EXHIBIT 10.14
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EXECUTION COPY
ADVISORY AGREEMENT
ADVISORY AGREEMENT (this "AGREEMENT"), dated as of February 12, 2004,
between PLY GEM INDUSTRIES, INC., a Delaware corporation (the "COMPANY") and
CXCIC LLC, a Delaware limited liability company ("CIC").
WHEREAS, pursuant to a Stock Purchase Agreement, dated as of December
19, 2003 (the "STOCK PURCHASE AGREEMENT"), among Ply Gem Investment Holdings,
Inc., f/k/a CI Investment Holdings, Inc., (the "PARENT"), Nortek, Inc. and WDS
LLC (together with Nortek, Inc., the "SELLERS"), the Sellers have agreed to
sell, upon the terms and subject to the conditions set forth therein, all of the
outstanding shares of stock of the Company to the Parent (the "ACQUISITION");
WHEREAS, simultaneously with the execution and delivery of this
Agreement, the Parent, through its wholly owned subsidiary, Ply Gem Holdings,
Inc., is consummating the Acquisition;
WHEREAS, the Company desires for CIC to provide certain ongoing
advisory and management services to the Company, and CIC is willing to provide
such services subject to the terms and conditions contained herein; and
WHEREAS, all capitalized terms used in this Agreement but not otherwise
defined herein shall have the meaning ascribed to them in the Stock Purchase
Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto agree as follows:
SECTION 1. SERVICES. During the term of this Agreement, CIC
shall provide such acquisition and financial advisory services to the Company
and its subsidiaries as the Board of Directors of the Company shall reasonably
request, including without limitation: general executive and management
services; assistance with the identification, support, negotiation and analysis
of acquisitions and dispositions; assistance with the support, negotiation and
analysis of financial alternatives; and human resource functions.
SECTION 2. COMPENSATION.
(a) In consideration of the services to be provided in
accordance with Section 1, but subject to Sections 2(d) and 2(e), the Company
shall pay to CIC, for each fiscal year of the Company, an advisory fee (the
"ANNUAL FEE") equal to 2% of the Company's EBITDA (as defined below) for such
fiscal year. The Annual Fee shall be pro rated for partial years. The Annual Fee
for each fiscal year shall be paid in 12 installments, payable on or before the
10th day of each month (other than the first month) of such fiscal year and the
first month of the next fiscal year, in an amount equal to 2% of the Company's
EBITDA for the previous month. Notwithstanding the foregoing, at the election of
either CIC or the Company, the Annual Fee for such fiscal
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year may be paid in one installment in an amount equal to 99% of the estimated
Annual Fee for such fiscal year (the "ESTIMATED DISCOUNTED ANNUAL FEE"), payable
at any time on or after the Closing, in the case of the Annual Fee for fiscal
year 2004, and on or before the first day of the last month of the Company's
preceding fiscal year, in the case of the Annual Fee for each fiscal year after
fiscal year 2004; PROVIDED, HOWEVER, that if it is determined after the
calculation of the Company's EBITDA for such fiscal year that the amount of such
payment is less than or greater than 99% of the actual Annual Fee for such
fiscal year (the "ACTUAL DISCOUNTED ANNUAL FEE"), then (i) if the Actual
Discounted Annual Fee is greater than the Estimated Discounted Annual Fee, the
Company shall pay to CIC an amount equal to such difference, and (ii) if the
Estimated Discounted Annual Fee is greater than the Actual Discounted Annual
Fee, CIC shall return to the Company an amount equal to such difference, in each
case, within 10 business days of such determination.
(b) Upon the acquisition by the Company of any business
or entity, or similar transactions with respect to which CIC provides services,
the Company shall pay to CIC a transaction fee equal to 2% of the purchase or
sale price, as applicable. Upon the divestiture by the Company of any business
or entity, or similar transactions with respect to which CIC provides services,
the Company shall pay to CIC a transaction fee equal to 1% of the purchase or
sale price, as applicable.
(c) Upon the completion of a merger, consolidation or
other business combination of the Company with and into a third party, or a sale
of all or substantially all of the stock of the Company or any of its direct or
indirect parent companies to a third party, or a sale of all or substantially
all of the assets of the Company and its subsidiaries on a consolidated basis,
the Company shall pay to CIC a transaction fee equal to 1% of the sale price.
(d) CIC shall not be entitled to the Annual Fee with
respect to the first fiscal year of the Initial Term unless (i) the Company's
debt-to-EBITDA ratio for the last twelve months then ended is less than 5.20:1
or (ii) the Company's EBITDA for the last twelve months then ended is at least
$85.5 million; PROVIDED, HOWEVER, that if it is determined that as of December
31, 2005 (i) the Company's debt-to-EBITDA ratio for the last twelve months then
ended is less than 5.20:1 or (ii) the Company's EBITDA for the last twelve
months then ended is at least $85.5 million, any unpaid installment of the
Annual Fee with respect to the first fiscal year of the Initial Term shall be
paid within 10 business days of such determination.
(e) The Annual Fee payable in any fiscal year shall not
exceed the amounts permitted under the Credit Agreement, dated as of the date
hereof, among the Company, the guarantors party thereto, the lenders party
thereto, UBS Securities LLC and Deutsche Bank Securities Inc., as joint lead
arrangers and bookrunners, CIBC World Markets Corp. and Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, as co-arrangers, UBS AG,
Stamford Branch, as issuing bank, administrative agent and collateral agent, UBS
Loan Finance LLC, as swingline lender, Deutsche Bank AG Cayman Islands Branch,
as syndication agent, and Canadian Imperial Bank of Commerce and Merrill Lynch
Capital Corporation, as co-documentation agents
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(as amended, the "CREDIT AGREEMENT") or under the Indenture, dated as of
February 12, 2004, governing the Company's [__]% Senior Subordinated Notes due
2012 (as amended, the "INDENTURE"). If at any time an Event of Default has
occurred and is continuing under either the Credit Agreement or the Indenture
and the Estimated Discounted Annual Fee has been paid for the fiscal year in
which such Event of Default has occurred, CIC shall promptly return to the
Company an amount equal to the product of (x) the amount of such Estimated
Discounted Annual Fee and (y) a fraction, the numerator of which is the number
of months remaining in such fiscal year (including the month in which such Event
of Default has occurred) and the denominator of which is 12. Notwithstanding
anything to the contrary set forth in this Section 2(e), on the first day in any
fiscal year upon which the full amount of the Annual Fee payable with respect to
such fiscal year shall be permitted to be paid, such full amount shall be paid,
and upon the first day upon which any partial amount of the Annual Fee that
would have been payable with respect to any prior fiscal year except for the
provisions of this Section 2(e), such partial amount shall be paid.
(f) As used in this Section 2, the following terms shall
have the following meanings:
(i) "COMMON PHANTOM ADDITIONAL UNIT" shall have
the meaning specified in the Phantom Stock Plan.
(ii) "EBITDA" for a specified fiscal period means
consolidated net income (loss) of the Company (x) plus, to the extent deducted
in computing such consolidated net income (loss), (1) an amount equal to any
extraordinary loss and/or any net capital loss realized, (2) provision for taxes
based on income or profits, (3) consolidated interest expense whether paid or
accrued and whether or not capitalized (including amortization or write-off of
debt discount and debt issuance costs and commissions, discounts and other fees
and charges associated with indebtedness (including costs associated with
letters of credit)), (4) depreciation and amortization (including amortization
of goodwill, organization costs and any capitalized management fees, overhead
allocations, or transaction fees paid to Caxton-Iseman (Ply Gem), L.P. or its
Affiliates (the "SPONSOR") (but excluding payments of expense reimbursement or
indemnification payments to Sponsor), (5) dividends paid or accrued on preferred
stock, (6) any management fees, overhead allocations and transaction fees paid
to Sponsor or its Affiliates (but excluding payments of expense reimbursement or
indemnification payments to Sponsor), (7) charges related to Common Phantom
Additional Units, Preferred Phantom Additional Units and Phantom Incentive Units
credited to any account under the Phantom Stock Plan, (8) costs associated with
the shut down of the businesses conducted by Thermal-Gard, Inc., (9) severance
costs related to John Forbis, (10) items listed on Schedule 1.01(b) of the
Credit Agreement and (11) any other items deemed to be unusual or non-recurring
by the Company and (y) minus any tax benefit recorded and any extraordinary gain
and/or any net capital gain realized, in each case, on a consolidated basis and
determined in accordance with GAAP.
(iii) "GAAP" means United States generally
accepted accounting principles.
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(iv) "PHANTOM INCENTIVE UNITS" shall have the
meaning specified in the Phantom Stock Plan.
(v) "PHANTOM STOCK PLAN" means the Phantom Stock
Plan of the Company adopted as of the date hereof, as amended or modified from
time to time.
(vi) "PREFERRED PHANTOM ADDITIONAL UNITS" shall
have the meaning specified in the Phantom Stock Plan.
SECTION 3. TERM. The initial term of this Agreement shall be ten
(10) years (the "INITIAL Term"), subject to Section 4. Upon the expiration of
the Initial Term, the term of this Agreement shall be automatically renewed for
consecutive one-year extensions unless the Company or CIC provides written
notice of termination no fewer than 30 days prior to the end of the current
term.
SECTION 4. TERMINATION. This Agreement shall terminate:
(a) 30 days after the delivery of a written notice by
CIC;
(b) upon the completion of a merger, consolidation or
other business combination of the Company with and into a third party, or a sale
of all or substantially all of the stock of the Company or any of its direct or
indirect parent companies to a third party, or a sale of all or substantially
all of the assets of the Company and its subsidiaries on a consolidated basis;
or
(c) upon the closing of the initial underwritten public
offering of equity securities of the Company or any of its direct or indirect
parent companies pursuant to an effective registration statement fled under the
Securities Act of 1933, as amended.
SECTION 5. FEES UPON TERMINATION. If this Agreement is
terminated for any reason prior to the expiration of the Initial Term, the
Company shall pay to CIC, concurrently with such termination, an amount equal to
the present value of the advisory fee that would otherwise have been payable to
CIC in accordance with Section 2(b) through the end of the Initial Term, based
on the Company's cost of funds to borrow amounts under the revolving credit
facility under the Credit Agreement.
SECTION 6. REIMBURSEMENT. Upon the request of CIC and/or its
Affiliates, and in any event, prior to the termination of this Agreement, the
Company shall promptly reimburse CIC and/or its Affiliates for all reasonable
out-of-pocket expenses (including, without limitation, legal, accounting,
consulting and travel fees and expenses) incurred in connection with the
performance of this Agreement (other than salary expenses and associated
overhead charges).
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SECTION 7. INDEMNITY AND EXCULPATION.
(a) None of CIC, any of its Affiliates or any of their
respective partners, members, officers, directors, stockholders, Affiliates,
agents or employees (each, an "INDEMNIFIED PARTY") shall have any liability to
the Company for any services provided pursuant to this Agreement, except as may
result from such Indemnified Party's gross negligence or willful misconduct.
(b) The Company hereby agrees to indemnify each
Indemnified Party from and against all losses, liabilities, damages,
deficiencies, demands, claims, actions, judgments or causes of action,
assessments, costs or expenses (including, without limitation, interest,
penalties and reasonable fees, expenses and disbursements of attorneys, experts,
personnel and consultants reasonably incurred by such Indemnified Party in any
action or proceeding between the Company and such Indemnified Party or between
such Indemnified Party and any third party, or otherwise) based upon, arising
out of, or otherwise in respect of, this Agreement or any Indemnified Party's
equity interest (whether direct or indirect) in the Company. To the extent that
the foregoing indemnification is not permitted by law, each of the Indemnified
Parties and the Company shall be subject and entitled to contribution based upon
the relative benefits (not to exceed in any event the amount of fees paid to CIC
hereunder) received by each and, if legally required, based upon the relative
fault of each of the Indemnified Parties and the Company.
SECTION 8. ASSIGNMENT. This Agreement may not be assigned by
either party hereto without the prior written consent of the other party;
PROVIDED, that the Company shall be entitled to assign this Agreement to any
Person that is an Affiliate of the Company or that otherwise assumed or is a
successor to substantially all of the assets and the liabilities of the Company.
SECTION 9. MODIFICATION. This Agreement may not be modified or
amended in any manner other than by an instrument in writing signed by both
parties hereto, or their respective successors or assigns.
SECTION 10. ENTIRE AGREEMENT. This Agreement constitutes the
entire agreement between the parties with respect to the subject matter hereof
and supersedes any prior agreement or understanding among them with respect to
such subject matter.
SECTION 11. NOTICES. Any notice or other communication required
or permitted hereunder shall be in writing and shall be delivered personally,
sent by facsimile transmission or sent by certified, registered or express mail,
postage prepaid and return receipt requested. Any such notice shall be deemed
given when so delivered personally or sent by facsimile transmission or, if
mailed, five days after the date of deposit in the United States mails, as
follows:
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(a) if to CIC, to:
CxCIC LLC
c/o Caxton-Iseman Capital, Inc.
500 Park Avenue, 8th Floor
New York, NY 10022
Attention: Frederick Iseman
Telephone: (212) 752-1850
Facsimile: (212) 832-9450
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, New York 10019
Attention: Carl L. Reisner, Esq.
Telephone: (212) 373-3017
Facsimile: (212) 373-2085
(b) if to the Company, to:
Ply Gem Industries, Inc.
303 West Major Street
Kearney, MO 64060
Attention: Shawn K. Poe
Telephone: (800) 800-2244
Facsimile: (816) 903-4330
Any party may, by notice given in accordance with this Section to the
other parties, designate another address or person for receipt of notices
hereunder.
SECTION 12. GOVERNING LAW; SUBMISSION TO JURISDICTION. All
questions concerning the construction, validity and interpretation of this
Agreement will be governed by and construed in accordance with the internal law
(and not the law of conflicts) of the State of New York.
SECTION 13. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which when so executed shall be deemed to be an original
all of which taken together shall constitute one and the same instrument.
[Signature page follows]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
PLY GEM INDUSTRIES, INC.
By: /s/ Lee D. Meyer
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Name: Lee D. Meyer
Title:
CXCIC LLC
By: /s/ Frederick Iseman
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Name: Frederick Iseman
Title: