NORTEK, INC.
Second Amended and Restated
Change in Control Severance Benefit
Plan for Key Employees
Effective Date: August 27, 2004
This Second Amended and Restated Change in Control Severance Benefit Plan
for Key Employees (this "Plan") amends and restates the Nortek, Inc. Change in
Control Severance Benefit Plan for Key Employees As Amended and Restated June
12, 1997 (the "First Amended Plan") as of the Effective Date.
Nortek, Inc. (the "Company") desires to assure that it and its
subsidiaries (the "Employer") will have the benefit of the continued service and
experience of certain of their key employees designated as hereinafter provided
("Employees," or individually, the "Employee") and to assure Employer and the
Employee of the continuity of management of the Company and the Employer in the
event of any actual or threatened change in control of the Company and adopts
this Plan to provide such assurances.
1. Effective Date. The Effective Date shall occur on the date of and
immediately following the Acquisition, as defined herein. THL Buildco Holdings,
Inc. and THL Buildco, Inc., companies affiliated with Thomas H. Lee Partners,
L.P., having entered into a stock purchase agreement on July 15, 2004 with
affiliates of Kelso & Company, L.P. and certain other parties (the "Stock
Purchase Agreement"), pursuant to which THL Buildco, Inc. agreed to purchase all
the outstanding capital stock of the then-existing Nortek Holdings, Inc. ("Prior
Holdings"), there subsequently occurred the Closing, as defined in the Stock
Purchase Agreement, and immediately thereafter (A) THL Buildco, Inc. merged with
and into Prior Holdings and Prior Holdings merged with and into Nortek, with
Nortek continuing as the surviving corporation, and (B) THL Buildco Holdings,
Inc. became the new parent company of Nortek and was renamed "Nortek Holdings,
Inc.," which acquisition by THL Buildco, Inc. and the related mergers are
collectively referred to hereinafter as the "Acquisition."
2. Designated Employees. Employees entitled to participate in the Plan
shall be those designated from time to time by the Board of Directors of the
Company or its designees.
3. Agreement of Employees. Designated Employees in order to participate in
the Plan must enter into written agreements with Employer with respect to
participation in the Plan in a form prescribed by Employer, which need not be
the same for all such Employees and which may provide for reduced benefits or
less favorable terms than are provided for in this Plan generally and which
shall contain, among other things, the agreement of such Employees that in the
event any person ("Person"), as that term is defined or used in Sections 13(d)
or 14(d)(2) of the Securities Exchange Act of 1934 ("Exchange Act"), begins a
tender or exchange offer, solicitation of proxies from the Company's security
holders or takes other actions to effect a Change in Control (as hereinafter
defined), such Employee will not voluntarily terminate his
employment with Employer until such Person has abandoned or terminated such
efforts to effect a Change in Control or until a Change in Control has occurred.
4. Change in Control. For purposes of this Plan, a "Change in Control"
shall be deemed to have occurred if and when
(a) There occurs any event or series of events that would be
required to be reported as a change in control in response to Item 5.01 on
a Form 8-K filed by the Company under the Exchange Act or in any other
filing by the Company with the Securities and Exchange Commission
(assuming for this purpose that the Company is required to make filings
with the Securities and Exchange Commission pursuant to the Exchange Act)
unless the Person acquiring control is or is an affiliate of such
Employee; or
(b) The Company executes an agreement of acquisition, merger or
consolidation which contemplates that after the effective date provided
for in the agreement, all or substantially all of the business and/or
assets of the Company shall be controlled by another corporation or other
entity; provided, however, for purposes of this paragraph (b) that (i) if
such an agreement requires as a condition precedent approval by the
Company's shareholders of the agreement or transaction, a Change in
Control shall not be deemed to have taken place unless and until such
approval is secured and (ii) if the voting shareholders of such other
corporation or entity shall, substantially after such effective date, be
substantially the same as the voting shareholders of the Company
immediately prior to such effective date, the execution of such agreement
shall not, by itself, constitute a "Change in Control"; or
(c) Any Person which does not include the Employee or any affiliate
of the Company as of the Effective Date becomes the beneficial owner,
directly or indirectly (either as a result of the acquisition of
securities or as the result of an arrangement or understanding, including
the holding of proxies, with or among security holders), of securities of
the Company representing 25% or more of the votes that could then be cast
in an election for members of the Company's Board of Directors unless
within 15 days of being advised that such ownership level has been
reached, a majority of the Continuing Directors then in office adopts a
resolution approving the acquisition of that level of securities ownership
by such Person; or
(d) During any period of 24 consecutive months, commencing after the
Effective Date, individuals who at the beginning of such 24-month period
were directors of the Company shall cease to constitute at least a
majority of the Company's Board of Directors, unless the election of each
director who was not a director at the beginning of such period has been
approved in advance by directors representing at least two thirds of (i)
the directors then in office who were directors at the beginning of the
24-month period or (ii) the directors specified in clause (i) plus
directors whose election has been so approved by directors specified in
clause (i).
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For purposes of this Plan, directors of the Company shall be "Continuing
Directors" if they were directors at the beginning of any such 24-month period
or were approved in the manner provided in paragraph (d) of this Section 4.
5. Benefit Upon the Acquisition. Within 30 days following the Acquisition,
regardless of whether an Employee's employment has been terminated, the Company
shall pay to any Employee who was a participant in the First Amended Plan at the
time of Acquisition an amount equal to 20% of the annual rate of his basic
salary immediately prior to the Effective Date. No such benefit will be payable
to any Employee hereunder, however, in connection with any subsequent Change in
Control.
6. Severance Benefit. If during a period of 24 months following a Change
in Control (including the Acquisition or any subsequent Change in Control),
either (i) the employment of Employee is terminated by Employer or (ii) there is
a material adverse change in the terms of the employment of Employee which
entitles Employee to treat any such change as such a termination as hereinafter
provided, Employee shall be entitled to receive severance pay at an annual rate
equal to (i) his basic salary at the annual rate in effect immediately prior to
any such Change in Control (or, if higher, immediately prior to such
termination), plus (ii) the highest amount of bonus or incentive compensation
paid or payable in cash to Employee (irrespective of any decision to defer any
payment with respect thereto) for any one of the three calendar years prior to
such Change in Control (or, if higher, immediately prior to such termination),
such severance pay to be paid for the 24-month period following such termination
in the same manner as Employee's basic salary was paid immediately prior to such
termination and to be subject to appropriate tax withholding. [For example, if
Employee's basic salary was $100,000 immediately prior to a Change in Control,
his highest bonus in the prior three years was $20,000 and he is paid monthly,
his severance pay for each of the 24 months following termination would be
$10,000.] Payment of such amount shall be considered severance pay in
consideration of past services, services subsequent to Employee's designation
under this Plan and continued services during a period while any such Change in
Control is pending and thereafter and is not to be reduced by compensation or
income received by Employee from any other employment or other source.
In the event of such a termination, Employee shall continue for a period
of 24 months after termination to be covered at the expense of Employer by the
same or equivalent hospital, medical, accident, disability and life insurance
coverages as he was covered immediately prior to such termination; provided,
however, that in lieu of such coverage, Employee may elect to be paid in cash,
within 15 days after such termination, an amount equal to Employer's cost of
providing such coverages during such period.
Notwithstanding the foregoing, all payments to which Employee would be
entitled under this Plan shall be reduced to the extent necessary so that he
shall not be liable for the federal excise tax levied on certain "excess
parachute payments" under Section 4999 of the Internal Revenue Code.
Following a Change in Control, a material adverse change in the terms of
employment of Employee by Employer which Employee is entitled to treat as a
termination by Employer for purposes of this Plan includes:
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(a) Without Employee's express written consent, assignment of
Employee to any duties inconsistent with his position, duties and
responsibilities and status with Employer immediately prior to a Change in
Control; or
(b) A reduction by the Employer in Employee's base salary as in
effect immediately prior to a Change in Control;
(c) A failure by Employer to continue any cash bonus or incentive
plans in which Employee is entitled to participate immediately prior to a
Change in Control or a modification of any such plans with the result that
the cash bonus or incentive compensation ("Bonus") paid to Employee for
any calendar year in which such Change in Control occurs or in the
subsequent 24-month period is less than the average Bonus awarded Employee
for the three years prior to the Change in Control (or such shorter period
as he has been employed by Employer); or
(d) Without Employee's express written consent, the Employer's
requiring Employee to be based anywhere other than within 25 miles of his
office location immediately prior to a Change in Control, except for
required travel on the Employer's business to an extent substantially
consistent with his business travel obligations immediately prior to a
Change in Control; or
(e) The failure by the Employer to continue in effect any benefit or
compensation plan, stock ownership plan, stock purchase plan, stock option
plan, life insurance plan, health-and-accident plan or disability plan in
which Employee is participating at the time of a Change in Control (or
plans providing Employee with substantially similar benefits), or the
taking of any action by the Employer which would adversely affect
Employee's participation or materially reduce his benefits under any of
such plans; or
(f) The taking of any action by the Employer which would deprive
Employee of any material fringe benefit enjoyed by him immediately prior
to a Change in Control or the failure by the Employer to provide him with
the number of paid vacation days to which he is then entitled in
accordance with the Employer's normal vacation policy in effect
immediately prior to a Change in Control; or
(g) The failure by the Employer or the Company to obtain the written
agreement to perform the Company's obligations under this Plan by any
successor of the Company; or
(h) Any breach by the Company or Employer of any provision of this
Plan.
7. Limited Effect. This Plan, any agreement entered into pursuant hereto
and payment of severance benefits hereunder shall not give Employee any right of
continued employment, and no right to any compensation or benefits from the
Company or Employer except the right specifically stated herein for certain
severance pay benefits in the event of a Change in Control at a time when
Employee is still employed by Employer and is a designated Employee under this
Plan, shall not limit Employer's right to terminate Employee's employment at any
time prior to a Change in Control, with or without cause, or to terminate
Employee's
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designation as an Employee under this Plan, except as may be otherwise provided
in a written employment agreement between Employee and Employer, and shall not
confer on Employee any right to severance pay except in the event as
specifically provided for herein.
8. Termination. This Plan and the employee benefits described herein may
be terminated as to all Employees or as to any specific Employee at any time by
the Company acting by a majority of the Continuing Directors then in office;
provided that no such termination occurring after 180 days prior to a Change in
Control shall have occurred shall terminate or effect the rights of any Employee
hereunder.
9. Indemnification. Employer agrees to pay all costs and expenses incurred
by Employee in connection with the enforcement of his rights under this Plan 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 Plan.
10. Governing Law. This Plan and agreements made with Employees hereunder
shall be governed by the laws of the State of Rhode Island and Providence
Plantations.
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AGREEMENT
This Agreement is entered into between Nortek, Inc. (the "Employer") and
_________, an employee of Employer (the "Employee") who has been designated by
the Board of Directors of Employer as being entitled to participate in the
Second Amended and Restated Change in Control Severance Benefit Plan for Key
Employees (the "Plan").
In consideration of his designation as being entitled to participate in
the Plan, Employee accepts the terms and conditions of the Plan and agrees not
to voluntarily terminate his employment with the Employer as required by, and
under the circumstances stated in, Section 3 of the Plan, and Employer confirms
that Employee is a participant in the Plan, subject to the terms and conditions
thereof.
NORTEK, INC.
_________________________ By:________________________
___________________________
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