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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): August 26, 2004
Nortek, Inc.
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(Exact name of registrant as specified in charter)
Delaware 333-25505 05-0314991
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(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
50 Kennedy Plaza, Providence, Rhode Island 02903-2360
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (401) 751-1600
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
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INTRODUCTION
As previously announced, on July 15, 2004, THL Buildco Holdings, Inc. ("THL
Buildco Holdings") and THL Buildco, Inc. ("THL Buildco"), newly formed Delaware
corporations affiliated with Thomas H. Lee Partners L.P., entered into a stock
purchase agreement with owners of Nortek Holdings, Inc. (referred to herein as
the "then current Nortek Holdings"), including affiliates of Kelso & Company,
L.P. and certain members of Nortek, Inc.'s ("Nortek") management, pursuant to
which THL Buildco agreed to purchase all the outstanding capital stock of the
then current Nortek Holdings (the "Acquisition"). Prior to the completion of the
Acquisition and related mergers described below, Nortek was a wholly owned
subsidiary of the then current Nortek Holdings and THL Buildco was a wholly
owned direct subsidiary of THL Buildco Holdings.
On August 27, 2004, THL Buildco completed the Acquisition and purchased all of
the outstanding capital stock of the then current Nortek Holdings in a
transaction which valued the then current Nortek Holdings at approximately $1.75
billion. Immediately upon the completion of the Acquisition, THL Buildco was
merged with and into the then current Nortek Holdings and subsequently the then
current Nortek Holdings was merged with and into Nortek, with Nortek continuing
as the surviving corporation and a wholly owned subsidiary of THL Buildco
Holdings. THL Buildco Holdings was then renamed Nortek Holdings, Inc. ("Nortek
Holdings"). In connection with the Acquisition, members of Nortek management
reinvested a portion of their equity interest in the then current Nortek
Holdings for an equity interest in Investors LLC and interests in a deferred
compensation plan established by Nortek Holdings.
ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
Amendment No. 1 to Stock Purchase Agreement
In connection with the closing of the Acquisition, the Stock Purchase Agreement,
dated July 15, 2004 by and among THL Buildco Holdings, THL Buildco and owners of
the then current Nortek Holdings, was amended to reflect changes in the holding
company structure for the Acquisition, including the establishment of a newly
formed Delaware limited liability company, THL-Nortek Investors, LLC (the
"Investors LLC"), as the parent entity of Nortek Holdings and the ultimate
parent entity of Nortek.
Amended and Restated Employment Agreement of Richard L. Bready
Upon the consummation of the Acquisition, Mr. Bready's existing employment
agreement was amended and restated. As amended and restated, his agreement has
an initial term commencing on August 27, 2004 and concluding on December 31,
2009, renewable thereafter for successive one-year terms unless Nortek and
Nortek Holdings provide Mr. Bready with written notice of their intent not to
renew the agreement at least 90 days prior to the end of the initial term or any
successive term. The amended and restated employment agreement provides that
during the employment term Mr. Bready will serve as Chairman and Chief Executive
Officer of Nortek and Nortek Holdings.
The amended and restated employment agreement provides that the basic annual
salary for Mr. Bready during the employment term will be not less than $3.5
million, subject to increase at the board of directors' discretion. Mr. Bready
was paid a cash performance bonus award under the
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amended and restated employment agreement for the period beginning on January
1, 2004 and ending on the closing date of the Acquisition of approximately $3.3
million. Mr. Bready will not be eligible for any cash performance bonus awards
for any period subsequent to the closing date of the Acquisition, unless the
board in its sole discretion determines otherwise. In addition, Mr. Bready is
entitled to receive all other benefits, including medical and dental plan
participation, generally available to executive personnel. Mr. Bready also is
entitled to two automobiles and reimbursement of associated costs and the use,
or reimbursement of the cost, of private aircraft transportation for business
travel and up to 50 hours per year of personal travel. Under the amended and
restated employment agreement, Mr. Bready received one-third of the 70,767.07
Class C-1 units and Class C-2 units initially authorized by the Investors LLC.
For more information on the allocation of units initially authorized by
Investors LLC, please see Item 5.01 below.
Under the amended and restated employment agreement, if the employment of Mr.
Bready is terminated:
- - by Nortek and Nortek Holdings without "cause," as defined in the amended
and restated employment agreement,
- - by Mr. Bready for "good reason," as defined in the amended and restated
employment agreement,
- - as a result of any notice from Nortek and Nortek Holdings not to renew his
employment as described above, or
- - as a result of his disability or death,
then Nortek and Nortek Holdings are obligated to provide Mr. Bready or, in the
event of death, his designated beneficiary or estate, severance pay at the rate
of $1.75 million per year and other specified benefits and perquisites,
including long-term disability insurance, for the period equal to the longer of:
- - one year from the date of such termination, and
- - the remaining period of the initial employment term.
Under the amended and restated employment agreement, (i) if Mr. Bready's
employment is terminated by Nortek and Nortek Holdings without cause, or as a
result of non-renewal by Mr. Bready for good reason or as a result of
disability, he will be prohibited from competing with Nortek and Nortek Holdings
for the longer of one year or the period from the date of termination through
December 31, 2009 and (ii) if Mr. Bready's employment is terminated by Nortek
and Nortek Holdings with cause or as a result of resignation without good
reason, he will be prohibited from competing with Nortek and Nortek Holdings for
one year.
Under the amended and restated employment agreement, following the termination
of employment of Mr. Bready for any reason, Nortek and Nortek Holdings are
required to provide, at no additional cost to Mr. Bready, up to $1.0 million
(not including any additional tax gross-up payment as described below) in
lifetime medical coverage to Mr. Bready, his spouse and
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dependents. In lieu of lifetime medical coverage, Mr. Bready or his spouse may
request a lump-sum payment in an amount to be established by the board of
directors as reasonably sufficient to provide such coverage. Nortek and Nortek
Holdings are also required to make a "gross-up" payment to Mr. Bready to cover
any and all state and federal income taxes that may be due as a result of the
provision of such lifetime medical coverage or lump-sum payment.
If it is determined that any payment or benefit provided by Nortek, Nortek
Holdings or any of their predecessors to Mr. Bready under his amended and
restated employment agreement or any other agreement or plan, whether paid
before or after the date of his amended and restated employment agreement, is
subject to the 20% excise tax imposed by Section 4999 of the Internal Revenue
Code, Nortek and Nortek Holdings are required to make an additional lump-sum
"gross-up" payment to Mr. Bready sufficient, after giving effect to all federal,
state and other taxes and charges with respect to that payment, to restore him
to the same after-tax position that he would have been in if the excise tax had
not been imposed.
Pursuant to Mr. Bready's amended and restated employment agreement, the
outstanding principal balance (and accrued interest thereon) totaling
approximately $0.9 million of a ten-year loan made to Mr. Bready by Nortek in
1997 in the original principal amount of $3.0 million was forgiven upon
consummation of the Acquisition. Upon consummation of the Acquisition, four
"split dollar" life insurance policies, with an aggregate cash surrender value
of approximately $8.6 million, held by Nortek were transferred to Mr. Bready.
Also upon consummation of the Acquisition, Mr. Bready received a lump-sum cash
payment in the amount of approximately $0.6 million in respect of obligations by
Nortek under a deferred compensation agreement.
Amended and Restated Employment Agreements of Almon C. Hall and Kevin W.
Donnelly
Upon the consummation of the Acquisition, the existing employment agreements of
Messrs. Hall and Donnelly were amended and restated. Each such amended and
restated employment agreement is on terms substantially similar to the prior
employment agreements of Messrs. Hall and Donnelly and substantially similar to
each other, except as otherwise noted below. Each such amended and restated
employment agreement became effective upon the consummation of the Acquisition
and remains effective until the termination of the employee's employment. The
amended and restated employment agreements provide that Mr. Hall will serve as
Vice President and Chief Financial Officer of Nortek and Nortek Holdings and
that Mr. Donnelly will serve as Vice President, General Counsel and Secretary of
Nortek and Nortek Holdings
The amended and restated employment agreement provides that the basic annual
salary for Mr. Hall is not less than $430,000. The amended and restated
employment agreement provides that the basic annual salary for Mr. Donnelly is
not less than $280,000. Messrs. Hall and Donnelly are also eligible for
incentive compensation in each year of the employment period as recommended by
the Chief Executive Officer of Nortek and approved by the compensation committee
of the board of directors of Nortek Holdings. In addition, Messrs. Hall and
Donnelly are entitled to receive all other benefits, including medical and
dental plan participation, generally available to Nortek executive personnel.
Messrs. Hall and Donnelly are also entitled to reimbursement of the costs of
automobile transportation for personal and business use consistent with their
employment agreements prior to the Acquisition. Messrs. Hall and Donnelly were
also issued approximately 4,246 and 2,830 Class C Units of Investors LLC,
respectively.
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Under each amended and restated employment agreement, if employment is
terminated:
- - by Nortek and Nortek Holdings without "cause," as defined in the amended
and restated employment agreement,
- - by the employee for "good reason," as defined in the amended and restated
employment agreement, or
- - as a result of the employee's death or disability,
then Nortek and Nortek Holdings are obligated to provide the employee or, in the
event of death, his designated beneficiary or estate, severance pay and other
specified benefits and perquisites, including long-term disability insurance,
for the period equal to the longer of:
- - two years from the date of termination, and
- - three years from the closing date of the Acquisition.
Under each amended and restated employment agreement annual severance pay for
the employee is equal to his annual salary as of the date of termination plus
the highest amount of bonus or incentive compensation, exclusive of the Nortek
1999 equity performance plan, paid or payable in cash to the employee in any one
of the three calendar years immediately prior to the completion of the
Acquisition or, if higher, the three calendar years immediately prior to such
termination.
Under each amended and restated employment agreement, (i) if the employment of
the employee is terminated by Nortek and Nortek Holdings without cause, by the
employee for good reason or as a result of disability, the employee will be
prohibited from competing with Nortek and Nortek Holdings for the longer of the
period of two years from the date of termination or three years from the closing
of the Acquisition and (ii) if the employment of the employee is terminated by
Nortek and Nortek Holdings with cause or by the employee as a result of
resignation without good reason, the employee will be prohibited from competing
with Nortek and Nortek Holdings for one year.
Under each such amended and restated employment agreement, following the
termination of employment of the employee for any reason, Nortek and Nortek
Holdings are required to provide, at no additional cost to the employee, up to
$1.0 million (not including any additional tax gross-up payments as described
below) in lifetime medical coverage to the employee, his spouse and dependents.
In lieu of lifetime medical coverage, at or following the date of termination or
a "change in control," as defined in the amended and restated employment
agreement, the employee or his spouse may request a lump-sum payment in an
amount established by the board of directors as reasonably sufficient to provide
such coverage, but not less than $650,000 (not including any additional tax
gross-up payment as described in the following sentence). Nortek and Nortek
Holdings are also required to make "gross-up" payments to these employees to
cover any and all state and federal income taxes that may be due as a result of
the provision of such lifetime medical coverage or lump-sum payment.
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If it is determined that any payment or benefit provided by Nortek, Nortek
Holdings or any of their predecessors to either of Messrs. Hall or Donnelly,
under his respective amended and restated employment agreement or any other
agreement or plan, whether paid before or after the date of their respective
amended and restated employment agreements, is subject to the 20% excise tax
imposed by Section 4999 of the Internal Revenue Code, Nortek and Nortek Holdings
are required to make an additional lump-sum "gross-up" payment to the employee
sufficient, after giving effect to all federal, state and other taxes and
charges with respect to such payment, to restore him to the same after-tax
position that he would have been in if the excise tax had not been imposed.
Upon consummation of the Acquisition, a "split dollar" life insurance policy,
with a cash surrender value of approximately $0.5 million, held by Nortek was
transferred to Mr. Hall. Also upon consummation of the Acquisition, Mr. Hall
received a lump-sum cash payment in the amount of approximately $0.2 million in
respect of obligations by Nortek under a deferred compensation agreement.
Consulting Agreement with David B. Hiley
Upon the consummation of the Acquisition, Nortek and Nortek Holdings entered
into a consulting agreement with Mr. Hiley. Under the Agreement, they agreed to
continue to engage Mr. Hiley as a consultant through December 31, 2004 at a fee
of $16,667 per month plus a discretionary year-end bonus. Nortek and Nortek
Holdings also agreed to provide Mr. Hiley with a service bonus in the amount of
$1 million following the completion of his consulting services on December 31,
2004, which will be payable on January 3, 2005. Nortek and Nortek Holdings also
agreed that following the conclusion of his consulting services, and continuing
for so long thereafter as he remains a member of the board of directors of
Nortek and Nortek Holdings, Mr. Hiley is entitled to receive such compensation
(cash and/or equity) as is provided by Nortek and Nortek Holdings to their
non-management directors.
Agreement with Robert E.G. Ractliffe
On August 26, 2004, Nortek and the then current Nortek Holdings entered into a
separation agreement with Mr. Ractliffe, Nortek's former Executive Vice
President and Chief Operating Officer, by which his employment ended on that
date. Under the Agreement, Mr. Ractliffe's supplemental executive retirement
plan was amended to permit him to receive benefits as of September 1, 2006 with
no reduction for early retirement. In addition, under Nortek's Change of Control
Severance Benefit Plan for Key Employees, Mr. Ractliffe received a payment of
$120,000 (20% of his salary) in connection with the Acquisition and is entitled
to receive severance payments in the amount of $122,917 per month for
twenty-four months as well as the continuation of certain benefits, or a lump
sum in lieu thereof, for that period. Also, Mr. Ractliffe agreed that in the
Acquisition he would cash out all of his equity interests in the then current
Nortek Holdings, rather than rollover a portion of such interests. In the
aggregate and based upon the same per share price other sellers received in the
Acquisition, Mr. Ractliffe was paid approximately $13.1 million for his equity
interests. For further discussion of Mr. Ractliffe's separation from Nortek, see
the Press Release dated September 1, 2004, which is filed as Exhibit 99.1 to
this Report.
Amended and Restated Change in Control Severance Benefit Plan
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Nortek has a retention plan for certain of its key employees and consultants
which provides that, in consideration of each covered individual agreeing not to
voluntarily terminate his employment or service as a consultant if there is an
attempted change of control, as that term is defined in the plan, of Nortek, the
individual will be entitled to an immediate payment equal to 20% of his base
annual salary, and, if, within the twenty-four month period following the change
of control, the employment or engagement of the individual is terminated by
Nortek for any reason or by the individual by reason of a material adverse
change in the terms of employment or service as a consultant as provided in the
plan, the individual also will be entitled at the time of termination to
severance pay for a period of twenty-four months following termination at an
annual rate equal to his base annual salary plus the highest amount of bonus or
incentive compensation paid or payable to him for any one of the three preceding
calendar years, and to continued medical, life insurance and other benefits for
the twenty-four month period (or a payment of an amount equal to the cost of
providing these benefits). Messrs. Bready, Hall and Donnelly are not
participants under this plan. Edward J. Cooney, Nortek's Vice President and
Treasurer, and Mr. Hiley are currently among the participants under the plan.
The Acquisition constituted a change of control for purposes of the retention
plan. Accordingly, at the closing of the Acquisition, Nortek made cash payments
in an aggregate amount equal to $311,000 to participants under the plan,
including $51,000 to Mr. Cooney and $40,000 to Mr. Hiley. In addition, in the
event of the termination of employment of Mr. Cooney within 24 months following
the closing date of the Acquisition, he will be entitled to severance benefits
under the plan as described above. Mr. Hiley has agreed to forego all payments
owing to him under the plan in connection with the termination of his engagement
as a consultant to Nortek in consideration of the $1.0 million payment to be
made to him in January 2005 as described above in "Consulting Agreement with
David B. Hiley."
Upon completion of the Acquisition, the retention plan was amended by deleting
the provisions providing for immediate payment of any amounts upon a change of
control. The provisions of the plan relating to the payment of severance and
continuation of benefits upon termination following a change of control remain
in effect.
Deferred Compensation Plan of Nortek Holdings
In connection with the Acquisition, members of Nortek management became
participants in a newly adopted deferred compensation plan of Nortek Holdings.
These management participants, who would have been entitled to receive cash
payments upon consummation of the Acquisition in respect of options previously
granted to them under the then current Nortek Holdings, Inc. 2002 Stock Option
Plan, instead sold a portion of those options to THL Buildco, Inc. and
surrendered the remainder of the options held by them for cancellation without
immediate payment. In consideration for this cancellation of certain options
without immediate payment, Nortek Holdings established this deferred
compensation plan and credited for the account of each of these management
participants under the plan a notional amount equal to the value of the old
stock options so cancelled. For purposes of the plan, the value of the stock
options cancelled equals the excess of the value of the stock (based upon the
Purchase Price) underlying the options at the time of the Acquisition over the
aggregate exercise price of the options. The plan is a non-qualified,
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unfunded obligation of Nortek Holdings. Distributions to participants under the
plan will track proportionate distributions that are made to the Class A units
of Investors LLC. The maximum aggregate amount of distributions that are payable
to any participant under the plan will equal the total value of the stock
options surrendered by the participant for cancellation without payment, or an
aggregate of approximately $111.8 million for all participants.
Management Agreement with THL Managers V, LLC
On August 27, 2004, in connection with the Acquisition, Nortek and Nortek
Holdings entered into a Management Agreement with THL Managers V, LLC, a
summary of which is described in Item 5.02 below.
Credit Agreement
On August 27, 2004, Nortek entered into a senior secured credit facility with a
syndicate of financial institutions and institutional lenders, a summary of
which is described in Item 2.03 below.
Indenture
On August 27, 2004, Nortek entered into an indenture for its $625 million of
8-1/2% Senior Subordinated Notes due 2014 with U.S. Bank National Association as
Trustee, a summary of which is described in Item 2.03 below.
Registration Rights Agreement
In connection with the issuance of $625 million of 8-1/2% Senior Subordinated
Notes due 2014, Nortek entered into a Registration Rights Agreement dated as of
August 27, 2004, a summary of which is described in Item 2.03 below.
ITEM 2.03 CREATION OF A DIRECT FINANCIAL OBLIGATION
Credit Agreement
On August 27, 2004, Nortek entered into a senior secured credit facility with a
syndicate of financial institutions and institutional lenders. Under the
facility, Nortek borrowed $700 million under a term loan which will be amortized
through quarterly payments equal to 0.25% of the original principal amount of
the term loan or $1.75 million per quarter for the first six years, with the
balance paid in four equal quarterly installments thereafter. The facility also
provides for a revolving credit facility, with a maturity in August 2010, in an
aggregate principal amount of $100 million, including both a letter of credit
sub-facility and a swingline loan sub-facility. Currently, there are no
outstanding borrowings under the revolving credit facility. There are
approximately $16 million in Letters of Credit issued under the facility. The
proceeds of the term loan, together with the proceeds of Nortek's sale of senior
subordinated notes due 2014, the proceeds of a cash equity investment by an
investor group lead by affiliates of Thomas H. Lee Partners, L.P. and Nortek's
available cash at August 27, 2004, were used in connection with the Acquisition,
to
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refinance certain existing notes of Nortek and the then current Nortek Holdings
and to pay related transaction costs. Proceeds of revolving loans, swingline
loans and letters of credit are available to provide financing for working
capital and general corporate purposes. In addition, Nortek may request
incremental tranches of term loans or increases to the revolving credit facility
in an aggregate amount not exceeding $200 million, subject to certain conditions
and the receipt of lending commitments from existing or additional lenders.
The interest rates applicable to loans under Nortek's new senior secured credit
facility are, at Nortek's option, equal to either an alternate base rate or an
adjusted LIBOR rate for a one, two, three or six month interest period (or a
nine or 12 month period, if available) chosen by Nortek, plus an applicable
margin percentage. The alternate base rate will be the greater of (1) the prime
rate or (2) one-half of 1% over the weighted average of the rates on overnight
Federal funds transactions as published by the Federal Reserve Bank of New York.
The adjusted LIBOR rate will be determined by reference to settlement rates
established for deposits in dollars in the London interbank market for a period
equal to the interest period of the loan and the maximum reserve percentages
established by the Board of Governors of the United States Federal Reserve to
which Nortek's lenders are subject. Swingline loans will bear interest at the
interest rate applicable to alternate base rate revolving loans.
The applicable margin percentage is initially a percentage per annum equal to
(1) 1.50% for alternate base rate term loans and 1.25% for alternate base rate
revolving loans and (2) 2.50% for adjusted LIBOR rate term loans and 2.25% for
adjusted LIBOR rate revolving loans. Nortek is also obligated to pay a
commitment fee, quarterly in arrears, initially equal to 0.50% per annum in
respect of any unused commitments under the revolving credit facility. Following
the delivery of Nortek's financial statements for the second full fiscal quarter
after the closing, the applicable margin percentages and the commitment fee will
be subject to adjustment based upon its leverage ratio.
Subject to exceptions, Nortek's new senior secured credit facility will require
mandatory prepayments of term loans in amounts equal to:
- - 50% (as may be reduced based upon our leverage ratio) of Nortek's annual
"excess cash flow",
- - 100% of the net cash proceeds from certain asset sales and casualty and
condemnation events, subject to reinvestment rights and certain other
exceptions,
- - 100% of the net cash proceeds from certain incurrences of debt and
- - 50% (as may be reduced based upon Nortek's leverage ratio) of the net cash
proceeds from specified issuances of equity securities.
Voluntary prepayments and commitment reductions are permitted, in whole or in
part, in minimum amounts without premium or penalty, other than customary
breakage costs with respect to adjusted LIBOR rate loans.
The obligations under the senior secured credit facility are guaranteed by
Nortek Holdings and by all of Nortek's existing and future significant domestic
"restricted subsidiaries" (as defined in
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the credit facility) and are secured by substantially all of our assets and the
assets of the guarantors, whether now owned or later acquired, including a
pledge of all of our capital stock, the capital stock of certain of our domestic
subsidiaries and 65% of the capital stock of each of our significant foreign
subsidiaries that is directly owned by us or a guarantor subsidiary.
The senior secured credit facility requires that Nortek comply on a quarterly
basis with certain financial covenants, including a minimum interest coverage
ratio test and a maximum leverage ratio test, which financial covenants become
more restrictive over time. In addition, the new senior secured credit facility
includes negative covenants that will, subject to significant exceptions, limit
Nortek's ability and the ability of its parent and subsidiaries to, among other
things:
- - incur, assume or permit to exist additional indebtedness or guarantees,
- - incur liens and engage in sale leaseback transactions,
- - make capital expenditures,
- - make investments and loans,
- - pay dividends, make payments or redeem or repurchase capital stock,
- - engage in mergers, acquisitions and asset sales,
- - prepay, redeem or purchase certain indebtedness including the notes,
- - amend or otherwise alter terms of certain indebtedness, including the
notes, and certain material agreements,
- - enter into agreements limiting subsidiary distributions,
- - engage in certain transactions with affiliates, and
- - alter the business that we conduct.
The new senior secured credit facility contains certain customary
representations and warranties, affirmative covenants and events of default,
including payment defaults, breach of representations and warranties, covenant
defaults, cross-defaults to certain indebtedness, certain events of bankruptcy,
certain events under ERISA, material judgments, actual or asserted failure of
any guaranty or security document supporting Nortek's senior secured credit
facility to be in full force and effect, and change of control. If such an event
of default occurs, the lenders under Nortek's senior secured credit facility
would be entitled to take various actions, including the acceleration of amounts
due under the senior secured credit facility and all actions permitted to be
taken by a secured creditor.
Issuance of $625 Million of 8-1/2% Senior Subordinated Notes due 2014
On August 27, 2004, Nortek issued $625.0 million of senior subordinated notes
due September 1, 2014, which bear interest at 8-1/2% per year. The notes were
issued and sold in a private Rule
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144A offering to institutional investors and outside the United States in
compliance with Regulation S under the Securities Act of 1933, as amended (the
"Securities Act"). The net proceeds from the offering were used in connection
with the Acquisition as described above in this item 2.03 under "Credit
Agreement".
At any time on or after September 1, 2009, Nortek may redeem the notes, in whole
or part, at a redemption price equal to 100% of the principal amount, plus a
premium declining ratably to par, plus accrued and unpaid interest. In addition,
at any time prior to September 1, 2007 we may redeem up to 35% of the aggregate
principal amount of the notes with the proceeds of equity offerings at a
redemption price equal to 108.5% of the principal amount, plus accrued and
unpaid interest. If Nortek experiences a change of control, it may be required
to offer to purchase the notes at a purchase price equal to 101% of the
principal amount, plus accrued and unpaid interest. Nortek may not be able to
pay holders the required price for notes presented at the time of a change of
control because Nortek's new senior secured credit facility or other
indebtedness may prohibit payment or Nortek may not have enough funds at that
time.
Under the terms of a Registration Rights Agreement dated as of August 27, 2004,
Nortek is obligated to:
- - file a registration statement on or prior to 180 days after the issue date
of the notes enabling holders to exchange the notes for registered notes
with terms substantially identical to the terms of the notes,
- - use its reasonable best efforts to cause the registration statement to
become effective under the Securities Act on or prior to 240 days after
the issue date,
- - use its reasonable best efforts to complete the exchange offer on or prior
to 280 days after the issue date, and
- - file a shelf registration statement for the resale of the notes if it
cannot complete an exchange offer within those time periods listed above
and in certain other circumstances.
If Nortek does not comply with these obligations, it will be required to pay
additional interest to the holders of the notes.
ITEM 5.01 CHANGE OF CONTROL OF REGISTRANT
The registrant provides the following information with respect to a transaction
resulting in a change of control of the registrant which was consummated on
August 27, 2004:
Pursuant to the Acquisition (as described above in the Introduction), the
entities that acquired control of Nortek are THL Buildco, THL Buildco Holdings
and Investors LLC, all of which are affiliated with Thomas H. Lee Partners, L.P.
THL Buildco has since been merged out of existence, and THL Buildco has been
renamed "Nortek Holdings, Inc."
The basis for control of Nortek by Nortek Holdings and Investors LLC is equity
ownership. Nortek is a wholly owned direct subsidiary of Nortek Holdings, and
Nortek Holdings is a wholly
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owned direct subsidiary of Investors LLC, whose initial members include
affiliates of Thomas H. Lee Partners, L.P. and members of Nortek management.
The outstanding limited liability company membership interest of Investors LLC
are Class A units, Class B units and Class C units. A management committee
elected by holders of the Class B units of Investors LLC has the exclusive
authority to manage and control the business and affairs of Investors LLC. The
size and composition of the management committee are determined in accordance
with a securityholders agreement as described further below. All distributions
of property by Investors LLC shall be made first to the holders of Class A units
and Class B units until such holders receive a return of all their invested
capital in respect of their units; second to the holders of Class C units until
such holders receive any amounts from any prior distribution that they would
have received in such prior distribution had such Class C units been vested at
the time of such prior distribution; and thereafter to the holders of Class B
units and Class C units (to the extent the Class C units are vested at the time
of such distribution) proportionately based on the number of Class B units and
vested Class C units held by such holders. Immediately following consummation of
the Acquisition, the number of authorized Class C units was equal to 13% of the
total number of authorized Class B and Class C units. Class C units are divided
into two series, one of which consists of time-vesting units and comprises one
third of the total number of Class C units, the other of which consists of
performance-vesting units and comprises two thirds of the total Class C units.
Class C units will be issued to officers, directors, employees and consultants
of the new Nortek Holdings and its subsidiaries as determined by the management
committee of Investors LLC.
There are currently 361,841.05 Class A units, 473,594.97 Class B units and
58,138.79 Class C units outstanding. Thomas H. Lee Equity Fund V, L.P., an
investment fund affiliated with Thomas H. Lee Partners, L.P., and its
co-investors own substantially all of the outstanding Class A units and
approximately 76% of the outstanding Class B units. Nortek's management owns the
remainder of the outstanding Class B units and all of the outstanding Class C
units. Messrs. Bready, Hall, Donnelly and Cooney own, respectively,
approximately 16%, 1.27%, 0.78% and 0.32% of the outstanding Class B units and
own, respectively, approximately 33%, 6%, 4% and 3% of the Class C units
authorized as of the date of the Acquisition.
The sources of funds used for the Acquisition and related transactions described
below, excluding the investment by management of approximately $112.29 million,
included the following:
- the sale of limited liability company units of Investors LLC to
Thomas H. Lee Equity Fund V, L.P. and its coinvestors, and the
subsequent contribution of the cash proceeds from this sale to THL
Buildco Holdings and then to THL Buildco, Inc.;
- the issuance by THL Buildco, Inc. of the 8-1/2% Senior Subordinated
Notes due 2014 of Nortek (as successor to THL Buildco, Inc);
- term loan borrowings under a new senior secured credit facility with
UBS AG, Stamford Branch, as U.S. Administrative Agent and Canadian
Administrative Agent, and a syndicate of lenders;
- assumption of debt of Nortek under mortgage notes, capital leases,
industrial revenue bonds and notes payable; and
- approximately $163 million of available cash from the then current
Nortek Holdings;
The uses of funds in connection with the Acquisition and related transactions
consisted of the purchase for cash of the stock of the then current Nortek
Holdings, the purchase or cancellation of outstanding stock options of the then
current Nortek Holdings, repayment or repurchase of certain existing debt,
assumption of certain debt and transaction fees and expenses (including those
incurred by the sellers under the stock purchase agreement), but excludes an
investment by continuing Nortek management.
The repayment and repurchase of existing debt was achieved, in part, through
tender offers by the then current Nortek Holdings to purchase for cash all of
its outstanding 10% Senior Discount Notes due 2011 and by Nortek to purchase for
cash all of its outstanding Senior Floating Rate Notes due 2010 and 9-7/8%
Senior Subordinated Notes due 2011, and related consent solicitations, which
were consummated simultaneously with the Acquisition. Approximately $925.3
million
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\
of the transaction consideration set forth above was used to repurchase $515
million in principal amount at maturity of the 10% Senior Discount Notes due
2011 of the then current Nortek Holdings, $199 million in principal amount of
the Senior Floating Rate Notes due 2010 of Nortek and $240.0 million in
principal amount of the 9-7/8% Senior Subordinated Notes due 2011 of Nortek.
A summary of the approximate sources and uses of funds in connection with the
Acquisition and related transactions described above is as follows (in
millions):
SOURCES:
Term loan facility ............................................ $ 700.0
Proceeds from the issuance of 8 -1/2% senior
subordinated notes due 2014.................................. 625.0
Sponsor and co-investor cash equity investment (1) ............ 361.8
Cash from the then current Nortek Holdings .................... 158.2
-----------
$ 1,845.0
===========
USES:
Purchase price paid to selling stockholders ................... $ 816.3
Repayment of existing debt, including interest and redemption
premiums .................................................... 925.3
Other transaction fees and expenses ........................... 103.4
-----------
$ 1,845.0
===========
(1) Excludes approximately $112.29 million of equity in the then current
Nortek Holdings that Nortek management reinvested into Investors LLC and a
deferred compensation plan of Nortek Holdings.
Immediately prior to the Acquisition, Nortek was a wholly owned direct
subsidiary of the then current Nortek Holdings, and affiliates and designees of
Kelso & Company L.P. owned approximately 70% of the fully diluted equity of
the then current Nortek Holdings. Approximately 29% of the fully diluted
equity of the then current Nortek Holdings was held by members of Nortek's
management and the remaining equity interests were held by other investors.
Investors LLC and the holders of its Class A, Class B and Class C units entered
into a securityholders agreement upon consummation of the Acquisition. Under the
securityholders agreement, the management committee of Investors LLC will
consist of not less than five and not more than eleven managers, as from time to
time determined by Thomas H. Lee Equity Fund V, L.P. and its affiliates. The
management committee initially will consist of six managers. Under the terms of
this agreement, for so long as Richard L. Bready is the holder of 5% or more of
the fully diluted equity of Investors LLC or any successor entity, Mr. Bready
will be entitled
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to designate two managers to serve on the management committee, with the
remainder being designated by Thomas H. Lee Equity Fund V, L.P. and its
affiliates. This securityholders agreement will also govern the election of
directors to the boards of directors of Nortek Holdings and Nortek and require
that such boards be identical to the management committee of Investors LLC.
The securityholders agreement will provide for customary tag-along rights, drag
along rights and registration rights which would apply to shares of capital
stock of Nortek Holdings that are distributed to the holders of units in the
event of any dissolution of Investors LLC or to shares of any corporate entity
succeeding to Investors LLC upon its conversion to a corporation.
ITEM 5.02 DEPARTURE OF DIRECTORS OR PRINCIPAL OFFICERS; ELECTION OF DIRECTORS;
APPOINTMENT OF PRINCIPAL OFFICERS
On August 26, 2004, Robert E.G. Ractliffe, Executive Vice President and
Chief Operating Officer, retired from Nortek. For further discussion, please
see the press release dated September 1, 2004 attached to this Report as
Exhibit 99.1.
On August 27, 2004, in connection with the Acquisition, Philip E. Berney and
Jeffrey C. Bloomberg, designees of the prior owner of Nortek, resigned from
Nortek's Board of Directors.
Effective as of the closing of the Acquisition on August 27, 2004, Anthony J.
DiNovi, Kent R. Weldon and David V. Harkins were appointed to the Board of
Directors of Nortek.
Each of Messrs. DiNovi, Weldon and Harkins were appointed to the Board of
Directors of Nortek pursuant to the rights of Thomas H. Lee Equity Fund V, L.P.
and certain of its affiliates to designate board members under the
Securityholders Agreement of Investors LLC, as described in Item 5.01 above.
Each of Messrs. DiNovi, Weldon and Harkins are affiliates of THL Managers V,
LLC. THL Managers V, LLC is party to a management agreement with Nortek and
Nortek Holdings dated as of August 27, 2004 under which THL Managers V, LLC
provides certain financial and strategic advisory and consultancy services.
Under this agreement, Nortek paid to THL Managers V, LLC a transaction fee of
$25.0 million upon closing of the Acquisition. In addition, Nortek is obligated
to pay to THL Managers V, LLC or a designee thereof an annual management fee
equal to the greater of:
- $2.0 million per annum, and
- an amount equal to 0.75% of the consolidated earnings before
interest, taxes, depreciation and amortization of Nortek and its
subsidiaries, before deduction for such fee;
such annual management fee to be payable semi-annually in advance on the first
business day of each January and July, commencing January 2005, with a pro rated
portion of such fee equal to $688,889 paid on the closing date of the
Acquisition with respect to the period from the closing through the end of 2004.
Under this agreement Nortek also paid all costs and expenses incurred by THL
Managers V, LLC and its affiliates in connection with the
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Acquisition in the amount of $8,714,000 and is obligated to pay such expenses in
connection with the provision of future services under the management agreement.
Under the management agreement Nortek also agreed to indemnify THL Managers V,
LLC and its affiliates from and against all losses, claims, damages and
liabilities arising out of or related to the performance by THL Managers V, LLC
of the services pursuant to the management agreement. The management agreement
will continue in effect until terminated by THL Managers V, LLC. Upon any
termination in connection with an initial public offering of equity securities
of Nortek or Nortek Holdings, Nortek will be required to pay to THL Managers V,
LLC a lump-sum termination fee equal to the net present value of all annual
management fees that would have otherwise been payable under the management
agreement during the seven years following the date of such termination.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
4.1 Registration Rights Agreement among Nortek, Inc., certain Guarantors, UBS
Securities LLC and certain Initial Purchasers named therein, dated as of
August 27, 2004
4.2 Indenture for 8-1/2% Senior Subordinated Notes due 2014 of Nortek, Inc.
dated as of August 27, 2004 among Nortek, Inc., certain Guarantors and
U.S. Bank National Association as Trustee
10.1 Amendment No. 1 to the Stock Purchase Agreement, dated as of August 27,
2004
10.2 Amended and Restated Employment Agreement of Richard L. Bready, dated as
of August 27, 2004
10.3 Amended and Restated Employment Agreement of Almon C. Hall, III, dated as
of August 27, 2004
10.4 Amended and Restated Employment Agreement of Kevin W. Donnelly, dated as
of August 27, 2004
10.5 Consulting Agreement with David B. Hiley, dated as of August 27, 2004
10.6 Agreement with Robert E.G. Ractliffe, dated as of August 26, 2004
10.7 Amended and Restated Change in Control Severance Benefit Plan, dated as of
August 27, 2004
10.8 Deferred Compensation Plan of Nortek Holdings, Inc., dated as of August
27, 2004
10.9 Management Agreement among THL Managers V, LLC, Nortek, Inc. and Nortek
Holdings, Inc., dated as of August 27, 2004.
10.10 Credit Agreement among Nortek, Inc., Nortek Holdings, Inc. (f/k/a THL
Buildco Holdings, Inc.), UBS AG, Stamford Branch, UBS AG Canada Branch,
Bank of America, N.A., Bank of America, N.A. (Canada Branch) and certain
other Lenders party thereto, dated as of August 27, 2004
99.1 Press release, dated September 1, 2004.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NORTEK, INC.
By: /s/ Edward J. Cooney
--------------------------
Name: Edward J. Cooney
Title: Vice President and
Treasurer
Date: September 1, 2004
EXHIBIT INDEX
Exhibit No. Description of Exhibits
- ----------- -----------------------
4.1 Registration Rights Agreement among Nortek, Inc., certain Guarantors, UBS Securities LLC
and certain Initial Purchasers named therein, dated as of August 27, 2004
4.2 Indenture for 8-1/2% Senior Subordinated Notes due 2014 of Nortek, Inc. dated as of August
27, 2004 among Nortek, Inc., certain Guarantors and U.S. Bank National Association as
Trustee
10.1 Amendment No. 1 to the Stock Purchase Agreement, dated as of August 27, 2004
10.2 Amended and Restated Employment Agreement of Richard L. Bready, dated as of August 27, 2004
10.3 Amended and Restated Employment Agreement of Almon C. Hall, III, dated as of August 27,
2004
10.4 Amended and Restated Employment Agreement of Kevin W. Donnelly, dated as of August 27, 2004
10.5 Consulting Agreement with David B. Hiley, dated as of August 27, 2004
10.6 Agreement with Robert E.G. Ractliffe, dated as of August 26, 2004
10.7 Amended and Restated Change in Control Severance Benefit Plan, dated as of August 27, 2004
10.8 Deferred Compensation Plan of Nortek Holdings, Inc., dated as of August 27, 2004
10.9 Management Agreement among THL Managers V, LLC, Nortek, Inc. and Nortek Holdings, Inc.,
dated as of August 27, 2004.
10.10 Credit Agreement among Nortek, Inc., Nortek Holdings, Inc. (f/k/a THL Buildco Holdings,
Inc.), UBS AG, Stamford Branch, UBS AG Canada Branch, Bank of America, N.A., Bank of
America, N.A. (Canada Branch) and certain other Lenders party thereto, dated as of August
27, 2004
99.1 Press Release, dated September 1, 2004.