Delayed Purchase Shares occur prior to the Delayed Purchase Share Anniversary; provided, that in the event that Delayed Purchase Shares are to be purchased, then (x) the Company (or the members of the Kelso Group or their designee(s)), as the case may be) will, at its option, either delay the purchase of all shares held by such Management Stockholder or delay only the purchase of the Delayed Purchase Shares, until a date that shall not be earlier than the Delayed Purchase Share Anniversary and (y) if pursuant to the foregoing clause (x) the purchase of all shares held by such Management Stockholder is delayed, then notwithstanding Section 3.3(b) above, no interest shall accrue prior to the Delayed Purchase Share Anniversary with respect to any shares held by such Management Stockholder. ARTICLE IV PURCHASE PRICE 4.1 Fair Market Value. (a) Appraisal. The Company shall, at the request of the Kelso Group, engage, to the extent practicable, on an annual basis or otherwise from time to time as required, an independent valuation consultant or appraiser of recognized national standing (an "Appraiser") satisfactory to the Kelso Group and the Company (it being agreed that Houlihan, Lokey, Howard & Zukin, Inc. is satisfactory to the Kelso Group and the Company) to appraise the Fair Market Value of the shares of Company Stock as of the last day of the fiscal year then most recently ended or as of any more recent date (the "Appraisal Date") and to prepare and deliver a report to the Company describing the results of such appraisal (the "Appraisal"). (b) Fair Market Value. For the purposes of this Agreement, the "Fair Market Value" of any share of Company Stock being purchased by or sold to the Company, the Kelso Group or their respective designees, pursuant to this Agreement shall be the fair market value of the entire Company Stock equity interest of the Company taken as a whole, divided by the number of outstanding shares of Company Stock, all calculated on a fully diluted basis, without additional premiums for control or discounts for minority interests or restrictions on transfer, and shall be determined by Appraisal as of the applicable date of termination of employment with the Company (or in the case of Delayed Sale Shares or Delayed Purchase Shares, on the last day of the month in which the Delayed Sale Share Anniversary or the Delayed Purchase Share Anniversary occurs) or the date of transfer to an Involuntary Transferee (as defined in Section 6.4) (each of such dates, a "Determination Date"), which Appraisal the Company shall have caused to have been undertaken, in accordance with Section 4.1(a), promptly but no later than 30 days following (i) the date of receipt by the Company of the notice described in Section 2.2 (in the case of purchases of Company Stock pursuant to Article II), (ii) the date on which the Company gives the notice described in Section 3.2 (in the case of purchases by the Company of Company Stock pursuant to Article III) or the date on which the Kelso Group gives the notice described in Section 3.1 (in the case of purchases of Company Stock by the members of the Kelso Group (or their designees) pursuant to Section 3.2) and (iii) the date of receipt by the Company of the Notice described in Section 6.4 or the time by which the Kelso Group have to exercise their rights under Section 6.4 (in each case, the case of purchases of Company Stock pursuant to Section 6.4) and notwithstanding the foregoing, (iv)(a) the Delayed Sale Share Anniversary, in the case of Delayed Sale Shares or (b) the Delayed Purchase Share Anniversary, in the case of Delayed Purchase Shares; provided, however, that the Fair Market Value will be determined as of the most recent existing Appraisal unless (i) in the Company's judgment there has been a material change in the Company, its operations or its value since such existing Appraisal or the Board determines that a new appraisal is advisable, in which case the Company may, in its sole discretion, order an additional Appraisal or (ii) a determination of Fair Market Value is being made with respect to (x) Delayed Sale Shares or Delayed Purchase Shares or (y) shares acquired upon the exercise of employee stock options which shares have been held for at least six months from the exercise of such options and the most recent existing Appraisal occurred during the first six months that such shares were held, then the Company shall order an additional Appraisal under Section 4.1(a) for the purpose of determining the Fair Market Value of such shares; provided further, that, until the one year anniversary of the date hereof, the Fair Market Value shall be equal to the Redemption Price (as defined in the Recapitalization Agreement) and no such Appraisal need be undertaken. (c) Notice to Stockholders. After notice has been given pursuant to Section 2.2, 3.2 or 6.4, the Company shall promptly deliver a copy of the letter as to value included with the most recent existing Appraisal or any Appraisal thereafter received, as the case may be, to the Kelso Group and to each Stockholder whose Company Stock is to be purchased pursuant to Section 2.1, 2.6, 3.1, 3.5 or 6.4. (d) Withdrawal of Exercise Following Appraisal. Any party to this Agreement who has exercised its option either to purchase or sell shares of Company Stock, pursuant to Article II or Article III, may withdraw its notice or demand to purchase or sell such shares within 10 business days following the receipt of the letter referred to in Section 4.1(c) or the determination of the Fair Market Value as set forth in Section 4.1(b). 4.2 Carrying Value. For the purposes of this Agreement, "Carrying Value" of any share of Company Stock being purchased by the Company shall be equal to the price paid by the selling Management Stockholder for any such share ("Cost"), less the amount of dividends paid to such Management Stockholder in respect of any such share. Notwithstanding anything to the contrary herein, (i) in the case of any share of Common Stock that was issued in exchange for any share of Series B Preference Stock outstanding prior to the Closing pursuant to the Share Exchange (as defined in the Recapitalization Agreement), Cost shall be deemed to be the Redemption Price, and the Carrying Value shall be calculated as set forth above commencing from the date of the Closing through the date of purchase by the Company pursuant to Article II or III and (ii) in the case of any share of Common Stock that was issued upon the exercise of any stock option issued prior to the Closing or issued in exchange for option issued prior to the Closing ("Pre-existing Option"), Cost shall be deemed to be the Redemption Price and the Carrying Value shall be calculated as set forth above. 4.3 Certain Defined Terms. As used in this Agreement, the following terms shall have the meanings ascribed to them below (which meanings shall be independent of and unaffected by the meanings of similar terms used in any employment contracts between the Company and Management Stockholders, in the event such latter meanings differ from those following): (a) Cause. With respect to any Management Stockholder who is party to an employment agreement with the Company, the term "Cause", if defined in such employment agreement, shall have the meaning set forth therein. For all other purposes, the term "Cause" used in connection with a termination of employment of a Management Stockholder shall mean a termination of such Management Stockholder's employment by the Company or any of its subsidiaries due to (i) the continued willful failure, after reasonable advance written notice specifying details of such failure, by such Management Stockholder substantially to perform his duties with the Company or any of its subsidiaries (other than any such failure resulting from incapacity due to reasonably documented physical or mental illness), or (ii) the engaging by such Management Stockholder in fraudulent, willful or bad faith conduct that causes, or in the good faith judgment of the Board may cause, harm (financial or otherwise) material to the Company or any of its subsidiaries or harm material to the conduct of such Management Stockholder's employment, including, without limitation, the improper or unlawful disclosure of material secret, proprietary or confidential information of the Company or any of its subsidiaries. (b) Good Reason. With respect to any Management Stockholder who is party to an employment agreement with the Company, the term "Good Reason", if defined in such employment agreement, shall have the meaning set forth therein. For all other purposes, a termination of a Management Stockholder's employment with the Company or any of its subsidiaries shall be for "Good Reason" if such Management Stockholder voluntarily terminates his employment with the Company or any of its subsidiaries as a result of either of the following: (i) without the Management Stockholder's prior consent, a material reduction by the Company or any of its subsidiaries in his current salary, other than any such reduction which is part of a general salary reduction or other concessionary arrangement affecting all employees or affecting the group of employees of which the Management Stockholder is a member; or (ii) the taking of any action by the Company or any of its subsidiaries that would substantially diminish the aggregate value of the benefits provided him under the Company's or any such subsidiary's medical, health, accident, disability, life insurance, thrift and retirement plans in which he was participating on the date of his execution of this Agreement, other than any such reduction which is (A) required by law, (B) implemented in connection with a general concessionary arrangement affecting most employees or affecting substantially the entire group of employees of which the Management Stockholder is a member, (C) generally applicable to all beneficiaries of such plans or (D) a result of a decrease in the value of the Company or its equity; or (iii) a substantial and material reduction in his then current duties, authority or responsibilities. (c) Disability. With respect to any Management Stockholder who is party to an employment agreement with the Company, the term "Disability", if defined in such employment agreement, shall have the meaning set forth therein. For all other purposes, the termination of the employment of any Management Stockholder by the Company or any of its subsidiaries shall be deemed to be by reason of a "Disability" if, as a result of such Management Stockholder's incapacity due to reasonably documented physical or mental illness, such Management Stockholder shall have been unable for more than six months within any 12 month period to perform his duties with the Company or any of its subsidiaries on a full time basis and within 30 days after written notice of termination has been given to such Management Stockholder, such Management Stockholder shall not have returned to the full time performance of his duties. The date of termination in the case of a termination for "Disability" shall be the last day of the aforementioned 30- day period. ARTICLE V PROHIBITION ON PURCHASES 5.1 Prohibited Purchases. Notwithstanding anything to the contrary herein, the Company shall not be obligated to purchase any shares of Company Stock from a Management Stockholder pursuant to Section 2.1 and shall not exercise any right to purchase shares from Management Stockholders pursuant to Section 3.1, in each case, to the extent (i) the Company is prohibited from purchasing such shares (or incurring debt to finance the purchase of such shares), or the Company is unable to obtain funds to pay for such shares from a subsidiary of the Company, in any case by reason of any debt instruments, including, but not limited to, the Nortek Indentures, the Bridge Facility and the Bank Facility (each as defined below) or other agreements (collectively, the "Agreements") entered into by the Company or any of its subsidiaries or by applicable law, (ii) an event of default under any Agreement has occurred and is continuing or a condition exists which would, with notice or lapse of time or both, result in an event of default under any Agreement or (iii) the purchase of such shares (including the incurrence of any debt which in the judgment of the Board is necessary to finance such purchase) or the distribution of funds to the Company by a subsidiary thereof to pay for such purchase (A) could in the judgment of the Board result in the occurrence of an event of default under any Agreement or create a condition which would or might, with notice or lapse of time or both, result in an event of default under any Agreement, (B) would, in the judgment of the Board, be imprudent in view of the financial condition (present or projected) of the Company and its subsidiaries, taken as a whole, or the anticipated impact of the purchase (or of the obtaining of funds to permit the purchase) of such shares on the Company's or any of its subsidiaries' ability to meet their respective obligations, including under any Agreement, or to satisfy and make their planned capital and other expenditures and projections or (C) could, in the judgment of the Board, constitute a fraudulent conveyance or transfer by the Company or a subsidiary thereof or render the Company or a subsidiary thereof insolvent under applicable law or violate limitations in applicable corporate law on repurchases of stock or payment of dividends or distributions. If shares of Company Stock which the Company has the right or obligation to purchase on any date exceed the total amount permitted to be purchased on such date pursuant to the preceding sentence (the "Maximum Amount"), the Company shall purchase on such date only that number of shares of Company Stock up to the Maximum Amount (and shall not be required to purchase more than the Maximum Amount) in such amounts as the Board shall in good faith determine, applying the following order of priority: (a) first, the shares of Company Stock of all Management Stockholders whose shares of Company Stock are being purchased by the Company by reason of termination of employment due to death or Disability up to the Maximum Amount and, to the extent that the number of shares of Company Stock that the Company is obligated to purchase from such Management Stockholders in the aggregate exceeds the Maximum Amount, such shares of Company Stock, up to the Maximum Amount, pro rata among such Management Stockholders on the basis of the number of shares of Company Stock held by each of such Management Stockholders that the Company is obligated or has the right to purchase; (b) second, to the extent that the Maximum Amount is in excess of the amount the Company purchases pursuant to clause (a) above, the shares of Company Stock of all Management Stockholders whose shares of Company Stock are being purchased by the Company by reason of termination of employment without Cause or due to Retirement or resignation for Good Reason up to the Maximum Amount and, to the extent that the number of shares of Company Stock that the Company is obligated to purchase from such Management Stockholders in the aggregate exceeds the Maximum Amount, such shares of Company Stock, up to the Maximum Amount, pro rata among such Management Stockholders on the basis of the number of shares of Company Stock held by each of such Management Stockholders that the Company is obligated or has the right to purchase; and (c) third, to the extent the Maximum Amount is in excess of the amounts the Company purchases pursuant to clauses (a) and (b) above, the shares of Company Stock of all other Management Stockholders whose shares of Company Stock are being purchased by the Company up to the Maximum Amount and, to the extent that the number of shares of Company Stock that the Company is obligated to purchase from such Management Stockholders in the aggregate exceeds the Maximum Amount, the shares of Company Stock, up to the Maximum Amount, of such Management Stockholders in such order of priority and in such amounts as the Board in its sole discretion shall in good faith determine to be appropriate under the circumstances. For purposes of this Agreement, (x) "Nortek Indentures" shall mean the indentures related to the following notes of Nortek: (1) 8 7/8% senior notes due August 1, 2008; (2) 9 1/8% senior notes due September 1, 2007; (3) 9 1/4% senior notes due March 15, 2007; and (4) 9 1/8% senior subordinated notes due June 15, 2011 and (y) the "Bridge Facility" shall mean the bridge facility to be provided pursuant to the commitment letter, dated as of June 20, 2002, by and among Kelso, UBS AG, Stamford Branch and UBS Warburg LLC. The "Bank Facility" shall mean the bank facility to be provided pursuant to the commitment letter, dated as of May 31, 2002 by and among Nortek, Fleet Capital Corporation and Fleet Securities, Inc. Notwithstanding anything to the contrary contained in this Agreement, if the Company is unable to make any payment when due to any Management Stockholder under this Agreement by reason of this Article V, the Company shall make such payment at the earliest practicable date permitted under this Article V and any such payment shall accrue simple interest (or if such payment is accruing interest at such time, shall continue to accrue interest) at 6% per annum from the date such payment is due and owing to the date such payment is made; provided, however, that such interest shall be reduced by the amount of any interest otherwise accruing on such payment by the Company by reason of the definition of "Carrying Value" set forth in Section 4.2. All payments of interest accrued hereunder shall be paid only at the date of payment by the Company for the shares of Company Stock being purchased. ARTICLE VI SALES TO THIRD PARTIES 6.1 General. An "Excluded Transaction" shall mean any Transfer pursuant to an IPO. 6.2 Intentionally Omitted. 6.3 Agreements to Be Bound. Notwithstanding anything contained in this Section 6, any Transfer (other than in connection with a transaction which constitutes a Change in Control (as defined herein)) to a third party or any Involuntary Transfer (as defined in Section 6.4) to an Involuntary Transferee (as defined in Section 6.4) shall be permitted under the terms of this Agreement only if such third party or Involuntary Transferee, as the case may be, shall agree in writing to be bound by the terms and conditions of this Agreement in the same manner and capacity as its transferor pursuant to an instrument of assumption reasonably satisfactory in form and substance to the Company; it being understood that any transferee of a member of the Kelso Group shall constitute a member of the Kelso Group for all purposes of this Agreement, including Section 1.2(d) hereof. 6.4 Involuntary Transfers. In the case of any transfer of title or beneficial ownership of shares of Company Stock, other than an Excluded Transfer, upon default, foreclosure, forfeit, divorce, court order, or otherwise than by a voluntary decision on the part of a Stockholder (an "Involuntary Transfer"), the Company shall have the right to purchase such shares pursuant to this Section 6.4 or, if the Company fails to exercise such right, the Kelso Group (or its designees, which designees shall become parties hereto in accordance with the terms hereof) shall have such right. Upon the Involuntary Transfer of any shares of Company Stock, such Stockholder shall promptly (but in no event later than two days after such Involuntary Transfer) furnish written notice (the "Notice") to the Company and the Kelso Group indicating that the Involuntary Transfer has occurred, specifying the name of the person to whom such shares have been transferred (the "Involuntary Transferee") and giving a detailed description of the circumstances giving rise to, and stating the legal basis for, the Involuntary Transfer. Upon the receipt of the Notice, and for 30 days thereafter, the Company (or its designee(s)) shall have the right (and in the event the Company fails to exercise such right within such 30 day period then, until the later of (i) five days from the end of such 30 day period and (ii) 10 days from the day the Kelso Group receives notification from the Company that it is declining to exercise such right, the Kelso Group (and its designee(s)) shall have the right) to purchase, and the Involuntary Transferee shall have the obligation to sell, all, but not less than all, of the shares of Company Stock acquired by the Involuntary Transferee for a purchase price equal to (subject to the following paragraph) the lesser of (i) the Fair Market Value of such shares of Company Stock on the date of transfer to the Involuntary Transferee and (ii) the amount of the indebtedness or other liability that gave rise to the Involuntary Transfer plus the excess, if any, of the Carrying Value of such shares of Company Stock over the amount of such indebtedness or other liability that gave rise to the Involuntary Transfer. Notwithstanding the foregoing, the Board may, for good cause shown by the Stockholder who made the Involuntary Transfer, determine that payment of a purchase price equal to the Fair Market Value of such shares of Company Stock on the date of transfer to the Involuntary Transferee would be appropriate under the circumstances, and direct that payment be made in such amount. 6.5 Tag and Drag Along Rights. (a) Tag-Along Rights. None of the members of the Kelso Group shall, in any one transaction or any series of related transactions, Transfer for value any shares of Company Stock in an amount which when taken together with all previous (or substantially simultaneous) Transfers by all of the members of the Kelso Group would exceed 5% of the Company Stock held by all such members of the Kelso Group at the time of the transaction in question (which in the case of a series of related transactions is the most current transaction in such series), except pursuant to an Excluded Transaction, a Transfer to a Permitted Transferee (as limited by Section 1.2(c)) or pursuant to Section 6.5(b), to the Company or any of its subsidiaries or to any third party or parties (a "Third Party"), unless the Management Stockholders, the Third Party Investors, and their respective Permitted Transferees (collectively, the "Offerees"), are offered the right, at the option of each Offeree, to include in such Transfer to the Third Party such number of shares of Company Stock owned by each such Offeree as determined in accordance with this Section 6.5(a). If any member of the Kelso Group receives from a Third Party a bona fide offer or offers to Transfer, or proposes to Transfer to a Third Party, shares of its or their Company Stock, in excess of such 5% threshold, such member (the "Transferor") shall give written notice (the "Tag-Along Notice") to each of the Offerees, setting forth the consideration per share to be paid by such Third Party and the other material terms and conditions of such transaction. The Tag-Along Notice shall offer the Offerees the opportunity to participate in the proposed Transfer of shares to the Third Party according to the terms and conditions of this Section 6.5(a) and for the same type of consideration and for an amount of consideration per share not less than that offered to the Transferor by the Third Party and on terms and conditions (other than, in the case of members of the Kelso Group, any management, advisory or transaction fees payable to them or their affiliates) no less favorable to such Offerees than the terms and conditions offered to the Transferor by the Third Party. At any time within 15 days after its receipt of the Tag-Along Notice, each of the Offerees may irrevocably (but subject to the terms and conditions of such offer) accept the offer included in the Tag-Along Notice for up to such number of shares of Company Stock as is determined in accordance with the provisions of this Section 6.5(a) by furnishing written notice of such acceptance to the Transferor. Promptly following such acceptance by an Offeree, each such Offeree shall deliver to the Transferor the certificate or certificates representing the shares of Company Stock to be Transferred pursuant to such offer by such Offeree, together with a limited power-of-attorney authorizing the Transferor to sell or otherwise dispose of such shares of Company Stock pursuant to the proposed Transfer to the Third Party. In addition, each such Offeree shall also execute all other documents required to be executed in connection with such transaction; provided, that in the event that (x) the Offeree is required to provide any representations or warranties in connection with such transaction, each Offeree shall only be required to represent and warrant as to its or his title to its or his Company Stock to be Transferred and such holder's authority, power, and right to enter into and consummate such transaction without violating any other agreement or legal requirement and other matters relating to such holder, or (y) the Offeree is required to provide any indemnities in connection with such transaction (other than in respect of representations and warranties referenced to in the preceding clause (x)), then each Offeree shall only be required to provide the same indemnities as the Kelso Group and shall not be liable for more than his or its pro rata share (based upon the amount of consideration to be received by all Offerees and the Transferor in such transaction) of any liability for indemnity and such liability shall not exceed the total purchase price received by such Offeree in such transaction; provided that, with respect to the foregoing representations or warranties in the preceding clause (x) above given by the Offerees, an Offeree may be liable for any and all losses resulting from a breach of such representations or warranties and there shall be no cap by reason of this Agreement on the liability of the relevant Offeree with respect to breaches of such representations or warranties. Each Offeree who shall have irrevocably accepted the offer in the Tag Along Notice shall have the right to participate in the proposed Transfer to the Third Party by Transferring in connection therewith shares of Company Stock equal to the product of (x) the total number of shares to be acquired by the Third Party, times (y) a fraction, the numerator of which shall be the total number of shares of Company Stock owned by such Offeree, and the denominator of which shall be the total number of shares of Company Stock owned by the Kelso Group plus the total number of shares of Company Stock owned by all Offerees that have accepted the offer included in the Tag-Along Notice. The maximum number of shares of Company Stock that may be Transferred by each Offeree to the Third Party in accordance with this Section 6.5(a) shall be the total number of shares of Company Stock then owned by such Offeree. If within 15 days after the receipt of the Tag-Along Notice, any Offeree has not accepted the offer contained in the Tag-Along Notice, such Offeree will be deemed to have waived any and all rights with respect to, or to participate in, the Transfer of Company Stock described in the Tag-Along Notice. The Transferor shall have 45 days following such delivery in which to Transfer Company Stock held by it plus any Company Stock of any Offerees who accept the offer described in the Tag-Along Notice in accordance with the provisions of this Section 6.5(a), in the aggregate not more than the amount of Company Stock described in the Tag-Along Notice, for an amount and type of sales price consideration per share not more favorable to the Transferor than was set forth in the Tag-Along Notice, provided that the type of consideration to be received by the Transferor may be different than the type set forth in the Tag-Along Notice so long as (i) it is not materially more favorable to the Transferor than to the Offerees and (ii) if the consideration to be received by the Offerees is different than that set forth in the Tag Along Notice, each Offeree may rescind its acceptance of the offer contained in the Tag Along Notice within five days of receipt of notice of such change in the type of consideration; provided further, that no recision shall effect the number of shares which each accepting Offeree shall have the right to Transfer pursuant to the preceding paragraph and the Transferor may increase the number of shares to be Transferred by it by the number of shares subject to such rescission. If, at the end of 60 days following the delivery of the Tag-Along Notice, the Transferor has not completed the Transfer of Company Stock of the Transferor and Company Stock of any Offeree, the Transferor shall return to such Offeree all certificates representing shares of Company Stock which such Offeree delivered for Transfer pursuant to this Section 6.5(a), and all the restrictions on sale or other disposition contained in this Agreement with respect to Company Stock owned by the Transferor shall again be in effect, including the requirement to give notice hereunder. Except as may otherwise be agreed to by Richard L. Bready ("RLB") with respect to Management Stockholders, all Offerees whose shares of Company Stock are to be Transferred in accordance with this Section 6.5(a) shall receive the consideration in respect of their shares substantially simultaneously with the receipt by the Transferor of the consideration in respect of the shares of Company Stock of the Transferor. For purposes of this Section 6.5(a) only, all stock options held by each Offeree which are exercisable at the time of delivery of the Tag-Along Notice, or which would become exercisable by reason of the Transfer after giving effect to this Section 6.5(a), shall be treated as Company Stock hereunder (including, without limitation, for purposes of determining the extent to which an Offeree may participate in a proposed Transfer pursuant to the second paragraph of this Section 6.5(a)); provided, that each Offeree, in order to participate in any proposed Transfer in this Section 6.5(a), shall exercise any such stock options held by such Offeree the shares of Company Stock in respect of which such Offeree desires to Transfer pursuant to this Section 6.5(a), in accordance with the terms and subject to the conditions of applicable stock option plan, prior to the consummation of any such Transfer pursuant to this Section 6.5(a); provided, further, that, to the extent practicable and to the extent doing so would not adversely affect the Company, the Transferor or the ability to consummate the Transfer, the Transferor and the Company shall use their reasonable efforts to cause any such proposed Transfer to be structured so as to facilitate the delivery to any Offeree holding stock options of the difference between the per share consideration being paid in such Transfer and the exercise price in respect of each such stock options being Transferred pursuant to this Section 6.5(a) (in lieu of the delivery of the exercise price in respect of such stock options to the Company). (b) Drag-Along Rights. If any member or members of the Kelso Group shall, individually or collectively, propose to Transfer at least 75% of all shares of Company Stock collectively owned by the Kelso Group at the time of the transaction in question to a Third Party, then (in addition to the rights of the Management Stockholders, the Third Party Investors, and their respective Permitted Transferees to participate in such Transfer pursuant to Section 6.5(a) hereof) the members of the Kelso Group, may, at their option, require the Management Stockholders, the Third Party Investors, and their respective Permitted Transferees (collectively, the "Remaining Holders") to include in such Transfer to the Third Party such number of shares of Company Stock owned by each of them, as determined in accordance with this Section 6.5(b); provided that if the members of the Kelso Group send the Drag-Along Notice referred to below, Section 6.5(a) shall not apply to the Transfer. The members of the Kelso Group shall give written notice (the "Drag- Along Notice") of the exercise of their rights pursuant to this Section 6.5(b) to each of the Remaining Holders, setting forth the sales price consideration per share to be paid by the Third Party and the other material terms and conditions of such transaction, including the number of shares to be included therein. The Drag-Along Notice shall state that the Remaining Holders shall be required to participate in the proposed Transfer of shares to the Third Party according to the terms and conditions of this Section 6.5(b) and for the same type of consideration and for an amount of consideration per share not less than that offered to any member of the Kelso Group by the Third Party and on terms and conditions (other than, in the case of members of the Kelso Group, any management, advisory or transaction fees payable to them or their affiliates) no less favorable to such Remaining Holders than the terms and conditions offered to any member of the Kelso Group by the Third Party. Within 15 days following the receipt of the Drag-Along Notice, each of the Remaining Holders shall deliver to a representative of the Kelso Group designated in the Drag-Along Notice certificates representing all shares of Company Stock held by such Remaining Holder, duly endorsed, together with all other documents required to be executed in connection with such transaction. In the event that any Remaining Holder should fail to deliver such certificates to the Kelso Group, the Company shall cause the books and records of the Company to show that such shares are bound by the provisions of this Section 6.5(b) and that such shares may be Transferred only to the Third Party. Each Remaining Holder shall be required to participate in the proposed Transfer to the Third Party by Transferring in connection therewith shares of Company Stock equal to the product of (x) the total number of shares to be acquired by the Third Party, times (y) a fraction, the numerator of which shall be the total number of shares of Company Stock owned by such Remaining Holder, and the denominator of which shall be the total number of shares of Company Stock owned by the Kelso Group plus the total number of shares of Company Stock owned by all Remaining Holders in the aggregate. The maximum number of shares of Company Stock that may be Transferred by each Remaining Holder to the Third Party in accordance with this Section 6.5(b) shall be the total number of shares of Company Stock then owned by such Remaining Holder. If, within 90 days after the members of the Kelso Group gave the Drag-Along Notice, they shall not have completed the Transfer of all the shares of Company Stock of the Kelso Group and the Remaining Holders in accordance with this Section 6.5(b), the Kelso Group shall return to each of the Remaining Holders all certificates representing shares of Company Stock that such Remaining Holder delivered for Transfer pursuant hereto and that were not purchased pursuant to this Section 6.5(b); provided that the Kelso Group shall be permitted, but not obligated, to complete the sale by all non-defaulting Remaining Holders if one or more of the Remaining Holders default; provided further that completion of the sale by the Kelso Group and/or such Remaining Holders shall not relieve a defaulting Remaining Holder of liability for its breach. The obligations of the Remaining Holders pursuant to this Section 6.5(b) are subject to the satisfaction of the following conditions: (i) if any Stockholder is given an option as to the form and amount of consideration to be received, all Stockholders will be given the same option; (ii) no Remaining Holder shall be required to make any out-of-pocket expenditure prior to the consummation of such transaction (excluding expenditures for its own postage, copies, etc. and the fees and expenses of its own counsel and other advisors retained by it, which amounts shall be the sole responsibility of such Remaining Holder in any event (other than pursuant to Section 6.5(c) herein)), and no Remaining Holder shall be obligated to pay more than its or his pro rata share (based upon the consideration to be received in such transaction) of expenses (in comparison to the amount of expenses being borne by all other holders participating in a Transfer pursuant to this Section 6.5(b)) incurred by the Company or for the benefit of all Stockholders, provided that a Remaining Holder's liability for its or his pro rata share of such allocated expenses shall in no event exceed the total purchase price received by such Remaining Holder in such transaction; and (iii) in the event that (x) the Remaining Holders are required to provide any representations or warranties in connection with such transaction, each Remaining Holder shall only be required to represent and warrant as to its or his title to its or his Stock to be Transferred and such holder's authority, power, and right to enter into and consummate such transaction without violating any other agreement or legal requirement and other matters relating to such holder, or (y) the Remaining Holders are required to provide any indemnities in connection with such transaction (other than in respect of representations and warranties referenced to in the preceding clause (x)), then each Remaining Holder shall only be required to provide the same indemnities as the Kelso Group and shall not be liable for more than his or its pro rata share (based upon the amount of consideration to be received in such transaction by all Remaining Holders and members of the Kelso Group) of any liability for indemnity and such liability shall not exceed the total purchase price received by such Remaining Holder in such transaction; provided that, with respect to the foregoing representations or warranties in the preceding clause (x) given by the Remaining Holders, a Remaining Holder may be liable for any and all losses resulting from a breach of such representations or warranties and there shall be no cap by reason of this Agreement on the liability of the relevant Remaining Holder with respect to breaches of such representations or warranties. To the extent practicable, all Remaining Holders whose shares of Company Stock are to be Transferred in accordance with this Section 6.5(b) shall receive the consideration in respect of their shares substantially simultaneously with the receipt by the Kelso Group of the consideration in respect of the shares of Company Stock of the Kelso Group Transferred, except that all Management Stockholders whose shares of Company Stock are to be Transferred in accordance with this Section 6.5(b) shall receive the consideration in respect of their shares (except as may be agreed to between the Company and RLB on behalf of such Management Stockholders) simultaneously with the receipt by the Transferor of the consideration in respect of the shares of Company Stock of the Transferor. For purposes of this Section 6.5(b) only, all stock options held by each Remaining Holder which are fully exercisable at the time of the Drag-Along Notice, or which would become exercisable by reason of the Transfer after giving effect to this Section 6.5(b), shall be treated as Company Stock (including, without limitation, for purposes of determining the extent to which a Remaining Holder is required to participate in a proposed Transfer pursuant to the third paragraph of this Section 6.5(b)); and each Remaining Holder in connection with the exercise of drag-along rights by the Kelso Group pursuant to this Section 6.5(b) shall immediately prior to such proposed Transfer exercise any such stock options held by such Remaining Holders, the shares of Company Stock in respect of which are required to be Transferred pursuant to this Section 6.5(b), in accordance with the terms and subject to the conditions of the applicable stock option plan, prior to the consummation of any such Transfer pursuant to this Section 6.5(b); provided, further, that, to the extent practicable and to the extent doing so would not adversely affect the Company, any member of the Kelso Group or the ability to consummate the Transfer, the Kelso Group and the Company shall use their reasonable efforts to cause any such proposed Transfer to be structured so as to facilitate the delivery to any Remaining Holder holding stock options of the difference between the per share consideration being paid in such Transfer and the exercise price in respect of each such stock options being Transferred pursuant to this Section 6.5(b) (in lieu of the delivery of the exercise price in respect of such stock options to the Company). Notwithstanding anything herein to the contrary, this Section 6.5(b) shall be of no force or effect and the Kelso Group may not exercise their rights under this Section 6.5(b) until after the six month anniversary of the Closing (assuming that, at such time, this Agreement is in existence and Stockholders hereunder continue to hold capital stock of the Company). (c) Attorney Fees. The Company shall pay the reasonable fees and expenses of one counsel selected by the Management Stockholders holding a majority of the shares of Company Stock held in the aggregate by all Management Stockholders (and reasonably acceptable to the Kelso Group) to represent the Third Party Investors and Management Stockholders, unless such counsel has a conflict of interest that would prevent such counsel from representing both the Management Stockholders and the Third Party Investors in which case the Company shall pay the reasonable fees and expenses of one counsel selected by the Management Stockholders by a majority vote (and reasonably acceptable to the Company) to represent the Management Stockholders and one counsel selected by the Third Party Investors by a majority vote (and reasonably acceptable to the Company) to represent the Third Party Investors, in each Transfer of shares of Company Stock held by them pursuant to Sections 6.5(a) or 6.5(b) hereof. ARTICLE VII REGISTRATION RIGHTS AGREEMENT 7.1 Registration Rights. Concurrently with the execution of this Agreement the parties hereto are also entering into a registration rights agreement (the "Registration Rights Agreement") in the form attached as Exhibit A. The parties hereto agree that any additional members of the Kelso Group, Third Party Investors and Management Stockholders who become parties hereto shall also be added as parties thereto. ARTICLE VIII CHARTER DOCUMENTS AND BOARD OF DIRECTORS 8.1 Charter Documents. The Company has previously furnished to the Stockholders copies of its certificate of incorporation and by-laws, each as in effect on the date hereof (the "Charter Documents"). From and after the date hereof, each Stockholder shall vote its shares of voting stock of the Company, at any regular or special meeting of stockholders of the Company or in any written consent executed in lieu of such a meeting of stockholders, and shall take all actions necessary, to ensure that the Charter Documents do not, at any time, conflict with the provisions of this Agreement. 8.2 Board of Directors. (a) Subject to provisions of Section 8.2(i) below, the Stockholders agree and understand that immediately following the consummation of the Transactions, the Board will consist of a number of directors between five and eleven (as determined by the Kelso Group), two of whom shall be designated by RLB and the remainder of whom shall be persons designated by the Kelso Group (and who may be members of the Kelso Group or affiliates thereof); provided that if RLB designates himself as a director he shall have the right to serve as Chairman of the Board so long as he is a director; provided further, that RLB's rights pursuant to this Section 8.2 (other than Section 8.2(i)), shall terminate as such time as he no longer owns in excess of [10%] of the outstanding shares of Common Stock of the Company (such percentage to be computed by including as outstanding Common Stock all outstanding options, calculated on a treasury method basis). Immediately following the consummation of the Transactions, subject to the preceding sentence, the number of directors of the Company and the persons who will serve as such shall be determined in accordance with the Charter Documents and applicable law and may change from time to time. (b) The Stockholders shall vote their shares of voting stock to implement the foregoing, and to elect the directors nominated in accordance with Section 8.2(i), at any regular or special meeting of the stockholders of the Company called for the purpose of filling positions on the Board, or in any written consent executed in lieu of such a meeting of stockholders, and shall take all lawful actions as may be reasonably necessary to ensure the election to the Board of the Nominees. The nominees of the Kelso Group and RLB, including nominees pursuant to Section 8.2(i) hereof, are referred to herein as the "Kelso Nominees" and the "Bready Nominees", respectively, and are collectively referred to herein as the "Nominees" and individually as a "Kelso Nominee", "Bready Nominee" or "Nominee", as the case may be. Subject to any applicable rules to the contrary of the Securities and Exchange Commission or any national securities exchange or NASDAQ, RLB shall have the right to participate in all committees of the Board, except the audit committee, so long as he is a member of the Board. To effectuate the provisions of Section 8.2, the Secretary of the Company, or if there be no Secretary such other officer of the Company as the Board may appoint to fulfill the duties of Secretary (the "Secretary"), shall not record any vote or consent contrary to or inconsistent with the terms of this Section 8.2(a) and 8.2(b). (c) If, prior to his or her election to the Board pursuant to Section 8.2(a), 8.2(b) or 8.2(i), any Kelso Nominee or Bready Nominee shall be unable or unwilling to serve as a director of the Company, the members of the Kelso Group or RLB, as the case may be, shall be entitled to nominate a replacement (the selection of which shall be consistent with Section 8.2(a), 8.2(b) or 8.2(i), as applicable) who shall then be a Nominee for purposes of this Section 8.2. If, following election to the Board pursuant to Section 8.2(a), 8.2(b) or 8.2(i), any Nominee shall resign or be removed or be unable to serve for any reason prior to the expiration of his or her term as a director of the Company, the members of the Kelso Group, if such Nominee was a Kelso Nominee, or RLB, if such Nominee was a Bready Nominee, shall within 30 days of such event, notify the Board in writing of a replacement Nominee (the selection of which shall be consistent with Section 8.2(a), 8.2(b) or 8.2(i), as applicable), and each Stockholder shall vote its shares of voting stock, at any regular or special meeting called for the purpose of filling positions on the Board, or in any written consent executed in lieu of such meeting of stockholders, and shall take all actions necessary (including, without limitation, using its best efforts to cause its Nominee(s) to elect such replacement Nominee as herein provided), to ensure the election to the Board of such replacement Nominee to fill the unexpired term of the Nominee whom such new Nominee is replacing. If the members of the Kelso Group shall fail to so notify the Board with respect to any Kelso Nominee, the Board, in its sole discretion, may nominate any other person to fill the vacancy. Any Kelso Nominee may be removed by the Kelso Group, except that with respect to reasons other than for Cause (as defined in Section 8.2(e)) a Kelso Nominee nominated pursuant to Section 8.2(i) hereof may be removed prior to an Elimination Event only if the holders of a majority of the outstanding shares of Series B Preference Stock consent in writing to such removal (and no meeting of stockholders need to be held to effect any such removal), and any Bready Nominee may be removed by RLB, except that with respect to reasons other than for Cause, a Bready Nominee nominated pursuant to Section 8.2(i) hereof may be removed prior to an Elimination Event only if the holders of a majority of the outstanding shares of Common Stock consent in writing to such removal (and no meeting of stockholders need to be held to effect any such removal), and each Stockholder hereby agrees to vote all of the shares of voting stock owned or held of record by such Stockholder for, or to take all actions by written consent in lieu of any such meeting, necessary to cause, any such removal. (d) If the Kelso Group so requests, each Stockholder hereby agrees to vote all of the shares of voting stock owned or held of record by such Stockholder for, or to take all actions by written consent in lieu of any such meeting necessary to cause, the removal (with or without cause) of any director designated by RLB and elected pursuant to Section 8.2 (other than Section 8.2(i)) if during such director's term as director, RLB ceases to own in excess of [10]% of the outstanding shares of Common Stock of the Company (such percentage to be computed by including as outstanding Common Stock all outstanding options, calculated on a treasury method basis). (e) Each Stockholder hereby agrees that any director shall be removed with Cause only if the holders of a majority of the outstanding shares of voting stock held by Stockholders consent in writing to such removal (and no meeting of stockholders need to be held to effect any such removal); provided, however, that with respect to any Independent director elected pursuant to Section 8.2(i) hereof, such director may be removed for Cause only if the holders of a majority of the outstanding shares of either Series B Preference Stock or Common Stock, depending upon whether RLB or the Kelso Group nominated such director, consent in writing to such removal (and no meeting of stockholders need to be held to effect any such removal). Solely for the purposes of this Section 8.2(e), "Cause" shall mean the commission by a director of an act of fraud or embezzlement against the Company or any of its subsidiaries or a conviction for a felony (or a plea of nolo contendere or guilty plea thereto) of such director. (f) In order to effectuate the provisions of this Article VIII, each Stockholder hereby agrees that when any action or vote is required to be taken by such Stockholder pursuant to this Agreement, such Stockholder shall use its reasonable best efforts, if a special or annual meeting of stockholders of the Company is not called, to execute or cause to be executed a consent in writing in lieu of any such meetings pursuant to Section 228(a) of the General Corporation Law of the State of Delaware to effectuate such stockholder action. (g) In order to effectuate the provisions of this Section 8.2 and in addition to and not in lieu of Sections 8.2(a) through (f) hereof, the Management Stockholders and Third Party Investors (and any of their respective Permitted Transferees thereof which own Common Stock subject to this Agreement) hereby grant to the Kelso Group a proxy to vote at any annual or special meeting of stockholders all of the shares of voting stock owned or held of record by such stockholder and subject to this Agreement solely for (i) the election of all directors designated in accordance with Section 8.2(a) and Section 8.2(i) and (ii) the removal of directors in accordance with Sections 8.2(c), 8.2(d) and 8.2(e). (h) With respect to any business combination, merger, consolidation, stock swap or sale of all or substantially all of the assets of the Company or similar transaction involving the Company, if the members of the Kelso Group so direct and such transaction results in a Change in Control (as defined below), then each of the Stockholders shall use its respective best efforts to vote in favor of such proposed transaction all of the shares of Common Stock owned or held of record by such Stockholder, at each regular or special meeting of the stockholders of the Company called for the purpose of voting on such matter, or in any written consent executed in lieu of such a meeting of stockholders, and shall take all actions reasonably necessary, to ensure that all necessary stockholder approvals for such transaction are obtained; provided that (A) the conditions set forth in subclauses (i), (ii) and (iii) of the third to last paragraph of Section 6.5(b) hereof are satisfied with respect to such transaction and (B) such Stockholder is to receive the same type and amount of consideration per share not less than that to be received by the members of the Kelso Group and on terms and conditions (other than, in the case of members of the Kelso Group, any management, advisory or transaction fees payable to them or their affiliates) no less favorable to such Stockholders than the terms and conditions to be received by the members of the Kelso Group in the transaction. (i) Notwithstanding anything herein to the contrary, until the occurrence of the Elimination Event (as defined in the certificate of designation with respect to the Series B Preference Stock (the "Nortek Holdings COD")), the Stockholders agree and understand that (i) the Board of Directors shall consist of five directors (or such other number of directors as is agreed to between the Kelso Group and RLB), (ii) RLB, on behalf of the holders of Common Stock, shall nominate 51% of the number of directors to be elected at any meeting duly called to elect directors generally; provided, however, that if 51% of such number of directors is not a whole number, then RLB shall be entitled to nominate the next higher whole number of directors to be elected at such meeting; provided further that at least one-third (or such next higher whole number) of the number of such RLB nominated directors shall be Independent (as defined in the Charter Amendment (as defined in the Recapitalization Agreement)) and any such Independent director nominated by RLB shall be subject to the approval of the Kelso Group, such approval not to be unreasonably withheld, (iii) the Kelso Group, on behalf of the holders of Series B Preference Stock, shall be entitled to nominate the remaining directors to be elected at such meeting for the election of directors generally; provided, however, that at least one-half (or such next higher whole number) of the number of such Kelso nominated directors shall be Independent and any such Independent director nominated by the Kelso Group shall be subject to the approval of RLB, such approval not to be unreasonably withheld, (iv) the parties hereto (including, without limitation, the Company) shall take such actions as are necessary so that the Board of Directors of Nortek is comprised entirely of the same individuals as the Board of Directors of Nortek Holdings, (v) the Kelso Group or RLB, as the case may be, shall inform the other party upon becoming aware that their Independent director Nominee is not Independent; and (vi) if the Person serving as an Independent Kelso Nominee or Independent Bready Nominee ceases to be Independent of Kelso or RLB, as the case may be, during the time such Person is serving as a director, then at the request of the other party, the Kelso Group or RLB, as the case may be, shall reasonably promptly replace such Person as a director with another nominee who satisfies any applicable independence requirements. Upon the occurrence of an Elimination Event, this clause 8.2(i) shall have no further force and effect and the provisions of Section 8.2(a) and 8.2(b) (other than the references to Section 8.2(i) therein) shall immediately apply and each Stockholder agrees to take all actions necessary to cause the Board of Directors to be constituted in accordance therewith at such time, and from and after such time one of the Bready Nominees (selected by RLB prior thereto, or if not so selected by RLB, such Bready Nominee that is Independent) shall be deemed a Kelso Nominee for all purposes of this Agreement (including, without limitation, for purposes of removal). (j) Whenever any Person is elected to the Board in accordance with this Agreement, the parties hereto agree that they shall use their best efforts to cause their Nominees on the Board to take such action, to the extent they are reasonably able to do so, in connection with such election to avoid the occurrence of a "Change of Control" under the Nortek Notes Indentures (as defined in the Recapitalization Agreement). ARTICLE IX TERMINATION 9.1 Cessation of Ownership of Company Stock. Any party to, or Person who is subject to, this Agreement which ceases to own shares of Company Stock or any interest therein shall cease to be a party to, or Person who is subject to, this Agreement and thereafter shall have no rights or obligations ereunder. 9.2 Other Termination Events. Notwithstanding anything to the contrary contained herein, every provision of this Agreement, other than the provisions contained in Article VII and Section 10.4, shall terminate upon the earlier of (i) the closing of an IPO and (ii) a Change in Control; provided, however, that in the event that following any such Change in Control any Stockholder (other than a Third Party Investor) continues to own in excess of 25% of the equity in the Company held by it immediately after the Closing (as defined in the Recapitalization Agreement), such Stockholder shall continue to have any rights it had prior to such Change in Control pursuant to Sections 6.5(a) and 6.5(b) hereof and such Sections shall survive such Change in Control for so long as any such Stockholder continues to have such stated percentage of equity in the Company held by it immediately after the Closing. For purposes of this Agreement, a "Change in Control" shall mean the earlier to occur of (i) such time as the Kelso Group, (A) no longer owns at least 25% of the shares of Company Stock held by it immediately after Closing and (B) in the aggregate owns a lesser number of shares of Company Stock than that of at least one other stockholder and its affiliates of the Company or (ii) any business combination, merger, consolidation, stock swap, stock sale or sale of all or substantially all of the assets of the Company or similar transaction involving the Company in which (A) the Stockholders cease to own 50% of either the outstanding voting power and Company Stock of the Company or the surviving entity and (B) at least one other stockholder and its affiliates of the Company owns in excess of 50% of the number of outstanding shares of Company Stock held in the aggregate by the Kelso Group. ARTICLE X MISCELLANEOUS PROVISIONS 10.1 Stock Certificate Legend. A copy of this Agreement shall be filed with the Secretary of the Company and kept with the records of the Company. Each certificate representing shares of Company Stock owned by the Stockholders shall bear upon its face the following legend: "THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT"), AND MAY NOT BE OFFERED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS (A) IN COMPLIANCE WITH THE STOCKHOLDERS AGREEMENT, DATED AS OF [ ], 2002 AND (B) UNTIL REGISTERED UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR UNLESS, IN THE OPINION OF COUNSEL TO THE HOLDER, WHICH COUNSEL MUST BE, AND THE FORM AND SUBSTANCE OF WHICH OPINION ARE, SATISFACTORY TO THE ISSUER, SUCH OFFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION, TRANSFER OR OTHER DISPOSITION IS EXEMPT FROM REGISTRATION OR IS OTHERWISE IN COMPLIANCE WITH THE ACT AND SUCH LAWS." All Stockholders shall be bound by the requirements of such legend to the extent that such legend is applicable. Upon a registration under the Act of any shares of Company Stock or sale of any shares of Company Stock pursuant to Rule 144 or any other exemption from registration where the removal of the legend is appropriate, the certificate representing such shares shall be replaced, at the expense of the Company, with certificates not bearing the legend required by this Section 10.1. 10.2 Option Plan. If the Company establishes a stock option plan (the "Option Plan") the Company shall have the right, but not the obligation, to require that optionees thereunder be required to become parties to this Agreement upon exercise of options granted thereunder and that they will be "Management Stockholders" hereunder with respect to such shares. 10.3 New Management Stockholders. Each of the Stockholders hereby agrees that the Company may require that any employee of the Company or any of its subsidiaries who after the date of this Agreement is offered shares of Company Stock or employee stock options shall, as a condition precedent to the acquisition of such shares of Company Stock or options, become a party to this Agreement by executing the same and delivering it to the Company at its address specified in Section 10.14. Upon such execution and delivery, such employee shall be a "Management Stockholder" for all purposes of this Agreement. 10.4 Fee. The parties hereto acknowledge and agree that at the Closing Kelso will be paid a fee of $10.5 million and that the Company and Kelso will enter into a financial advisory agreement and related indemnification agreement (which agreements may be amended from time to time in accordance with Section 10.5 hereof to the extent applicable) pursuant to which Kelso will provide financial advisory services to the Company each year following the Closing until the Company and Kelso mutually agree to terminate such arrangement. 10.5 Certain Transactions. The Kelso Group agrees that, except as contemplated hereby or by the Recapitalization Agreement or by any of the other agreements contemplated hereby or thereby, during such time as RLB owns in excess of [5%] of the outstanding shares of Company Stock of the Company (such percentage to be computed by including as outstanding Company Stock all outstanding options, calculated on a treasury method basis), without the prior approval of either (i) RLB or (ii) a majority of the members of the Board who are not officers, directors (excluding outside directors of portfolio companies) or employees of Kelso or any of its affiliates, the Company shall not (x) effect any transactions between the Company and any member of the Kelso Group or any of their affiliates, (y) Transfer any equity securities of any subsidiary of the Company to any member of the Kelso Group or any of their affiliates, or (z) Transfer any assets of the Company or any subsidiary of the Company to any member of the Kelso Group or any of their affiliates, other than, in any case of clauses (x) and (z), purchases and sales of inventory in the ordinary course of business and other customary commercial transactions on an arms' length basis involving portfolio companies of Kelso and its affiliated investment funds. 10.6 No Other Arrangements or Agreements. Except for the Voting Agreement and the Exchange Agreements (each as defined in the Recapitalization Agreement), each Management Stockholder hereby represents and warrants to each other Stockholder that, except, if applicable, for any option plan of the Company and the written options issued thereunder, he has not entered into or agreed to be bound by any other arrangements or agreements of any kind with any other party with respect to the shares of Company Stock, including, but not limited to, arrangements or agreements with respect to the acquisition, disposition or voting of shares of Company Stock (whether or not such agreements and arrangements are with the Company, other Stockholders or holders of Company Stock that are not parties to this Agreement). Except for the Voting Agreement and the Exchange Agreements, each of the members of the Kelso Group and each other Stockholder represents and warrants to each other Stockholder that it has not entered into or agreed to be bound by any voting agreements with respect to its shares of Company Stock. 10.7 Amendment and Modification. This Agreement may be amended, modified or supplemented only with the written consent of (i) the Kelso Group and (ii) if such amendment modifies (A) any provision of this Agreement (x) in a manner substantially adverse to the Management Stockholders, the Stockholders owning a majority of the outstanding Company Stock (such percentage to be computed by including as outstanding Company Stock all outstanding options, calculated on a treasury method basis) owned by all Management Stockholders and (y) in a manner substantially adverse to the Third Party Investors, the Stockholders owning a majority of the outstanding Company Stock (such percentage to be computed by including as outstanding Company Stock all outstanding options, calculated on a treasury method basis) owned by all Third Party Investors (B) any other Section of this Agreement, the Company and Stockholders owning a majority of the outstanding Company Stock. Notwithstanding anything to the contrary herein, the Kelso Group may add any additional third party to this Agreement or eliminate any such additional third party (other than any third party that is part of the Kelso Group) from this Agreement as the Kelso Group sees fit, subject to the consent of such affected party. Upon receipt of the consents required by this Section 10.7, the Company shall notify all Stockholders promptly after such amendment, modification or supplement shall take effect. 10.8 Assignment.*** The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns; provided, however, that none of the Company, the Third Party Investors or any Management Stockholder shall assign any of its rights or obligations pursuant to this Agreement without the prior written consent of the Kelso Group and, for so long as the Management Stockholders own in excess of 10% of the outstanding shares of Company Stock of the Company (such percentage to be computed by including as outstanding Company Stock all outstanding options, calculated on a treasury method basis), the members of the Kelso Group shall not assign its rights or obligations pursuant to this Agreement, other than to its Permitted Transferees and to persons who agree to be bound by this Agreement, without the prior written consent of the Management Stockholders owning a majority of the Company Stock owned by all Management Stockholders at such time. In the case of Permitted Transferees, third parties and Involuntary Transferees, such Permitted Transferees, third parties or Involuntary Transferees, as the case may be, shall be deemed the Stockholder hereunder for purposes of obtaining the benefits or enforcing the rights of such Stockholder hereunder; provided, however, that no Permitted Transferee, third party or Involuntary Transferee, as the case may be, shall derive any rights under this Agreement unless and until such Permitted Transferee, third party or Involuntary Transferee, as the case may be, has delivered to the Company a valid undertaking to become, and becomes, bound by the terms of this Agreement to which the transferring Stockholder is subject. - -------- *** It isunderstood that this Agreement shall be appropriately modified consistent with Section 8.5 (b) of the Recapitalization Agreement in the event that the Recapitalization Agreement is modified pursuant to such provision. 10.9 Recapitalizations, Exchanges, etc. Affecting the Company Stock. Except as otherwise provided herein, the provisions of this Agreement shall apply to the full extent set forth herein with respect to (i) the shares of Company Stock and (ii) any and all shares of capital stock of the Company or any successor or assign of the Company (whether by merger, consolidation, sale of assets or otherwise), which may be issued in respect of, in exchange for, or in substitution for the shares of Company Stock by reason of any stock dividend, split, reverse split, combination, recapitalization, reclassification, merger, consolidation or otherwise. Except as otherwise provided herein, this Agreement is not intended to confer upon any person, except for the parties hereto, any rights or remedies hereunder. 10.10 Transfer of Company Stock. If at any time the Company purchases any shares of Company Stock pursuant to this Agreement, the Company may pay the purchase price determined under this Agreement for the shares of Company Stock it purchases by wire transfer of funds or Company check in the amount of the purchase price, and upon receipt of payment of such purchase price or, pursuant to Section 2.3, Section 3.3 or Article V, any portion thereof, the selling Stockholder shall deliver to the Company the certificates representing the number of shares of Company Stock being purchased in a form suitable for transfer, duly endorsed in blank, and free and clear of any lien, claim or encumbrance. In the event that any Stockholder refuses or otherwise fails to deliver, in accordance with the preceding sentence, certificates representing the number of shares of Company Stock being purchased, the shares of Company Stock purchased from such Stockholder shall (notwithstanding such refusal or failure) be deemed, upon receipt by such Stockholder of the purchase price therefor, to not be outstanding for any purposes. Notwithstanding anything in this Agreement to the contrary, the Company shall not be required to make any payment for shares of Company Stock purchased hereunder until delivery to it of the certificates representing such shares. If the Company is purchasing less than all the shares of Company Stock represented by a single certificate, the Company, after making such purchase, shall deliver to the selling Stockholder a certificate for any unpurchased shares of Company Stock. 10.11 Further Assurances. Each party hereto or Person subject hereto shall do and perform or cause to be done and performed all such further acts and things and shall execute and deliver all such other agreements, certificates, instruments and documents as any other party hereto or Person subject hereto may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. 10.12 Governing Law. This Agreement and the rights and obligations of the parties hereunder and the persons subject hereto shall be governed by, and construed and interpreted in accordance with, the law of the State of Delaware, without giving effect to the choice of law principles thereof. 10.13 Invalidity of Provision. The invalidity or unenforceability of any provision of this Agreement in any jurisdiction shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of this Agreement, including that provision, in any other jurisdiction. 10.14 Notices. All notices, requests, demands, waivers and other communications required or permitted to be given under this Agreement to any party hereunder shall be in writing and deemed given upon (i) receipt, when delivered via personal delivery, (ii) transmitter's confirmation of a receipt of a facsimile transmission, when delivered via such transmittal, (iii) confirmed delivery by a standard overnight carrier or (iv) receipt, as evidenced by certification or registration, when mailed in the United States by certified or registered mail at the following addresses (or at such other address for a party as shall be specified by notice given hereunder): (a) If to the Company, to it at: Nortek Holdings, Inc. 50 Kennedy Plaza Providence, RI 02903 Attention: Kevin W. Donnelly and Richard L. Bready Telephone: 401-751-1600 Facsimile: 401-751-4610 with a copy to: Kelso & Company, L.P. 320 Park Avenue, 24th Floor New York, New York 10022 Attention: James J. Connors, II Telephone: (212) 751-3939 Facsimile: (212) 223-2379 (b) If to a Management Stockholder, as listed on the signature page hereto, or, if not so listed, to it at its address as reflected in the stock records of the Company, or as such Management Stockholder shall designate to the Company in writing, with a copy to Kelso at its address indicated below (provided that any such designation shall be effective only upon receipt thereof). (c) If to a member of the Kelso Group, to it at: c/o Kelso & Company, L.P. 320 Park Avenue, 24th Floor New York, New York 10022 Attention: James J. Connors, II Telephone: (212) 751-3939 Facsimile: (212) 223-2379 (d) If to a Third Party Investor, as listed on the signature page hereto, or, if not so listed, to it at its address as reflected in the stock records of the Company, or as such Third Party Investor shall designate to the Company in writing, with a copy to Kelso at its address indicated above (provided that any such designation shall be effective only upon receipt thereof). 10.15 Headings; Execution in Counterparts. The headings and captions contained herein are for convenience and shall not control or affect the meaning or construction of any provision hereof. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and which together shall constitute one and the same instrument. 10.16 Entire Agreement; Effect on Certain Other Agreements. This Agreement, the Registration Rights Agreement, the Option Plan, the RLB Employment Agreement, the Preemptive Rights Agreement, the Holding Company Merger Agreement and the Exchange Agreements (each, if not defined herein, as defined in the Recapitalization Agreement) with the Company entered into by the Management Stockholders embody the entire agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, representations, warranties, covenants or undertakings relating to the shares of Company Stock, other than those expressly set forth or referred to herein, in the Registration Rights Agreement, or in any Exchange Agreements with the Company or any option plan of the Company or any written option issued thereunder. This Agreement supersedes all prior agreements and understandings among the parties with respect to such subject matter. 10.17 Injunctive Relief. The shares of Company Stock cannot readily be purchased or sold in the open market, and for that reason, among others, the Company and the Stockholders shall be irreparably damaged in the event this Agreement is not specifically enforced. Each of the parties therefore agrees that in the event of a breach of any provision of this Agreement, the aggrieved party may elect to institute and prosecute proceedings in any court of competent jurisdiction to enforce specific performance or to enjoin the continuing breach of this Agreement. Such remedies shall, however, be cumulative and not exclusive, and shall be in addition to any other remedy which the Company or the Stockholders may have. Each Stockholder hereby irrevocably submits to the non-exclusive jurisdiction of the state and federal courts in New York and Delaware for the purposes of any suit, action or other proceeding arising out of or based upon this Agreement or the subject matter hereof. Each Stockholder hereby consents to service of process by mail made in accordance with Section 10.14. 10.18 Attorneys' Fees. If any legal action or any arbitration or other proceeding is brought for the enforcement of this Agreement, or because of an alleged dispute, breach, default or misrepresentation in connection with any of the provisions of this Agreement, the successful or prevailing party or parties shall be entitled to recover such reasonable attorneys' fees and other costs incurred in that action or proceeding, in addition to any other relief to which it or they may be en titled, as may be ordered in connection with such proceeding. 10.19 Third Party Beneficiaries. The headings and captions contained herein are for convenience of reference only and shall not control or affect the meaning or construction of any provisions hereof. Except as otherwise expressly provided herein, the covenants, agreements and other provisions contained in this Agreement are for the sole benefit of the parties hereto and their permitted successors and assigns, and they shall not be construed as conferring, and are not intended to confer, any rights, remedies or other benefits hereunder on any other persons. Neither this Agreement nor any purchase or sale of Company Stock shall create, or be construed or deemed to create, any right of employment in favor of a Management Stockholder or any other person by the Company or any subsidiary of the Company. 10.20 Sales to Competitors. Notwithstanding anything to the con trary in this Agreement (other than Section 6.5(a) and 6.5(b)), the Third Party Investors may not, without the prior written consent of the Kelso Group and the Company, Transfer any shares of Company Stock that the Third Party Investors beneficially own to any Person that competes with or is engaged in any lines of business of the Company whether or not so competing or engaged in the same geographic area as the Company. 10.21 Improper Transfer. Any attempt to Transfer any shares of Company Stock not in material compliance with this Agreement shall be null and void and neither the Company nor any transfer agent shall give any effect in the Company's stock records to such attempted Transfer. 10.22 Third Party Investors. Each of the Stockholders hereby agrees that the Company may require that any party, other than an employee of the Company or any of its subsidiaries (who is dealt with in Section 10.3), who immediately prior to or substantially contemporaneously with the Closing purchases shares of Company Stock (or shares which were converted into Company Stock in the Transactions), shall become a party to this Agreement by executing the same and delivering it to the Company at its address specified in Section 10.14. For all purposes of this Agreement, upon such execution and delivery, such party shall be deemed to be a "Third Party Investor" and collectively, with other similar persons, the "Third Party Investors." 10.23 Persons. For all purposes of this Agreement, "Person" means an individual, corporation, partnership, limited liability partnership, limited liability company, association, trust or any unincorporated organization. 10.24 Options. Except as otherwise expressly provided herein, any Management Stockholder who owns any options to acquire Company Stock will not have any rights or obligations with respect thereto under this Agreement prior to the exercise of such options. 10.25 Freeman. Nortek Holdings and Nortek, jointly and severally, agree to indemnify and hold RLB harmless from any and all claims, liabilities, losses, damages, expenses, amounts paid in settlement and any and all other amounts incurred or payable by RLB or on RLB's behalf in connection with or arising out of the letter from The Freeman Group, Ltd., dated May 22, 2001 (the "Freeman Letter") or any matter to which the Freeman Letter refers. Nortek Holdings and Nortek, jointly and severally, agree to advance expenses to RLB upon demand in connection with RLB's investigation and defense of any matter with respect to which RLB is entitled to indemnification as provided in this Section 10.25. 10.26 Other Agreements. Nothing in this Agreement shall limit the ability of the Company to enter into any agreement with any Management Stockholder or any other employee with respect to the purchase and/or sale of the shares of Company Stock and/or options exercisable into Company Stock on terms different than as set forth in this Agreement. 10.27 Company Stock. All references herein to a number or percentage of shares of Common Stock or Company Stock held by a Person shall be calculated by treating the shares of Common Stock underlying all shares of Series B Preference Stock as being outstanding (regardless of whether such shares could be converted into Common Stock at such time) other than for purposes of Article VIII hereto. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. NORTEK HOLDINGS, INC. By: ----------------------------------- Name: Title: KELSO INVESTMENT ASSOCIATES VI, L.P. By: Kelso GP VI, LLC, General Partner By: ----------------------------------- Managing Member KEP VI, LLC By: ----------------------------------- [Management Stockholders] By: ----------------------------------- The undersigned, by its signature below hereby becomes a party to the Stockholders Agreement, dated as of [ ], 2002, among Nortek Holdings, Inc. and certain of its stockholders (the "Stockholders Agreement") pursuant to Section 10.3 thereof and agrees to be bound by the terms of the Stockholders Agreement and, for all purposes thereof, to be a "Management Stockholder". IN WITNESS WHEREOF, the undersigned has executed this instrument as of the day of , 2002. ___________________________ Signature ___________________________ Print Name EX-99 6 s365314.txt EXHIBIT (D)(9) Exhibit (d)(9) FORM OF NORTEK, INC., NORTEK HOLDINGS, INC. and RICHARD L. BREADY EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT (this "Agreement") is made on ________ between NORTEK, INC., a Delaware corporation ("Nortek"), NORTEK HOLDINGS, INC., a Delaware corporation ("Nortek Holdings") (Nortek and Nortek Holdings, collectively referred to hereinafter as "Employer"), and Richard L. Bready, a resident of Rhode Island (hereinafter called "Employee"). WHEREAS, Employee is employed by Nortek as Chief Executive Officer and Employee possesses intimate knowledge of the business and affairs of Employer and has acquired certain confidential information and data with respect to Employer; WHEREAS, Employee and Nortek have an existing employment agreement between them dated as of February 26, 1997 (the "Prior Agreement"); WHEREAS, pursuant to the Agreement and Plan of Recapitalization, dated as of June 20, 2002 by and among Nortek, Nortek Holdings and K Holdings, Inc. ("K Holdings") (the "Recapitalization Agreement"), after the consummation of the "Transactions" (as defined in the Recapitalization Agreement) Nortek will become a subsidiary of K Holdings or its designees; WHEREAS, Employee is a party to the Stockholders Agreement to be entered into by Nortek Holdings and certain of its stockholders (the "Stockholders Agreement") WHEREAS, Employee and Employer desire to enter into this Agreement, which shall supersede the Prior Agreement and govern the terms of Employee's continued employment with Employer on and following the "Effective Time" (as defined in the Recapitalization Agreement); WHEREAS, Employer desires to assure that it will have the benefit of the continued service and experience of Employee who is the chief executive officer of the Employer and an integral part of its management for a period of time and Employee is willing to enter into an agreement to such ends upon the terms and conditions set forth in this Agreement. In consideration of the foregoing and the mutual agreements herein contained, the parties mutually agree as follows: 1. Employment Period and Duties (a) During the Employment Period, Employer shall employ Employee, and Employee shall serve as an employee of Employer, provided, however, that if the Recapitalization Agreement is terminated according to its terms, then at the time of such termination, this Agreement shall terminate and be of no force or effect. For purposes of this Agreement, "Employment Period" shall mean the period of time commencing from the Effective Time and ending, unless sooner terminated pursuant to the provisions hereof, five years from said date; provided that on the fifth anniversary of the Effective Time and each anniversary thereafter, the Employment Period shall automatically extend for one additional year unless written notice of intent not to extend is delivered by Employer to Employee at least 90 days prior to the scheduled end of the Employment Period. (b) During the Employment Period, Employee shall serve as chairman and chief executive officer of Nortek and Nortek Holdings, or in such other executive capacity at a similar level of responsibility and with such other duties as the board of directors of Nortek Holdings (the "Board") and Employee may from time to time mutually determine, and Employee accepts employment on the terms and conditions contained herein and agrees to devote a substantial part of his working time and energies to the business of Employer and to faithfully and diligently perform the customary duties of his office and such other duties, reasonable vacations (of not less than four weeks per year) and time devoted to charitable and community service, and absences due to illness and holidays excepted. Such other duties may include the performance of services for any of Employer's subsidiaries and, without further remuneration (except as otherwise agreed), may also include service as an officer or director of one or more of Employer's subsidiaries. Nothing herein shall prohibit Employee from managing or supervising his personal investments or from devoting attention to his other business interests that do not materially interfere with his obligations to Employer hereunder or compete with Employer or its subsidiaries. (c) During the Employment Period, Employer shall maintain an appropriately appointed executive office for Employee in Providence, Rhode Island (or at such other location as Employee and Employer shall mutually agree) of not less than the size of Employee's current office and associated administrative space from which Employee shall perform his duties and shall provide Employee with executive secretarial and other administrative staff and services suitable to his offices and duties, staffed by persons approved by Employee and with such staff members' salaries and benefits as Employee shall approve. (d) During the Employment Period, Employer shall not, without obtaining Employee's consent, terminate the employment of any employee listed in Exhibit A hereto. 2. Compensation (a) Basic Salary. Employee shall receive a basic annual salary of (i) not less than $1,068,767 during the Employment Period prior to January 1, 2003 (such period, the "Initial Period") and (ii) not less than $2,500,000 during the remainder of the Employment Period (such period, the "Second Period") (hereinafter called the "Basic Salary"), payable in equal monthly installments on the 15th day of each month. (b) Incentive Compensation. (i) Subject to Section 17 hereof, with respect to any performance period ending within the Initial Period (the "Performance Period"), Employee shall be eligible to receive payment with respect to the performance award granted to him on March 5, 2002 pursuant to the Nortek, Inc. 2001 Equity and Cash Incentive Plan (the "Performance Award"), subject to the same terms and conditions as were in effect with respect to the Performance Award immediately prior to the Effective Time; provided, however, that in making any calculation of EBITDA called for therein, such amount shall be calculated by adding back all of the Add Back Expenses (as defined below). In the event that Employee's employment with Employer is terminated for any reason during the Performance Period, Employee shall be eligible to receive payment pursuant to the Performance Award at the time such award would otherwise be payable, determined as if the Employee were still employed by Employer at such time. (ii) In addition to Basic Salary, with respect to each calendar year during the Second Period, Employee shall be entitled to receive an annual incentive compensation payment ("Incentive Compensation") pursuant to Section 2(b)(iii) below, subject to the achievement of annual Proforma EBITDA for the applicable year in excess of the target annual Proforma EBITDA (the "EBITDA Target") for such year. (iii) "Proforma EBITDA" shall mean, with respect to the applicable calendar year, Consolidated Cash Flow for such year (as defined in the Indenture, dated March 17, 1997, by and between Nortek, Inc. and State Street Bank and Trust Company (the "Indenture"), with respect to the 9 1/4% Senior Notes due March 15, 2007 (without regard to clause (vi) thereof) plus the sum of (A) any management fee paid by Employer or any of its subsidiaries to Kelso & Company, L.P. or any of its affiliates during such year, (B) any fees and expenses paid by the Employer in connection with the consummation of the Transactions during such year, (C) any expense to the Employer during such year, as determined under GAAP (as defined in the Indenture) that is incurred as a result of the Transactions and arises from the obligations contained in either Section 10 of this Agreement or the Nortek, Inc. Supplemental Executive Retirement Plan (the "SERP") (including as a result of Section 2(e) hereof), in each case, solely to the extent such expense reduces Consolidated Net Income (as defined in the Indenture) and (D) any other extraordinary and non-recurring charges paid during such year (Clauses (A) through (D) referred to herein as the "Add Back Expenses"). Exhibit B attached hereto lists the EBITDA Targets for each calendar year in the Second Period. Employee shall be entitled to Incentive Compensation with respect to a calendar year equal to 33% of the excess of Proforma EBITDA over the EBITDA Target for such year subject to an annual maximum for any year of $5,000,000. (iv) Prior to payment of Incentive Compensation in respect of any year, the compensation committee of the Board must certify in writing the extent to which the EBITDA Target for such year has been met or exceeded. Incentive Compensation payable with respect to any year shall be paid no later than 30 days immediately following the completion of Employer's audited financial statements for the applicable year and shall be made in cash. In respect of a calendar year in which the Employment Period is terminated other than pursuant to Sections 3(c) or (d) hereof, Employee shall be entitled to a prorated amount of the Incentive Compensation due based upon the number of full and partial months during which Employee was employed in such calendar year. (c) SERP Payment. In satisfaction of all liabilities and obligations under the SERP, (i) Employee shall be entitled to a lump sum cash payment of $________, less applicable withholding, payable on the Effective Time and (ii) Employer shall transfer the policy numbered 62 814 393 issued by New York Life Insurance Company on the life of Employee (the "Life Insurance Policy") to Employee at the Effective Time. (d) Stock Options. (i) Employer shall grant to Employee, effective as of the Effective Time, (i) a number of Class A Options (as defined in the Nortek Holdings, Inc. 2002 Stock Option Plan (the "Option Plan")) equal to one-third (1/3) of the maximum number of Class A Options available for grant pursuant to the Option Plan at the Effective Time, subject to the terms and conditions of the Option Plan and the applicable stock option agreement and (ii) a number of Class B Options (as defined in the Option Plan) equal to one-third (1/3) of the maximum number of Class B Options available for grant pursuant to the Option Plan at the Effective Time, subject to the terms and conditions of the Option Plan and the applicable stock option agreement. (ii) Notwithstanding the terms of the Recapitalization Agreement, each option held by Employee to acquire shares of common stock and/or special common stock of Employer (each, a "Nortek Option") shall be treated in accordance with the terms of (x) the Merger Agreement by and among Nortek, Nortek Holdings and Nortek Holdings Merger Sub, dated June 20, 2002, as amended, pursuant to which the Nortek Options shall be converted into options to purchase shares of common stock and special common stock of Nortek Holdings (each, a "Nortek Holdings Option") and (y) the Exchange Agreement to be entered into by Employee, Nortek, Nortek Holdings and K Holdings pursuant to which each Nortek Holdings Option shall be converted into an Exchange Option to acquire shares of Class A Common Stock, par value $1.00 per share of Nortek Holdings ("Common Stock"), subject to the terms and conditions of the Option Plan and the applicable stock option agreement. (e) Life Time Medical Coverage. (i) From and after the date upon which the Employment Period expires or terminates for any reason (the "Triggering Date"), Employer shall provide Employee and his Spouse for so long as they shall live with lifetime Medical Coverage at no cost to Employee. For purposes of this Agreement, (x) "Spouse" shall mean any individual married to Employee only during the time such individual is married to Employee, provided that an individual who is married to Employee at the time of Employee's death shall be a Spouse for the remainder of such individual's lifetime and (y) "Medical Coverage" shall mean all medical and dental benefits that are provided Employee at the Effective Time, any medical or dental expense that would be deductible by Employee under section 213 of the Internal Revenue Code of 1986, as amended (the "Code"), including insurance premiums, co-payments and deducible amounts (determined without regard to the deductible threshold set forth in 213(a)) if paid by the Employee directly, and such other reasonable medical and dental expenses that Employer may approve from time to time, but in no event shall Employer's reimbursement obligation for Employee, his Spouse or dependents under this Section 2(e) exceed $1,000,000 (exclusive of any gross up for taxes pursuant to Sections 2(e)(iii) or 10 hereof) in the aggregate during Employee's and his Spouse's lifetimes. Such Medical Coverage shall be extended to any dependent of Employee but only for so long as such person remains a "dependent" under the terms and conditions of Employer's health plan in existence at the Effective Time. Employer shall make all reasonable efforts to include Employee, his Spouse and dependents in any comprehensive medical and/or dental plan provided to active employees from time to time. Employee must make all reasonable effort to obtain and to maintain (at Employer's expense as provided herein) any form of comprehensive medical and/or dental insurance that Employer may require from time to time. If Employee is or becomes eligible for Medicare benefits, the coverage provided by this Section shall be supplemental to Medicare coverage, Parts A and B, and the Employee shall be required to submit claims to Medicare before making any claim for medical care under this Section. (ii) Upon the Triggering Date, or any time thereafter, upon the written request of Employee or his Spouse, Employer shall authorize a lump sum cash payment in lieu of lifetime Medical Coverage in an amount established by the Board that is reasonably sufficient to provide the lifetime Medical Coverage. For illustrative purposes, a sample calculation of such lump sum cash payment is set forth in Exhibit C hereto. (iii) Employer agrees to make a "gross up" payment to Employee to cover any and all state and federal income taxes that may be due as a result of the benefits provided under Section 2(e)(i) above and on any lump sum payment under Section 2(e)(ii) above (and the tax on any such "gross up" payment) as a consequence of providing such lifetime Medical Coverage to Employee, his Spouse and his dependents. (iv) Following the Triggering Date, Employee shall notify the Company of any change in (x) his marital status or (y) the status of his dependents as "dependents", as soon as practicable following such change. (f) Outstanding Loan. In connection with the Prior Agreement, Employer has previously made a ten-year loan to Employee in the original principal amount of $3,000,000 bearing interest at the applicable federal long-term rate (determined in accordance with section 1274 of the Code) payable annually in arrears, and repayable annually as of each anniversary of the making of such loan in equal installments of principal of $300,000 plus accrued interest. Following the Effective Time, payment of each installment of principal and interest will be deferred until determination of Employer's Operating Earnings for the prior fiscal year. If Employee remains in the employ of Employer on the date an installment is due and if Employer has met the goal of Operating Earnings of $35,000,000 or more for the prior year, such installment and accrued interest shall be forgiven; and all remaining installments and accrued interest shall be forgiven in the event of termination of the Employment Period pursuant to Sections 3(a), (b), (e) and (f) hereof. For purposes of this subsection (f), "Operating Earnings" shall mean (i) Earnings Before Taxes before provisions for interest income and expense, gain or loss on investments (and marketable securities), gain or loss on businesses sold and before write-up or write-down of assets plus (ii) any Add Back Expenses. (g) Benefits. Employee shall be eligible to participate in any deferred compensation, supplemental executive retirement, pension or other benefit plan in which executive personnel of Employer are eligible to participate and shall be eligible for discretionary bonuses. In addition, other than as provided in Section 17 hereof, Employee shall be entitled to receive all other benefits or participate in any employee benefit plans generally available to executive personnel of Employer, including without limitation, any hospital, medical, accident, disability, life insurance, and dental coverage, any stock option or savings plans, or any pension or other retirement benefit plans. (h) Reimbursement and Perquisites. Employer shall promptly reimburse Employee for all business expenses incurred by Employee during the Employment Period; shall promptly pay or reimburse Employee for club and professional association dues, assessments and fees for at least such clubs and associations as Employee was a member of and Employer was making such payments or reimbursements at the Effective Time; and shall provide to Employee for his exclusive business and personal use an automobile of his selection, pay all expenses of ownership, operation, repair and maintenance of such vehicle, provide suitable substitute vehicle in the event such automobile is not available for use by Employee for any reason and replace such automobile not less often than biannually with a new vehicle at the option of Employee. Employer shall provide Employee with use of (or reimburse Employee for use of) a private aircraft for business and personal travel in a manner consistent with Employer's practice prior to the Effective Time. 3. Termination (a) If Employee dies, the Employment Period or the Noncompete Period (as defined in Section 4 hereof) shall end and his employment hereunder shall be deemed to cease as of the date of his death. (b) If Employee is incapacitated by accident, sickness, or otherwise so as to render him, for a period of 365 consecutive days, mentally or physically incapable of performing the services required of him under this Agreement (such incapacity, a "Disability") and, if requested by Employee, the basis for such incapacity is certified by a licensed physician, Employer, acting through its Board, may terminate the Employment Period. (c) Employee shall have the right to terminate the Employment Period without Good Reason at any time by written notice to the Board. (d) Employer, acting through the Board, shall have the right to terminate the Employment Period for Cause (as hereinafter defined), without further obligation hereunder on the part of Employer or Employee except payment to Employee of amounts earned or accrued hereunder to the date of termination, pursuant to the procedures specified in this Section 3(d); provided that the Employment Period shall not be terminated for Cause if prior to the finding of the Board with respect thereto, the Employment Period shall have terminated for any other reason. For purposes of this Agreement, "Cause" shall mean: (i) the willful and continued failure of Employee to perform substantially Employee's material duties pursuant to Section 1(b) hereof (other than any such failure resulting from, or contributed to by, incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to Employee by the Board which notice is adopted at an in-person meeting of the Board called and held for such purpose (after reasonable notice is provided to Employee and Employee is given an opportunity, together with counsel, to be heard before the Board) and which notice specifically identifies the manner in which Employee has not substantially performed his material duties, or (ii) because of conviction of Employee of a crime involving theft, embezzlement or fraud against Employer or a civil judgment in which Employer is awarded damages from Employee in respect of a claim of loss of funds through fraud or misappropriation by Employee, which in either case has become final and is not subject to further appeal, continued employment of Employee would be demonstrably injurious to Employer. Performance by Employee of his duties under Section 1(b) hereof shall be presumed to be substantially performed, and any act, or failure or act, based upon authority given pursuant to a resolution duly adopted by the Board or any committee of the Board or based upon the advice of counsel for Employer (including members of its legal staff) or which has been acquiesced in by the Board shall be conclusively presumed to be done, or omitted to be done, by Employee consistent with his obligations under Section 1(b) hereof. Termination of the Employment Period for Cause shall not occur unless and until there shall have been delivered to Employee a copy of a resolution duly adopted by the affirmative vote of all of the members of the Board excluding Employee at an in-person meeting of the Board called and held for such purpose (after notice of not less than 20 business days is provided to Employee and Employee is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, termination for Cause is justified based solely on information presented at such meeting. (e) Employer, acting through the Board, shall have the right to terminate the Employment Period without Cause, by written notice to Employee, not less than 20 business days in advance of such termination. (f) Good Reason. Employee shall have the right to terminate the Employment Period at any time with Good Reason (as defined in Section 5) by written notice to the Board. (g) Any amounts due Employee hereunder in the event of termination of the Employment Period shall be considered severance pay in consideration of his past services and in consideration of his continued services from the date hereof, are considered reasonable by Employer and not in the nature of a penalty, shall not be reduced by compensation or income received by Employee from any other employment or other source and shall not be offset by any claims Employer may have against Employee; timely payment of such amounts is further agreed by the parties hereto to be in full satisfaction and compromise of any claims arising out of the performance or nonperformance of this Agreement that either party might have against the other, other than any claims Employee may have under the provisions of Section 10 hereof. 4. Noncompetition and Confidentiality (a) Employee agrees that he shall not compete with Employer as hereinafter provided for a period (the "Noncompete Period") equal to: (i) if the Employment Period is terminated pursuant to Section 3(c) or (d) hereof, one year beginning as of the first day following such termination, or (ii) if the Employment Period is terminated pursuant to Section 3(b), (e) or (f) hereof, the longer of (x) one year beginning as of the first day following such termination of the Employment Period and (y) a period commencing on such date and ending on the fifth anniversary of the Effective Time. (b) Employee's agreement not to compete with Employer during the Noncompete Period shall be limited to prohibiting Employee from owning a greater than 5% equity interest in, serving as a director, officer, employee or partner of, or being a consultant to or co-venturer with any business enterprise or activity that competes in Nortek America with any line of business conducted by Employer or any of its subsidiaries at the termination of the Employment Period and accounting for more than 5% of Employer's gross revenues for its fiscal year ending immediately prior to the year in which the Employment Period ends. During the Noncompete Period, Employee agrees that he will not hire or attempt to hire any person employed by Employer or any of its subsidiaries during the 24 month period prior to the termination of the Employment Period, assist such a hiring by any other person or entity, encourage any such employee to terminate his relationship with Employer (or any such subsidiary) or solicit or encourage any customer or vendor of Employer to terminate its relationship with Employer. (c) Employee shall hold in a fiduciary capacity for the benefit of Employer all secret or confidential information, knowledge or data relating to Employer or any of its subsidiaries, and their respective businesses, which shall have been obtained by Employee during Employee's employment by Employer and which shall not be or become public knowledge (other than by acts by Employee or representatives of Employee in violation of this Agreement). After termination of Employee's employment with Employer, Employee shall not, without the prior written consent of Employer or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than Employer and those designated by it. 5. Severance Pay-Termination by Employer (a) If (x) the Employment Period shall terminate by reason of Employer's exercise of its right under Section 3(e) to terminate without Cause or in the event Employee elects to terminate the Employment Period for Good Reason or (y) Employee's employment is terminated due to the Employer's delivery of notice not to extend the Employment Period pursuant to Section 1(a) hereof, Employer shall thereafter be obligated to provide and Employee, or in the event of his death, his estate, shall be entitled to receive, for a period of one year beginning as of the first day following such termination (or, if longer, for a period commencing on such date and ending on the fifth anniversary of the Effective Time): (i) an amount for each year, payable in the manner set forth in Section 2 hereof, equal to $1,750,000; (ii) continued coverage, at the expense of the Employer, under the same or equivalent disability, accident and life insurance policies as Employee was covered by immediately prior to termination of the Employment Period; and (iii) an executive office for Employee located outside of Employer's headquarters but within Providence, Rhode Island and secretarial and other administrative services, all reasonably suitable to Employee's then current needs and consistent with his former offices and duties during the Employment Period. (b) For purposes of this Agreement, "Good Reason" shall mean: (i) any reduction of, or failure to pay, Employee's Basic Salary or other compensation as described in Sections 2(a) and (b) hereof; (ii) any failure to provide the benefits or payments required by Sections 2(c), (d), (e) and (f), 8, 9, 10 and 12 hereof, Sections 6.5(a) and 8.2 of the Stockholders Agreement, the registration rights provided in the Registration Rights Agreement to be entered into by Employee, North Holdings and other parties named therein (the "Registration Rights Agreement") and the preemptive rights provided in the Preemptive Rights Agreement to be entered into by Employee, North Holdings and other parties named therein (the "Preemptive Rights Agreement"); (iii) assignment to Employee of any duties materially inconsistent with his position (including status, offices and titles), authority, duties or responsibilities as contemplated by Section 1(b) above or any other action by Employer which results in a material diminution of such position, authority, duties or responsibilities; (iv) relocation of Employer's principal executive offices, or any event that causes Employee to have his principal place of work changed, to any location outside Providence, Rhode Island; (v) any requirement by Employer that Employee travel away from his office in the course of his duties significantly more than the number of consecutive days or aggregate days in any calendar year than was required of him prior to the Effective Time; and (vi) without limiting the generality or effect of the foregoing, any other material breach by Employer or any successor thereto or transferee of substantially all the assets thereof, of this Agreement, the Stockholders Agreement, the Registration Rights Agreement and Preemptive Rights Agreements. 6. Death Benefit If the Employment Period shall terminate by reason of Employee's death, his estate or designated beneficiary shall thereafter be entitled to receive from Employer a death benefit for a period of one year beginning as of the first day following his death (or, if longer, for a period commencing on such date and ending on the fifth anniversary of the Effective Time) in an annual amount equal to $1,750,000, such death benefit shall be payable in the manner set forth in Section 2 hereof. 7. Disability Benefit If the Employment Period shall terminate by reason of Employee's Disability, Employee, or in the event of his death, his estate, shall thereafter be entitled to receive from Employer: (i) for a period of one year commencing from the date of such termination (or, if longer, for a period commencing on such date and ending on the fifth anniversary of the Effective Time), a disability benefit in an annual amount equal to $1,750,000, payable in the manner set forth in Section 2 hereof; and (ii) for what would have been the remainder of the Employment Period without such termination (without consideration to any future extension) and unless Employee should earlier die, Employer will not terminate the Insurance Agreements (as defined in Section 9 hereof). 8. Deferred Compensation Employee may defer receipt of all or any part of the Incentive Compensation pursuant to Section 2(b) otherwise due him under this Agreement in respect of any year of the Employment Period, provided that prior to the end of such year for which such Incentive Compensation would otherwise be payable, Employee notifies Employer of his irrevocable election to so defer such receipt, stating in such notice the period during which such receipt is to be deferred and the period over which such Incentive Compensation is to be paid once such deferral has terminated. Any such deferred Incentive Compensation shall be a general unsecured obligation of Employer to Employee and shall bear interest at the interest rate per annum announced and made effective from time to time by Fleet National Bank (or its successor) as its prime rate (the "Rate") which shall accrue and be paid in equal monthly increments over the period the Incentive Compensation to which it relates is to be paid with the unpaid amount of such Incentive Compensation and unpaid interest to bear interest at the Rate which shall be paid in arrears as each such installment of deferred Incentive Compensation is payable. 9. Split Dollar Life Insurance. Upon the transfer of the Life Insurance Policy from Employer to Employee, (a) Employer shall have no further obligation to Employee with respect to the Life Insurance Policy and (b) the Split Dollar Agreement between Employer, Douglass N. Ellis and Employee, dated December 28, 2001(the "Life Insurance Agreement"), shall terminate. During the Employment Period and any period during which Employee is entitled to receive benefits pursuant to Sections 5 or 7 hereof, Employer shall continue to pay premiums (other than out of the cash surrender value) with respect to any split dollar life insurance agreement, other than the Life Insurance Agreement, to which the Employer and Employee or a trust established by him are a party immediately prior to the Effective Time (the "Insurance Agreements"). If the Employment Period is terminated in a manner which does not result in the payment of benefits pursuant to Sections 5, 6, or 7 hereof, Employer agrees not to terminate any of the Insurance Agreements until the Employment Period (without consideration to any future extension) or the Noncompete Period, as the case may be, would have otherwise terminated, provided that Employer's obligation to pay premiums pursuant to the Insurance Agreements shall be limited to applying the cash value of the policies (including accumulated dividends and the value of any paid-up additions) to premium payments. If in such event such cash value is insufficient to pay all required premiums, Employer shall consult with Employee and apply cash value to payment of premiums as directed by Employee. As to policies where such premiums are not to be paid by the application of cash value, at the election of Employee Employer will either permit Employee to pay premiums to the extent not paid from the application of cash value or transfer such policies to Employee, conditioned upon Employee's executing any additional instruments reasonably necessary to preserve Employer's rights under the Insurance Agreements. 10. Gross-up Payment (a) In the event that it is determined that any payment or benefit provided by Employer to or for the benefit of Employee, either under this Agreement or otherwise, will be subject to the excise tax imposed by section 4999 of the Code or any successor provision ("section 4999"), Employer will, prior to the date on which any amount of the excise tax must be paid or withheld, make an additional lump-sum payment (the "gross-up payment") to Employee. The gross-up payment will be sufficient, after giving effect to all federal, state and other taxes and charges (including interest and penalties, if any) with respect to the gross-up payment, to make Employee whole for all taxes (including withholding taxes) and any associated interest and penalties, imposed under or as a result of section 4999. (b) Determinations under this Section 10 will be made by the Employer's tax accountant as of the Effective Time unless Employee has reasonable objections to the use of that firm, in which case the determinations will be made by a comparable firm chosen by Employee after consultation with Employer (the firm making the determinations to be referred to as the "Firm"). The determinations of the Firm will be binding upon Employer and Employee except as the determinations are established in resolution (including by settlement) of a controversy with the Internal Revenue Service to have been incorrect. All fees and expenses of the Firm will be paid by Employer. (c) If the Internal Revenue Service asserts a claim that, if successful, would require Employer to make a gross-up payment or an additional gross-up payment, Employer and Employee will cooperate fully in resolving the controversy with the Internal Revenue Service. Employer will make or advance such gross-up payments as are necessary to prevent Employee from having to bear the cost of payments made to the Internal Revenue Service in the course of, or as a result of, the controversy. The Firm will determine the amount of such gross-up payments or advances and will determine after resolution of the controversy whether any advances must be returned by Employee to Employer. Employer will bear all expenses of the controversy and will gross Employee up for any additional taxes that may be imposed upon Employee as a result of its payment of such expenses. (d) Employer shall provide Employee with a letter of credit no later than the Effective Time covering Employee's potential exposure to the excise tax imposed by section 4999 (or any payment resulting from such exposure) on terms reasonably acceptable to Employer and Employee. 11. Expenses Employer agrees to reimburse Employee for all reasonable expenses incurred by Employee in connection with the negotiation of this Agreement, the Recapitalization Agreement and any other agreements and transactions contemplated thereby. 12. Indemnification Anything in this Agreement to the contrary notwithstanding, Employer agrees to pay all costs and expenses incurred by Employee in connection with the enforcement of this Agreement and will indemnify and hold harmless Employee from and against any damages, liabilities and expenses (including without limitation fees and expenses of counsel) incurred by Employee in connection with any litigation or threatened litigation, including any regulatory proceedings, arising out of the making, performance or enforcement of this Agreement or termination of the Employment Period. 13. Notices All notices or other communications given hereunder shall be in writing and shall be deemed to have been duly given if mailed by certified mail or hand delivered, if to Employer, at 50 Kennedy Plaza, Providence, Rhode Island 02903-2360, or at such other address as Employer shall have furnished to Employee in writing, or if to Employee, at 166 President Avenue, Providence, Rhode Island 02906, or at such other address as Employee shall have furnished to Employer in writing. 14. Governing Law This Agreement shall be governed by the laws of the State of Rhode Island and Providence Plantations. 15. Severability The provisions of this Agreement are severable, and in the event that any one or more paragraphs are deemed illegal or unenforceable, the remaining paragraphs shall remain in full force and effect. 16. Effectiveness/Prior Agreements This Agreement shall be binding on all parties as of the date hereof. If the Effective Time does not occur, this Agreement shall be of no force and effect. As of the Effective Time, the Prior Agreement shall terminate and no payments shall thereafter be made thereunder. Under no circumstances shall the consummation of the Transactions, shareholder approval thereof or any other event relating thereto be deemed a "Change of Control" for any purposes under the Prior Agreement. This Agreement will constitute the entire agreement between Employer and Employee and will supersede all prior negotiations and written or oral agreements with respect to the full time employment of Employee by Employer, including the Prior Agreement and all other prior employment agreements between Employee and Employer, excluding the Amended and Restated Agreement between Employee and Employer dated June 1, 2001 except as explicitly provided herein. No changes, alterations or modifications may be made to this Agreement, except by a writing signed by each of the parties hereto, provided that no changes, alterations or modifications may be made to this Agreement prior to the Effective Time without the consent of K Holdings and, for such purposes, K Holdings shall be a third party beneficiary to this Section 16. 17. Waivers Employee waives any right to accelerated payment of benefits pursuant to (a) Section 6 of the Amended and Restated Agreement between Employee and Employer dated June 1, 2001 and (b) Section 7.2(a)(1)(iii) of the Nortek, Inc. 2001 Equity and Cash Incentive Plan, to the extent such payments accelerate or otherwise become payable as a result of the consummation of the Transactions, shareholder approval thereof or any event relating thereto. From the Effective Time, Employee will not be eligible to participate in or receive benefits pursuant to the Nortek, Inc. 1999 Equity Performance Plan and the SERP, other than payments specifically set forth in this Agreement. 18. Assignment This agreement is personal to Employee and without the prior written consent of Employer shall not be assignable by Employee other than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Employer's legal representative. 19. Counterparts This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same agreement. IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as of ______________ ATTEST: NORTEK, INC. -------------------- -------------------- ATTEST: NORTEK HOLDINGS, INC. -------------------- -------------------- WITNESS: ------------------- -------------------- Richard L. Bready, Employee EXHIBIT A EXHIBIT B EXHIBIT C EX-99 7 s377130.txt EXHIBIT (D)(10) Exhibit (d)(10) FORM OF NORTEK, INC., NORTEK HOLDINGS, INC. and _____________ EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT (this "Agreement") is made between NORTEK, INC., a Delaware corporation ("Nortek"), NORTEK HOLDINGS, INC., a Delaware corporation ("Nortek Holdings") (Nortek and Nortek Holdings, collectively referred to hereinafter as "Employer"), and _____________, a resident of (hereinafter called "Employee"), effective as of _____________ (the "Effective Date.") WHEREAS, pursuant to the Agreement and Plan of Recapitalization, dated as of June 20, 2002 by and among Nortek, Nortek Holdings and K Holdings, Inc. ("K Holdings") (the "Recapitalization Agreement"), after the consummation of the "Transactions" (as defined in the Recapitalization Agreement) Nortek will become a subsidiary of Nortek Holdings; WHEREAS, Employee is a party to the Stockholders Agreement to be entered into by Nortek Holdings and certain of its stockholders (the "Stockholders Agreement") as of the closing of the Transactions; WHEREAS, Employee and Employer desire to enter into this Agreement, which shall govern the terms of Employee's continued employment with Employer on and following the "Effective Time" (as defined in the Recapitalization Agreement); WHEREAS, Employer desires to assure that it will have the benefit of the continued service and experience of Employee who is the _____________ of the Employer and an integral part of its management and Employee is willing to enter into an agreement to such ends upon the terms and conditions set forth in this Agreement. In consideration of the foregoing and the mutual agreements herein contained, the parties mutually agree as follows: 1. Employment Period and Duties (a) Commencing from the Effective Time and ending on the termination of the Employee's employment as provided herein (hereinafter called the "Employment Period"), Employer shall employ Employee, and Employee shall serve as an employee of Employer. (b) During the Employment Period, Employee shall serve as _____________of Employer, or in such other executive capacity at a similar level of responsibility and with such other duties as the Chief Executive Officer of Employer (the "CEO") and Employee may from time to time mutually determine, and Employee accepts employment on the terms and conditions contained herein and agrees to devote a substantial part of his working time and energies to the business of Employer and to faithfully and diligently perform the customary duties of his office and such other duties, reasonable vacations (of not less than weeks per year) and time devoted to charitable and community service, and absences due to illness and holidays excepted. Such other duties may include the performance of services for any of Employer's subsidiaries and, without further remuneration (except as otherwise agreed), may also include service as an officer or director of one or more of Employer's subsidiaries. (c) During the Employment Period, Employer shall maintain an appropriately appointed executive office for Employee in Providence, Rhode Island (or at such other location as Employee and Employer shall mutually agree) of not less than the size of Employee's current office and associated administrative space from which Employee shall perform his duties and shall provide Employee with executive secretarial and other administrative staff and services suitable to his offices and duties. 2. Compensation (a) Basic Salary. Employee shall, during the Employment Period, receive a basic annual salary of not less than his salary in effect as of the Effective Date, subject to such adjustments as the CEO shall make at the beginning of each year (hereinafter called the "Basic Salary") payable monthly. (b) Incentive Compensation. In each year of the Employment Period, Employee shall receive incentive compensation in an amount recommended by the CEO and approved by the Compensation Committee of the Board of Directors. (c) SERP Payment. In satisfaction of all liabilities and obligations under the Nortek, Inc. Supplemental Retirement Plan (the "SERP"), Employee shall be entitled to a lump sum cash payment of $________, less applicable withholding, payable on the Effective Time. Such payment, however, does not release Employer from its obligations to pay the Employee an additional amount as a Gross Up, pursuant to Sections 6.3 of the SERP or Section 5 of this Agreement. (d) Stock Options. (i) Employer shall grant to Employee, effective as of the Effective Time, (A) ________ Class A Options (as defined in the Nortek Holdings, Inc. 2002 Stock Option Plan (the "Option Plan")), subject to the terms and conditions of the Option Plan and the applicable stock option agreement and (B) ________ Class B Options, as defined in the Option Plan, subject to the terms and conditions of the Option Plan and the applicable stock option agreement. (ii) Notwithstanding the terms of the Recapitalization Agreement, each option held by Employee to acquire shares of common stock and/or special common stock of Employer (each, a "Nortek Option") shall be treated in accordance with the terms of (A) the Agreement and Plan of Merger by and among Nortek, Nortek Holdings and Nortek Holdings Merger Sub dated June 20, 2002, as amended, pursuant to which the Nortek Options shall be converted into options to purchase shares of common stock and special common stock of Nortek Holdings (each, a "Nortek Holdings Option") and (B) the Exchange Agreement to be entered into by Employee, Employer, Nortek Holdings and K Holdings, pursuant to which each Nortek Holdings Option shall be converted into an Exchange Option to acquire shares of Class A Common Stock, par value $1.00 per share of Nortek Holdings ("Common Stock"), subject to the terms and conditions of the Option Plan and the applicable stock option agreement. (e) Lifetime Medical Coverage. (i) Subject to the conditions set forth below, Employer shall provide Employee, his Spouse and dependents with lifetime Medical Coverage at no cost to Employee, beginning upon Employee's termination of employment with Employer (the "Triggering Date"). For purposes of this Agreement, (A) "Spouse" shall mean any individual married to Employee only during the time such individual is married to Employee, provided that an individual who is married to Employee at the time of Employee's death shall be a Spouse for the remainder of such individual's lifetime and (B) "Medical Coverage" shall mean all medical and dental benefits that are provided Employee at the Effective Time, any medical or dental expense that would be deductible by Employee under section 213 of the Internal Revenue Code of 1986, as amended (the "Code"), including insurance premiums, co-payments and deductible amounts (determined without regard to the deductible threshold set forth in 213(a)) if paid by the Employee directly, and such other reasonable medical and dental expenses that Employer may approve from time to time, but in no event shall Employer's reimbursement obligation for Employee, his Spouse or dependents under this Section 2(e) exceed an amount equal to the applicable Vested Percentage (defined below) multiplied by $1,000,000 (exclusive of any gross up for taxes pursuant to Sections 2(e)(vi) or 5 hereof and determined without regard to reimbursements made prior to the Triggering Date under the Nortek Executive Health Reimbursement Plan) in the aggregate during Employee's and his Spouse's lifetimes. Such Medical Coverage shall be extended to any dependent of Employee but only for so long as such person remains a "dependent" under the terms and conditions of Employer's health plan in existence at the Effective Time. Employer shall make all reasonable efforts to include Employee, his Spouse and dependents in any comprehensive medical and/or dental plan provided to active employees from time to time. Employee must make all reasonable effort to obtain and to maintain (at Employer's expense as provided herein) any form of comprehensive medical and/or dental insurance that Employer may require from time to time. If Employee is or becomes eligible for Medicare benefits, the coverage provided by this Section shall be supplemental to Medicare coverage, Parts A and B, and the Participant shall be required to submit claims to Medicare before making any claim for medical care under this Section. (ii) Employee shall become irrevocably entitled to ("vested" in) 25% of the Medical Coverage on the first anniversary of the Effective Time and shall become vested in an additional 25% on each of the following three anniversaries of the Effective Time, if he is then employed by the Employer. The percentage of Medical Coverage to which the Employee is irrevocably entitled as of the applicable Triggering Date shall be the "Vested Percentage". For this purpose, the benefits to which the Employee is entitled following the Triggering Date shall be determined as the Vested Percentage multiplied by the dollar value of Medical Coverage benefits that would be provided to Employee if he were fully vested in the Medical Coverage. For clarification, in the event that the Employee receives Medical Coverage benefits rather than the lump sum described in Section 2(e)(iii), the Employer shall pay to the Employee the Vested Percentage of the amount of reimbursement with respect to the Medical Coverage benefits that otherwise would have been paid to the Employee, his Spouse and his dependents. (iii) Employee shall immediately become fully vested in the Medical Coverage if, at any time, (A) his employment is terminated by Employer other than for Cause (defining "Cause" for this purpose to include only clause (ii) of Section 3(d) of this Agreement), (B) his employment terminates as a result of death, Disability or a medical emergency in his immediate family, (C) he terminates his employment for Good Reason, or (D) there occurs a Change in Control. For this purpose, "Change in Control" means an "Exit Event" as defined in the Option Plan, or an "IPO" or "Change in Control" as defined in the Stockholders Agreement. Upon termination of employment of the Employee for any reason other than those set forth at A, B or C above, any then unvested portion of the Medical Coverage shall be immediately forfeited. (iv) From and after the Triggering Date or the occurrence of a Change in Control, upon the written request of Employee or his Spouse, Employer shall authorize and pay to Employee or his Spouse a lump sum cash payment in lieu of Vested Percentage of the Medical Coverage in an amount established by the Board of Directors of Employer that is reasonably sufficient to provide the Vested Percentage of lifetime Medical Coverage, but in no event less than $650,000 multiplied by the applicable Vested Percentage. Such amount is calculated before the gross-up provided in Sections 2(e)(vi) and 5. At the time of such lump-sum payment, Employer shall also pay such amount as is necessary to cover the income tax gross-up provided in Section 2(e)(vi). (v) As long as he remains employed by the Employer, Employee shall continue to be covered by the Nortek Executive Health Reimbursement Plan as in effect on the Effective Date, and benefits received under that Plan prior to the Triggering Date shall have no effect on benefits to be provided under the Medical Coverage or the amount of any lump-sum payment to be made under (iv) above. (vi) Employer agrees to make a "gross-up" payment to Employee to cover any and all state and federal income taxes and section 4999 taxes (as defined in Section 5 herein), and the tax on any such reimbursement or payment, that may be due as a result of the benefits provided under Section 2(e)(i) above and on any lump sum payment under Section 2(e)(iv) above. (vii) Following the Triggering Date, Employee shall notify the Company of any change in (A) his marital status or (B) the status of his dependents as "dependents", as soon as practicable following such change. (f) Benefits. Employee shall be eligible to participate in any deferred compensation, supplemental executive retirement, pension, bonus, incentive or other benefit plan in which executive personnel of Employer are eligible to participate and shall be eligible for discretionary bonuses. In addition, Employee shall be entitled to receive all other benefits or participate in any employee benefit plans generally available to executive personnel of Employer, including without limitation, any hospital, medical, accident, disability, life insurance, and dental coverage, tax return preparation, any stock option or savings plans, or any pension or other retirement benefit plans. (g) Reimbursement and Perquisites. Employer shall promptly reimburse Employee for all business expenses incurred by Employee during the Employment Period; shall promptly pay or reimburse Employee for professional association dues, assessments and fees for at least such associations as Employee was a member of and Employer was making such payments or reimbursements on the date of this Agreement; shall pay or reimburse Employee for membership dues, assessments and fees at one country/golf club of Employee's choice; and shall provide to Employee for his exclusive business and personal use an automobile (selected by Employee not inconsistent with type of automobile provided to Employee on the Effective Time), pay all expenses of ownership, operation, repair and maintenance of such vehicle and permit the Employee to replace such automobile not less often than the earlier of every three years or 50,000 miles. (h) Stockholders Agreement. Employee shall be listed on the Schedule of Management Stockholders and Exhibit B of the Stockholders Agreement. 3. Termination (a) In the event of Employee's death, the Employment Period shall be deemed to end on the date of his death. (b) If Employee is incapacitated by accident, sickness, or otherwise so as to render him, for a period of 365 consecutive days, mentally or physically incapable of performing the services required of him under this Agreement which, if requested by Employee, the basis for such incapacity is certified by a licensed physician, then Employer or Employee may terminate the Employment Period. Such incapacity shall be referred to herein as a "Disability." (c) Employee shall have the right to terminate the Employment Period without Good Reason at any time by written notice to the Board. (d) Employer, shall have the right to terminate the Employment Period for Cause (as hereinafter defined), without further obligation hereunder on the part of Employer or Employee except payment to Employee of amounts earned or accrued hereunder to the date of termination, pursuant to the procedures specified in this Section 3(d); provided that the Employment Period shall not be terminated for Cause if the Employment Period shall have terminated for any other reason. Except as provided in Section 2(e)(iii), for purposes of this Agreement, "Cause" shall mean good faith determination by the CEO that either of the following has occurred: (i) the willful and continued failure of Employee to perform Employee's material duties as of Employer (or such other duties as the CEO and Employee may from time to time mutually determine), after written notice to Employee which notice specifically identifies the manner in which Employee has not substantially performed his material duties and provides the Employee a reasonable time to cure such failure, or (ii) because of the conviction of Employee of a crime involving theft, embezzlement or fraud against Employer or a civil judgment in which Employer is awarded damages from Employee in respect of a claim of loss of funds through fraud or misappropriation by Employee, which in either case has become final and is not subject to further appeal, continued employment of Employee would be demonstrably injurious to Employer. (e) Employer, shall have the right to terminate the Employment Period without Cause, by written notice to Employee not less than 20 business days in advance of such termination. (f) Employee shall have the right to terminate the Employment Period at any time with Good Reason (as defined in Section 4(b)) by written notice to Employer not less than 20 business days in advance of such termination. (g) Any amounts due Employee hereunder in the event of termination of the Employment Period shall be considered severance pay in consideration of his past services and in consideration of his continued services from the date hereof, are considered reasonable by Employer and not in the nature of a penalty, shall not be reduced by compensation or income received by Employee from any other employment or other source and shall not be offset by any claims Employer may have against Employee; timely payment of such amounts is further agreed by the parties hereto to be in full satisfaction and compromise of any claims arising out of the performance or nonperformance of this Agreement that either party might have against the other, other than any claims Employee may have under the provisions of Sections 5 and 6 hereof. 4. Termination Benefit (a) If the Employment Period shall terminate by reason of Employer's exercise of its right under Section 3(e) to terminate without Cause or in the event Employee elects to terminate the Employment Period for Good Reason or the Employment Period is terminated on account of Employee's death or Disability, then Employer shall thereafter be obligated to pay Employee (or his estate) and Employee (or his estate) shall be entitled to receive as severance pay hereunder, for a period of two years beginning on the first day following such termination (or if longer, for a period commencing on such date and ending on the third anniversary of the Effective Time) (the "Severance Period"), an amount for each year, equal to his Basic Salary as of the date of such termination plus the highest amount of bonus or incentive compensation (exclusive of the Nortek, Inc. 1999 Equity Performance Plan) paid or payable in cash to Employee in any one of the three calendar years immediately prior to the Effective Time (or, if higher, the three calendar years immediately prior to such termination). Payments will be made in the same manner as Employee's Basic Salary was paid immediately prior to termination and will be subject to appropriate tax withholding. In the event of such a termination, Employee shall continue, during the Severance Period, to be covered at the expense of the Employer by the same or equivalent accident, disability and life insurance coverage as he was covered immediately prior to the Effective Time (or, if greater, immediately prior to such termination), including the payment of premiums that may become due under any split-dollar life insurance contract provided by Employer covering the life of the Employee and/or his spouse. (b) Termination for Good Reason. For purposes of this Agreement, "Good Reason" shall mean a material adverse change in the Employee's terms of employment, including: (i) any reduction of, or failure to pay, Employee's Basic Salary or other compensation as described in Sections 2(a) and (b) hereof; (ii) any failure to provide the benefits or payments required by Sections 2(c), (d) and (e), 5 and 7 hereof or Section 6.5(a) of the Stockholders Agreement and the registration rights provided in the Registration Rights Agreement to be entered into by Employee, Nortek Holdings and other parties named therein (the "Registration Rights Agreement"); (iii) assignment to Employee of any duties materially inconsistent with his position (including status, offices and titles), authority, duties or responsibilities as contemplated by Section 1(b) above or any other action by Employer which results in a material diminution of such position, authority, duties or responsibilities; (iv) relocation of Employer's principal executive offices, or any event that causes Employee to have his principal place of work changed, to any location outside Providence, Rhode Island; (v) any requirement by Employer that Employee travel away from his office in the course of his duties significantly more than the number of consecutive days or aggregate days in any calendar year than was required of him prior to the Effective Time; and (vi) without limiting the generality or effect of the foregoing, any other material breach by Employer or any successor thereto or transferee of substantially all the assets thereof, of this Agreement, the Stockholders Agreement and the Registration Rights Agreement. 5. Gross-up Payment (a) All payments and benefits provided to Employee by Employer are intended to be reasonable compensation for services by Employee, and the Employer intends that Employee receives the full economic benefit of such payments and benefits. In the event that it is determined that any payment or benefit provided by Employer to or for the benefit of Employee, either under this Agreement or otherwise, whether paid before or after the Effective Time, and regardless of under what plan or arrangement it was made, will be subject to the excise tax imposed by section 4999 of the Code or any successor provision ("section 4999"), Employer will, prior to the date on which any amount of the excise tax must be paid or withheld, make an additional lump-sum payment (the "gross-up payment") to Employee. The gross-up payment will be sufficient, after giving effect to all federal, state and other taxes and charges (including interest and penalties, if any) with respect to the gross-up payment, to make Employee whole for all taxes (including withholding taxes) and any associated interest and penalties, imposed under or as a result of section 4999. (b) Determinations under this Section 5 will be made by the Employer's tax accountant unless Employee has reasonable objections to the use of that firm, in which case the determinations will be made by a comparable firm chosen by Employee after consultation with Employer (the firm making the determinations to be referred to as the "Firm"). The determinations of the Firm will be binding upon Employer and Employee except as the determinations are established in resolution (including by settlement) of a controversy with the Internal Revenue Service to have been incorrect. All fees and expenses of the Firm will be paid by Employer. (c) If the Internal Revenue Service asserts a claim that, if successful, would require Employer to make a gross-up payment or an additional gross-up payment, Employer and Employee will cooperate fully in resolving the controversy with the Internal Revenue Service. Employer will make or advance such gross-up payments as are necessary to prevent Employee from having to bear the cost of payments made to the Internal Revenue Service in the course of, or as a result of, the controversy. The Firm will determine the amount of such gross-up payments or advances and will determine after resolution of the controversy whether any advances must be returned by Employee to Employer. Employer will bear all expenses of the controversy and will gross Employee up for any additional taxes that may be imposed upon Employee as a result of its payment of such expenses. (d) Employer's obligations under this paragraph 5 shall survive the termination of the Employment Period and any termination of this Agreement. 6. Non-competition and Confidentiality. (a) Employee agrees that he shall not compete with Employer as hereinafter provided for a period (the "Noncompete Period") equal to: (i) if the Employment Period is terminated pursuant to Section 3(c) or (d) hereof, one year beginning as of the first day following such termination, or (ii) if the Employment Period is terminated pursuant to Section 3(b), (e) or (f) hereof, the longer of (A) two years beginning as of the first day following such termination of the Employment Period and (B) a period commencing on such date and ending on the third anniversary of the Effective Time. (b) Employee's agreement not to compete with Employer during the Noncompete Period shall be limited to prohibiting Employee from owning a greater than 5% equity interest in, serving as a director, officer, employee or partner of, or being a consultant to or co-venturer with any business enterprise or activity that competes in North America with any line of business conducted by Employer or any of its subsidiaries at the termination of the Employment Period and accounting for more than 5% of Employer's gross revenues for its fiscal year ending immediately prior to the year in which the Employment Period ends. During the Noncompete Period, Employee agrees that he will not hire or attempt to hire any person employed by Employer or any of its subsidiaries during the 24 month period prior to the termination of the Employment Period, assist such a hiring by any other person or entity, encourage any such employee to terminate his relationship with Employer (or any such subsidiary) or solicit or encourage any customer or vendor of Employer to terminate its relationship with Employer. (c) Employee shall hold in a fiduciary capacity for the benefit of Employer all secret or confidential information, knowledge or data relating to Employer or any of its subsidiaries, and their respective businesses, which shall have been obtained by Employee during Employee's employment by Employer and which shall not be or become public knowledge (other than by acts by Employee or representatives of Employee in violation of this Agreement). After termination of Employee's employment with Employer, Employee shall not, without the prior written consent of Employer or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than Employer and those designated by it. 7. Indemnification Anything in this Agreement to the contrary notwithstanding, Employer agrees to pay all costs and expenses incurred by Employee in connection with the enforcement of this Agreement and will indemnify and hold harmless Employee from and against any damages, liabilities and expenses (including without limitation fees and expenses of counsel) incurred by Employee in connection with any litigation or threatened litigation, including any regulatory proceedings, arising out of the making, performance or enforcement of this Agreement or termination of the Employment Period. Employer's obligations under this paragraph 7 shall survive the termination of any other provisions of the Agreement. 8. Prior Agreement This Agreement shall be binding on all parties as of the Effective Date. If the Effective Time does not occur, this Agreement shall be of no force and effect. This Agreement shall replace, as of the Effective Time, Employee's participation in the Nortek, Inc. Change in Control Severance Benefit Plan for Key Employees (As Amended and Restated June 12, 1997 and as clarified on June 20, 2002), except for the obligation of Employer in Section 4 of such agreement to pay Employee, within 30 days of the Effective Time, an amount equal to 20% of his basic salary immediately prior to the Effective Time. 9. Notices All notices or other Communications given hereunder shall be in writing and shall be deemed to have been duly given if mailed by certified mail or hand delivered, if to Employer, at 50 Kennedy Plaza, Providence, Rhode Island 02903-2360, or at such other address as Employer shall have furnished to Employee in writing, or if to Employee, at _____________ or at such other address as Employee shall have furnished to Employer in writing. 10. Governing Law This Agreement shall be governed by the laws of the State of Rhode Island and Providence Plantations. 11. Severability The provisions of this Agreement are severable, and in the event that any one or more paragraphs are deemed illegal or unenforceable, the remaining paragraphs shall remain in full force and effect. 12. Assignments This agreement is personal to Employee and without the prior written consent of Employer shall not be assignable by Employee other than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Employer's legal representative. This Agreement shall inure to the benefit of and be binding upon Employer and its successors and assigns. 13. Counterparts This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same agreement. 14. Amendments No changes, alterations or modifications may be made to this Agreement, except by a writing signed by each of the parties hereto. Notwithstanding the preceding sentence, prior to the Effective Time, this Agreement may not be changed, altered or modified without the express written consent of K Holdings and, for such purposes, K Holdings shall be a third party beneficiary to this Section 14. IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as of ______________ NORTEK, INC. By: ____________________________ EMPLOYEE _______________________________ EX-99 8 s367173.txt EXHIBIT (D)(11) Exhibit (d)(11) NORTEK HOLDINGS, INC. 2002 STOCK OPTION PLAN NORTEK HOLDINGS, INC. 2002 Stock Option Plan 1. Purpose. The purpose of this 2002 Stock Option Plan (the "Plan") is to advance the interests of Nortek Holdings, Inc., a Delaware corporation (the "Company"), by affording certain officers, directors, consultants and key employees of the Company and its Affiliates an ownership interest in the Company and thus to stimulate in such persons increased personal interest in the success and future growth of the Company. 2. Definitions. "Acquiring Person" shall mean, with reference to the transactions referred to in Section 12, (a) the continuing or surviving entity of a consolidation or merger with the Company in connection with which the Company Stock is changed into or exchanged for stock or other securities of any other Person or cash or any other property, (b) the transferee of all or substantially all of the assets of the Company, (c) the parent entity of any corporation consolidating with or merging into the Company in a consolidation or merger in connection with which the Company Stock is changed into or exchanged for stock or other securities of any other Person or cash or any other property if the Company becomes a subsidiary of such entity and the parent entity of any entity acquiring all or substantially all of the assets of the Company, or (d) in the case of a capital reorganization or reclassification or in any case in which the Company is a surviving corporation in a merger not described in clause (a) or (c) above, the Company. "Affiliate" shall mean, with respect to a specified person, a person that directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified. "Board" shall mean the Board of Directors of the Company. "Business Day" shall mean any day other than a Saturday or a Sunday or a day on which commercial banking institutions in the City of New York are authorized by law to be closed. Any reference herein to "days" (unless Business Days are specified) shall mean calendar days. "Cause" shall have the meaning ascribed to such term in the Stockholders Agreement. "Class A Option" shall mean an option to purchase a number of shares of Common Stock, as specified in an option agreement, identified as a "Class A Option," which shall be subject to the exercise and termination provisions set forth in Section 8(a) hereof and, if applicable, in such option agreement. "Class B Option" shall mean an option to purchase a number of shares of Common Stock, as specified in an option agreement, identified as a "Class B Option," which shall be subject to the exercise and termination provisions set forth in Section 8(b) hereof and, if applicable, in such option agreement. "Committee" shall mean compensation committee of the Board. "Common Stock" shall mean the Class A Common Stock, par value $1.00 per share, of the Company. "Company" shall have the meaning ascribed to it in Section 1 hereof. "Company Stock" shall mean (i) the Common Stock, (ii) the Series B Preference Stock and (iii) any stock issued, after the date hereof, in respect of, in exchange for or in substitution for such Company Stock by reason of any stock dividend, split, reverse split, combination, recapitalization, reclassification, merger, consolidation or otherwise. "Disability" shall have the meaning ascribed to such term in the Stockholders Agreement. "Eligible Person" shall have the meaning ascribed to such term in Section 5 hereof. "Exercise Notice" shall have the meaning ascribed to such term in Section 8(a) hereof. "Exchange Options" shall have the meaning ascribed to such term in the Recapitalization Agreement. "Exchange Agreements" shall have the meaning ascribed to such term in the Recapitalization Agreement. "Exit Event" shall mean a sale, disposition or transfer of Company Stock after which the Kelso Entities will have sold, disposed of or transferred at least 90% of their aggregate Company Stock investment in the Company for cash or Marketable Securities. "Exit Value" shall mean, with respect to each share of Company Stock, the aggregate amount of cash and Marketable Securities received by the Kelso Entities (after giving effect to all payments under the Plan). Exit Value shall (a) be determined in good faith by the Committee on the date of each Liquidity Event and (b) include any cash or Marketable Securities received by the Kelso Entities as a result of any prior Liquidity Event. Subject to the foregoing criteria, any determination made in good faith by the Committee as to Exit Value of each share of Company Stock shall be binding on the Company and all Holders. For all purposes of this definition, the value of any Marketable Securities shall be determined on the date of receipt. "Fair Market Value" shall have the meaning ascribed to such term in the Stockholders Agreement, provided that, with respect to any Marketable Security, "fair market value" shall mean the average of the closing price of such Marketable Security on the national exchange (or NASDAQ) on which such Marketable Security is listed over the five days most recently preceding the date of the valuation. "Holder" shall mean a person to whom an Option is granted pursuant to the Plan. "Investor Return" shall mean the aggregate amount in cash and Marketable Securities necessary for the Kelso Entities to receive an investment rate of return, compounded annually, on their investment in the Company Stock, of at least 17%, calculated from the time of each respective investment in the Company, taking into account the cash and Marketable Securities which have been received by the Kelso Entities (a) as dividends on the Company Stock and (b) in consideration for the sale or transfer of the Company Stock (which amount shall exclude any fees that Kelso & Company may receive from the Company) beneficially owned, whether directly or indirectly, by the Kelso Entities and the time when such cash and Marketable Securities are received. Investor Return shall be calculated in good faith by the Committee on the date of each Liquidity Event and take into account all payments that are made under the Plan and the value of all Common Stock subject to Options that have become exercisable pursuant to the Plan. Subject to the foregoing, any determination made in good faith by the Committee as to Investor Return realized as of any date shall be binding on the Company and all Holders. For all purposes of this definition, the value of any Marketable Securities shall be determined on the date of receipt. "IPO" shall have the meaning ascribed to such term in the Stockholders Agreement. "Kelso & Company" shall mean Kelso & Company L.P. "Kelso Entities" shall mean KIA VI and its Affiliates, jointly. "KIA VI" shall mean Kelso Investment Associates VI, L.P., a Delaware limited partnership. "Liquidity Event" shall mean the receipt of cash or Marketable Securities by the Kelso Entities arising from and directly related to the Kelso Entities' ownership of Company Stock, including, but not limited to, any Kelso Entities' receipt of cash or Marketable Securities in consideration for the sale of Company Stock or receipt of any cash dividend with respect to Company Stock by the Kelso Entities. "Marketable Securities" shall mean any securities of a class listed on a national exchange or on NASDAQ that are freely tradable and for which registration rights are available. "Options" shall mean, collectively, Class A Options, Class B Options and Rolled Over Options. "Option Price" shall mean, with respect to any Option, the price per share for which shares of Common Stock may be purchased pursuant to such Option, which initially shall be $46.00 per share for Class A Options and Class B Options. "Other Securities" shall mean any stock (other than Common Stock) and other securities of the Company or any other Person (corporate or otherwise) which the Holders of the Options at any time shall be entitled to receive, or shall have received, upon the exercise of the Options, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities. "Permitted Transferee" of a Holder shall mean the Company and (a) the spouses, family members, heirs, executors, administrators, testamentary trustees or legatees or beneficiaries of the Holder and (b) any trust, the beneficiaries of which, or a corporation or partnership, the stockholders or general and limited partners of which, include only the Holder or the spouse or family members of the Holder; provided that each such transferor has obtained the prior written consent of the Company; provided further that the transfer to any such person is in compliance with all applicable federal, state and foreign securities laws. "Person" shall mean a corporation, an association, a partnership, an organization, a business, an individual, a government or political subdivision thereof or a governmental agency. "Plan" shall have the meaning ascribed to such term in Section 1 hereof. "Recapitalization Agreement" shall mean the Agreement and Plan of Recapitalization by and among Nortek, Inc., the Company and K Holdings, Inc. dated June 20, 2002. "Retirement" shall have the meaning ascribed to such term in the Stockholders Agreement. "Rolled Over Options" shall mean options granted in exchange for Exchange Options pursuant to the Exchange Agreements. "Series B Preference Stock" shall mean the series B convertible preference stock, par value $1.00 per share, of the Company. "Stockholders Agreement" shall mean the Stockholders Agreement entered into (or to be entered into) by the Company, K Holdings, Third Party Investors and the Management Stockholders (as such term is defined therein). "Third Party Investors" shall have the meaning ascribed to such term in the Stockholders Agreement. 3. Options Available for Grant Pursuant to the Plan. The Options available for grant pursuant to the Plan shall in no case exceed, in the aggregate, the following quantities: (a) in the case of Class A Options, options to purchase /_/ shares of Common Stock; (b) in the case of Class B Options, options to purchase /_/ shares of Common Stock; and (c) in the case of Rolled Over Options, options to purchase /_/ shares of Common Stock. 4. Reservation of Shares. The Company has reserved, solely for issuance and delivery upon exercise of the Options pursuant to this Plan, /_/ shares of Common Stock. All shares of Common Stock (or Other Securities) issuable upon exercise of any Options shall be duly authorized and, when issued upon such exercise, shall be validly issued and, in the case of shares, fully paid and nonassessable with no liability on the part of the Holders thereof. 5. Eligibility. Options may be granted to officers, directors, consultants or employees of the Company or any of its Affiliates, from time to time, as determined by the Committee (each, an "Eligible Person"). In determining (a) who shall be an Eligible Person or (b) grants under the Plan, the Committee shall take into account such factors as it shall deem relevant in connection with accomplishing the purposes of the Plan. 6. No Right to Employment or Continued Service. Nothing in the Plan or in any Option shall confer any right on any Eligible Person to continue in the employ or service of the Company or any of its Affiliates or shall interfere in any way with the right of the stockholders of the Company or any of its Affiliates to terminate such Eligible Person's employment or service at any time. 7. Administration of the Plan. The Plan shall be administered by the Committee, provided, however, that the Board may act on behalf of the Committee as it deems appropriate. To the extent that the Board takes any action pursuant to this Plan, all applicable references to the Committee shall be to the Board. The Committee shall have full power to construe and interpret the Plan, to establish rules for its administration and to grant Options to Eligible Persons, in each case in accordance with the provisions of the Plan. In addition, the Committee may delegate such of its duties under the Plan as may be deemed by the Committee to be clerical or ministerial to such delegates as the Committee deems appropriate. All actions taken and decisions made by the Committee pursuant to the Plan shall be binding and conclusive on all persons interested in the Plan. 8. Exercisability of Options. (a) Class A Options. (i) Subject to the acceleration and forfeiture provisions set forth in this Section 8(a), Class A Options shall become exercisable in equal proportions with respect to the Common Stock subject thereto on a quarterly basis over a period of three years immediately following the date of grant of such option. Notwithstanding the foregoing, subject to Section 10, all Class A Options shall become exercisable in full upon the occurrence of a Liquidity Event that results in all Class B Options becoming exercisable in full pursuant to the terms of Section 8(b)(i) hereof. (ii) Subject to Section 10 hereof, Class A Options shall become exercisable in full upon the occurrence of an Exit Event and the right to exercise such Option shall terminate at the close of the day on the date of the Exit Event, but in no event later than the expiration of such Class A Option. In the event that any Exit Event is contemplated, the Company will mail or deliver to each Holder of such Option at least ten days prior to the date of such Exit Event a notice (an "Exercise Notice") specifying that (x) an Exit Event is contemplated and that upon such Exit Event such Option will become exercisable pursuant to its terms, (y) the date of the contemplated Exit Event and the terms thereof, and (z) such Option shall expire at the close of the day on the date of the Exit Event if not exercised prior thereto. (iii) In the event that a Holder's employment or service with the Company or any of its Affiliates is terminated for any reason other than by the Company or any of its Affiliates for Cause, any portion of any Class A Option held by such Holder, that has become exercisable by virtue of Section 8(a)(i) will remain exercisable; provided, however, that any such Option shall expire on the 90th day after termination of employment or service of the Holder, unless such termination is by reason of death, Disability or Retirement. In the event of a termination of employment or service by reason of the Holder's death, any portion of any Class A Option held by such Holder, that has become exercisable by virtue of Section 8(a)(i) may be exercised by the Holder's executor, administrator or the person to whom the Class A Option is transferred by will or the applicable laws of descent and distribution, at any time within the one year period ending with the first anniversary of the Holder's death, and shall thereupon terminate. If the termination of employment or service is on account of the Holder's Retirement with the consent of the Committee (after attainment of age 65) or Disability, any portion of any Class A Option held by such Holder, that has become exercisable by virtue of Section 8(a)(i) may be exercised by the Holder for the remainder of the term of such Option or until such Option otherwise expires or is terminated in accordance with the terms of the Plan. Any unexercisable portion of any Class A Option held by a Holder shall expire immediately prior to a Holder's termination of service or employment for any reason. (iv) Notwithstanding anything to the contrary herein, in the event that the employment or service of a Holder with the Company or any of its Affiliates is terminated by the Company or any of its Affiliates for Cause, each Class A Option held by such Holder shall expire immediately prior to such termination. (v) Notwithstanding anything to the contrary herein, the Committee may accelerate the exercisability or delay or postpone the expiration of any outstanding Class A Option at such time and under such circumstances as the Committee, in its sole discretion, deems appropriate. (b) Class B Options. (i) Class B Options shall be exercisable for that number of shares as calculated pursuant to Schedule I; provided, that, and as a condition to such exercise, (w) one or more Liquidity Event shall have occurred, (x) a minimum Exit Value per share in excess of $92.00 shall have been achieved, (y) the Kelso Entities shall have achieved the Investor Return and (z) unless otherwise provided by the Committee, the Holder is a director, officer, consultant or employee of the Company or any of its Affiliates on the date of the Exit Event or the Liquidity Event, as appropriate.(1) (ii) In the event that a Holder's employment or service with the Company or any of its Affiliates is terminated for any reason other than by the Company or any of its Affiliates for Cause, any portion of any Class B Option that has become exercisable by virtue of Section 8(b)(i) will remain exercisable; provided, however, that, unless otherwise provided by the Committee, any such Class B Option shall expire on the 90th day after termination of employment or service of the Holder. Unless otherwise provided by the Committee, any unexercisable portion of any Class B Option held by a Holder shall expire immediately prior to a Holder's termination of service or employment for any reason.(2) - -------- 1 It is intended that Mr. Bready and other senior executives who are located at corporate headquarters will be granted Class B Options that become exercisable if the holder was employed by the Company at any time during the 90 day period preceding the Liquidity Event, provided all other conditions of exercisability are met. 2 It is intended that Mr. Bready and other senior executives who are located at corporate headquarters will be granted Class B Options which have the same expiration period following termination of employment due to death, disability or retirement as the rollover options (exercisable for one year in the event of death and until expiration in the event of retirement or disability). (iii) Notwithstanding anything to the contrary herein, in the event that the employment or service of a Holder with the Company or any of its Affiliates is terminated by the Company or any of its Affiliates for Cause, each Class B Option held by such Holder shall expire immediately prior to such termination. (iv) In the event that any Liquidity Event is contemplated and that the conditions in clauses (x), (y) and (z) of Section 8(b)(i) will be satisfied, the Company will mail or deliver to each Holder of a Class B Option at least 10 days prior to the date of such Liquidity Event an Exercise Notice specifying that (x) a Liquidity Event is contemplated and the extent to which the Class B Option will be exercisable pursuant to its terms at the time of such Liquidity Event and (y) the date of the contemplated Liquidity Event and the terms thereof. (v) The right to exercise any Class B Option shall terminate at the close of the day on the date of the Exit Event, but in no event later than the expiration of such Class B Option. In the event that any Exit Event is contemplated and the conditions in clauses (x), (y) and (z) of Section 8(b)(i) will be satisfied, the Company will mail or deliver to each Holder of such Class B Option at least ten days prior to the date of such Exit Event an Exercise Notice specifying (x) that an Exit Event is contemplated and the extent to which the Class B Option will be exercisable pursuant to its terms at the time of such Exit Event, (y) the date of the contemplated Exit Event and the terms thereof, and (z) that such Class B Option shall expire at the close of the day on the date of the Exit Event if not exercised prior thereto. (vi) Notwithstanding anything to the contrary herein, the Committee may accelerate the exercisability or delay or postpone the expiration of any outstanding Class B Option at such time and under such circumstances as the Committee, in its sole discretion, deems appropriate. (c) Rolled Over Options. (i) Rolled Over Options shall be fully exercisable on the date of grant. (ii) Subject to Section 10 hereof, the right to exercise any Rolled Over Option shall terminate at the close of the day on the date of the Exit Event, but in no event later than the expiration of such Rolled Over Option. In the event that any Exit Event is contemplated, the Company will mail or deliver to each Holder of a Rolled Over Option at least ten days prior to the date of such Exit Event a notice (an "Exercise Notice") specifying that (x) the date of the contemplated Exit Event and the terms thereof, and (y) such Option shall expire at the close of the day on the date of the Exit Event if not exercised prior thereto. (iii) In the event that a Holder's employment or service with the Company or any of its Affiliates is terminated for any reason, the Rolled Over Option may be exercised by the Holder at any time, subject to Section 10 hereof. (d) Deemed Termination of Employment. If the entity that employs or engages the Holder ceases to be an Affiliate of the Company (whether by sale or other corporate transaction), then such sale or other corporate transaction shall be deemed a termination of the Holder's employment or service for other than Cause for purposes of this Plan. 9. Manner of Exercise. (a) Each Option shall further state the terms and conditions of the Option (including the conditions to exercisability thereof to the extent such conditions are in addition to or different from those set forth in the Plan) and the Option Price. An Option may be exercised, subject to this Section 9, for any or all whole number of shares that have become purchasable under such Option. To the extent necessary upon the exercise of an Option, the Company shall round each fractional share issuable upon such exercise up to the next whole number. (b) Subject to the terms and conditions set forth in this Plan (including the conditions to exercisability thereof), an Option may be exercised by the Holder during normal business hours on any Business Day, by surrender of the Option to the Company at its principal office, accompanied by a subscription, in cash or by certified or official bank check payable to the order of the Company, in the amount obtained by multiplying (i) the number of shares of Common Stock designated in such subscription (up to the amount of shares which such Holder is entitled to receive at such time upon exercise of the Option) by (ii) the Option Price. A Holder may elect to pay all or a portion of the aggregate subscription price by tendering shares of Common Stock with a Fair Market Value equal to aggregate subscription price; provided, however, that such Holder must have owned such tendered shares of Common Stock continuously through such exercise date for a period of at least six months. (c) Each exercise of an Option shall be deemed to have been effected immediately prior to the close of business on the Business Day on which an Option shall have been surrendered to the Company, and at such time the Person or Persons in whose name or names any certificate or certificates for shares of Common Stock (or Other Securities) shall be issuable upon such exercise shall be deemed to have become the Holder or Holders of record thereof. (d) The Company at its expense shall deliver to the relevant Holder (or as such Holder may direct pursuant to the Option) a certificate or certificates representing shares of the Common Stock so purchased as soon as reasonably practicable, but in any event within five Business Days, after receipt of such notice. Each such certificate shall bear the legend required by the Stockholders Agreement to the effect that there are restrictions on the transfer of shares of Common Stock. (e) In the event that such exercise is in part only, the Company shall deliver a new Option of the same Class and tenor, calling in the aggregate on the face thereof for the number of shares of Common Stock equal to the number of such shares which such Holder would be entitled to receive at such time upon exercise of such Option, after giving effect to such recent exercise. (f) Notwithstanding anything to the contrary in the Plan, in no event may any Option be exercised prior to the time at which the Option becomes exercisable (as set forth in the Option) or after the expiration of such Option, and each Option shall terminate upon the terms set forth in Sections 8 and 10 hereof. (g) If, at any time, the Committee shall determine, in its sole discretion, that the listing, registration or qualification of the shares of Common Stock upon any securities exchange or under any applicable securities laws, or the consent or approval of any governmental or self-regulatory agency or body, is necessary or reasonably desirable as a condition of, or in connection with, the issue or purchase of the shares of Common Stock under any Option, such Option may not be exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions unacceptable to the Committee, in the Committee's reasonable discretion. The Company agrees to use its reasonable efforts to obtain any such listing, registration, qualification, consent or approval. 10. Expiration of Options. Notwithstanding the provisions of Section 8 above, the Class A Options, Class B Options and Rolled Over Options will expire on the tenth anniversary of the date of grant. Any outstanding unexercised Option, or portion thereof, shall be forfeited, whether or not exercisable, upon the expiration of such Option. 11. Adjustment of Number of Shares of Common Stock Issuable Upon Exercise. The number and kind of shares of Common Stock purchasable upon the exercise of Options, numbers set forth in Section 3, the numbers and dollar amounts set forth in Schedule I and Section 8(b)(i)(x), and the Option Price shall be subject to adjustment from time to time as follows: (a) Stock Dividends; Stock Splits; Reverse Stock Splits. In case the Company shall (i) pay a dividend or make any other distribution with respect to its Common Stock in shares of its capital stock, (ii) subdivide its outstanding Common Stock, or (iii) combine its outstanding Common Stock into a smaller number of shares, the number of shares of Common Stock issuable upon exercise of the Options immediately prior to the record date for such dividend or distribution or the effective date of such subdivision or combination shall be adjusted so that the Holder of the Options shall thereafter be entitled to receive the kind and number of shares of Common Stock or other securities of the Company that such Holder would have owned or have been entitled to receive after the happening of any of the events described above, had such Options been exercised immediately prior to the happening of such event or any record date with respect thereto. An adjustment made pursuant to this Section 11 shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event. (b) Ordinary and Extraordinary Dividend. No adjustment in respect of any ordinary dividends or extraordinary dividends (except as provided below) declared and paid on Company Stock, or on any other capital stock of the Company shall be made during the term of an Option or upon the exercise of an Option. In the event an extraordinary dividend is declared and paid on Company Stock, or on any other capital stock of the Company, the Committee shall adjust the Option Price of any unvested Option, and adjust the Option Price of any vested Option with an Option Price that is less than the amount of the extraordinary dividend on a per share basis, in each case in a manner determined by the Committee to reflect the proportionate decrease in value of Common Stock subject to such Option as a result of such extraordinary dividend. (c) Other Adjustments. In the event that at any time, as a result of an adjustment made pursuant to this Section 11, the registered Holders shall become entitled to receive any securities of the Company other than shares of Common Stock, thereafter the number of such Other Securities so receivable upon exercise of the Options shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the shares of Common Stock contained in this Section 11. (d) Notice of Adjustment. Whenever the number of shares of Common Stock purchasable upon the exercise of an Option is adjusted, as herein provided, the Company shall give Notice to each Holder of such adjustment or adjustments. 12. Purchase Rights Upon Merger, Consolidation, etc. Upon an Exit Event, in conjunction with the expiration of all outstanding Options under the Plan, the Company may, with respect to any Option (whether vested or unvested) held by a Holder, make a cash payment to the Holder (with or without the Holder's consent) of an amount equal to (A) the highest value per share received with respect to any share of Company Stock on the date of the Exit Event in the transaction which results in such Exit Event less the Option Price of such Option, multiplied by (B) the number of shares of Common Stock subject to purchase under such Option (including any shares which will become subject to purchase in connection with such Exit Event). In the event of any consolidation of the Company with or merger of the Company with or into another corporation, any reorganization or reclassification of the Company or any sale, transfer or lease to another entity of all or substantially all of the assets of the Company, the Acquiring Person shall execute an agreement under which the Acquiring Person shall assume each Option and each such assumed Option shall continue to vest and become exercisable in accordance with its terms (adjusted, in the reasonable discretion of the Committee, to reflect the effect of such transaction) and shall thereafter become exercisable, subject to the conditions and other terms of such Options, for the number and/or kind of capital stock, securities and/or other property into which the Common Stock subject to the Option would have been changed or exchanged had the Option been exercised in full prior to such transaction, provided that, if necessary, the provisions of the Option shall be appropriately adjusted so as to be applicable, as nearly as may reasonably be, to any shares of capital stock, securities and/or other property thereafter issuable or deliverable upon exercise of the Option. The Company shall mail by first class mail, postage prepaid, to each Holder, notice of the execution of any such agreement (including a copy thereof). Such agreement shall provide for adjustments, which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 12. The provisions of this Section 12 shall similarly apply to successive consolidations, mergers, reorganizations, reclassifications and sales. The Acquiring Person shall mail to Holders a notice describing any supplemental Option Agreement. In the event that this Section 12 shall be applicable, the provisions of Section 11(a) shall not be applicable. 13. Stockholders Agreement. Notwithstanding anything in the Plan to the contrary, all shares of Common Stock issued upon the exercise of Options shall be subject to all terms and conditions set forth in the Stockholders Agreement. As a condition to the exercise of any Option, each Holder may be required to execute and deliver to the Company (a) an executed copy of the Stockholders Agreement, in the form in effect at the time of such exercise, if such Holder had not previously done so and (b) such written representations and other documents as may be necessary or reasonably desirable, in the opinion of the Committee, for purposes of compliance with federal or state securities or other laws. For purposes of the Stockholders Agreement, each Holder shall be deemed to be a "Management Stockholder". 14. Restrictions on Transfer of Certain Options and Common Stock Acquired upon Exercise. Each Holder, by acceptance of an Option, shall acknowledge and agree that (a) such Option may not be sold, assigned, transferred, exchanged, mortgaged, pledged or granted a security interest in, or otherwise disposed of or encumbered by or to any party other than by or to a Permitted Transferee and (b) any shares of Common Stock acquired upon the exercise of Options may not, prior to the occurrence of an Exit Event, be sold, assigned, transferred, exchanged, mortgaged, pledged or granted a security interest in, or otherwise disposed of or encumbered by or to any party other than by or to a Permitted Transferee. 15. Registration and Transfer of Options, etc. (a) Option Register; Ownership of Options. The Company will keep at its principal office a register in which the Company will provide for the registration of Options and the registration of transfers of Options. The Company may treat the Person in whose name any Option is registered on such register as the owner thereof for all other purposes, and the Company shall not be affected by any notice to the contrary, except that, if and when any Option is accompanied by an instrument of assignment in a form acceptable to the Company, the Company may (but shall not be obligated to) treat the bearer thereof as the owner of such Option for all purposes. Subject to Section 15(b) hereof, an Option, if properly assigned, may be exercised by a new Holder without a new Option first having been issued. (b) Transfer and Exchange of Options. Upon surrender of any Option for registration of transfer or for exchange to the Company at its principal office, the Company at its expense will (subject to compliance with Section 14 hereof, if applicable) execute and deliver in exchange therefor a new Option or Options of the same Class and tenor, in the name of such Holder or as such Holder (upon payment by such holder of any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face or faces of the Option or Options so surrendered. (c) Replacement of Options. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of any Option and, in the case of any such loss, theft or destruction of any Option, upon delivery of an indemnity bond in such reasonable amount as the Company may determine (or, at the sole option of the Company, of an indemnity agreement reasonably satisfactory to the Company), or, in the case of any such mutilation, upon the surrender of such Option for cancellation to the Company at its principal office, the Company at its expense will execute and deliver, in lieu thereof, a new Option of the same Class and tenor. 16. Rights as Option Holders of Shares. Neither the Holder of an Option nor any Permitted Transferees shall have any rights as a stockholder of the Company (including, without limitation, any right to vote or to receive dividends or to consent or to receive notice as a stockholder in respect of any meeting of stockholders for the election of directors of the Company or any other matter, or any right whatsoever as a stockholder of the Company (except for those notices and other matters expressly set forth under the Plan or in the Option)). An Option does not impose any obligation on a Holder or any of its Permitted Transferees to purchase any securities or impose any liabilities on a Holder as a stockholder of the Company, whether such obligation or liabilities are asserted by the Company or by creditors of the Company. 17. Withholding. The Company shall have the right to require a Holder or other person entitled to receive shares of Common Stock upon the exercise of Options under the Plan to pay to the Company, as a condition to receiving such shares, the amount which the Company is or will be required to withhold with respect to the issuance of such shares in order for the Company to pay taxes or to claim an income tax deduction with respect to the issuance of such shares. In lieu of such payment, the Company may retain, at the discretion of the Committee, a sufficient number of such shares (valued at the Fair Market Value thereof) to cover the amount equal to the statutorily required tax withholding. A Holder, however, may elect to pay to the Company all or a portion of the total amount the Company is required to withhold by tendering shares of Common Stock with a Fair Market Value equal to the amount the Company is required to withhold; provided, however, that such Holder must have owned such tendered shares of Common Stock continuously through the date of issuance (or lapse) for a period of a least six months. 18. Liability. The Company, and not the Committee, or any member thereof, shall be liable for any and all claims made against the Company or the Committee in connection with the Plan or any Option. 19. Nonqualified Options. Options granted under the Plan shall be nonqualified stock options. 20. Legal Requirements. The Company shall be responsible and shall pay for any transfer, revenue or documentary stamps with respect to shares of Common Stock issued upon the exercise of Options granted under the Plan (other than any transfer tax applicable to a transfer to a Permitted Transferee which shall be payable by a Holder). 21. Amendment and Termination of the Plan. (a) The Committee may at its discretion at any time and from time to time alter, amend, suspend, or terminate the Plan and any unvested Options (but not any previously granted vested Options) in whole or in part, including, without limitation, amending the criteria for vesting and exercisability set forth in Section 8 hereof, substituting alternative vesting and exercisability criteria and imposing certain blackout periods on Options, provided, however, that (i) such alteration, amendment, suspension or termination shall preserve the economic value, as determined by the Committee in its sole good faith discretion, of any previously granted Option and (ii) the Committee shall only be permitted to alter, amend, suspend or terminate previously granted unvested Options with the consent of the Holders of a majority of such Options. (b) Unless otherwise determined by the Committee, in the event of an IPO, the Committee shall amend the Plan and all Class B Options to provide for (i) subject to Section 21(a) above, the substitution of the vesting and exercisability criteria set forth in Schedule I with criteria based on stock price and (ii) the imposition of certain blackout periods, in each case, as the Committee shall determine to be appropriate; provided, however that such amendments shall preserve the economic value, as determined by the Committee in its sole good faith discretion. 22. Effective Date. The Plan shall take effect upon its approval by Company shareholders. 23. Interpretations. Except as otherwise expressly provided in the Plan, the following rules of interpretation apply to the Plan and each Option: (a) the singular includes the plural and the plural includes the singular; (b) "include" and "including" are not limiting and "or" is not exclusive; (c) a reference to any agreement or other contract includes permitted supplements and amendments; (d) a reference to a law includes any amendment or modification to such law and any rules or regulations issued thereunder; and (e) a reference to any person, corporation or other entity includes its permitted successors and assigns. 24. GOVERNING LAW. THE PLAN AND ANY AND ALL OPTIONS AND OPTION AGREEMENTS SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF DELAWARE, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. 25. Company Stock. All references herein to a number or percentage of shares of Common Stock or Company Stock held by a Person shall be calculated by treating the shares of Common Stock underlying all shares of Series B Preference Stock as being outstanding (regardless of whether such shares could be converted into Common Stock at such time).
Schedule I Exit Value Triggers for Class B - ----------------------------------- -------------------------------- --------------------------------- Cumulative Number of Class B % of Class B Options Exit Value per Share Options which become Exercisable which become Exercisable - ----------------------------------- -------------------------------- --------------------------------- 0 - $92.00 - ----------------------------------- -------------------------------- --------------------------------- /_/ 100% $184.00 - ----------------------------------- -------------------------------- ---------------------------------
Upon the occurrence of each Liquidity Event in which, in each case, all of the conditions of Section 8(b)(i) of the Plan are satisfied, the number of Class B Options that shall become exercisable will be determined in the following manner: No Class B Option shall become exercisable unless an Exit Value per Share in excess of $92.00 is achieved. All Class B Options shall become exercisable if an Exit Value per Share of $184.00 (or such greater value) is achieved. Where an Exit Value per Share is greater than $92.00 but less than $184.00, a ratable number of Class B Options shall become exercisable (i.e., a linear increase of approximately 1.087% per dollar in excess of the minimum Exit Value per Share of $92.00). Notwithstanding the foregoing, the number of Class B Options that shall become exercisable due to any Liquidity Event shall be reduced (but not below zero) by the total number of Class B Options that have previously become exercisable due to any prior Liquidity Event. EX-99 9 s372645.txt EXHIBIT (D)(12) Exhibit (d)(12) NORTEK HOLDINGS, INC. 2002 STOCK OPTION PLAN STOCK OPTION AGREEMENT Name of Holder: [RLB] Optioned Shares: [Class A Option] ____________ shares of Common Stock [Class B Option] ____________ shares of Common Stock Per Share Option Price: $___________ Option Grant Date: ____________, 2002 Option Termination Date ____________, 2012 Vesting Schedule As set forth in the Plan This Stock Option Agreement (this "Agreement") is executed and delivered as of the Option Grant Date by and between North Holdings, Inc. (the "Company") and the Holder. The Holder and the Company hereby agree as follows: 1. The Company, pursuant to the North Holdings, Inc. 2002 Stock Option Plan (the "Plan"), which is incorporated herein by reference, and subject to the terms and conditions thereof, hereby grants (A) a Class A Option to purchase ________ shares of Common Stock at the Per Share Option Price (the "Class A Option") and (B) a Class B Option to purchase _______ shares of Common Stock at the Per Share Option Price (the "Class B Option). 2. The Class A Option and Class B Option granted hereby shall each be treated as nonqualified stock options under the Internal Revenue Code. 3. Other than as explicitly provided in Section 4 and Section 5 of this Agreement, the Class A Option and Class B Option granted hereby shall be governed by the terms set forth in the Plan. 4. Notwithstanding anything set forth in Section 8(b)(i) of the Plan, the Class B Option granted hereby shall be exercisable for that number of shares as calculated pursuant to Schedule I of the Plan; provided, that, and as a condition to such exercise, (A) the conditions set forth in clauses (w), (x), and (y) of such Section 8(b)(i) of the Plan shall have been satisfied and (B) the Holder is or has been a director, officer, consultant or employee of the Company or any of its Affiliates at any time during the 90 day period preceding the Exit Event or the Liquidity Event, as appropriate. 5. Notwithstanding anything set forth in Section 8(b)(ii) of the Plan, in the event of a termination of employment or service by reason of the Holder's death, the Class B Option granted hereby may be exercised by the Holder's executor, administrator or the person to whom the Class B Option is transferred by will or the applicable laws of descent and distribution, at any time within the one year period ending with the first anniversary of the Holder's death, and shall thereupon terminate. If the termination of employment or service is on account of the Holder's Retirement with the consent of the Committee (after attainment of age 65) or Disability, the Class B Option may be exercised by the Holder at any time, subject to Section 10 of the Plan. 6. The Class A Option and Class B Option granted hereby shall each terminate, subject to the provisions of the Plan, no later than at the close of business on the Termination Date. 7. The Holder shall comply with and be bound by all the terms and conditions contained in the Plan, including, without limitation, as a condition to exercise of the Class A Option and Class B Option granted hereby, the execution of a copy of the Stockholders Agreement pursuant to Section 13 of the Plan. Following the Holder's execution of a copy of the Stockholders Agreement, the Holder shall comply with and be bound by all the terms and conditions contained in the Plan and the Stockholders Agreement. 8. The obligation of the Company to sell and deliver any stock under this Option is specifically subject to all provisions of the Plan, the Stockholders Agreements and all applicable laws, rules, regulations and governmental and stockholder approvals. 9. Any notice by the Holder to the Company hereunder shall be in writing and shall be deemed duly given only upon receipt thereof by the Company at its principal offices. Any notice by the Company to the Holder shall be in writing and shall be deemed duly given if mailed to the Holder at the address last specified to the Company by the Holder. 10. All defined terms used in this Agreement but not otherwise defined herein shall mean as set forth in the Plan. 11. The validity and construction of this Agreement shall be governed by the laws of the State of Delaware. EX-99 10 exhibitd13.txt EXHIBIT (D)(13) Exhibit (d)(13) AMENDMENT NO. 2 TO AGREEMENT AND PLAN OF RECAPITALIZATION AMENDMENT NO. 2 (the "Amendment"), dated as of November 20, 2002, by and among Nortek, Inc., a Delaware corporation ("Nortek"), Nortek Holdings, Inc., a Delaware corporation and a wholly owned subsidiary of Nortek ("Nortek Holdings"), and K Holdings, Inc., a Delaware corporation ("K Holdings"), to the Agreement and Plan of Recapitalization, dated as of June 20, 2002, as amended September 16, 2002, (the "Agreement") by and among Nortek, Nortek Holdings and K Holdings. WHEREAS, the parties hereto desire to enter into this Amendment so as to make certain modifications to the Agreement; WHEREAS, the Board of Directors of Nortek (upon the authorization of a Special Committee thereof consisting solely of disinterested directors) and the Board of Directors of Nortek Holdings have approved this Amendment and deem it advisable and in the best interests of their respective companies and stockholders to enter into this Amendment; NOW, THEREFORE, for good and valuable consideration and in consideration of the respective representations, warranties, covenants and agreements set forth in the Agreement, the parties agree as follows: ARTICLE I AMENDMENT; REFERENCES Section 1.1 Definitions; References. Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in the Agreement. Each reference to "hereof", "herein", "hereunder", "hereby" and "this Agreement" shall from and after the date hereof refer to the Agreement as amended by this Amendment. Notwithstanding the foregoing, references to the date of the Agreement, as amended hereby, shall in all instances remain as June 20, 2002, and references to "the date hereof" and "the date of the Agreement" shall continue to refer to June 20, 2002. Section 1.2 Exhibit Substitution. (a) Exhibit F to the Agreement is hereby amended by deleting such exhibit in its entirety and replacing it with Exhibit F attached hereto. (b) Exhibit G to the Agreement is hereby amended by deleting such exhibit in its entirety and replacing it with Exhibit G attached hereto. ARTICLE II MISCELLANEOUS Section 2.1 Counterparts. This Amendment may be executed and delivered (including by facsimile transmission) in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed and delivered shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. Section 2.2 Governing Law. This Amendment shall be governed by, and construed in accordance with, the laws of the State of Delaware. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized officers as of the day and year first above written. NORTEK, INC. By: /s/ KEVIN W. DONNELLY ------------------------------------ Name: Kevin W. Donnelly Title: Vice President, General Counsel and Secretary NORTEK HOLDINGS, INC. By: /s/ KEVIN W. DONNELLY ------------------------------------ Name: Kevin W. Donnelly Title: Vice President, General Counsel and Secretary K HOLDINGS, INC. /s/ JAMES J. CONNORS By: ------------------------------------- Name: James J. Connors II Title: Vice President EX-99 11 exhibitd14.txt EXHIBIT (D)(14) EXCHANGE AGREEMENT This Exchange Agreement (the "Agreement") is made and entered into as of [____], 2002, by and among Nortek Holdings, Inc., a Delaware corporation ("Nortek Holdings" or the "Company"), K Holdings, Inc., a Delaware corporation ("K Holdings"), and [____] (the "Stockholder"). WHEREAS, Nortek, Inc., a Delaware corporation and a wholly owned subsidiary of Nortek Holdings ("Nortek"), Nortek Holdings and K Holdings, have entered into an Agreement and Plan of Recapitalization, dated as of June 20, 2002, as amended on September 16, 2002 and November 20, 2002 (the "Recapitalization Agreement"), pursuant to which the parties thereto have agreed, upon the terms and subject to the conditions set forth therein, to consummate the Transactions (as defined therein); WHEREAS, as of the date hereof, the Stockholder is (i) the record and beneficial owner of, and has the sole right to vote and dispose of [____] shares of common stock, par value $1.00 per share, of the Company (the "Common Stock") and [____] shares of special common stock, par value $1.00 per share, of the Company (the "Special Common Stock," and together with the Common Stock, the "Shares") and (ii) the owner of options (the "Options") to acquire [____] shares of Common Stock and options to acquire [____] shares of Special Common Stock, of which the Stockholder desires to "roll over" options to acquire [____] shares of Common Stock and [____] shares of Special Common Stock (those Options being "rolled-over" being collectively referred to as the "Exchange Options"); it being understood that the term "Shares" shall not under any circumstances or for any purpose under this Agreement be deemed to refer to or include shares of Common Stock or Special Common Stock the beneficial ownership of which may be attributed to the Stockholder, or which the Stockholder has the right to vote, solely as a result of his serving as a trustee with respect to an employee benefit plan of the Company (collectively, "Benefit Plan Shares"); WHEREAS, subject to the conditions set forth herein, (1) immediately prior to the Effective Time (as defined in the Recapitalization Agreement), the Stockholder desires to exchange each Share (the "Share Exchange") held by him, and Nortek Holdings desires to issue to the Stockholder in exchange therefor, one share of Series B convertible preference stock, par value $1.00 per share, of Nortek Holdings (the "Nortek Holdings Preference Stock"), and (2) immediately after the Reclassification (as defined in the Recapitalization Agreement), the Stockholder desires to have each Exchange Option cancelled and converted (the "Option Exchange") into an option (each, a "New Option") to acquire shares of class A common stock, par value $1.00 per share, of Nortek Holdings (the "Class A Common Stock") pursuant to the terms of the Nortek Holdings, Inc. 2002 Stock Option Plan (the "Option Plan"); WHEREAS, subject to the conditions set forth herein, immediately after the Option Exchange, the Stockholder desires to sell, and K Holdings desires to purchase from the Stockholder, [____](1) shares of Nortek Holdings Preference Stock (the "Management Stock Purchase") for a price per share (the "Management Purchase Price") equal to the Redemption Consideration (as defined in the Recapitalization Agreement); and WHEREAS, pursuant to the Nortek Holdings COD (as defined in the Recapitalization Agreement), immediately after the Reclassification but prior to the Redemption (each, as defined in the Recapitalization Agreement) each outstanding share of Nortek Holdings Preference Stock held by Management Holders (as defined in the Nortek Holdings COD) shall automatically be converted into one fully paid and nonassessable share of Class A Common Stock; NOW, THEREFORE, in consideration of the mutual promises, covenants, representations and warranties contained herein, the Stockholder, the Company and K Holdings hereby agree as follows: 1. Share Exchange. (a) Immediately prior to the Effective Time, the Stockholder shall assign, transfer, convey and deliver [____] shares of Common Stock and [____] shares of Special Common Stock to the Company and, in exchange therefor, the Company shall issue and deliver to the Stockholder [____](2) shares of Nortek Holdings Preference Stock. If any Shares are held in "street name" by the Stockholder, such Stockholder agrees to arrange for appropriate transfer to the Company hereunder. Immediately prior to the Share Exchange, the Company shall cause the Nortek Holdings COD to be executed and filed with the Secretary of State of the State of Delaware as provided in the Delaware General Corporation Law and to be effective at such time as is specified in the Recapitalization Agreement. - --------------- (1) Insert number of shares being sold in transaction (i.e., not being rolled over). (2) Insert total number of shares held by Management Stockholder. (b) In the event that the Share Exchange is consummated and the Reclassification (as defined in the Recapitalization Agreement) is not consummated and the Recapitalization Agreement is terminated in accordance with its terms, then promptly following such termination, the Stockholder shall assign, transfer, convey and deliver to the Company the number of shares of Nortek Holdings Preference Stock received by the Stockholder pursuant to clause (a) above and, in exchange therefor, the Company shall issue and deliver to the Stockholder the number of shares of Common Stock and Special Common Stock exchanged by the Stockholder for such shares of Nortek Holdings Preference Stock pursuant to clause (a) above. 2. Option Exchange. Stockholder agrees that, immediately after the Reclassification, each Exchange Option held by the Stockholder shall be cancelled, and in exchange therefore, shall be converted into a New Option to purchase the number of shares of Class A Common Stock equal to the number of shares of Common Stock and Special Common Stock subject to the related Exchange Option immediately prior to the Effective Time with an exercise price equal to the exercise price with respect to the related Exchange Option. Each New Option shall be subject to the terms and conditions of the Option Plan and the applicable stock option agreement. The Company and Stockholder agree to take all corporate and other action as shall be necessary to effectuate the foregoing. 3. Management Stock Purchase. Immediately following the Option Exchange, the Stockholder shall assign, transfer, convey and deliver to K Holdings (or its permitted designees) [____](3) shares of Nortek Holdings Preference Stock by delivery of a certificate or certificates evidencing such Shares duly endorsed to K Holdings (or its permitted designees) or accompanied by such stock powers duly executed in favor of K Holdings (or its permitted designees), with all necessary stock transfer stamps affixed, and K Holdings (or its permitted designees) shall pay to the Stockholder an amount equal to the Management Purchase Price per share of Nortek Holdings Preference Stock being purchased by K Holdings (or its permitted designees), for an aggregate purchase price of $[____].(4) 4. Closing. The closing of the transactions contemplated by this Agreement shall take place at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, Four Times Square, New York, concurrently with the Closing of the Transactions (each as defined in the Recapitalization Agreement), with such transactions intended to be consummated in the order specified in the recitals to the Recapitalization Agreement but substantially concurrently with each other. - ------------ (3) Insert number of shares being sold in transaction (i.e., not being rolled over). (4) Insert (number of shares being sold in transaction (i.e., not being rolled over) multiplied by $46). 5. Representations and Warranties of the Stockholder. The Stockholder represents and warrants as follows: (a) Binding Agreement. The Stockholder has the capacity to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The Stockholder has duly and validly executed and delivered this Agreement and this Agreement constitutes a legal, valid and binding obligation of the Stockholder, enforceable against the Stockholder in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws affecting creditors' rights generally and by general equitable principles (regardless of whether enforceability is considered in a proceeding in equity or at law). (b) Ownership of Shares and Options. The Stockholder is the record and "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended, which meaning will apply for all purposes of this Agreement) of the number of Shares set forth in the recitals hereto and is the owner of the number of Exchange Options set forth in the recitals hereto, in each case free and clear of any security interests, liens, charges, encumbrances, equities, claims, options or limitations of whatever nature and free of any other limitation or restriction (including any restriction on the right to vote, sell or otherwise dispose of the Shares or Exchange Options). Except as provided for in the Recapitalization Agreement and the Transactions, there are no outstanding options or other rights to acquire from the Stockholder, or obligations of the Stockholder to sell or to dispose of, any Shares or Exchange Options. As of the date of this Agreement, the number of Shares and Options set forth in the recitals hereto represent all of the shares of capital stock of the Company beneficially owned by the Stockholder, other than Benefit Plan Shares. (c) No Conflict. Neither the execution and delivery of this Agreement, the consummation of the transactions contemplated hereby, nor the performance of the Stockholder's obligations hereunder will (a) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation, or acceleration) under any contract, agreement, instrument, commitment, arrangement or understanding, or result in the creation of a security interest, lien, charge, encumbrance, equity or claim with respect to the Stockholder's Shares or Exchange Options, or (b) require any material consent, authorization or approval of any person other than a governmental entity, or (c) violate or conflict with any writ, injunction or decree applicable to the Stockholder or the Stockholder's Shares, Exchange Options, Nortek Holdings Preference Stock to be received by Stockholder or Class A Common Stock to be received by Stockholder upon conversion thereof. (d) Federal Securities Laws Matters. The Stockholder acknowledges receipt of advice from the Company that (i) the shares of Nortek Holdings Preference Stock (and the Class A Common Stock issuable upon conversion thereof) have not been registered under the Securities Act of 1933 (the "Securities Act"), (ii) the shares of Nortek Holdings Preference Stock must be held indefinitely and the Stockholder must continue to bear the economic risk of the investment in the shares of Nortek Holdings Preference Stock (and the Class A Common Stock issuable upon conversion thereof), unless such shares of Nortek Holdings Preference Stock (and the Class A Common Stock issuable upon conversion thereof) are subsequently registered under the Securities Act, or an exemption from such registration is available, (iii) it is not anticipated that there will be any public market for the shares of Nortek Holdings Preference Stock (and the Class A Common Stock issuable upon conversion thereof) in the foreseeable future, (iv) Rule 144 promulgated under the Securities Act will not initially be available with respect to the sales of the shares of Nortek Holdings Preference Stock (and the Class A Common Stock issuable upon conversion thereof), and neither Nortek nor Nortek Holdings has made any covenant to make such rule available and such rule is not anticipated to be available in the foreseeable future, (v) when and if the shares of Nortek Holdings Preference Stock (and the Class A Common Stock issuable upon conversion thereof) may be disposed of without registration in reliance upon Rule 144, such disposition can be made only in limited amounts and in accordance with the terms and conditions of such rule, (vi) if the exemption afforded by Rule 144 is not available, public sale of the shares of Nortek Holdings Preference Stock (and the Class A Common Stock issuable upon conversion thereof) without registration will require the availability of an exemption under the Securities Act, and (vii) a notation may be made in the appropriate records of the Company indicating that the Nortek Holdings Preference Stock (and the Class A Common Stock issuable upon conversion thereof) is subject to restrictions on transfer and, if the Company should in the future engage the services of a stock transfer agent, appropriate stop-transfer restrictions will be issued to such transfer agent with respect to the shares of Nortek Holdings Preference Stock (and the Class A Common Stock issuable upon conversion thereof). (e) Stockholder Status. Either (i) the Stockholder is an "accredited investor" as such term is defined in Rule 501(a) promulgated under the Securities Act or (ii) (A) the Stockholder's financial situation is such that the Stockholder can afford to bear the economic risk of holding the shares of Nortek Holdings Preference Stock (and the Class A Common Stock issuable upon conversion thereof) for an indefinite period of time, (B) the Stockholder can afford to suffer complete loss of his investment in the shares of Nortek Holdings Preference Stock (and the Class A Common Stock issuable upon conversion thereof), (C) the Stockholder's knowledge and experience in financial and business matters are such that the Stockholder is capable of evaluating the merits and risks of the Stockholder's investment in the shares of Nortek Holdings Preference Stock (and the Class A Common Stock issuable upon conversion thereof), and (D) the Stockholder understands and has taken cognizance of all the risk factors related to the purchase of the shares of Nortek Holdings Preference Stock (and the Class A Common Stock issuable upon conversion thereof). 6. Representations and Warranties of the Company. Nortek Holdings represents and warrants as follows: (a) Corporate Form. Nortek Holdings is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own or lease and operate its properties and to carry on its business as now conducted. (b) Corporate Authority, etc. Nortek Holdings has all requisite corporate power and authority to enter into this Agreement and perform all of its obligations hereunder and to carry out the transactions contemplated hereby and Nortek Holdings has all requisite corporate power and authority to issue the shares of Nortek Holdings Preference Stock (and the Class A Common Stock issuable upon conversion thereof). The shares of Nortek Holdings Preference Stock (and the Class A Common Stock issuable upon conversion thereof), when issued, delivered and paid for in accordance with the terms hereof, will be duly and validly issued, fully paid and nonassessable. As of the date hereof, there were no shares of Nortek Holdings Preference Stock issued and outstanding. (c) Actions Authorized. Nortek Holdings has taken all corporate actions necessary to authorize it to enter into this Agreement and perform its obligations hereunder and to consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by Nortek Holdings and, assuming due authorization, execution and delivery of this Agreement by the Stockholder and K Holdings, constitutes a legal, valid and binding obligation of Nortek Holdings enforceable in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws affecting creditors' rights generally and by general equitable principles (regardless of whether enforceability is considered in a proceeding in equity or at law). (d) Required Filings and Approvals. Other than as provided for in the Recapitalization Agreement and the disclosure schedules thereto, the execution and delivery of this Agreement by Nortek Holdings and the consummation of the transactions contemplated hereby by Nortek Holdings do not require a consent, approval or authorization of, or filing, registration or qualification with, any governmental authority on the part of Nortek Holdings, other than the filings, registrations or qualifications (i) that may be required under Regulation D under the Securities Act, (ii) that may be required under the state securities laws or "blue sky" laws of any state of the United States of America that may be required to be made or obtained, all of which Nortek Holdings will comply with prior to the date of the Closing (iii) the filing of the Nortek Holdings COD with the Secretary of State of the State of Delaware, or (iv) the failure of which to make or obtain, in the aggregate, would not reasonably be expected to have a Company Material Adverse Effect (as defined in the Recapitalization Agreement). (e) No Conflicts. Other than as provided for in the Recapitalization Agreement and the disclosure schedules thereto, none of the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby, by Nortek Holdings will conflict with the respective certificate of incorporation or the by-laws of Nortek Holdings or, except as would not be reasonably expected to have a Company Material Adverse Effect, result in any breach of, or constitute a default under any contract, agreement or instrument to which Nortek or Nortek Holdings is a party or by which it or any of its respective assets is bound. 7. Representations and Warranties of K Holdings. K Holdings represents and warrants as follows: (a) Corporate Form. K Holdings is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own or lease and operate its properties and to carry on its business as now conducted. (b) Corporate Authority. K Holdings has all requisite corporate power and authority to enter into this Agreement and perform all of its obligations hereunder and to carry out the transactions contemplated hereby. (c) Actions Authorized. K Holdings has taken all corporate actions necessary to authorize it to enter into this Agreement and perform its obligations hereunder and to consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by K Holdings and, assuming due authorization, execution and delivery of this Agreement by the Stockholder and the Company, constitutes a legal, valid and binding obligation of K Holdings enforceable in accordance with its terms except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws affecting creditors' rights generally and by general equitable principles (regardless of whether enforceability is considered in a proceeding in equity or at law). (d) No Conflicts. Other than as provided for in the Recapitalization Agreement and the disclosure schedules thereto, none of the execution, delivery or performance of this Agreement by K Holdings or the consummation of the transactions contemplated hereby will conflict with the certificate of incorporation or the by-laws of K Holdings or, except as would not be reasonably expected to have a K Holdings Material Adverse Effect (as defined in the Recapitalization Agreement), result in any breach of, or constitute a default under any contract, agreement or instrument to which K Holdings is a party or by which it or any of its assets is bound. (e) Required Filings and Approvals. Other than as provided for in the Recapitalization Agreement and the disclosure schedules thereto, the execution and delivery of this Agreement by K Holdings and the consummation of the transactions contemplated hereby by K Holdings do not require a consent, approval or authorization of, or filing, registration or qualification with, any governmental authority on the part of K Holdings, other than the filings, registrations or qualifications the failure of which to make or obtain, in the aggregate, will not have a K Holdings Material Adverse Effect (as defined in the Recapitalization Agreement). (f) Equity Financing. K Holdings (and its permitted designees) has available to it, subject to the satisfaction of the conditions set forth in Sections 6.1 and 6.3 of the Recapitalization Agreement, sufficient funds to deliver $389,091,466 of the funds necessary to consummate the Transactions. (g) Capitalization of K Holdings. As of the date of this Agreement, the authorized capital stock of K Holdings consists of 1,000,000 shares of common stock, par value $.01 per share (the "K Holdings Common Stock"), of which 100 shares were issued and outstanding. As of the date of this Agreement, 85 shares of K Holdings Common Stock have been issued to Kelso Investment Associates VI, L.P., a Delaware limited partnership, and 15 shares of K Holdings Common Stock have been issued to KEP VI, LLC, a Delaware limited liability company. 8. Conditions Precedent. The conditions to the Company's obligations hereunder may not be waived without the prior written consent of K Holdings. (a) The obligations of the Stockholder and the Company to consummate the Share Exchange are subject to (1) the conditions set forth in Section 6.1 and Section 6.2 of the Recapitalization Agreement being satisfied or waived on or prior to the Closing and (2) the conditions set forth in Section 6.3 of the Recapitalization Agreement being satisfied or waived on or prior to the Closing. (b) The obligations of K Holdings to consummate the Management Stock Purchase are subject to the conditions set forth in Section 6.1, Section 6.2 and Section 6.3 of the Recapitalization Agreement being satisfied or waived on or prior to the Closing. (c) The obligations of Stockholder to consummate the Management Stock Purchase are subject to the Share Exchange having been effected and K Holdings (or its permitted designees) having effected, or concurrently with the Management Stock Purchase effecting, the K Stock Purchase (as defined in the Recapitalization Agreement), provided that if Stockholder was required to effect the Share Exchange (and the conditions to Stockholder's obligations set forth in Section 8(a) have been satisfied (or would be satisfied concurrently therewith)) and failed to do so, this condition shall be deemed to be satisfied. (d) The obligations of the parties to consummate the Option Exchange are subject to the Reclassification having been effected. 9. Miscellaneous. (a) Binding Effect; Benefits. This Agreement shall be binding upon and inure to the benefit of the parties to this Agreement and their respective successors and assigns. Nothing in this Agreement, express or implied, is intended or shall be construed to give any person other than the parties to this Agreement and their respective successors or permitted assigns any legal or equitable right, remedy or claim under or in respect of any agreement or any provision contained herein. No party shall have liability for any breach of any representation or warranty contained herein, except for any knowing or intentional breach thereof. (b) Amendments. This Agreement may not be modified, amended, altered or supplemented except upon the execution and delivery of a written agreement executed by the Stockholder and K Holdings, and such written modification, amendment, alteration or supplement shall not require the consent of the Company; provided, however, that any modification, amendment, alteration or supplement to the obligations of the Company with respect to the Share Exchange or Option Exchange, to the extent it imposes obligations on the Company that are applicable prior to the consummation of the Reclassification or in the event the Reclassification is not consummated or to the extent it would cause a condition to the closing of the transactions contemplated by the Recapitalization Agreement not to be satisfied or give rise to a right of termination thereunder, shall require the consent of the Company; it being further understood that this Agreement shall be appropriately modified consistent with Section 8.5(b) of the Recapitalization Agreement in the event such agreement is modified pursuant to such provision. (c) Assignability. Neither this Agreement nor any right, remedy, obligation or liability arising hereunder or by reason hereof shall be assignable by either the Company or the Stockholder without the prior written consent of K Holdings; it being understood that K Holdings may assign its rights hereunder to the same extent that it may assign its rights under the Recapitalization Agreement. (d) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware (regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof). (e) Counterparts. This Agreement may be executed by facsimile and in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. (f) Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated herein are not affected in any manner materially adverse to any party hereto. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner. (g) Waiver. Any party to this Agreement may waive any condition to their obligations contained herein. (h) Termination. This Agreement shall terminate on the earlier of (i) the termination of the Recapitalization Agreement in accordance with its terms and (ii) the agreement of K Holdings, the Company and the Stockholder to terminate this Agreement. Termination shall not relieve any party from liability for any intentional breach of its obligations hereunder committed prior to such termination. IN WITNESS WHEREOF, Nortek Holdings, K Holdings, and the Stockholder have executed this Agreement as of the date first above written. Nortek Holdings, Inc. By: ------------------------------- K Holdings, Inc. By: ------------------------------- [ ] ----------------------------------- (Signature of Stockholder) EX-99 12 amend3.txt EXHIBIT (D)(15) Exhibit (d)(15) AMENDMENT NO. 3 TO AGREEMENT AND PLAN OF RECAPITALIZATION AMENDMENT NO. 3 (the "Amendment"), dated as of December ___, 2002, by and among Nortek Holdings, Inc., a Delaware corporation ("Nortek Holdings"), Nortek, Inc., a Delaware corporation and a wholly owned subsidiary of Nortek Holdings ("Nortek"), and K Holdings, Inc., a Delaware corporation ("K Holdings"), to the Agreement and Plan of Recapitalization, dated as of June 20, 2002, as amended September 16, 2002 and November 20, 2002 (the "Agreement") by and among Nortek, Nortek Holdings and K Holdings. WHEREAS, the parties hereto desire to enter into this Amendment so as to make certain modifications to the Agreement; WHEREAS, the Board of Directors of Nortek Holdings (upon the authorization of a Special Committee thereof consisting solely of disinterested directors) and the Board of Directors of Nortek have approved this Amendment and deem it advisable and in the best interests of their respective companies and stockholders to enter into this Amendment; NOW, THEREFORE, for good and valuable consideration and in consideration of the respective representations, warranties, covenants and agreements set forth in the Agreement, the parties agree as follows: ARTICLE I AMENDMENT; REFERENCES Section 1.1 Definitions; References. Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in the Agreement. Each reference to "hereof", "herein", "hereunder", "hereby" and "this Agreement" shall from and after the date hereof refer to the Agreement as amended by this Amendment. Notwithstanding the foregoing, references to the date of the Agreement, as amended hereby, shall in all instances remain as June 20, 2002, and references to "the date hereof" and "the date of the Agreement" shall continue to refer to June 20, 2002. Section 1.2 Exhibit Substitution. (a) Exhibit B to the Agreement is hereby amended by deleting such exhibit in its entirety and replacing it with Exhibit B attached hereto. ARTICLE II MISCELLANEOUS Section 2.1 Counterparts. This Amendment may be executed and delivered (including by facsimile transmission) in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed and delivered shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. Section 2.2 Governing Law. This Amendment shall be governed by, and construed in accordance with, the laws of the State of Delaware. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized officers as of the day and year first above written. NORTEK, INC. By: _________________________ Name: Kevin W. Donnelly Title: Vice President, General Counsel and Secretary NORTEK HOLDINGS, INC. By: _________________________ Name: Kevin W. Donnelly Title: Vice President, General Counsel and Secretary K HOLDINGS, INC. By: _________________________ Name: James J. Connors II Title: Vice President -----END PRIVACY-ENHANCED MESSAGE-----