FINAL COPY
NORTEK HOLDINGS, INC.
(F/K/A "THL BUILDCOHOLDINGS, INC.")
DEFERRED COMPENSATION PLAN
WHEREAS, the Board of Directors of Nortek Holdings, Inc., a Delaware
corporation formerly known as THL Buildco Holdings, Inc. (together with its
successors, the "Company"), has adopted resolutions approving the establishment
of a deferred compensation plan with the terms set forth herein; and
WHEREAS, each Participant has agreed to the terms set forth herein;
NOW, THEREFORE, in consideration of the promises, covenants and agreements
set forth herein, the Company hereby adopts the following deferred compensation
plan.
1. PURPOSE. The Company by means of this nonqualified deferred compensation
plan (the "Plan") desires to grant certain employees, directors and
consultants of the Company or of one or more subsidiaries of the Company
(the "Participants") the right to participate in a deemed investment in
Class A Units of THL - Nortek Investors, LLC ("Investors LLC") in exchange
for the cancellation of certain stock options granted to Participants
under the Nortek Holdings, Inc. 2002 Stock Option Plan ("Options") as
contemplated by that certain Stock Purchase Agreement dated as of July 15,
2004, as amended (the "Stock Purchase Agreement") and reflected in those
certain Option Cancellation Agreements, dated as of August 27, 2004. The
Plan shall be effective as of August 27, 2004 (the "Effective Date").
2. DEFINITIONS.
The following terms shall have the following meanings unless the context
indicates otherwise:
2.1. "Affiliate" shall mean, as to any Person, a person that directly, or
indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such Person.
2.2. "Board" shall mean the Board of Directors of the Company.
2.3. "Change in Control" shall mean the consummation of a transaction,
whether in a single transaction or in a series of related
transactions that are consummated contemporaneously (or consummated
pursuant to contemporaneous agreements), with any other party or
parties on an arm's-length basis, pursuant to which (a) such party
or parties, directly or
indirectly, acquire (whether by merger, stock purchase,
recapitalization, reorganization, redemption, issuance of capital
stock or otherwise) more than 50% of the voting stock of the
Company, (b) such party or parties, directly or indirectly, acquire
assets constituting all or substantially all of the assets of the
Company and its subsidiaries on a consolidated basis, or (c) prior
to an initial public offering of the Company common stock pursuant
to an offering registered under the 1933 Act, Thomas H. Lee Equity
Fund V, L.P., a Delaware limited partnership, and its affiliates
cease to have the ability to elect, directly or indirectly, a
majority of the Board of Directors of the Company.
2.4. "Committee" shall mean, as the case may be, the Board of Directors
of the Company or a committee appointed by the Board of Directors of
the Company.
2.5. "Covered Sale" shall have the meaning set forth for such term in the
Securityholders Agreement.
2.6. "Debited Units" shall have the meaning set forth in Section 4.2(b).
2.7. "Deferred Compensation Account" shall mean a notional account
established and maintained by the Company for a Participant which
shall record the deemed investment in LLC Class A Units with respect
to each Participant under Section 4.1 below. This notional account
shall be established by the Company for bookkeeping purposes only,
and no separate funds shall be segregated by the Company for the
benefit of the Participant.
2.8. "Excluded Permitted Transferee" shall have the meaning set forth for
such term in the Securityholders Agreement.
2.9. "Exit Event" shall have the meaning set forth for such term in the
LLC Agreement.
2.10. "Fraction" shall have the meaning set forth in Section 4.2(b).
2.11. "Holdings Shares" shall mean shares of common stock of the Company
or any successor parent corporation of the Company.
2.12. "Investors LLC" shall have the meaning set forth in Section 1.
2.13. "LLC Agreement" shall have the meaning set forth in Section 4.2(b).
2.14. "LLC Class A Units" shall mean the Class A Units of Investors LLC.
2.15. "Notional Class A Units" shall mean notional units credited under
the Plan and pursuant to the Option Cancellation Agreements.
2
2.16. "Option" shall have the meaning set forth in Section 1.
2.17. "Option Cancellation Agreement" shall mean an agreement between a
Participant, THL Buildco, Inc., the Company and Investors LLC or any
of their respective successors canceling Options pursuant to, or as
contemplated by, the Stock Purchase Agreement, and providing for the
establishment of deferred compensation amounts resulting from the
cancellation of Options.
2.18. "Option Cancellation Deferred Amount" shall mean, with respect to
each Participant, the amount specified as such in such Participant's
Option Cancellation Agreement.
2.19. "Permitted Transferee" shall have the meaning set forth for such
term in the Securityholders Agreement.
2.20. "Person" shall mean any person or entity of any nature whatsoever,
specifically including an individual, a firm, a company, a
corporation, a partnership, or a trust.
2.21. "Securityholders Agreement" shall mean the Securityholders Agreement
by and among Investors LLC, Thomas H. Lee Equity Fund V, L.P. and
certain of its affiliates and co-investors and certain Management
Securityholders (as defined therein), dated as of August 27, 2004.
2.22. "Subsidiary" shall mean a corporation of which the Company directly
or indirectly owns more than 50 percent of the voting stock or any
other business entity in which the Company directly or indirectly
has an ownership interest of more than 50 percent.
3. ELIGIBILITY AND PARTICIPATION. Any employee, director or consultant of the
Company or any of its Subsidiaries as of the Effective Date who has
entered into an Option Cancellation Agreement.
4. DEFERRED COMPENSATION ACCOUNT
4.1. ESTABLISHMENT OF DEFERRED COMPENSATION ACCOUNT. In partial
consideration for a Participant's entering into an Option
Cancellation Agreement, the Company shall establish a Deferred
Compensation Account for such Participant. The Deferred Compensation
Account of each Participant shall initially be credited with a
notional amount (i.e., an actual cash amount will not be deposited)
equal to such Participant's Option Cancellation Deferred Amount. The
Option Cancellation Deferred Amount of each Participant shall be
deemed invested (i.e., an actual investment will not be made), as of
the Effective Date, in LLC Class A Units and such deemed investment
shall be represented by a number of Notional Class A Units equal to
such Participant's Option Cancellation Deferred Amount divided by
$999.90. All amounts in a Participant's
3
Deferred Compensation Account shall be subject to the claims of the
creditors of the Company.
4.2. AMOUNT OF PAYOUT.
(a) Upon each distribution to holders of LLC Class A Units by
Investors LLC (including, without limitation, any distribution
in connection with an Exit Event), the Company shall make a
payment to each Participant equal to the number of Notional
Class A Units then credited to such Participant's Deferred
Compensation Account multiplied by the per LLC Class A Unit
amount distributed by Investors LLC to holders of LLC Class A
Units in such distribution. The amount of any such payment
received by a Participant shall be debited against the
Deferred Compensation Account of such Participant.
(b) In the event that LLC Class A Units are sold by one or more
holders of LLC Class A Units (other than to a Permitted
Transferee (excluding any Covered Sale)), the Company shall,
at the option of each Participant, pay to such Participant the
result obtained by multiplying (i) the lesser of (A) the
amount of such Participant's Deferred Compensation Account (as
previously credited or debited under the provisions of
Sections 4.1 and 4.2(a) and this Section 4.2(b)) and (B) the
fair value of such Participant's Deferred Compensation Account
(as determined below in this Section 4.2(b)), by (ii) a
fraction (the "Fraction"), in which the numerator equals the
number of LLC Class A Units being sold by such holder or
holders and the denominator of which is the number of all LLC
Class A Units outstanding immediately prior to such sale. If a
Participant elects to participate in such sale: (x) the amount
of Notional Class A Units credited to such Participant shall
be reduced immediately following the distribution to such
Participant as a result of such sale by an amount equal to the
total Notional Class A Units credited to such Participant
immediately prior to such sale (the "Pre-Sale Notional Class A
Amount") multiplied by the Fraction (such product being the
"Debited Units") and (y) such Participant's Deferred
Compensation Account shall be debited by an amount equal to
the Debited Units multiplied by a fraction, the numerator of
which is the amount of such Participant's Deferred
Compensation Account (as previously credited or debited under
the provisions of Sections 4.1 and 4.2(a) and this Section
4.2(b)) immediately prior to such sale and the denominator of
which is such Participant's Pre-Sale Notional Class A Amount.
For purposes of clause (i)(B) of the first sentence of this
Section 4.2(b), the fair value of a Participant's Deferred
Compensation Account shall equal the amount per LLC Class A
Unit received in the applicable sale transaction by a holder
or holders of LLC Class A
4
Units (and in the case such amount includes non-cash
consideration, the value thereof shall be determined by the
Management Committee in good faith) multiplied by such
Participant's Pre-Sale Notional Class A Amount applicable to
such sale transaction.
4.3. METHOD OF PAYMENT. All payments made with respect to any
Participant's Deferred Compensation Account shall be paid in cash,
except that in the event of a Change in Control or Exit Event in
which all or a portion of the consideration effecting such
transaction is non-cash consideration, at the Company's option any
such payment may be made in the form of such non-cash consideration
(provided that in the event of a transaction in which only a portion
of the consideration is non-cash consideration, Participants shall
receive the same proportion of cash and non-cash consideration as
holders of LLC Class A Units receive). The fair market value of any
such non-cash consideration shall be determined by the Management
Committee of Investors LLC and shall be valued consistently with the
determination of such value for purposes of Investors LLC.
4.4. SATISFACTION OF PAYMENT OBLIGATIONS. At such time as the amount of
any Participant's Deferred Compensation Account has been reduced to
zero by reason of the payments under Section 4.2, the Company shall
have no further obligations to such Participant in respect of such
Participant's Deferred Compensation Account.
4.5. AWARD AGREEMENT. The establishment of a Deferred Compensation
Account for any Participant shall be evidenced by an Option
Cancellation Agreement that shall be signed on behalf of the Company
and the Participant. Such Option Cancellation Agreement shall set
forth the deemed investment in LLC Class A Units initially credited
to the Participant's Deferred Compensation Account.
4.6. SUBDIVISION OR COMBINATION OF LLC CLASS A UNITS. In the event of a
subdivision (including by way of dividend) of the number of
outstanding LLC Class A Units into a greater number or in the event
of a combination of outstanding LLC Class A Units into a smaller
number, then the number of Notional Class A Units shall be
subdivided or combined so as to represent the same proportion of
outstanding LLC Class A Units immediately following the subdivision
or combination of Notional Class A Units and LLC Class A Units as
was represented by the number of Notional Class A Units outstanding
immediately prior to the subdivision or combination of Notional
Class A Units and LLC Class A Units.
5
5. ADMINISTRATION
5.1. RESPONSIBILITY. The Committee shall have the responsibility to
administer the Plan in accordance with its terms and shall have the
authority that may be necessary or helpful to enable it to discharge
its responsibilities with respect to the Plan.
5.2. DELEGATION OF AUTHORITY. The Committee may delegate to one or more
of its members, or to one or more agents, such administrative duties
as it may deem advisable; provided, however, that any such
delegation shall be in writing. In addition, the Committee, or any
person to whom it has delegated duties under this Section 5.2, may
employ one or more persons to render advice with respect to any
responsibility the Committee or such person may have under the Plan.
The Committee may employ such legal or other counsel, consultants
and agents as it may deem desirable for the administration of the
Plan and may rely upon any opinion or computation received from any
such counsel, consultant or agent.
6. WITHHOLDING TAXES. The Company may require a Participant to reimburse the
Company for any taxes required by any governmental authority to be
withheld or otherwise deducted and paid by the Company or any Subsidiary
in respect of the payment of any amounts paid under the Plan. In lieu
thereof, the Company or Subsidiary shall have the right to withhold the
amount of such taxes from any other payments due or to become due from the
Company or the Subsidiary to the Participant upon such reasonable terms
and conditions as the Committee shall prescribe.
7. AMENDMENT AND TERMINATION
7.1. TERMINATION AND AMENDMENT OF PLAN. The Board may amend, suspend or
terminate the Plan at any time with the consent of Participants that
hold notional amounts in their Deferred Compensation Accounts that
represent a majority of all the notional amounts held in all such
Deferred Compensation Accounts at the time of determination;
provided, that no amendment, termination or suspension shall have
any effect with respect to a Participant if it adversely affects the
amount of any payment or the timing of any payment to such
Participant under the Plan, unless such Participant consents to such
amendment, termination or suspension in writing.
8. MISCELLANEOUS
8.1. TRANSFERABILITY. Each Deferred Compensation Account under the Plan
and any interest therein shall not be transferable otherwise than by
will or the laws of descent and distribution. Any purported transfer
of an award or any interest therein to a creditor of a Participant
shall be void.
6
8.2. NO RIGHT, TITLE, OR INTEREST IN COMPANY ASSETS. Participants shall
have no right, title, or interest whatsoever in or to any
investments that the Company may make to aid it in meeting its
obligations under the Plan. Nothing contained in the Plan, and no
action taken pursuant to its provisions, shall create a trust of any
kind, or a fiduciary relationship between the Company and any
Participant, beneficiary, legal representative or any other person.
Unless otherwise agreed in writing by the Company, a Participant
shall not take any position inconsistent with such treatment by the
Company. All payments to be made hereunder shall be paid from the
general funds of the Company, and participants' right to payment is
unsecured. The Plan is not intended to be subject to the Employee
Retirement Income Security Act of 1974, as amended.
8.3. NO RIGHT TO CONTINUED EMPLOYMENT OR SERVICE. The Participant's
rights, if any, to continue to serve the Company or any Subsidiary
of the Company as an employee, director or consultant shall not be
enlarged or otherwise affected by his or her designation as a
Participant under the Plan, and the Company or the applicable
Subsidiary reserves the right to terminate the employment or
engagement of any employee, director or consultant at any time.
Except as contemplated by Section 4.2(c) hereof, such termination
shall not affect any rights of the Participant under the Plan.
8.4. GOVERNING LAW. The Plan, all awards granted hereunder, and all
actions taken in connection herewith shall be governed by and
construed in accordance with the laws of the State of Delaware
without reference to principles of conflict of laws, except as
superseded by applicable federal law.
8.5. OTHER BENEFITS. No award granted under the Plan shall be considered
compensation for purposes of computing benefits under any retirement
plan of the Company or any Subsidiary nor affect any benefits or
compensation under any other benefit or compensation plan of the
Company or any Subsidiary now or subsequently in effect.
7