Exhibit 10.3

EXECUTION VERSION

TAX RECEIVABLE AGREEMENT

between

PLY GEM HOLDINGS, INC.

and

PG ITR HOLDCO, L.P.

Dated as of May 22, 2013

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TABLE OF CONTENTS

 

          Page  

ARTICLE I DEFINITIONS

     1   

Section 1.1

  

Definitions

     1   

ARTICLE II DETERMINATION OF CERTAIN REALIZED TAX BENEFIT

     6   

Section 2.1

  

Disclosure Letter

     6   

Section 2.2

  

Tax Benefit Schedule

     7   

Section 2.3

  

Procedures, Amendments

     7   

ARTICLE III TAX BENEFIT PAYMENTS

     8   

Section 3.1

  

Payments

     8   

Section 3.2

  

No Duplicative Payments

     9   

ARTICLE IV TERMINATION

     9   

Section 4.1

  

Early Termination and Breach of Agreement

     9   

Section 4.2

  

Early Termination Notice

     10   

Section 4.3

  

Payment upon Early Termination

     10   

ARTICLE V SUBORDINATION AND LATE PAYMENTS

     11   

Section 5.1

  

Subordination

     11   

Section 5.2

  

Late Payments by the Corporate Taxpayer

     11   

ARTICLE VI NO DISPUTES; CONSISTENCY; COOPERATION

     11   

Section 6.1

  

Participation in the Corporate Taxpayer’s Tax Matters

     11   

Section 6.2

  

Consistency

     11   

Section 6.3

  

Cooperation in Audit

     11   

Section 6.4

  

Cooperation Regarding Section 382 Compliance

     12   

ARTICLE VII MISCELLANEOUS

     12   

Section 7.1

  

Notices

     12   

Section 7.2

  

Counterparts

     13   

Section 7.3

  

Entire Agreement; No Third Party Beneficiaries

     13   

Section 7.4

  

Governing Law

     13   

Section 7.5

  

Severability

     13   

Section 7.6

  

Successors; Assignment; Amendments; Waivers

     14   

Section 7.7

  

Titles and Subtitles

     14   

Section 7.8

  

Resolution of Disputes

     14   

Section 7.9

  

Reconciliation

     15   

Section 7.10

  

Withholding

     16   

 

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Section 7.11

  

Admission of the Corporate Taxpayer into a Consolidated Group; Transfers of
Corporate Assets

     16   

Section 7.12

  

Confidentiality

     16   

Section 7.13

  

Representations

     16   

 

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TAX RECEIVABLE AGREEMENT

This TAX RECEIVABLE AGREEMENT (this “Agreement”), dated as of May 22, 2013, is
hereby entered into by and among Ply Gem Holdings, Inc., a Delaware corporation
(the “Corporate Taxpayer”) and PG ITR Holdco, L.P., a Delaware limited
partnership (the “ITR Entity”), and each of the successors and assigns thereto.
This Agreement shall be effective as of the date of the closing date of the IPO
(as defined below) (the “IPO Date”).

RECITALS

WHEREAS, following the IPO Date, the income, gain, loss, deduction and other Tax
(as defined below) items of the Corporate Taxpayer may be affected by the Tax
Benefits and the ITR Tax Benefits (each as defined below); and

WHEREAS, the parties to this Agreement desire to make certain arrangements with
respect to the effect of the Tax Benefits and the ITR Tax Benefits on the
liability for Taxes of the Corporate Taxpayer.

NOW THEREFORE, in consideration of the foregoing and the respective covenants
and agreements set forth herein, and intending to be legally bound hereby, the
parties hereto agree as follows:

ARTICLE I

DEFINITIONS

Section 1.1 Definitions. As used in this Agreement, the terms set forth in this
Article I shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined).

“Advisory Agreement” means the General Advisory Agreement, dated as of
February 12, 2004, between Ply Gem Industries, Inc. and CxCIC LLC, as amended,
restated, amended and restated or supplemented from time to time.

“Agreed Rate” means LIBOR plus 100 basis points.

“Agreement” is defined in the preamble.

“Amended Schedule” is defined in Section 2.3(b).

“Beneficial Owner” and “Beneficial Ownership” has the meaning set forth in Rule
13d-3 of the Exchange Act (as in effect as of the date hereof).

“Business Day” means Monday through Friday of each week, except that a legal
holiday recognized as such by the government of the United States of America or
the State of New York shall not be regarded as a Business Day.

“Change of Control” has the meaning set forth in the Stockholders’ Agreement as
in effect on the date hereof.

 

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“CI Partnerships” means Caxton-Iseman (Ply Gem), L.P. and Caxton-Iseman (Ply
Gem) II, L.P.

“Code” means the United States Internal Revenue Code of 1986, as amended.

“Common Stock” means the common stock, $0.01 par value per share, of the
Corporate Taxpayer.

“Corporate Taxpayer” is defined in the preamble.

“Corporate Taxpayer Group” is defined in Section 7.11(a).

“Corporate Taxpayer Return” means the federal, state or local Tax Return, as
applicable, of the Corporate Taxpayer filed with respect to Taxes of any Taxable
Year.

“Credit Agreements” means (i) the Credit Agreement, dated January 26, 2011, as
amended on August 11, 2011, September 21, 2012 and April 3, 2013, by and among
the Corporate Taxpayer, Ply Gem Industries, Inc., Ply Gem Canada, Inc., the
other borrowers named therein, each lender from time to time party thereto, UBS
AG, Stamford Branch, as U.S. Administrative Agent, U.S. Collateral Agent and a
U.S. L/C Issuer, UBS Loan Finance LLC, as U.S. Swing Line Lender, Wells Fargo
Bank, National Association, as a U.S. L/C Issuer, UBS AG Canada Branch, as
Canadian Administrative Agent, as Canadian Collateral Agent, as Canadian Swing
Line Lender, and as a Canadian L/C Issuer, Credit Suisse, as a U.S. L/C Issuer,
Credit Suisse, Toronto Branch, as a Canadian L/C Issuer, UBS Securities LLC, as
Joint Lead Arranger and Joint Bookrunner, and Wells Fargo Capital Finance, LLC,
as Co-Collateral Agent, Syndication Agent, Joint Lead Arranger and Joint
Bookrunner, including any notes, guarantees, collateral and security documents,
instruments and agreements executed in connection therewith, (ii) the Indenture,
dated as of February 11, 2011, among Ply Gem Industries, Inc., the Guarantors
party thereto and Wells Fargo Bank, National Association, as Trustee and
Noteholder Collateral Agent, including any notes, guarantees, collateral and
security documents, instruments and agreements executed in connection therewith,
and (iii) the Indenture, dated as of September 27, 2012, among Ply Gem
Industries, Inc., the Guarantors party thereto and Wells Fargo Bank, National
Association, as Trustee.

“Cumulative Net Realized Tax Benefit” for a Taxable Year means the cumulative
amount of Realized Tax Benefits for all Taxable Years of the Corporate Taxpayer,
up to and including such Taxable Year, net of the cumulative amount of Realized
Tax Detriments for the same period. The Realized Tax Benefit and Realized Tax
Detriment for each Taxable Year shall be determined based on the most recent Tax
Benefit Schedule or Amended Schedule, if any, in existence at the time of such
determination.

“Deductible Expenses” means United States federal, state and local deductions
available to the Corporate Taxpayer attributable to (i) payment of a fee to
terminate the Advisory Agreement, (ii) deductions for unamortized expenses
related to debt that is repaid with proceeds of the IPO, and (iii) deductions
for premiums and breakage expenses on debt that is repaid with proceeds of the
IPO.

 

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“Default Rate” means LIBOR plus 500 basis points.

“Determination” has the meaning ascribed to such term in Section 1313(a) of the
Code or similar provision of state and local tax law, as applicable, or any
other event (including the execution of IRS Form 870-AD) that finally and
conclusively establishes the amount of any liability for Tax.

“Dispute” is defined in Section 7.8(a).

“Early Termination Date” means the date of an Early Termination Notice for
purposes of determining the Early Termination Payment.

“Early Termination Effective Date” is defined in Section 4.2.

“Early Termination Notice” is defined in Section 4.2.

“Early Termination Schedule” is defined in Section 4.2.

“Early Termination Payment” is defined in Section 4.3(b).

“Early Termination Rate” means the lesser of (i) 6.5% per annum, compounded
annually, and (ii) LIBOR plus 100 basis points.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Expert” is defined in Section 7.9.

“Hypothetical Tax Liability” means, with respect to any Taxable Year, the
liability for Taxes of the Corporate Taxpayer using the same methods, elections,
conventions and similar practices used on the relevant Corporate Taxpayer
Return, but (i) without taking into account the use of Tax Benefits, if any, and
(ii) excluding any deduction attributable to the ITR Tax Benefits; provided,
that the Tax Benefits shall be based on the IPO Date Tax Benefit Disclosure
Letter including amendments thereto. For the avoidance of doubt, Hypothetical
Tax Liability shall be determined without taking into account the carryover or
carryback of any Tax item (or portions thereof) that is attributable to the Tax
Benefits or the ITR Tax Benefits.

“Independent Director” has the meaning set forth in the Stockholders’ Agreement
as in effect on the date hereof.

“Interest Amount” is defined in Section 3.1(b).

“IPO” means the initial public offering of the Common Stock.

“IPO Date” is defined in the preamble.

“IPO Date Tax Benefit Disclosure Letter” is defined in Section 2.1.

 

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“IRS” means the United States Internal Revenue Service or any successor agency
thereto.

“ITR Entity” is defined in the preamble.

“ITR Tax Benefits” means (i) any interest imputed under Section 1272, 1274 or
483 or other provision of the Code and any similar provision of state and local
tax law with respect to the Corporate Taxpayer’s payment obligations under this
Agreement and (ii) any other deductions available to the Corporate Taxpayer
attributable to its payment obligations under this Agreement.

“LIBOR” means during any period, an interest rate per annum equal to the
one-year LIBOR reported, on the date two (2) days prior to the first day of such
period, on the Telerate Page 3750 (or if such screen shall cease to be publicly
available, as reported on Reuters Screen page “LIBOR01” or by any other publicly
available source of such market rate) for London interbank offered rates for
United States dollar deposits for such period.

“Material Objection Notice” is defined in Section 4.2.

“Net Tax Benefit” is defined in Section 3.1(b).

“NOLs” means the United States federal, state and local net operating loss
carryovers of the Corporate Taxpayer from taxable periods (or portions thereof)
ending before January 1, 2013 that are available as a deduction in taxable
periods (or portions thereof) beginning after December 31, 2012.

“Objection Notice” is defined in Section 2.3(a)(i).

“Ownership Change” is defined in Section 6.4.

“Payment Date” means any date on which a payment is made pursuant to this
Agreement.

“Permitted Holders” has the meaning set forth in the Stockholders’ Agreement as
in effect on the date hereof.

“Person” means any individual, partnership, firm, corporation, limited liability
company, association, trust, unincorporated organization or other entity, as
well as any syndicate or group that would be deemed to be a person under
Section 13(d)(3) of the Exchange Act.

“Pre-IPO Stockholders” means the CI Partnerships and each other Person who owns
Common Stock immediately before the IPO.

“Realized Tax Benefit” means, for a Taxable Year, the excess, if any, of the
Hypothetical Tax Liability for such Taxable Year over the actual liability for
Taxes of the Corporate Taxpayer for such Taxable Year. If all or a portion of
the actual liability for such Taxes for the Taxable Year arises as a result of
an audit by a Taxing Authority of any Taxable Year, such liability shall not be
included in determining the Realized Tax Benefit unless and until there has been
a Determination.

 

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“Realized Tax Detriment” means, for a Taxable Year, the excess, if any, of the
actual liability for Taxes of the Corporate Taxpayer for such taxable Year over
the Hypothetical Tax Liability for such Taxable Year. If all or a portion of the
actual liability for such Taxes for the Taxable Year arises as a result of an
audit by a Taxing Authority of any Taxable Year, such liability shall not be
included in determining the Realized Tax Detriment unless and until there has
been a Determination.

“Reconciliation Dispute” is defined in Section 7.9.

“Reconciliation Procedures” is defined in Section 2.3(a).

“Schedule” means any of the following: (i) the IPO Date Tax Benefit Disclosure
Letter, (ii) a Tax Benefit Schedule, or (iii) the Early Termination Schedule.

“Section 382 Accountant” is defined in Section 6.4.

“Senior Obligations” is defined in Section 5.1.

“Stockholders’ Agreement” means the Second Amended and Restated Stockholders’
Agreement, dated as of May 22, 2013, by and among the Corporate Taxpayer, Ply
Gem Prime Holdings, Inc., the CI Partnerships, the management stockholders named
therein and, for purposes of certain sections only, Rajaconda Holdings, Inc.

“Subordination Agreement” means a subordination or intercreditor agreement
entered into among the ITR Entity, the Corporate Taxpayer and the holders of any
Senior Obligations (or their representative, agent or trustee) pursuant to which
the ITR Entity subordinates the obligations of the Corporate Taxpayer hereunder
to such Senior Obligations, as the same may be amended, supplemented or
otherwise modified.

“Tax Benefit Payment” is defined in Section 3.1(b).

“Tax Benefit Schedule” is defined in Section 2.2(a).

“Tax Benefits” means the NOLs and the Deductible Expenses.

“Tax Return” means any return, declaration, report or similar statement required
to be filed with respect to Taxes (including any attached schedules), including,
without limitation, any information return, claim for refund, amended return and
declaration of estimated Tax.

“Taxable Year” means a taxable year of the Corporate Taxpayer as defined in
Section 441(b) of the Code or comparable section of state or local tax law, as
applicable (and, therefore, for the avoidance of doubt, may include a period of
less than 12 months for which a Tax Return is made), ending on or after the IPO
Date.

 

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“Taxes” means any and all United States federal, state and local taxes,
assessments or similar charges that are based on or measured with respect to net
income or profits, and any interest related to such Tax.

“Taxing Authority” means any domestic, federal, national, state, county or
municipal or other local government, any subdivision, agency, commission or
authority thereof, or any quasi-governmental body exercising any taxing
authority or any other authority exercising Tax regulatory authority.

“Treasury Regulations” means the final and temporary Treasury regulations under
the Code promulgated from time to time (including corresponding provisions and
succeeding provisions) as in effect for the relevant taxable period.

“Valuation Assumptions” means, as of an Early Termination Date, the assumptions
that (a) (1) if such date occurs on or before December 31, 2013, the Corporate
Taxpayer will have (i) zero taxable income for the Taxable Year ending on or
before December 31, 2013, (ii) taxable income for the Taxable Year ending on or
before December 31, 2014 equal to the sum of (I) one-half of the Tax Benefits
and (II) all ITR Tax Benefits accrued in such Taxable Year and (iii) taxable
income for the Taxable Year ending on or before December 31, 2015 sufficient to
fully utilize the deduction attributable to any unutilized Tax Benefits and ITR
Tax Benefits, (2) if such date occurs after December 31, 2013 and on or before
December 31, 2014, the Corporate Taxpayer will have (i) taxable income for the
Taxable Year ending on or before December 31, 2013 that is equal to the
Corporate Taxpayer’s actual taxable income for such period, (ii) taxable income
for the Taxable Year ending on or before December 31, 2014 equal to the sum of
(I) one-half of the unutilized Tax Benefits and (II) all ITR Tax Benefits
accrued in such Taxable Year and (iii) taxable income for the Taxable Year
ending on or before December 31, 2015 sufficient to fully utilize the deduction
attributable to any unutilized Tax Benefits and ITR Tax Benefits and (3) if such
date occurs after December 31, 2014, the Corporate Taxpayer will have taxable
income for the Taxable Year in which such date occurs sufficient to fully
utilize the deduction attributable to any unutilized Tax Benefits and ITR Tax
Benefits, and (b) the United States federal, state and local income tax rates
that will be in effect for any Taxable Year beginning after such Early
Termination Date will be those specified for such Taxable Year by the Code and
other law as in effect on such Early Termination Date; provided, that for
purposes of clauses (a)(1)(ii)(II), (a)(1)(iii), (a)(2)(ii)(II), (a)(2)(iii) and
(a)(3), the amount of ITR Tax Benefits shall be determined by assuming that the
Corporate Taxpayer will make payments pursuant to Section 3.1(a) on the date
that is ninety-five (95) calendar days after the due date (including extensions)
of the United States federal income tax return of the Corporate Taxpayer.

ARTICLE II

DETERMINATION OF CERTAIN REALIZED TAX BENEFIT

Section 2.1 Disclosure Letter. The letter dated the date of this Agreement from
the ITR Entity to the Corporate Taxpayer shows, in reasonable detail necessary
to perform the calculations required by this Agreement, for purposes of Taxes,
estimates of (i) the NOLs, (ii) the scheduled expiration date (or dates) of such
NOLs and (iii) the Deductible Expenses (such letter, the “IPO Date Tax Benefit
Disclosure Letter”). From time to time after the IPO Date, the

 

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ITR Entity and the Corporate Taxpayer shall agree on an amended IPO Date Tax
Benefit Disclosure Letter (x) that reflects more accurate estimates of the
Deductible Expenses and (y) as required by the last sentence of Section 2.3(b).

Section 2.2 Tax Benefit Schedule.

(a) Tax Benefit Schedule. Within ninety (90) calendar days after the filing of
the United States federal income tax return of the Corporate Taxpayer for any
Taxable Year in which there is a Realized Tax Benefit or Realized Tax Detriment,
the Corporate Taxpayer shall provide to the ITR Entity a schedule showing, in
reasonable detail, the calculation of the Realized Tax Benefit or Realized Tax
Detriment for such Taxable Year (a “Tax Benefit Schedule”). The Tax Benefit
Schedule will become final as provided in Section 2.3(a) and may be amended as
provided in Section 2.3(b)).

(b) Applicable Principles. The Realized Tax Benefit or Realized Tax Detriment
for each Taxable Year is intended to measure the decrease or increase in the
actual liability for Taxes of the Corporate Taxpayer for such Taxable Year
attributable to the Tax Benefits and the ITR Tax Benefits, determined using a
“with and without” methodology. For the avoidance of doubt, the actual liability
for Taxes will take into account the deduction of the portion of the Tax Benefit
Payment that must be accounted for as interest under the Code based upon the
characterization of Tax Benefit Payments as additional consideration payable by
the Corporate Taxpayer for the acquisition of the shares of Common Stock in
connection with the IPO. Carryovers or carrybacks of any Tax item attributable
to the Tax Benefits and the ITR Tax Benefits shall be considered to be subject
to the rules of the Code and the Treasury Regulations or the appropriate
provisions of U.S. state and local income and franchise tax law, as applicable,
governing the use, limitation and expiration of carryovers or carrybacks of the
relevant type. If a carryover or carryback of any Tax item includes a portion
that is attributable to the Tax Benefits or the ITR Tax Benefits and another
portion that is not, such portions shall be considered to be used in accordance
with the “with and without” methodology.

Section 2.3 Procedures, Amendments.

(a) Procedure. Every time the Corporate Taxpayer delivers to the ITR Entity an
applicable Schedule under this Agreement, including any Amended Schedule
delivered pursuant to Section 2.3(b), but excluding any Early Termination
Schedule or amended Early Termination Schedule, the Corporate Taxpayer shall
also (x) deliver to the ITR Entity schedules and work papers, as determined by
the Corporate Taxpayer or requested by the ITR Entity, providing reasonable
detail regarding the preparation of the Schedule and (y) allow the ITR Entity
reasonable access at no cost to the appropriate representatives at the Corporate
Taxpayer, as determined by the Corporate Taxpayer or requested by the ITR
Entity, in connection with a review of such Schedule. Without limiting the
application of the preceding sentence, each time the Corporate Taxpayer delivers
to the ITR Entity a Tax Benefit Schedule, in addition to the Tax Benefit
Schedule duly completed, the Corporate Taxpayer shall deliver to the ITR Entity
the Corporate Taxpayer Return, the reasonably detailed calculation by the
Corporate Taxpayer of the Hypothetical Tax Liability, the reasonably detailed
calculation by the Corporate Taxpayer of the actual Tax liability, as well as
any other work papers as determined by the Corporate Taxpayer or requested by
the ITR Entity. An applicable Schedule or amendment thereto shall become

 

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final and binding on all parties thirty (30) calendar days from the first date
on which the ITR Entity has received the applicable Schedule or amendment
thereto unless the ITR Entity (i) within thirty (30) calendar days after
receiving an applicable Schedule or amendment thereto, provides the Corporate
Taxpayer with notice of a material objection to such Schedule (“Objection
Notice”) made in good faith or (ii) provides a written waiver of such right of
any Objection Notice within the period described in clause (i) above, in which
case such Schedule or amendment thereto becomes binding on the date the waiver
is received by the Corporate Taxpayer. If the parties, for any reason, are
unable to successfully resolve the issues raised in the Objection Notice within
thirty (30) calendar days after receipt by the Corporate Taxpayer of an
Objection Notice, the Corporate Taxpayer and the ITR Entity shall employ the
reconciliation procedures as described in Section 7.9 (the “Reconciliation
Procedures”).

(b) Amended Schedule. The applicable Schedule for any Taxable Year may be
amended from time to time by the Corporate Taxpayer (i) in connection with a
Determination affecting such Schedule, (ii) to correct inaccuracies in the
Schedule, (iii) to comply with the Expert’s determination under the
Reconciliation Procedures, (iv) to reflect a change in the Realized Tax Benefit
or Realized Tax Detriment for such Taxable Year attributable to a carryback or
carryforward of a loss or other Tax item to such Taxable Year, or (v) to reflect
a change in the Realized Tax Benefit or Realized Tax Detriment for such Taxable
Year attributable to an amended Tax Return filed for such Taxable Year (any such
Schedule, an “Amended Schedule”). The IPO Date Tax Benefit Disclosure Letter
shall be appropriately amended by the ITR Entity and the Corporate Taxpayer to
the extent that, as a result of a Determination, the Corporate Taxpayer is
required to calculate its Tax liability in a manner inconsistent with the IPO
Date Tax Benefit Disclosure Letter.

ARTICLE III

TAX BENEFIT PAYMENTS

Section 3.1 Payments.

(a) Payments. Within five (5) calendar days after a Tax Benefit Schedule
delivered to the ITR Entity becomes final in accordance with Section 2.3(a), the
Corporate Taxpayer shall pay to the ITR Entity for such Taxable Year the Tax
Benefit Payment determined pursuant to Section 3.1(b). Each such Tax Benefit
Payment shall be made by wire transfer of immediately available funds to the
bank account previously designated by the ITR Entity to the Corporate Taxpayer
or as otherwise agreed by the Corporate Taxpayer and the ITR Entity. For the
avoidance of doubt, no Tax Benefit Payment shall be made in respect of estimated
tax payments, including, without limitation, federal estimated income tax
payments. Notwithstanding anything herein to the contrary, in no event shall the
aggregate Tax Benefit Payments (excluding any amount accounted for as interest
under the Code) exceed $100 million in respect of the Corporate Taxpayer.

(b) A “Tax Benefit Payment” means an amount, not less than zero, equal to the
sum of the Net Tax Benefit and the Interest Amount. For the avoidance of doubt,
for Tax purposes, the Interest Amount shall not be treated as interest but shall
instead be treated as additional consideration for the acquisition of the assets
or stock of the Corporate Taxpayer in connection with the IPO, unless otherwise
required by law. The “Net Tax Benefit” for a Taxable

 

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Year shall be an amount equal to the excess, if any, of 85% of the Cumulative
Net Realized Tax Benefit as of the end of such Taxable Year over the total
amount of payments previously made under this Section 3.1 (excluding payments
attributable to Interest Amounts); provided, for the avoidance of doubt, that
the ITR Entity shall not be required to return any portion of any previously
made Tax Benefit Payment. The “Interest Amount” shall equal the interest on the
Net Tax Benefit calculated at the Agreed Rate from the due date (without
extensions) for filing the Corporate Taxpayer Return with respect to Taxes for
such Taxable Year until the Payment Date. Notwithstanding the foregoing, for
each Taxable Year ending on or after the date of a Change of Control, all Tax
Benefit Payments shall be calculated by utilizing Valuation Assumptions
substituting the terms “the closing date of a Change of Control” for an “Early
Termination Date” in the definition thereof.

Section 3.2 No Duplicative Payments. It is intended that the provisions of this
Agreement will not result in duplicative payment of any amount (including
interest) required under this Agreement. It is also intended that the provisions
of this Agreement provide that Tax Benefit Payments are paid to the ITR Entity
pursuant to this Agreement. The provisions of this Agreement shall be construed
in the appropriate manner to ensure such intentions are realized.

ARTICLE IV

TERMINATION

Section 4.1 Early Termination and Breach of Agreement.

(a) With the written approval of a majority of the Independent Directors, the
Corporate Taxpayer may terminate this Agreement with respect to all amounts
payable to the ITR Entity at any time by paying to the ITR Entity the Early
Termination Payment; provided, however, that this Agreement shall terminate only
upon the receipt of the Early Termination Payment by the ITR Entity; provided,
further, that the Corporate Taxpayer may withdraw any notice to execute its
termination rights under this Section 4.1(a) prior to the time at which any
Early Termination Payment has been paid. Upon payment of the Early Termination
Payment by the Corporate Taxpayer, neither the ITR Entity nor the Corporate
Taxpayer shall have any further payment obligations under this Agreement, other
than for any (i) Tax Benefit Payment agreed to by the Corporate Taxpayer and the
ITR Entity as due and payable but unpaid as of the Early Termination Notice and
(ii) Tax Benefit Payment due for the Taxable Year ending with or including the
date of the Early Termination Notice (except to the extent that the amount
described in this clause (ii) is included in the Early Termination Payment).

(b) In the event that (x) the Corporate Taxpayer breaches any of its material
obligations under this Agreement, whether as a result of failure to make any
payment when due or failure to honor any other material obligation required
hereunder or (y) a case is commenced under the Bankruptcy Code against the
Corporate Taxpayer and not dismissed in sixty (60) days or by the Corporate
Taxpayer, then, in the case of clause (x) upon notice from the ITR Entity and in
the case of clause (b) automatically, all obligations hereunder shall be
accelerated and such obligations shall be calculated as if an Early Termination
Notice had been delivered on the date of such event and shall include, but not
be limited to, (i) the Early Termination Payment calculated as if an Early
Termination Notice had been delivered on the date of such event, (ii) any Tax
Benefit Payment agreed to by the Corporate Taxpayer and the ITR Entity as due
and

 

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payable but unpaid as of the date of such event, and (iii) any Tax Benefit
Payment due for the Taxable Year ending with or including the date of such
event. Notwithstanding the foregoing, in the event that the Corporate Taxpayer
breaches this Agreement, the ITR Entity shall be entitled to elect to receive
the amounts set forth in clauses (i), (ii) and (iii) above or to seek specific
performance of the terms hereof. The parties agree that the failure to make any
payment due pursuant to this Agreement within three months of the date such
payment is due shall be deemed to be a breach of a material obligation under
this Agreement for all purposes of this Agreement, and that it will not be
considered to be a breach of a material obligation under this Agreement to make
a payment due pursuant to this Agreement until three months of the date such
payment is due. Notwithstanding anything in this Agreement to the contrary, it
shall not be a breach of this Agreement if the Corporate Taxpayer fails to make
any Tax Benefit Payment when due to the extent that the Corporate Taxpayer has
insufficient funds to make such payment; provided, that the interest provisions
of Section 5.2 shall apply to such late payment at the Default Rate (unless the
reason Corporate Taxpayer does not have sufficient cash to make such payment is
a result of limitations imposed by the Credit Agreements, in which case, the
Agreed Rate shall apply in lieu of the Default Rate).

Section 4.2 Early Termination Notice. If the Corporate Taxpayer chooses to
exercise its right of early termination under Section 4.1 above, the Corporate
Taxpayer shall deliver to the ITR Entity notice of such intention to exercise
such right (“Early Termination Notice”) and a schedule (the “Early Termination
Schedule”) specifying the Corporate Taxpayer’s intention to exercise such right
and showing in reasonable detail the calculation of the Early Termination
Payment for the ITR Entity. The Early Termination Schedule shall become final
and binding on all parties thirty (30) calendar days from the first date on
which the ITR Entity has received such Schedule or amendment thereto unless the
ITR Entity (i) within thirty (30) calendar days after receiving the Early
Termination Schedule, provides the Corporate Taxpayer with notice of a material
objection to such Schedule made in good faith (“Material Objection Notice”) or
(ii) provides a written waiver of such right of a Material Objection Notice
within the period described in clause (i) above, in which case such Schedule
becomes binding on the date the waiver is received by the Corporate Taxpayer
(the “Early Termination Effective Date”). If the parties, for any reason, are
unable to successfully resolve the issues raised in such notice within thirty
(30) calendar days after receipt by the Corporate Taxpayer of the Material
Objection Notice, the Corporate Taxpayer and the ITR Entity shall employ the
Reconciliation Procedures.

Section 4.3 Payment upon Early Termination.

(a) Within three (3) calendar days after the Early Termination Effective Date,
the Corporate Taxpayer shall pay to the ITR Entity an amount equal to the Early
Termination Payment. Such payment shall be made by wire transfer of immediately
available funds to a bank account or accounts designated by the ITR Entity or as
otherwise agreed by the Corporate Taxpayer and the ITR Entity.

(b) “Early Termination Payment” shall equal the present value, discounted at the
Early Termination Rate as of the Early Termination Effective Date, of all Tax
Benefit Payments that would be required to be paid by the Corporate Taxpayer to
the ITR Entity beginning from the Early Termination Date and applying the
Valuation Assumptions.

 

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ARTICLE V

SUBORDINATION AND LATE PAYMENTS

Section 5.1 Subordination. Notwithstanding any other provision of this Agreement
to the contrary, any Tax Benefit Payment or Early Termination Payment required
to be made by the Corporate Taxpayer to the ITR Entity under this Agreement
shall rank subordinate and junior in right of payment pursuant to a
Subordination Agreement to any principal, interest (including, without
limitation, all interest accruing after the commencement of a case under the
Bankruptcy Code against the Corporate Taxpayer whether or not allowed as a claim
in such proceeding) or other amounts due and payable in respect of the Credit
Agreements (collectively, the “Senior Obligations”) and shall rank pari passu
with all current or future unsecured obligations of the Corporate Taxpayer that
are not Senior Obligations.

Section 5.2 Late Payments by the Corporate Taxpayer. The amount of all or any
portion of any Tax Benefit Payment or Early Termination Payment not made to the
ITR Entity when due under the terms of this Agreement shall be payable together
with any interest thereon, computed at the Default Rate and commencing from the
date on which such Tax Benefit Payment or Early Termination Payment was due and
payable.

ARTICLE VI

NO DISPUTES; CONSISTENCY; COOPERATION

Section 6.1 Participation in the Corporate Taxpayer’s Tax Matters. Except as
otherwise provided herein, the Corporate Taxpayer shall have full responsibility
for, and sole discretion over, all Tax matters concerning the Corporate
Taxpayer, including without limitation the preparation, filing or amending of
any Tax Return and defending, contesting or settling any issue pertaining to
Taxes. Notwithstanding the foregoing, the Corporate Taxpayer shall notify the
ITR Entity of, and keep the ITR Entity reasonably informed with respect to, the
portion of any audit of the Corporate Taxpayer by a Taxing Authority the outcome
of which is reasonably expected to affect the rights and obligations of the ITR
Entity under this Agreement, and shall provide to the ITR Entity reasonable
opportunity to provide information and other input to the Corporate Taxpayer and
its advisors concerning the conduct of any such portion of such audit.

Section 6.2 Consistency. The Corporate Taxpayer and the ITR Entity agree to
report and cause to be reported for all purposes, including federal, state and
local Tax purposes and financial reporting purposes, all Tax-related items
(including, without limitation, each Tax Benefit Payment) in a manner consistent
with that specified by the Corporate Taxpayer in any Schedule required to be
provided by or on behalf of the Corporate Taxpayer under this Agreement unless
otherwise required by law.

Section 6.3 Cooperation in Audit. The ITR Entity shall (a) furnish to the
Corporate Taxpayer in a timely manner such information, documents and other
materials as the Corporate Taxpayer may reasonably request for purposes of
making any determination or computation necessary or appropriate under this
Agreement, preparing any Tax Return or contesting or defending any audit,
examination or controversy with any Taxing Authority, (b) make itself available
to the Corporate Taxpayer and its representatives to provide explanations of
documents and materials and such other information as the Corporate Taxpayer or
its

 

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representatives may reasonably request in connection with any of the matters
described in clause (a) above, and (c) reasonably cooperate in connection with
any such matter, and the Corporate Taxpayer shall reimburse the ITR Entity for
any reasonable third-party costs and expenses incurred pursuant to this Section.

Section 6.4 Cooperation Regarding Section 382 Compliance. The Corporate Taxpayer
and the ITR Entity recognize that they have a mutual interest in having accurate
information and calculations regarding the presence or absence of an “ownership
change,” as defined in Section 382(g) of the Code (an “Ownership Change”). The
Corporate Taxpayer agrees to retain an accounting firm that is nationally
recognized as being expert in Tax matters and that is reasonably acceptable to
the ITR Entity (the “Section 382 Accountant”) to monitor all information
relevant to determining whether there has been an Ownership Change. The
Corporate Taxpayer and the ITR Entity each shall (and the ITR Entity shall cause
each of its direct and indirect owners to) promptly furnish the Section 382
Accountant with information, documents and other materials requested by the
Section 382 Accountant in connection with its evaluation of the presence or
absence of an Ownership Change, all as requested from time to time by the
Section 382 Accountant. The Corporate Taxpayer shall ask the Section 382
Accountant to produce periodic reports regarding the presence or absence of an
Ownership Change, which reports shall indicate the extent of the changes in
stock ownership by “5-percent shareholders” for purposes of Section 382 of the
Code, and the Corporate Taxpayer agrees to deliver to the ITR Entity promptly
upon receipt copies of any such reports generated by the Section 382 Accountant.

ARTICLE VII

MISCELLANEOUS

Section 7.1 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed duly given and
received (a) on the date of delivery if delivered personally, or by facsimile
upon confirmation of transmission by the sender’s fax machine if sent on a
Business Day (or otherwise on the next Business Day) or (b) on the first
Business Day following the date of dispatch if delivered by a recognized
next-day courier service. All notices hereunder shall be delivered as set forth
below, or pursuant to such other instructions as may be designated in writing by
the party to receive such notice:

If to the Corporate Taxpayer, to:

5020 Weston Parkway

Suite 400

Cary, North Carolina 27513

Attention: General Counsel

Telecopy: (919) 677-3914

with a copy to:

Carl L. Reisner, Esq.

Paul, Weiss, Rifkind, Wharton & Garrison LLP

1285 Avenue of the Americas

New York, New York 10019-6064

Fax: (212) 757-3990

 

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If to the ITR Entity, to:

c/o CI Capital Partners LLC

500 Park Avenue

8th Floor

New York, New York 10022

Attention: General Counsel

Telecopy: (212) 832-9450

Any party may change its address or fax number by giving the other party written
notice of its new address or fax number in the manner set forth above.

Section 7.2 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart. Delivery of an executed signature
page to this Agreement by facsimile transmission shall be as effective as
delivery of a manually signed counterpart of this Agreement.

Section 7.3 Entire Agreement; No Third Party Beneficiaries. This Agreement
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof. This Agreement shall be binding upon and inure solely to
the benefit of each party hereto and their respective successors and permitted
assigns, and nothing in this Agreement, express or implied, is intended to or
shall confer upon any other Person any right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement.

Section 7.4 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the law of the State of New York, without regard to the
conflicts of laws principles thereof that would mandate the application of the
laws of another jurisdiction.

Section 7.5 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any law or public policy, all
other terms and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner in order that the
transactions contemplated hereby are consummated as originally contemplated to
the greatest extent possible.

 

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Section 7.6 Successors; Assignment; Amendments; Waivers.

(a) The ITR Entity may assign any of its rights under this Agreement to any
Person as long as such transferee has executed and delivered, or, in connection
with such transfer, executes and delivers, a joinder to this Agreement, in form
and substance reasonably satisfactory to the Corporate Taxpayer, agreeing to
become an ITR Entity for all purposes of this Agreement, except as otherwise
provided in such joinder.

(b) No provision of this Agreement may be amended unless such amendment is
approved in writing by both the Corporate Taxpayer and the ITR Entity; provided,
that the definition of Change of Control cannot be amended without the written
approval of a majority of the Independent Directors. No provision of this
Agreement may be waived unless such waiver is in writing and signed by the party
against whom the waiver is to be effective.

(c) All of the terms and provisions of this Agreement shall be binding upon,
shall inure to the benefit of and shall be enforceable by the parties hereto and
their respective successors, assigns, heirs, executors, administrators and legal
representatives. The Corporate Taxpayer shall require and cause any direct or
indirect successor (whether by purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets of the Corporate Taxpayer, by
written agreement, expressly to assume and agree to perform this Agreement in
the same manner and to the same extent that the Corporate Taxpayer would be
required to perform if no such succession had taken place.

Section 7.7 Titles and Subtitles. The titles of the sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.

Section 7.8 Resolution of Disputes. Except to the extent provided in
Section 7.9:

(a) Any and all disputes which cannot be settled amicably, including any
ancillary claims of any party, arising out of, relating to or in connection with
the validity, negotiation, execution, interpretation, performance or
non-performance of this Agreement (including the validity, scope and
enforceability of this arbitration provision) (each, a “Dispute”) shall be
finally settled by arbitration conducted by a single arbitrator in New York in
accordance with the then-existing Rules of Arbitration of the International
Chamber of Commerce. If the parties to the Dispute fail to agree on the
selection of an arbitrator within ten (10) days of the receipt of the request
for arbitration, the International Chamber of Commerce shall make the
appointment. The arbitrator shall be a lawyer admitted to the practice of law in
the State of New York and shall conduct the proceedings in the English language.
Performance under this Agreement shall continue if reasonably possible during
any arbitration proceedings.

(b) Notwithstanding the provisions of paragraph (a), either party may bring an
action or special proceeding in any court of competent jurisdiction for the
purpose of compelling a party to arbitrate, seeking temporary or preliminary
relief in aid of an arbitration hereunder, and/or enforcing an arbitration award
and, for the purposes of this paragraph (b), each party (i) expressly consents
to the application of paragraph (c) of this Section 7.8 to any

 

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such action or proceeding and (ii) agrees that proof shall not be required that
monetary damages for breach of the provisions of this Agreement would be
difficult to calculate and that remedies at law would be inadequate.

(c) (i) EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF COURTS
LOCATED IN NEW YORK, NEW YORK FOR THE PURPOSE OF ANY JUDICIAL PROCEEDING BROUGHT
IN ACCORDANCE WITH THE PROVISIONS OF THIS SECTION 7.8, OR ANY JUDICIAL
PROCEEDING ANCILLARY TO AN ARBITRATION OR CONTEMPLATED ARBITRATION ARISING OUT
OF OR RELATING TO OR CONCERNING THIS AGREEMENT. Such ancillary judicial
proceedings include any suit, action or proceeding to compel arbitration, to
obtain temporary or preliminary judicial relief in aid of arbitration, or to
confirm an arbitration award. The parties acknowledge that the for a designated
by this paragraph (c) have a reasonable relation to this Agreement, and to the
parties’ relationship with one another; and

(ii) The parties hereby waive, to the fullest extent permitted by applicable
law, any objection which they now or hereafter may have to personal jurisdiction
or to the laying of venue of any such ancillary suit, action or proceeding
brought in any court referred to in the preceding paragraph of this Section 7.8
and such parties agree not to plead or claim the same.

Section 7.9 Reconciliation. In the event that the Corporate Taxpayer and the ITR
Entity are unable to resolve a disagreement with respect to the matters governed
by Sections 2.3, 4.2 and 6.2 within the relevant period designated in this
Agreement (“Reconciliation Dispute”), the Reconciliation Dispute shall be
submitted for determination to a nationally recognized expert (the “Expert”) in
the particular area of disagreement mutually acceptable to both parties. The
Expert shall be a partner or principal in a nationally recognized accounting or
law firm, and unless the Corporate Taxpayer and the ITR Entity agree otherwise,
the Expert shall not, and the firm that employs the Expert shall not, have any
material relationship with the Corporate Taxpayer or the ITR Entity or other
actual or potential conflict of interest. If the parties are unable to agree on
an Expert within fifteen (15) days of receipt by the respondent(s) of written
notice of a Reconciliation Dispute, the Expert shall be appointed by the
International Chamber of Commerce Centre for Expertise. The Expert shall resolve
any matter relating to the IPO Date Tax Benefit Disclosure Letter or an
amendment thereto or the Early Termination Schedule or an amendment thereto
within thirty (30) calendar days and shall resolve any matter relating to a Tax
Benefit Schedule or an amendment thereto within fifteen (15) calendar days or as
soon thereafter as is reasonably practicable, in each case after the matter has
been submitted to the Expert for resolution. Notwithstanding the preceding
sentence, if the matter is not resolved before any payment that is the subject
of a disagreement would be due (in the absence of such disagreement) or any Tax
Return reflecting the subject of a disagreement is due, the undisputed amount
shall be paid on the date prescribed by this Agreement and such Tax Return may
be filed as prepared by the Corporate Taxpayer, subject to adjustment or
amendment upon resolution. The costs and expenses relating to the engagement of
such Expert or amending any Tax Return shall be borne by the Corporate Taxpayer
except as provided in the next sentence. The Corporate Taxpayer and the ITR
Entity shall bear their own costs and expenses of such proceeding, unless
(i) the Expert adopts the ITR Entity’s position, in which case the Corporate
Taxpayer shall reimburse the ITR Entity for any reasonable out-of-pocket costs
and expenses in such proceeding, or (ii) the Expert adopts the Corporate
Taxpayer’s position, in which case the ITR Entity shall reimburse the Corporate
Taxpayer for any reasonable out-of-pocket costs and expenses in

 

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such proceeding. Any dispute as to whether a dispute is a Reconciliation Dispute
within the meaning of this Section 7.9 shall be decided by the Expert. The
Expert shall finally determine any Reconciliation Dispute and the determinations
of the Expert pursuant to this Section 7.9 shall be binding on the Corporate
Taxpayer and the ITR Entity and may be entered and enforced in any court having
jurisdiction.

Section 7.10 Withholding. The Corporate Taxpayer shall be entitled to deduct and
withhold from any payment payable pursuant to this Agreement such amounts as the
Corporate Taxpayer is required to deduct and withhold with respect to the making
of such payment under the Code or any provision of state, local or foreign tax
law. To the extent that amounts are so withheld and paid over to the appropriate
Taxing Authority by the Corporate Taxpayer, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the ITR
Entity.

Section 7.11 Admission of the Corporate Taxpayer into a Consolidated Group;
Transfers of Corporate Assets.

(a) If the Corporate Taxpayer is or becomes a member of an affiliated group of
corporations that files a consolidated income tax return pursuant to Sections
1501–1563 of the Code or any corresponding provisions of state or local law (the
“Corporate Taxpayer Group”), then: (i) the provisions of this Agreement shall be
applied with respect to the Corporate Taxpayer Group as a whole; and (ii) Tax
Benefit Payments, Early Termination Payments and other applicable items
hereunder shall be computed with reference to the consolidated taxable income of
the Corporate Taxpayer Group as a whole.

(b) If any entity that is obligated to make a Tax Benefit Payment or Early
Termination Payment hereunder transfers one or more assets to a corporation (or
a Person taxable as a corporation for U.S. income tax purposes) with which such
entity does not file a consolidated tax return pursuant to Section 1501 of the
Code or any corresponding provisions of state or local law, such entity, for
purposes of calculating the amount of any Tax Benefit Payment or Early
Termination Payment (e.g., calculating the gross income of the entity and
determining the Realized Tax Benefit of such entity) due hereunder, shall be
treated as having disposed of such asset in a fully taxable transaction on the
date of such contribution. The consideration deemed to be received by such
entity shall be equal to the fair market value of the contributed asset. For
purposes of this Section 7.11, a transfer of a partnership interest shall be
treated as a transfer of the transferring partner’s share of each of the assets
and liabilities of that partnership.

Section 7.12 Confidentiality. Section 6.8 of the Stockholders’ Agreement shall
apply to the parties hereto mutatis mutandis as if the ITR Entity were a
“Pre-IPO Stockholder” (as defined in the Stockholders’ Agreement).

Section 7.13 Representations. The ITR Entity hereby represents that the Pre-IPO
Stockholders have contributed to the ITR Entity, and the ITR Entity has
received, all of the Pre-IPO Stockholders’ rights to receive payments in respect
of the Corporate Taxpayer’s cash Tax savings attributable to various Tax
benefits that are subject to this Agreement (including their rights under this
Agreement).

 

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IN WITNESS WHEREOF, the Corporate Taxpayer and the ITR Entity have duly executed
this Agreement as of the date first written above.

 

CORPORATE TAXPAYER: PLY GEM HOLDINGS, INC. By:  

/s/ Shawn K. Poe

  Name:  

Shawn K. Poe

  Title:  

Vice President and Chief Financial Officer

ITR ENTITY: PG ITR HOLDCO, L.P. By:   Rajaconda Holdings, Inc., its general
partner By:  

/s/ Frederick J. Iseman

  Name:  

Frederick J. Iseman

  Title:  

President

[Signature Page to Tax Receivable Agreement]