Exhibit (d)(9)
FORM OF
NORTEK, INC., NORTEK HOLDINGS, INC. and XXXXXXX X. XXXXXX
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is made on ________
between NORTEK, INC., a Delaware corporation ("Nortek"), NORTEK HOLDINGS,
INC., a Delaware corporation ("Nortek Holdings") (Nortek and Nortek
Holdings, collectively referred to hereinafter as "Employer"), and Xxxxxxx
X. Xxxxxx, a resident of Rhode Island (hereinafter called "Employee").
WHEREAS, Employee is employed by Nortek as Chief Executive Officer
and Employee possesses intimate knowledge of the business and affairs of
Employer and has acquired certain confidential information and data with
respect to Employer;
WHEREAS, Employee and Nortek have an existing employment agreement
between them dated as of February 26, 1997 (the "Prior Agreement");
WHEREAS, pursuant to the Agreement and Plan of Recapitalization,
dated as of June 20, 2002 by and among Nortek, Nortek Holdings and K
Holdings, Inc. ("K Holdings") (the "Recapitalization Agreement"), after the
consummation of the "Transactions" (as defined in the Recapitalization
Agreement) Nortek will become a subsidiary of K Holdings or its designees;
WHEREAS, Employee is a party to the Stockholders Agreement to be
entered into by Nortek Holdings and certain of its stockholders (the
"Stockholders Agreement")
WHEREAS, Employee and Employer desire to enter into this
Agreement, which shall supersede the Prior Agreement and govern the terms
of Employee's continued employment with Employer on and following the
"Effective Time" (as defined in the Recapitalization Agreement);
WHEREAS, Employer desires to assure that it will have the benefit
of the continued service and experience of Employee who is the chief
executive officer of the Employer and an integral part of its management
for a period of time and Employee is willing to enter into an agreement to
such ends upon the terms and conditions set forth in this Agreement. In
consideration of the foregoing and the mutual agreements herein contained,
the parties mutually agree as follows:
1. Employment Period and Duties
(a) During the Employment Period, Employer shall employ Employee,
and Employee shall serve as an employee of Employer, provided, however,
that if the Recapitalization Agreement is terminated according to its
terms, then at the time of such termination, this Agreement shall terminate
and be of no force or effect. For purposes of this Agreement, "Employment
Period" shall mean the period of time commencing from the Effective Time
and ending, unless sooner terminated pursuant to the provisions hereof,
five years from said date; provided that on the fifth anniversary of the
Effective Time and each anniversary thereafter, the Employment Period shall
automatically extend for one additional year unless written notice of
intent not to extend is delivered by Employer to Employee at least 90 days
prior to the scheduled end of the Employment Period.
(b) During the Employment Period, Employee shall serve as chairman
and chief executive officer of Nortek and Nortek Holdings, or in such other
executive capacity at a similar level of responsibility and with such other
duties as the board of directors of Nortek Holdings (the "Board") and
Employee may from time to time mutually determine, and Employee accepts
employment on the terms and conditions contained herein and agrees to
devote a substantial part of his working time and energies to the business
of Employer and to faithfully and diligently perform the customary duties
of his office and such other duties, reasonable vacations (of not less than
four weeks per year) and time devoted to charitable and community service,
and absences due to illness and holidays excepted. Such other duties may
include the performance of services for any of Employer's subsidiaries and,
without further remuneration (except as otherwise agreed), may also include
service as an officer or director of one or more of Employer's
subsidiaries. Nothing herein shall prohibit Employee from managing or
supervising his personal investments or from devoting attention to his
other business interests that do not materially interfere with his
obligations to Employer hereunder or compete with Employer or its
subsidiaries.
(c) During the Employment Period, Employer shall maintain an
appropriately appointed executive office for Employee in Providence, Rhode
Island (or at such other location as Employee and Employer shall mutually
agree) of not less than the size of Employee's current office and
associated administrative space from which Employee shall perform his
duties and shall provide Employee with executive secretarial and other
administrative staff and services suitable to his offices and duties,
staffed by persons approved by Employee and with such staff members'
salaries and benefits as Employee shall approve.
(d) During the Employment Period, Employer shall not, without
obtaining Employee's consent, terminate the employment of any employee
listed in Exhibit A hereto.
2. Compensation
(a) Basic Salary. Employee shall receive a basic annual salary of
(i) not less than $1,068,767 during the Employment Period prior to January
1, 2003 (such period, the "Initial Period") and (ii) not less than
$2,500,000 during the remainder of the Employment Period (such period, the
"Second Period") (hereinafter called the "Basic Salary"), payable in equal
monthly installments on the 15th day of each month.
(b) Incentive Compensation.
(i) Subject to Section 17 hereof, with respect to any
performance period ending within the Initial Period (the
"Performance Period"), Employee shall be eligible to receive
payment with respect to the performance award granted to him on
March 5, 2002 pursuant to the Nortek, Inc. 2001 Equity and Cash
Incentive Plan (the "Performance Award"), subject to the same
terms and conditions as were in effect with respect to the
Performance Award immediately prior to the Effective Time;
provided, however, that in making any calculation of EBITDA called
for therein, such amount shall be calculated by adding back all of
the Add Back Expenses (as defined below). In the event that
Employee's employment with Employer is terminated for any reason
during the Performance Period, Employee shall be eligible to
receive payment pursuant to the Performance Award at the time such
award would otherwise be payable, determined as if the Employee
were still employed by Employer at such time.
(ii) In addition to Basic Salary, with respect to each
calendar year during the Second Period, Employee shall be entitled
to receive an annual incentive compensation payment ("Incentive
Compensation") pursuant to Section 2(b)(iii) below, subject to the
achievement of annual Proforma EBITDA for the applicable year in
excess of the target annual Proforma EBITDA (the "EBITDA Target")
for such year.
(iii) "Proforma EBITDA" shall mean, with respect to the
applicable calendar year, Consolidated Cash Flow for such year (as
defined in the Indenture, dated March 17, 1997, by and between
Nortek, Inc. and State Street Bank and Trust Company (the
"Indenture"), with respect to the 9 1/4% Senior Notes due March
15, 2007 (without regard to clause (vi) thereof) plus the sum of
(A) any management fee paid by Employer or any of its subsidiaries
to Xxxxx & Company, L.P. or any of its affiliates during such
year, (B) any fees and expenses paid by the Employer in connection
with the consummation of the Transactions during such year, (C)
any expense to the Employer during such year, as determined under
GAAP (as defined in the Indenture) that is incurred as a result of
the Transactions and arises from the obligations contained in
either Section 10 of this Agreement or the Nortek, Inc.
Supplemental Executive Retirement Plan (the "SERP") (including as
a result of Section 2(e) hereof), in each case, solely to the
extent such expense reduces Consolidated Net Income (as defined in
the Indenture) and (D) any other extraordinary and non-recurring
charges paid during such year (Clauses (A) through (D) referred to
herein as the "Add Back Expenses"). Exhibit B attached hereto
lists the EBITDA Targets for each calendar year in the Second
Period. Employee shall be entitled to Incentive Compensation with
respect to a calendar year equal to 33% of the excess of Proforma
EBITDA over the EBITDA Target for such year subject to an annual
maximum for any year of $5,000,000.
(iv) Prior to payment of Incentive Compensation in
respect of any year, the compensation committee of the Board must
certify in writing the extent to which the EBITDA Target for such
year has been met or exceeded. Incentive Compensation payable with
respect to any year shall be paid no later than 30 days
immediately following the completion of Employer's audited
financial statements for the applicable year and shall be made in
cash. In respect of a calendar year in which the Employment Period
is terminated other than pursuant to Sections 3(c) or (d) hereof,
Employee shall be entitled to a prorated amount of the Incentive
Compensation due based upon the number of full and partial months
during which Employee was employed in such calendar year.
(c) SERP Payment. In satisfaction of all liabilities and
obligations under the SERP, (i) Employee shall be entitled to a lump sum
cash payment of $________, less applicable withholding, payable on the
Effective Time and (ii) Employer shall transfer the policy numbered 62 814
393 issued by New York Life Insurance Company on the life of Employee (the
"Life Insurance Policy") to Employee at the Effective Time.
(d) Stock Options.
(i) Employer shall grant to Employee, effective as of the
Effective Time, (i) a number of Class A Options (as defined in the
Nortek Holdings, Inc. 2002 Stock Option Plan (the "Option Plan"))
equal to one-third (1/3) of the maximum number of Class A Options
available for grant pursuant to the Option Plan at the Effective
Time, subject to the terms and conditions of the Option Plan and
the applicable stock option agreement and (ii) a number of Class B
Options (as defined in the Option Plan) equal to one-third (1/3)
of the maximum number of Class B Options available for grant
pursuant to the Option Plan at the Effective Time, subject to the
terms and conditions of the Option Plan and the applicable stock
option agreement.
(ii) Notwithstanding the terms of the Recapitalization
Agreement, each option held by Employee to acquire shares of
common stock and/or special common stock of Employer (each, a
"Nortek Option") shall be treated in accordance with the terms of
(x) the Merger Agreement by and among Nortek, Nortek Holdings and
Nortek Holdings Merger Sub, dated June 20, 2002, as amended,
pursuant to which the Nortek Options shall be converted into
options to purchase shares of common stock and special common
stock of Nortek Holdings (each, a "Nortek Holdings Option") and
(y) the Exchange Agreement to be entered into by Employee, Nortek,
Nortek Holdings and K Holdings pursuant to which each Nortek
Holdings Option shall be converted into an Exchange Option to
acquire shares of Class A Common Stock, par value $1.00 per share
of Nortek Holdings ("Common Stock"), subject to the terms and
conditions of the Option Plan and the applicable stock option
agreement.
(e) Life Time Medical Coverage.
(i) From and after the date upon which the Employment
Period expires or terminates for any reason (the "Triggering
Date"), Employer shall provide Employee and his Spouse for so long
as they shall live with lifetime Medical Coverage at no cost to
Employee. For purposes of this Agreement, (x) "Spouse" shall mean
any individual married to Employee only during the time such
individual is married to Employee, provided that an individual who
is married to Employee at the time of Employee's death shall be a
Spouse for the remainder of such individual's lifetime and (y)
"Medical Coverage" shall mean all medical and dental benefits that
are provided Employee at the Effective Time, any medical or dental
expense that would be deductible by Employee under section 213 of
the Internal Revenue Code of 1986, as amended (the "Code"),
including insurance premiums, co-payments and deducible amounts
(determined without regard to the deductible threshold set forth
in 213(a)) if paid by the Employee directly, and such other
reasonable medical and dental expenses that Employer may approve
from time to time, but in no event shall Employer's reimbursement
obligation for Employee, his Spouse or dependents under this
Section 2(e) exceed $1,000,000 (exclusive of any gross up for
taxes pursuant to Sections 2(e)(iii) or 10 hereof) in the
aggregate during Employee's and his Spouse's lifetimes. Such
Medical Coverage shall be extended to any dependent of Employee
but only for so long as such person remains a "dependent" under
the terms and conditions of Employer's health plan in existence at
the Effective Time. Employer shall make all reasonable efforts to
include Employee, his Spouse and dependents in any comprehensive
medical and/or dental plan provided to active employees from time
to time. Employee must make all reasonable effort to obtain and to
maintain (at Employer's expense as provided herein) any form of
comprehensive medical and/or dental insurance that Employer may
require from time to time. If Employee is or becomes eligible for
Medicare benefits, the coverage provided by this Section shall be
supplemental to Medicare coverage, Parts A and B, and the Employee
shall be required to submit claims to Medicare before making any
claim for medical care under this Section.
(ii) Upon the Triggering Date, or any time thereafter,
upon the written request of Employee or his Spouse, Employer shall
authorize a lump sum cash payment in lieu of lifetime Medical
Coverage in an amount established by the Board that is reasonably
sufficient to provide the lifetime Medical Coverage. For
illustrative purposes, a sample calculation of such lump sum cash
payment is set forth in Exhibit C hereto.
(iii) Employer agrees to make a "gross up" payment to
Employee to cover any and all state and federal income taxes that
may be due as a result of the benefits provided under Section
2(e)(i) above and on any lump sum payment under Section 2(e)(ii)
above (and the tax on any such "gross up" payment) as a
consequence of providing such lifetime Medical Coverage to
Employee, his Spouse and his dependents.
(iv) Following the Triggering Date, Employee shall notify
the Company of any change in (x) his marital status or (y) the
status of his dependents as "dependents", as soon as practicable
following such change.
(f) Outstanding Loan. In connection with the Prior Agreement,
Employer has previously made a ten-year loan to Employee in the original
principal amount of $3,000,000 bearing interest at the applicable federal
long-term rate (determined in accordance with section 1274 of the Code)
payable annually in arrears, and repayable annually as of each anniversary
of the making of such loan in equal installments of principal of $300,000
plus accrued interest. Following the Effective Time, payment of each
installment of principal and interest will be deferred until determination
of Employer's Operating Earnings for the prior fiscal year. If Employee
remains in the employ of Employer on the date an installment is due and if
Employer has met the goal of Operating Earnings of $35,000,000 or more for
the prior year, such installment and accrued interest shall be forgiven;
and all remaining installments and accrued interest shall be forgiven in
the event of termination of the Employment Period pursuant to Sections
3(a), (b), (e) and (f) hereof. For purposes of this subsection (f),
"Operating Earnings" shall mean (i) Earnings Before Taxes before provisions
for interest income and expense, gain or loss on investments (and
marketable securities), gain or loss on businesses sold and before write-up
or write-down of assets plus (ii) any Add Back Expenses.
(g) Benefits. Employee shall be eligible to participate in any
deferred compensation, supplemental executive retirement, pension or other
benefit plan in which executive personnel of Employer are eligible to
participate and shall be eligible for discretionary bonuses. In addition,
other than as provided in Section 17 hereof, Employee shall be entitled to
receive all other benefits or participate in any employee benefit plans
generally available to executive personnel of Employer, including without
limitation, any hospital, medical, accident, disability, life insurance,
and dental coverage, any stock option or savings plans, or any pension or
other retirement benefit plans.
(h) Reimbursement and Perquisites. Employer shall promptly
reimburse Employee for all business expenses incurred by Employee during
the Employment Period; shall promptly pay or reimburse Employee for club
and professional association dues, assessments and fees for at least such
clubs and associations as Employee was a member of and Employer was making
such payments or reimbursements at the Effective Time; and shall provide to
Employee for his exclusive business and personal use an automobile of his
selection, pay all expenses of ownership, operation, repair and maintenance
of such vehicle, provide suitable substitute vehicle in the event such
automobile is not available for use by Employee for any reason and replace
such automobile not less often than biannually with a new vehicle at the
option of Employee. Employer shall provide Employee with use of (or
reimburse Employee for use of) a private aircraft for business and personal
travel in a manner consistent with Employer's practice prior to the
Effective Time.
3. Termination
(a) If Employee dies, the Employment Period or the Noncompete
Period (as defined in Section 4 hereof) shall end and his employment
hereunder shall be deemed to cease as of the date of his death.
(b) If Employee is incapacitated by accident, sickness, or
otherwise so as to render him, for a period of 365 consecutive days,
mentally or physically incapable of performing the services required of him
under this Agreement (such incapacity, a "Disability") and, if requested by
Employee, the basis for such incapacity is certified by a licensed
physician, Employer, acting through its Board, may terminate the Employment
Period.
(c) Employee shall have the right to terminate the Employment
Period without Good Reason at any time by written notice to the Board.
(d) Employer, acting through the Board, shall have the right to
terminate the Employment Period for Cause (as hereinafter defined), without
further obligation hereunder on the part of Employer or Employee except
payment to Employee of amounts earned or accrued hereunder to the date of
termination, pursuant to the procedures specified in this Section 3(d);
provided that the Employment Period shall not be terminated for Cause if
prior to the finding of the Board with respect thereto, the Employment
Period shall have terminated for any other reason. For purposes of this
Agreement, "Cause" shall mean: (i) the willful and continued failure of
Employee to perform substantially Employee's material duties pursuant to
Section 1(b) hereof (other than any such failure resulting from, or
contributed to by, incapacity due to physical or mental illness), after a
written demand for substantial performance is delivered to Employee by the
Board which notice is adopted at an in-person meeting of the Board called
and held for such purpose (after reasonable notice is provided to Employee
and Employee is given an opportunity, together with counsel, to be heard
before the Board) and which notice specifically identifies the manner in
which Employee has not substantially performed his material duties, or (ii)
because of conviction of Employee of a crime involving theft, embezzlement
or fraud against Employer or a civil judgment in which Employer is awarded
damages from Employee in respect of a claim of loss of funds through fraud
or misappropriation by Employee, which in either case has become final and
is not subject to further appeal, continued employment of Employee would be
demonstrably injurious to Employer. Performance by Employee of his duties
under Section 1(b) hereof shall be presumed to be substantially performed,
and any act, or failure or act, based upon authority given pursuant to a
resolution duly adopted by the Board or any committee of the Board or based
upon the advice of counsel for Employer (including members of its legal
staff) or which has been acquiesced in by the Board shall be conclusively
presumed to be done, or omitted to be done, by Employee consistent with his
obligations under Section 1(b) hereof. Termination of the Employment Period
for Cause shall not occur unless and until there shall have been delivered
to Employee a copy of a resolution duly adopted by the affirmative vote of
all of the members of the Board excluding Employee at an in-person meeting
of the Board called and held for such purpose (after notice of not less
than 20 business days is provided to Employee and Employee is given an
opportunity, together with counsel, to be heard before the Board), finding
that, in the good faith opinion of the Board, termination for Cause is
justified based solely on information presented at such meeting.
(e) Employer, acting through the Board, shall have the right to
terminate the Employment Period without Cause, by written notice to
Employee, not less than 20 business days in advance of such termination.
(f) Good Reason. Employee shall have the right to terminate the
Employment Period at any time with Good Reason (as defined in Section 5) by
written notice to the Board.
(g) Any amounts due Employee hereunder in the event of termination
of the Employment Period shall be considered severance pay in consideration
of his past services and in consideration of his continued services from
the date hereof, are considered reasonable by Employer and not in the
nature of a penalty, shall not be reduced by compensation or income
received by Employee from any other employment or other source and shall
not be offset by any claims Employer may have against Employee; timely
payment of such amounts is further agreed by the parties hereto to be in
full satisfaction and compromise of any claims arising out of the
performance or nonperformance of this Agreement that either party might
have against the other, other than any claims Employee may have under the
provisions of Section 10 hereof.
4. Noncompetition and Confidentiality
(a) Employee agrees that he shall not compete with Employer as
hereinafter provided for a period (the "Noncompete Period") equal to:
(i) if the Employment Period is terminated pursuant to
Section 3(c) or (d) hereof, one year beginning as of the first day
following such termination, or
(ii) if the Employment Period is terminated pursuant to
Section 3(b), (e) or (f) hereof, the longer of (x) one year
beginning as of the first day following such termination of the
Employment Period and (y) a period commencing on such date and
ending on the fifth anniversary of the Effective Time.
(b) Employee's agreement not to compete with Employer during the
Noncompete Period shall be limited to prohibiting Employee from owning a
greater than 5% equity interest in, serving as a director, officer,
employee or partner of, or being a consultant to or co-venturer with any
business enterprise or activity that competes in Nortek America with any
line of business conducted by Employer or any of its subsidiaries at the
termination of the Employment Period and accounting for more than 5% of
Employer's gross revenues for its fiscal year ending immediately prior to
the year in which the Employment Period ends. During the Noncompete Period,
Employee agrees that he will not hire or attempt to hire any person
employed by Employer or any of its subsidiaries during the 24 month period
prior to the termination of the Employment Period, assist such a hiring by
any other person or entity, encourage any such employee to terminate his
relationship with Employer (or any such subsidiary) or solicit or encourage
any customer or vendor of Employer to terminate its relationship with
Employer.
(c) Employee shall hold in a fiduciary capacity for the benefit of
Employer all secret or confidential information, knowledge or data relating
to Employer or any of its subsidiaries, and their respective businesses,
which shall have been obtained by Employee during Employee's employment by
Employer and which shall not be or become public knowledge (other than by
acts by Employee or representatives of Employee in violation of this
Agreement). After termination of Employee's employment with Employer,
Employee shall not, without the prior written consent of Employer or as may
otherwise be required by law or legal process, communicate or divulge any
such information, knowledge or data to anyone other than Employer and those
designated by it.
5. Severance Pay-Termination by Employer
(a) If (x) the Employment Period shall terminate by reason of
Employer's exercise of its right under Section 3(e) to terminate without
Cause or in the event Employee elects to terminate the Employment Period
for Good Reason or (y) Employee's employment is terminated due to the
Employer's delivery of notice not to extend the Employment Period pursuant
to Section 1(a) hereof, Employer shall thereafter be obligated to provide
and Employee, or in the event of his death, his estate, shall be entitled
to receive, for a period of one year beginning as of the first day
following such termination (or, if longer, for a period commencing on such
date and ending on the fifth anniversary of the Effective Time):
(i) an amount for each year, payable in the manner set
forth in Section 2 hereof, equal to $1,750,000;
(ii) continued coverage, at the expense of the Employer,
under the same or equivalent disability, accident and life
insurance policies as Employee was covered by immediately prior to
termination of the Employment Period; and
(iii) an executive office for Employee located outside of
Employer's headquarters but within Providence, Rhode Island and
secretarial and other administrative services, all reasonably
suitable to Employee's then current needs and consistent with his
former offices and duties during the Employment Period.
(b) For purposes of this Agreement, "Good Reason" shall mean:
(i) any reduction of, or failure to pay, Employee's Basic
Salary or other compensation as described in Sections 2(a) and (b)
hereof;
(ii) any failure to provide the benefits or payments
required by Sections 2(c), (d), (e) and (f), 8, 9, 10 and 12
hereof, Sections 6.5(a) and 8.2 of the Stockholders Agreement, the
registration rights provided in the Registration Rights Agreement
to be entered into by Employee, North Holdings and other parties
named therein (the "Registration Rights Agreement") and the
preemptive rights provided in the Preemptive Rights Agreement to
be entered into by Employee, North Holdings and other parties
named therein (the "Preemptive Rights Agreement");
(iii) assignment to Employee of any duties materially
inconsistent with his position (including status, offices and
titles), authority, duties or responsibilities as contemplated by
Section 1(b) above or any other action by Employer which results
in a material diminution of such position, authority, duties or
responsibilities;
(iv) relocation of Employer's principal executive
offices, or any event that causes Employee to have his principal
place of work changed, to any location outside Providence, Rhode
Island;
(v) any requirement by Employer that Employee travel away
from his office in the course of his duties significantly more
than the number of consecutive days or aggregate days in any
calendar year than was required of him prior to the Effective
Time; and
(vi) without limiting the generality or effect of the
foregoing, any other material breach by Employer or any successor
thereto or transferee of substantially all the assets thereof, of
this Agreement, the Stockholders Agreement, the Registration
Rights Agreement and Preemptive Rights Agreements.
6. Death Benefit
If the Employment Period shall terminate by reason of
Employee's death, his estate or designated beneficiary shall thereafter be
entitled to receive from Employer a death benefit for a period of one year
beginning as of the first day following his death (or, if longer, for a
period commencing on such date and ending on the fifth anniversary of the
Effective Time) in an annual amount equal to $1,750,000, such death benefit
shall be payable in the manner set forth in Section 2 hereof.
7. Disability Benefit
If the Employment Period shall terminate by reason of
Employee's Disability, Employee, or in the event of his death, his estate,
shall thereafter be entitled to receive from Employer: (i) for a period of
one year commencing from the date of such termination (or, if longer, for a
period commencing on such date and ending on the fifth anniversary of the
Effective Time), a disability benefit in an annual amount equal to
$1,750,000, payable in the manner set forth in Section 2 hereof; and (ii)
for what would have been the remainder of the Employment Period without
such termination (without consideration to any future extension) and unless
Employee should earlier die, Employer will not terminate the Insurance
Agreements (as defined in Section 9 hereof).
8. Deferred Compensation
Employee may defer receipt of all or any part of the
Incentive Compensation pursuant to Section 2(b) otherwise due him under
this Agreement in respect of any year of the Employment Period, provided
that prior to the end of such year for which such Incentive Compensation
would otherwise be payable, Employee notifies Employer of his irrevocable
election to so defer such receipt, stating in such notice the period during
which such receipt is to be deferred and the period over which such
Incentive Compensation is to be paid once such deferral has terminated. Any
such deferred Incentive Compensation shall be a general unsecured
obligation of Employer to Employee and shall bear interest at the interest
rate per annum announced and made effective from time to time by Fleet
National Bank (or its successor) as its prime rate (the "Rate") which shall
accrue and be paid in equal monthly increments over the period the
Incentive Compensation to which it relates is to be paid with the unpaid
amount of such Incentive Compensation and unpaid interest to bear interest
at the Rate which shall be paid in arrears as each such installment of
deferred Incentive Compensation is payable.
9. Split Dollar Life Insurance.
Upon the transfer of the Life Insurance Policy from
Employer to Employee, (a) Employer shall have no further obligation to
Employee with respect to the Life Insurance Policy and (b) the Split Dollar
Agreement between Employer, Xxxxxxxx X. Xxxxx and Employee, dated December
28, 2001(the "Life Insurance Agreement"), shall terminate. During the
Employment Period and any period during which Employee is entitled to
receive benefits pursuant to Sections 5 or 7 hereof, Employer shall
continue to pay premiums (other than out of the cash surrender value) with
respect to any split dollar life insurance agreement, other than the Life
Insurance Agreement, to which the Employer and Employee or a trust
established by him are a party immediately prior to the Effective Time (the
"Insurance Agreements"). If the Employment Period is terminated in a manner
which does not result in the payment of benefits pursuant to Sections 5, 6,
or 7 hereof, Employer agrees not to terminate any of the Insurance
Agreements until the Employment Period (without consideration to any future
extension) or the Noncompete Period, as the case may be, would have
otherwise terminated, provided that Employer's obligation to pay premiums
pursuant to the Insurance Agreements shall be limited to applying the cash
value of the policies (including accumulated dividends and the value of any
paid-up additions) to premium payments. If in such event such cash value is
insufficient to pay all required premiums, Employer shall consult with
Employee and apply cash value to payment of premiums as directed by
Employee. As to policies where such premiums are not to be paid by the
application of cash value, at the election of Employee Employer will either
permit Employee to pay premiums to the extent not paid from the application
of cash value or transfer such policies to Employee, conditioned upon
Employee's executing any additional instruments reasonably necessary to
preserve Employer's rights under the Insurance Agreements.
10. Gross-up Payment
(a) In the event that it is determined that any payment or benefit
provided by Employer to or for the benefit of Employee, either under this
Agreement or otherwise, will be subject to the excise tax imposed by
section 4999 of the Code or any successor provision ("section 4999"),
Employer will, prior to the date on which any amount of the excise tax must
be paid or withheld, make an additional lump-sum payment (the "gross-up
payment") to Employee. The gross-up payment will be sufficient, after
giving effect to all federal, state and other taxes and charges (including
interest and penalties, if any) with respect to the gross-up payment, to
make Employee whole for all taxes (including withholding taxes) and any
associated interest and penalties, imposed under or as a result of section
4999.
(b) Determinations under this Section 10 will be made by the
Employer's tax accountant as of the Effective Time unless Employee has
reasonable objections to the use of that firm, in which case the
determinations will be made by a comparable firm chosen by Employee after
consultation with Employer (the firm making the determinations to be
referred to as the "Firm"). The determinations of the Firm will be binding
upon Employer and Employee except as the determinations are established in
resolution (including by settlement) of a controversy with the Internal
Revenue Service to have been incorrect. All fees and expenses of the Firm
will be paid by Employer.
(c) If the Internal Revenue Service asserts a claim that, if
successful, would require Employer to make a gross-up payment or an
additional gross-up payment, Employer and Employee will cooperate fully in
resolving the controversy with the Internal Revenue Service. Employer will
make or advance such gross-up payments as are necessary to prevent Employee
from having to bear the cost of payments made to the Internal Revenue
Service in the course of, or as a result of, the controversy. The Firm will
determine the amount of such gross-up payments or advances and will
determine after resolution of the controversy whether any advances must be
returned by Employee to Employer. Employer will bear all expenses of the
controversy and will gross Employee up for any additional taxes that may be
imposed upon Employee as a result of its payment of such expenses.
(d) Employer shall provide Employee with a letter of credit no
later than the Effective Time covering Employee's potential exposure to the
excise tax imposed by section 4999 (or any payment resulting from such
exposure) on terms reasonably acceptable to Employer and Employee.
11. Expenses
Employer agrees to reimburse Employee for all reasonable
expenses incurred by Employee in connection with the negotiation of this
Agreement, the Recapitalization Agreement and any other agreements and
transactions contemplated thereby.
12. Indemnification
Anything in this Agreement to the contrary
notwithstanding, Employer agrees to pay all costs and expenses incurred by
Employee in connection with the enforcement of this Agreement and will
indemnify and hold harmless Employee from and against any damages,
liabilities and expenses (including without limitation fees and expenses of
counsel) incurred by Employee in connection with any litigation or
threatened litigation, including any regulatory proceedings, arising out of
the making, performance or enforcement of this Agreement or termination of
the Employment Period.
13. Notices
All notices or other communications given hereunder shall
be in writing and shall be deemed to have been duly given if mailed by
certified mail or hand delivered, if to Employer, at 00 Xxxxxxx Xxxxx,
Xxxxxxxxxx, Xxxxx Xxxxxx 00000-0000, or at such other address as Employer
shall have furnished to Employee in writing, or if to Employee, at 000
Xxxxxxxxx Xxxxxx, Xxxxxxxxxx, Xxxxx Xxxxxx 00000, or at such other address
as Employee shall have furnished to Employer in writing.
14. Governing Law
This Agreement shall be governed by the laws of the State
of Rhode Island and Providence Plantations.
15. Severability
The provisions of this Agreement are severable, and in
the event that any one or more paragraphs are deemed illegal or
unenforceable, the remaining paragraphs shall remain in full force and
effect.
16. Effectiveness/Prior Agreements
This Agreement shall be binding on all parties as of the
date hereof. If the Effective Time does not occur, this Agreement shall be
of no force and effect. As of the Effective Time, the Prior Agreement shall
terminate and no payments shall thereafter be made thereunder. Under no
circumstances shall the consummation of the Transactions, shareholder
approval thereof or any other event relating thereto be deemed a "Change of
Control" for any purposes under the Prior Agreement. This Agreement will
constitute the entire agreement between Employer and Employee and will
supersede all prior negotiations and written or oral agreements with
respect to the full time employment of Employee by Employer, including the
Prior Agreement and all other prior employment agreements between Employee
and Employer, excluding the Amended and Restated Agreement between Employee
and Employer dated June 1, 2001 except as explicitly provided herein. No
changes, alterations or modifications may be made to this Agreement, except
by a writing signed by each of the parties hereto, provided that no
changes, alterations or modifications may be made to this Agreement prior
to the Effective Time without the consent of K Holdings and, for such
purposes, K Holdings shall be a third party beneficiary to this Section 16.
17. Waivers
Employee waives any right to accelerated payment of
benefits pursuant to (a) Section 6 of the Amended and Restated Agreement
between Employee and Employer dated June 1, 2001 and (b) Section
7.2(a)(1)(iii) of the Nortek, Inc. 2001 Equity and Cash Incentive Plan, to
the extent such payments accelerate or otherwise become payable as a result
of the consummation of the Transactions, shareholder approval thereof or
any event relating thereto. From the Effective Time, Employee will not be
eligible to participate in or receive benefits pursuant to the Nortek, Inc.
1999 Equity Performance Plan and the SERP, other than payments specifically
set forth in this Agreement.
18. Assignment
This agreement is personal to Employee and without the
prior written consent of Employer shall not be assignable by Employee other
than by will or the laws of descent and distribution. This Agreement shall
inure to the benefit of and be enforceable by Employer's legal
representative.
19. Counterparts
This Agreement may be executed simultaneously in one or
more counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the undersigned have duly executed
this Agreement as of ______________
ATTEST: NORTEK, INC.
-------------------- --------------------
ATTEST: NORTEK HOLDINGS, INC.
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WITNESS:
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Xxxxxxx X. Xxxxxx, Employee
EXHIBIT A
EXHIBIT B
EXHIBIT C
