SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1997
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ----------- to ------------
Commission File Number: 0-7304
---------------------------
DYNAMICS CORPORATION OF AMERICA
- --------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW YORK 13-0579260
- ---------------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
475 Steamboat Road, Greenwich, Connecticut 06830-7197
- --------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(203) 869-3211
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(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of April 29, 1997:
Voting 3,835,226
Non-Voting 3,571
DYNAMICS CORPORATION OF AMERICA
AND SUBSIDIARIES
INDEX
Page No.
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
As of March 31, 1997 and December 31, 1996 3
Condensed Consolidated Statements of
Income - For the Three Months
Ended March 31, 1997 and 1996 4
Condensed Consolidated Statement of
Stockholders' Equity - For the Three
Months Ended March 31, 1997 5
Condensed Consolidated Statements of
Cash Flows - For the Three Months
Ended March 31, 1997 and 1996 6
Notes to Condensed Consolidated Financial
Statements 7 - 10
Item 2. Management's Discussion and
Analysis of Results of Operations
and Financial Condition 11 - 13
Part II - Other Information:
Item 6. Exhibits and Reports on Form 8-K 14 - 15
--------------------------------
Signature Page 16
Part 1 - Financial Information
Item 1 - Financial Statements
<TABLE>
<CAPTION>
DYNAMICS CORPORATION OF AMERICA
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AT MARCH 31, 1997 (Unaudited) and DECEMBER 31, 1996
(DOLLAR AMOUNTS IN THOUSANDS)
March 31, December 31,
ASSETS 1997 1996
------ --------- ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 902 $ 1,146
Accounts Receivable, less allowances of
$548 and $536 21,465 19,583
Inventories - Note 1 24,824 22,624
Other current assets 1,527 1,196
Deferred income taxes 4,668 4,801
---------- ----------
TOTAL CURRENT ASSETS 53,386 49,350
Property, Plant and Equipment - at cost, less
accumulated depreciation and amortization of
$37,411 and $37,113 6,126 5,121
Equity Investment in CTS Corporation - Notes
2 and 6 86,478 84,046
Other Assets 2,236 2,219
---------- ----------
TOTAL ASSETS $ 148,226 $ 140,736
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current installments of long-term debt $ 49 $ 50
Accounts payable 7,380 6,898
Accrued expenses and sundry liabilities 15,925 15,291
Federal income taxes payable 1,934 1,578
---------- ----------
TOTAL CURRENT LIABILITIES 25,288 23,817
Long-term Debt - Note 3 2,862 374
Other Liabilities 1,314 1,269
Deferred Income Taxes 394 238
---------- ----------
TOTAL LIABILITIES 29,858 25,698
Contingencies - Note 7
Stockholders' Equity:
Preferred stock, par value $1 per share --
authorized 894,000 shares - none
issued
Series A Participating Preferred Stock, par
value $1 per share - authorized
106,000 shares - none issued
Stockholders' equity - see accompanying
statement 118,368 115,038
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 148,226 $ 140,736
========== ==========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
DYNAMICS CORPORATION OF AMERICA
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
Unaudited
For the three months
ended March 31,
1997 1996
<S> <C> <C>
Net sales $ 30,402 $ 27,864
Cost of sales 22,211 22,789
----------- ----------
Gross profit 8,191 5,075
Selling, general and administrative expenses 6,192 6,556
----------- ----------
1,999 (1,481)
Other income (expense), net - Note 4 (140) 117
----------- ----------
Income (loss) before items shown below 1,859 (1,364)
Income tax charge (benefit) - Note 5 688 (530)
----------- -----------
Income (loss) before equity in CTS Corporation 1,171 (834)
Income from equity investment in CTS Corporation,
including income tax charge (benefit) of
$209 and $(2,332) - Notes 2 and 6 2,637 4,060
----------- ----------
Income from continuing operations 3,808 3,226
Reclassification of provision for Fermont
disposition, including income tax charge
of $160 251
----------- ----------
Net income $ 3,808 $ 3,477
=========== ==========
Weighted average number of common and common
equivalent shares outstanding 3,820,212 3,827,776
=========== ==========
Income per common share:
Continuing operations $ 1.00 $ .84
Reclassification of provision for Fermont
disposition .07
----------- ----------
Net income $ 1.00 $ .91
=========== ==========
Dividends per common share $ .10 $ .10
=========== ==========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
DYNAMICS CORPORATION OF AMERICA
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(DOLLAR AMOUNTS IN THOUSANDS)
Unaudited
Common Stock
(Authorized 10,000,000
voting shares and 600,000
non-voting shares) Paid-in Total
Shares Additional Retained Deferred Stockholders'
Outstanding* Par Value Capital Earnings Compensation Equity
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 3,810,810 $381 $11,518 $103,365 $(226) $115,038
Shares issued and issuable
from treasury pursuant to
benefit plans 11,000 1 341 (329) 13
Shares acquired for
treasury and pursuant to
benefit plans (4,745) (82) (51) (133)
Amortization of deferred
compensation 24 24
Net income 3,808 3,808
Cash dividends (382) (382)
--------- ---- ------- --------- ------- ---------
Balance at March 31, 1997 3,817,065 $382 $11,777 $106,740 $(531) $118,368
========= ==== ======= ======== ====== ========
</TABLE>
* Net of shares held in treasury at $.10 par value per share (3,358,096
voting shares at March 31, 1997 and 3,364,351 voting shares at December
31, 1996). The cumulative cost of treasury shares held at March 31, 1997
amounted to approximately $35,700. Includes non-voting shares outstanding
of 3,572 at March 31, 1997.
See accompanying notes to condensed consolidated financial statements.
<TABLE>
<CAPTION>
DYNAMICS CORPORATION OF AMERICA
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(DOLLAR AMOUNTS IN THOUSANDS)
Unaudited
March 31, March 31,
1997 1996
<S> <C> <C>
Operating activities:
Net income $3,808 $3,477
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 382 295
Deferred income taxes 289 (2,357)
Income before income taxes from equity
investment in CTS (2,847) (1,728)
Dividends from CTS 415 346
Decrease (increase) in other assets (17) 104
Increase in other liabilities 45 40
Issuance of Company common stock 13 10
Other--net 24 38
Changes in operating assets and liabilities:
Accounts receivable (1,882) (128)
Inventories (2,200) 530
Other current assets (331) (1,659)
Accounts payable, accrued expenses and
sundry liabilities 1,116 (218)
Federal income taxes payable 356 102
----- -----
Net cash used in operating activities (829) (1,148)
----- ------
Investing activities:
Purchases of property, plant and equipment (1,387) (618)
------ ------
Net cash used in investing activities (1,387) (618)
------ ------
Financing activities:
Principal payments under capital
lease obligations (13) (17)
Borrowings under lines of credit 2,500 1,000
Purchases of treasury stock (133) (324)
Dividends paid (382) (383)
---- -----
Net cash provided by financing activities 1,972 276
------- -----
Decrease in cash and cash equivalents (244) (1,490)
Cash and cash equivalents at beginning of period 1,146 1,767
------ -----
Cash and cash equivalents at end of period $ 902 $ 277
====== ======
See accompanying notes to condensed consolidated financial statements.
</TABLE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not
include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion
of Management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 1997 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1997. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31,
1996.
Note 1 - Inventories:
Quarterly inventories are estimated based on perpetual inventory records
of the Company and the gross profit method under the first-in, first-out
and the last-in, first-out methods.
Inventories are summarized as follows:
March 31, December 31,
1997 1996
(in thousands)
Raw materials and supplies $ 6,050 $ 6,276
Work in process 7,260 7,024
Finished goods 4,493 5,466
--------- ---------
17,803 18,766
--------- ---------
Inventories subject to progress billings 10,215 5,184
Progress billings (3,194) (1,326)
--------- ---------
7,021 3,858
--------- ---------
$ 24,824 $ 22,624
========= =========
Note 2 - Equity Investment in CTS Corporation:
At March 31, 1997, the Company's holdings aggregated 2,303,100 shares of
CTS Corporation ("CTS") common stock, unchanged from year-end, and the
Company's percentage of equity ownership in CTS remained at 44.1%.
The market value of the Company's investment in CTS amounted to
$117,458,000 at March 31, 1997 and $98,458,000 at December 31, 1996. The
market value at May 12, 1997 was $141,065,000. Under the Control Share
Acquisitions Chapter of the Indiana Business Corporation Law, 1,020,000
of the Company's shares of CTS common stock presently have no voting
rights.
Note 2 - Equity Investment in CTS Corporation (continued):
Summarized unaudited financial information derived from CTS' Quarterly
Report on Form 10-Q for the quarter ended March 30, 1997 follows:
Three Months Ended
March 30, March 31,
1997 1996
(in thousands)
Net sales $ 91,269 $ 80,186
========= =========
Gross profit $ 25,291 $ 19,799
========= =========
Net earnings $ 6,954 $ 4,414
========= =========
The Company's reported share of CTS' net earnings in the first quarter of
1996 increased by $2,466,000, or $.64 per share, for the favorable
adjustment to taxes previously provided on the Company's cumulative share
of CTS' undistributed earnings through January 1, 1996.
Note 3 - Long-Term Debt:
The Company had $2,500,000 outstanding under its Revolving Credit
Agreement with banks at March 31, 1997.
Note 4 - Other Income (Expense), Net:
Three Months Ended
March 31,
1997 1996
(in thousands)
Interest:
Income $ 2 $ 9
Expense (15) (58)
------- -------
(13) (49)
Other, net (127) 166
------- -------
($140) $ 117
======= =======
Note 5 - Income Tax Charge (Benefit):
The effective rates for tax charges (benefits) for the three months ended
March 31, 1997 and 1996 exceeded the Federal statutory rate due to the
effect of state income taxes.
Note 6 - Unsolicited Tender Offer and CTS Merger Agreement:
On March 31, 1997, WHX Corporation ("WHX") announced an unsolicited
tender offer to acquire up to 649,000 shares of the Company's common
stock at $40 per share. WHX subsequently amended the offer and is now
offering to purchase any and all outstanding shares at $45 per share. The
Company's Board of Directors has unanimously determined that the WHX
offer is inadequate and is not in the best interests of the Company and
its stockholders and unanimously recommends that stockholders reject the
WHX offer and not tender any of their shares to WHX. WHX has also
announced a proxy contest to, among other things, replace members of the
Company's Board of Directors at the Company's Annual Meeting of
Stockholders, originally scheduled for May 2, 1997 and subsequently
postponed to August 1, 1997.
On May 9, 1997, the Company and CTS executed an Agreement and Plan of
Merger providing that CTS will commence a tender offer for 49.9% of the
outstanding common shares at $55 cash per share to be followed by a
merger in which each remaining common share will be converted into the
right to receive 0.88 shares of CTS common stock. The consummation of the
merger is subject to approval by the stockholders of the Company and CTS
and to other customary conditions.
Note 7 - Contingencies:
The Company is a supplier to the United States Government under contracts
and subcontracts on which there are cost allocation, cost allowability
and compliance issues under examination by various agencies or
departments of the Federal government. In the course of the resolution of
these issues, the Company may be required to adjust certain prices or
refund certain payments on its government contracts and subcontracts. The
Company believes that any such price adjustments or refunds will not have
a materially adverse effect on the financial position or results of
operations of the Company.
The Company has been notified by the U.S. Environmental Protection Agency
("EPA") that it is a Potentially Responsible Party ("PRP") regarding
hazardous waste cleanup in the vicinity of a Company site in California,
and has elected to participate in the allocation of responsibility
proceedings conducted by the PRP group formed in connection therewith. In
February 1996, the Company settled the past costs portion of a 1995
lawsuit by a state environmental agency to recover past and future
response costs related to the cleanup of a non-Company site in
Pennsylvania as to which the Company was earlier designated a PRP; and
the Company has also been sued by certain of the PRPs who have agreed
with the state agency to fund other past response costs at that site to
recover a portion of those costs from the Company and other PRPs who have
not agreed to participate in such funding. The Company is also a
defendant in two lawsuits seeking contribution for Superfund cleanup
costs relating to two other non-Company sites in that state. Based upon
its knowledge of the extent of the Company's exposure and current
statutes, rules and regulations, and emerging alternative remedial
approaches, management believes that the anticipated costs resulting from
claims and proceedings with respect to the above mentioned sites,
including remediation, the extent and cost of which are presently
unknown, will not materially affect the financial position of the
Company. However, it is possible, but unanticipated at this time, that
future results of operations and cash flows could be materially affected
by an unfavorable resolution of these matters.
With respect to other claims and actions against the Company, it is the
opinion of Management that they will not have a material effect on the
financial position of the Company.
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Results of Operations
Sales increased $2,538,000 or 9.1% in the quarter ended March 31, 1997
compared to the same period a year ago. Sales in the Electrical
Appliances and Electronic Devices segment increased $1,637,000; increases
in sales of oscillators and heat dissipating devices for computers were
offset in part by a decline in sales of electrical appliances, primarily
due to a decision by Waring's management to de-emphasize low margin
consumer products and their marketing through mass merchants and to focus
instead on higher quality and higher margin consumer and commercial
products. Sales in the Fabricated Metal Products and Equipment segment
increased $47,000, as security and door product sales improved slightly.
Sales in the Power and Controlled Environmental Systems segment increased
$854,000, as sales increases of engine generator sets, and revenues
related to a delay claim settlement, under the TQ contract and of
transportable medical units, and thermal and custom mobile products were
partially offset by lower sales of power plant products.
Gross profit increased $3,116,000 in the quarter ended March 31, 1997
compared to the same period a year ago, and increased as a percentage of
sales to 26.9% from 18.2%. Gross profit in the Electrical Appliances and
Electronic Devices segment increased due to sales increases for
oscillators and heat dissipating devices for computers, and favorable
sales mix on quartz crystal products and electrical appliances. Gross
profit increased in the Fabricated Metal Products and Equipment segment,
due to some improvement in manufacturing efficiency at the Scranton,
Pennsylvania plant compared to last year. Gross profit increased
significantly in the Power and Controlled Environmental Systems segment
due to the effect of shipments of engine generator sets and gross profit
of $728,000 ($459,000 net of income taxes) related to a delay claim
settlement under the TQ contract. Gross profit increases for
transportable medical units and thermal products were offset by decreases
in the power plant and custom mobile product lines.
Selling, general and administrative expenses decreased $364,000 in the
quarter ended March 31, 1997 compared to the same period a year ago, and
decreased as a percentage of sales to 20.4% from 23.5%, due primarily to
salary and benefit savings resulting from last year's staff reductions at
the Waring and Anemostat Scranton operations.
Other income (expense) was a net expense of $140,000 for the current
period, compared to income of $117,000 for the prior year's period. Net
interest expense declined $36,000, as borrowings under the Revolving
Credit Agreement were lower in the current period. Other expense, net for
the current period included $94,000 for legal fees in the Company's suit
against Dualit to recover damages resulting from a 1994 electrical
appliance product recall.
The Company recorded an income tax charge of $688,000, a 37.0% tax rate,
for the quarter ended March 31, 1997, and an income tax benefit of
$530,000, a 38.9% tax rate, for the prior year's quarter. The effective
rate for both periods differed from the Federal statutory rate due to the
effect of state income taxes.
Income from the Company's equity investment in CTS Corporation decreased
$1,423,000 due to last year's first quarter $2,466,000 favorable
adjustment to taxes previously provided on the Company's cumulative share
of CTS' undistributed earnings through January 1, 1996. (See Note 2 -
Equity Investment in CTS Corporation in the Notes to the Condensed
Consolidated Financial Statements.) CTS had a $2,540,000 increase in
quarterly net earnings compared to the prior year. The Company's
percentage of equity ownership remained at 44.1% for both periods.
Beginning on April 1, 1996, the Fermont Division's results of operations
are included in the Company's Consolidated Statements of Income. Reported
results for prior periods have been reclassified, including a $251,000
reversal for the quarter ended March 31, 1996 of the operating loss
provision for Fermont recorded in a prior period.
Financial Condition
Cash and cash equivalents decreased $244,000 during the three months
ended March 31, 1997. Cash of $829,000 was used in operating activities,
principally to fund increases in accounts receivable and inventories,
offset in part by increases in accounts payable and accrued expenses.
Cash of $1,387,000 was used in investing activities to acquire machinery
and equipment. Cash of $1,972,000 was provided by financing activities,
as borrowings increased by $2,500,000. The Company also paid dividends
and purchased treasury stock.
Cash at March 31, 1997 amounted to $902,000. During the three month
period, the Company borrowed $2,500,000 for working capital requirements
under its $37,000,000 Revolving Credit Agreement with its banks. The
Company presently has $30,500,000 available under the Agreement, in
addition to a $9,000,000 uncommitted line with a bank.
Liquidity and financial resources are considered adequate to fund planned
Company operations, including capital expenditures and payment of dividends
and additional stock purchases, if any.
The Company intends to continue its stated policy of reviewing potential
acquisitions of companies and product lines which it believes would
enhance its growth and profitability.
Management anticipates that the Company's deferred tax assets will be
realized based upon its expectation of future taxable income. The Company
will require taxable income of $13,850,000 to realize its net deferred
tax assets, which are $5,598,000, excluding deferred tax liabilities of
$1,324,000 at March 31, 1997 for the undistributed earnings of the
Company's equity investment in CTS Corporation. Also, under applicable
carryback provisions of the Internal Revenue Code, prior years' taxable
income could be utilized to realize a substantial portion of the deferred
tax assets.
With respect to environmental matters (see Note 7 - Contingencies in the
Notes to the Condensed Consolidated Financial Statements), the Company
incurred costs of $125,000 for managing hazardous substances or
pollutants during the current three month period, compared to $101,000
for the comparable prior year period. In complying with federal, state
and local environmental protection statutes and regulations, the Company
has altered or modified certain manufacturing processes and expects to
continue to do so in the future. Such modifications to date have not
significantly increased capital expenditures or materially affected
earnings or the competitiveness of the Company.
The Financial Accounting Standards Board ("FASB") recently issued FASB
Statement No. 128, "Earnings per Share," which the Company is required to
adopt for the quarter and year ended December 31, 1997. The statement
simplifies the standards for computing earnings per share previously
found in APB Opinion No. 15, "Earnings per Share." It replaces the
presentation of primary EPS with a presentation of basic EPS. Earlier
adoption is not permitted under the Statement, but restatement of prior
periods is required once adopted. Restatement of prior period EPS data
will change the weighted average number of shares outstanding, but is not
expected to change prior period EPS numbers.
In connection with the WHX tender offer and proxy solicitation and the
CTS Merger Agreement, the Company has incurred and expects to continue to
incur costs, including fees for investment bankers and legal counsel,
which may be significant and may adversely impact future operating
results. The Board of Directors has authorized the Company to enter into
various severance arrangements with key employees which will require lump
sum payments in the event of a Change in Control (as defined in the
agreements) followed by certain terminations of employment. Certain lump
sum payments would also be required in the event of a Change in Control
followed by certain terminations of employment under the employment
contracts dated February 1, 1996, as amended, with Andrew Lozyniak,
Patrick J. Dorme and Henry V. Kensing. (See Note 6 - Unsolicited Tender
Offer and CTS Merger Agreement in the Notes to the Condensed Consolidated
Financial Statements.)
Part II - Other Information
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
2.1 Agreement and Plan of Merger, dated as of May 9, 1997,
among Dynamics Corporation of America, CTS Corporation and
CTS First Acquisition Corp. (incorporated by reference to
Exhibit 2 to Amendment No. 46 to the Schedule 13D of
Dynamics Corporation of America, filed May 12, 1997, with
respect to its investment in CTS Corporation). DCA agrees
to furnish supplementally a copy of any omitted schedule
to the Securities and Exchange Commission upon request.
3.1 Amendments to the By-laws of Dynamics Corporation of America
(incorporated by reference to Exhibit 6 to the Schedule
14D-9 of Dynamics Corporation of America, filed April 14,
1997).
4.1 Amendment No. 2, dated as of May 9, 1997, to the Rights
Agreement, dated as of January 30, 1986, as amended on
December 27, 1995, between Dynamics Corporation of
America and BankBoston (formerly The First National Bank
of Boston), as Rights Agent (incorporated by reference to
Exhibit 4.1 to the Form 8-K of Dynamics Corporation of
America, filed May 9, 1997).
4.2 Amendment No. 3, dated as of May 12, 1997, to the Rights
Agreement, dated as of January 30, 1986, as amended on
December 27, 1995 and May 9, 1997, between Dynamics
Corporation of America and BankBoston (formerly The First
National Bank of Boston), as Rights Agent (incorporated by
reference to Exhibit 4.1 to the Form 8-K of Dynamics
Corporation of America, filed May 12, 1997).
10.1 Amendment to Employment Agreement, dated as of April 11,
1997, by and between Dynamics Corporation of America and
Andrew Lozyniak.
10.2 Amendment to Employment Agreement, dated as of April 11,
1997, by and between Dynamics Corporation of America and
Patrick J. Dorme.
10.3 Amendment to Employment Agreement, dated as of April 11,
1997, by and between Dynamics Corporation of America and
Henry V. Kensing.
10.4 Employment Agreement, dated as of May 9, 1997, by and among
CTS Corporation, Dynamics Corporation of America and
Andrew Lozyniak.
10.5 Employment Agreement, dated as of May 9, 1997, by and among
CTS Corporation, Dynamics Corporation of America and
Patrick J. Dorme.
10.6 Employment Agreement, dated as of May 9, 1997, by and among
CTS Corporation, Dynamics Corporation of America and Henry
V. Kensing.
10.7 Amendment to Dynamics Corporation of America 1980 Restricted
Stock and Cash Bonus Plan, dated as of April 11, 1997.
10.8 Trust Agreement, dated December 31, 1996, by and between
Dynamics Corporation of America and Bank of Boston
Connecticut, as Trustee.
27.1 Financial Data Schedule, for the period ended March 31, 1997.
27.2 Financial Data Schedule, for the period ended March 31, 1996
(restated).
(b) There were no reports on Form 8-K for the three months ended
March 31, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DYNAMICS CORPORATION OF AMERICA
----------------------------------------
(Registrant)
/s/ Patrick J. Dorme
----------------------------------------
(Signature)
Patrick J. Dorme
Vice President - Finance and
Chief Financial Officer
Date: May 15, 1997
EXHIBIT INDEX
Exhibit
No. Description
------- -----------
2.1 Agreement and Plan of Merger, dated as of May
9, 1997, among Dynamics Corporation of America,
CTS Corporation and CTS First Acquisition Corp.
(incorporated by reference to Exhibit 2 to
Amendment No. 46 to the Schedule 13D of
Dynamics Corporation of America, filed May 12,
1997, with respect to its investment in CTS
Corporation). DCA agrees to furnish
supplementally a copy of any omitted schedule
to the Securities and Exchange Commission upon
request.
3.1 Amendments to the By-laws of Dynamics
Corporation of America (incorporated by
reference to Exhibit 6 to the Schedule 14D-9 of
Dynamics Corporation of America, filed April
14, 1997).
4.1 Amendment No. 2, dated as of May 9, 1997, to
the Rights Agreement, dated as of January 30,
1986, as amended on December 27, 1995, between
Dynamics Corporation of America and BankBoston
(formerly The First National Bank of Boston),
as Rights Agent (incorporated by reference to
Exhibit 4.1 to the Form 8-K of Dynamics
Corporation of America, filed May 9, 1997).
4.2 Amendment No. 3, dated as of May 12, 1997, to
the Rights Agreement, dated as of January 30,
1986, as amended on December 27, 1995 and May
9, 1997, between Dynamics Corporation of
America and BankBoston (formerly The First
National Bank of Boston), as Rights Agent
(incorporated by reference to Exhibit 4.1 to
the Form 8-K of Dynamics Corporation of
America, filed May 12, 1997).
10.1 Amendment to Employment Agreement, dated as of
April 11, 1997, by and between Dynamics
Corporation of America and Andrew Lozyniak.
10.2 Amendment to Employment Agreement, dated as of
April 11, 1997, by and between Dynamics
Corporation of America and Patrick J. Dorme.
10.3 Amendment to Employment Agreement, dated as of
April 11, 1997, by and between Dynamics
Corporation of America and Henry V. Kensing.
10.4 Employment Agreement, dated as of May 9, 1997,
by and among CTS Corporation, Dynamics
Corporation of America and Andrew Lozyniak.
10.5 Employment Agreement, dated as of May 9, 1997,
by and among CTS Corporation, Dynamics
Corporation of America and Patrick J. Dorme.
10.6 Employment Agreement, dated as of May 9, 1997,
by and among CTS Corporation, Dynamics
Corporation of America and Henry V. Kensing.
10.7 Amendment to Dynamics Corporation of America
1980 Restricted Stock and Cash Bonus Plan,
dated as of April 11, 1997.
10.8 Trust Agreement, dated December 31, 1996, by and between
Dynamics Corporation of America and Bank of Boston
Connecticut, as Trustee.
27.1 Financial Data Schedule, for the period ended
March 31, 1997.
27.2 Financial Data Schedule, for the period ended
March 31, 1996 (restated).
EXHIBIT 10.1
AMENDMENT TO EMPLOYMENT AGREEMENT
AMENDMENT made and entered into as of this 11th
day of April, 1997 by and between DYNAMICS CORPORATION OF
AMERICA, a New York corporation ("DCA") and Andrew
Lozyniak (the "Executive").
WHEREAS, DCA and the Executive have previously
entered into an Employment Agreement as of February 1,
1996 (the "Agreement"); and
WHEREAS, DCA, and the Executive desire to amend
the Agreement in accordance with Article Tenth thereof.
NOW, THEREFORE, DCA and the Executive hereby
agree as follows:
1. Part A. of Article Fourth of the Agreement
is hereby amended in its entirety to read as follows:
FOURTH: A. In the event of the occurrence of a
Change in Control at any time during the
Employment Period, the Executive shall have the
right to terminate this Employment Agreement
upon thirty days written notice given at any
time within 3 months after the occurrence of
the Change in Control. If the Executive shall
have terminated this Employment Agreement
pursuant to the foregoing provisions of this
part A, or if DCA, any successor ("Successor")
of DCA (whether by merger, consolidation or
otherwise), or any parent ("Parent") of DCA or
of any such successor shall have terminated
this Employment Agreement during such three
month period, DCA or the Successor or Parent,
as the case may be, shall pay to the Executive
as compensation, in a lump sum on the date of
such termination, in lieu of any further
compensation provided for in Article SECOND
hereof, an amount equal to five times the sum
of (a) two-thirds of the aggregate regular
compensation provided for in part A of said
Article SECOND, at the rate in effect at the
time of such termination or, if greater, at the
rate in effect on the date of the Change in
Control and (b) two-thirds of the largest
amount earned by the Executive as stock and
cash bonuses for any of the five fiscal years
preceding that in which termination occurs.
In addition, DCA or the Successor or Parent, as
the case may be, (a) shall pay in a single lump
sum to Security Mutual Life Insurance Company
of New York, to be held in a side fund in
escrow by said carrier to pay when due the
annual premiums on the Policy, an amount equal
to ten (10) times the amount of the last annual
premium payment on the Policy made prior to the
date of the Change in Control, (b) shall
forfeit all rights under the Collateral
Assignment to be repaid the aggregate amount of
all premiums paid on the Policy prior to, on or
after the date of termination, and (c) shall
release and waive all rights under the
Collateral Assignment, shall not endanger in
any way any benefit available to the Executive
under the Policy and shall not be entitled to
any further rights or interest in the Policy.
2. Article Fourth of the Agreement is hereby
further amended by adding new parts C. and D. thereto as
follows:
C. For purposes of this Agreement, the
following terms shall have the following
meanings:
A "Change in Control" shall be deemed to have
occurred if the event set forth in any one of
the following paragraphs shall have occurred:
(I) any Person is or becomes the Beneficial
Owner, directly or indirectly, of securities of
DCA (not including in the securities
beneficially owned by such Person any
securities acquired directly from DCA or its
Affiliates) representing 25% or more of the
combined voting power of DCA's then outstanding
securities, excluding any Person who becomes
such a Beneficial Owner in connection with a
transaction described in clause (i) of
paragraph (III) below; or
(II) the following individuals cease for any
reason to constitute a majority of the number
of directors then serving on the Board of
Directors of DCA (the "Board"): individuals
who, on the date hereof, constitute the Board
and any new director (other than a director
whose initial assumption of office is in
connection with an actual or threatened
election contest, including but not limited to
a consent solicitation, relating to the
election of directors of DCA) whose appointment
or election by the Board or nomination for
election by DCA's stockholders was approved or
recommended by a vote of at least two-thirds
(2/3) of the directors then still in office who
either were directors on the date hereof or
whose appointment, election or nomination for
election was previously so approved or
recommended; or
(III) there is consummated a merger or
consolidation of DCA or any direct or indirect
subsidiary of DCA with any other corporation,
other than (i) a merger or consolidation which
would result in the voting securities of DCA
outstanding immediately prior to such merger or
consolidation continuing to represent (either
by remaining outstanding or by being converted
into voting securities of the surviving entity
or any parent thereof) at least 60% of the
combined voting power of the securities of DCA
or such surviving entity or any parent thereof
outstanding immediately after such merger or
consolidation, or (ii) a merger or
consolidation effected to implement a
recapitalization of DCA (or similar
transaction) in which no Person is or becomes
the Beneficial Owner, directly or indirectly,
of securities of DCA (not including in the
securities Beneficially Owned by such Person
any securities acquired directly from DCA or
its Affiliates other than in connection with
the acquisition by DCA or its Affiliates of a
business) representing 25% or more of the
combined voting power of DCA's then outstanding
securities; or
(IV) the stockholders of DCA approve a plan of
complete liquidation or dissolution of DCA or
there is consummated an agreement for the sale
or disposition by DCA of all or substantially
all of DCA's assets, other than a sale or
disposition by DCA of all or substantially all
of DCA's assets to an entity, at least 60% of
the combined voting power of the voting
securities of which are owned by stockholders
of DCA in substantially the same proportions as
their ownership of DCA immediately prior to
such sale.
"Person" shall have the meaning given in
Section 3(a)(9) of the Exchange Act, as
modified and used in Sections 13(d) and 14(d)
thereof, except that such term shall not
include (i) DCA or any of its subsidiaries,
(ii) a trustee or other fiduciary holding
securities under an employee benefit plan of
DCA or any of its Affiliates, (iii) an
underwriter temporarily holding securities
pursuant to an offering of such securities, or
(iv) a corporation owned, directly or
indirectly, by the stockholders of DCA in
substantially the same proportions as their
ownership of stock of DCA.
"Beneficial Owner" shall have the meaning set
forth in Rule 13d-3 under the Exchange Act.
"Affiliate" shall have the meaning set forth in
Rule 12b-2 promulgated under Section 12 of the
Exchange Act.
"Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended from time to
time.
D. If any of the payments or benefits
received or to be received by the Executive in
connection with a Change in Control or the
Executive's termination of employment (whether
pursuant to the terms of this Agreement or any
other plan, arrangement or agreement with DCA,
any Person whose actions result in a Change in
Control or any Person affiliated with DCA or
such Person) (such payments or benefits,
excluding the Gross-Up Payment, being
hereinafter referred to as the "Total
Payments") will be subject to any tax (the
"Excise Tax") imposed under section 4999 of the
Internal Revenue Code of 1986, as amended (the
"Code"), DCA or the Successor or Parent, as the
case may be, shall pay to the Executive an
additional amount (the "Gross-Up Payment") such
that the net amount retained by the Executive,
after deduction of any Excise Tax on the Total
Payments and any federal, state and local
income and employment taxes and Excise Tax upon
the Gross-Up Payment, shall be equal to the
Total Payments.
For purposes of determining whether any of the
Total Payments will be subject to the Excise
Tax and the amount of such Excise Tax, (i) all
of the Total Payments shall be treated as
"parachute payments" (within the meaning of
section 280G(b)(2) of the Code) unless, in the
opinion of tax counsel ("Tax Counsel")
reasonably acceptable to the Executive and
selected by the accounting firm which was,
immediately prior to the Change in Control,
DCA's independent auditor (the "Auditor"), such
payments or benefits (in whole or in part) do
not constitute parachute payments, including by
reason of section 280G(b)(4)(A) of the Code,
(ii) all "excess parachute payments" within the
meaning of section 280G(b)(l) of the Code shall
be treated as subject to the Excise Tax unless,
in the opinion of Tax Counsel, such excess
parachute payments (in whole or in part)
represent reasonable compensation for services
actually rendered (within the meaning of
section 280G(b)(4)(B) of the Code) in excess of
the "base amount" (with the meaning of section
280G(b)(3) of the Code) allocable to such
reasonable compensation, or are otherwise not
subject to the Excise Tax, and (iii) the value
of any noncash benefits or any deferred payment
or benefit shall be determined by the Auditor
in accordance with the principles of sections
280G(d)(3) and (4) of the Code. For purposes
of determining the amount of the Gross-Up
Payment, the Executive shall be deemed to pay
federal income tax at the highest marginal rate
of federal income taxation in the calendar year
in which the Gross-Up Payment is to be made and
state and local income taxes at the highest
marginal rate of taxation in the state and
locality of the Executive's residence on the
date of the Executive's termination of
employment, net of the maximum reduction in
federal income taxes which could be obtained
from deduction of such state and local taxes.
In the event that the Excise Tax is finally
determined to be less than the amount taken
into account hereunder in calculating the
Gross-Up Payment, the Executive shall repay to
DCA, or the Successor or Parent, as the case
may be, within five (5) business days following
the time that the amount of such reduction in
the Excise Tax is finally determined, the
portion of the Gross-Up Payment attributable to
such reduction (plus that portion of the
Gross-Up Payment attributable to the Excise Tax
and federal, state and local income and
employment taxes imposed on the Gross-Up
Payment being repaid by the Executive, to the
extent that such repayment results in a
reduction in the Excise Tax and a dollar-for-
dollar reduction in the Executive's taxable
income and wages for purposes of federal, state
and local income and employment taxes, plus
interest on the amount of such repayment at
120% of the rate provided in section
1274(b)(2)(B) of the Code. In the event that
the Excise Tax is determined to exceed the
amount taken into account hereunder in
calculating the Gross-Up Payment (including by
reason of any payment the existence or amount
of which cannot be determined at the time of
the Gross-Up Payment), DCA or the Successor or
Parent, as the case may be, shall make an
additional Gross-Up Payment in respect of such
excess (plus any interest, penalties or
additions payable by the Executive with respect
to such excess) within five (5) business days
following the time that the amount of such
excess is finally determined. The Executive
and DCA or the Successor or Parent, as the case
may be, shall each reasonably cooperate with
the other in connection with any administrative
or judicial proceedings concerning the
existence or amount of liability for Excise Tax
with respect to the Total Payments.
Except as set forth above, the Agreement is
hereby ratified and confirmed in all respects.
IN WITNESS WHEREOF, each of the parties hereto
has executed this Amendment as of the day and year first
written above.
DYNAMICS CORPORATION OF AMERICA
By: /s/ Henry V. Kensing
----------------------------
/s/ Andrew Lozyniak
----------------------------
ANDREW LOZYNIAK
EXHIBIT 10.2
AMENDMENT TO EMPLOYMENT AGREEMENT
AMENDMENT made and entered into as of this 11th
day of April, 1997 by and between DYNAMICS CORPORATION OF
AMERICA, a New York corporation ("DCA") and Patrick J.
Dorme (the "Executive").
WHEREAS, DCA and the Executive have previously
entered into an Employment Agreement as of February 1,
1996 (the "Agreement"); and
WHEREAS, DCA, and the Executive desire to amend
the Agreement in accordance with Article Tenth thereof.
NOW, THEREFORE, DCA and the Executive hereby
agree as follows:
1. Part A. of Article Fourth of the Agreement
is hereby amended in its entirety to read as follows:
FOURTH: A. In the event of the occurrence of a
Change in Control at any time during the
Employment Period, the Executive shall have the
right to terminate this Employment Agreement
upon thirty days written notice given at any
time within 3 months after the occurrence of
the Change in Control. If the Executive shall
have terminated this Employment Agreement
pursuant to the foregoing provisions of this
part A, or if DCA, any successor ("Successor")
of DCA (whether by merger, consolidation or
otherwise), or any parent ("Parent") of DCA or
of any such successor shall have terminated
this Employment Agreement during such three
month period, DCA or the Successor or Parent,
as the case may be, shall pay to the Executive
as compensation, in a lump sum on the date of
such termination, in lieu of any further
compensation provided for in Article SECOND
hereof, an amount equal to five times the sum
of (a) two-thirds of the aggregate regular
compensation provided for in part A of said
Article SECOND, at the rate in effect at the
time of such termination or, if greater, at the
rate in effect on the date of the Change in
Control and (b) two-thirds of the largest
amount earned by the Executive as stock and
cash bonuses for any of the five fiscal years
preceding that in which termination occurs.
In addition, DCA or the Successor or Parent, as
the case may be, (a) shall pay in a single lump
sum to Security Mutual Life Insurance Company
of New York, to be held in a side fund in
escrow by said carrier to pay when due the
annual premiums on the Policy, an amount equal
to ten (10) times the amount of the last annual
premium payment on the Policy made prior to the
date of the Change in Control, (b) shall
forfeit all rights under the Collateral
Assignment to be repaid the aggregate amount of
all premiums paid on the Policy prior to, on or
after the date of termination, and (c) shall
release and waive all rights under the
Collateral Assignment, shall not endanger in
any way any benefit available to the Executive
under the Policy and shall not be entitled to
any further rights or interest in the Policy.
2. Article Fourth of the Agreement is hereby
further amended by adding new parts C. and D. thereto as
follows:
C. For purposes of this Agreement, the
following terms shall have the following
meanings:
A "Change in Control" shall be deemed to have
occurred if the event set forth in any one of
the following paragraphs shall have occurred:
(I) any Person is or becomes the Beneficial
Owner, directly or indirectly, of securities of
DCA (not including in the securities
beneficially owned by such Person any
securities acquired directly from DCA or its
Affiliates) representing 25% or more of the
combined voting power of DCA's then outstanding
securities, excluding any Person who becomes
such a Beneficial Owner in connection with a
transaction described in clause (i) of
paragraph (III) below; or
(II) the following individuals cease for any
reason to constitute a majority of the number
of directors then serving on the Board of
Directors of DCA (the "Board"): individuals
who, on the date hereof, constitute the Board
and any new director (other than a director
whose initial assumption of office is in
connection with an actual or threatened
election contest, including but not limited to
a consent solicitation, relating to the
election of directors of DCA) whose appointment
or election by the Board or nomination for
election by DCA's stockholders was approved or
recommended by a vote of at least two-thirds
(2/3) of the directors then still in office who
either were directors on the date hereof or
whose appointment, election or nomination for
election was previously so approved or
recommended; or
(III) there is consummated a merger or
consolidation of DCA or any direct or indirect
subsidiary of DCA with any other corporation,
other than (i) a merger or consolidation which
would result in the voting securities of DCA
outstanding immediately prior to such merger or
consolidation continuing to represent (either
by remaining outstanding or by being converted
into voting securities of the surviving entity
or any parent thereof) at least 60% of the
combined voting power of the securities of DCA
or such surviving entity or any parent thereof
outstanding immediately after such merger or
consolidation, or (ii) a merger or
consolidation effected to implement a
recapitalization of DCA (or similar
transaction) in which no Person is or becomes
the Beneficial Owner, directly or indirectly,
of securities of DCA (not including in the
securities Beneficially Owned by such Person
any securities acquired directly from DCA or
its Affiliates other than in connection with
the acquisition by DCA or its Affiliates of a
business) representing 25% or more of the
combined voting power of DCA's then outstanding
securities; or
(IV) the stockholders of DCA approve a plan of
complete liquidation or dissolution of DCA or
there is consummated an agreement for the sale
or disposition by DCA of all or substantially
all of DCA's assets, other than a sale or
disposition by DCA of all or substantially all
of DCA's assets to an entity, at least 60% of
the combined voting power of the voting
securities of which are owned by stockholders
of DCA in substantially the same proportions as
their ownership of DCA immediately prior to
such sale.
"Person" shall have the meaning given in
Section 3(a)(9) of the Exchange Act, as
modified and used in Sections 13(d) and 14(d)
thereof, except that such term shall not
include (i) DCA or any of its subsidiaries,
(ii) a trustee or other fiduciary holding
securities under an employee benefit plan of
DCA or any of its Affiliates, (iii) an
underwriter temporarily holding securities
pursuant to an offering of such securities, or
(iv) a corporation owned, directly or
indirectly, by the stockholders of DCA in
substantially the same proportions as their
ownership of stock of DCA.
"Beneficial Owner" shall have the meaning set
forth in Rule 13d-3 under the Exchange Act.
"Affiliate" shall have the meaning set forth in
Rule 12b-2 promulgated under Section 12 of the
Exchange Act.
"Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended from time to
time.
D. If any of the payments or benefits
received or to be received by the Executive in
connection with a Change in Control or the
Executive's termination of employment (whether
pursuant to the terms of this Agreement or any
other plan, arrangement or agreement with DCA,
any Person whose actions result in a Change in
Control or any Person affiliated with DCA or
such Person) (such payments or benefits,
excluding the Gross-Up Payment, being
hereinafter referred to as the "Total
Payments") will be subject to any tax (the
"Excise Tax") imposed under section 4999 of the
Internal Revenue Code of 1986, as amended (the
"Code"), DCA or the Successor or Parent, as the
case may be, shall pay to the Executive an
additional amount (the "Gross-Up Payment") such
that the net amount retained by the Executive,
after deduction of any Excise Tax on the Total
Payments and any federal, state and local
income and employment taxes and Excise Tax upon
the Gross-Up Payment, shall be equal to the
Total Payments.
For purposes of determining whether any of the
Total Payments will be subject to the Excise
Tax and the amount of such Excise Tax, (i) all
of the Total Payments shall be treated as
"parachute payments" (within the meaning of
section 280G(b)(2) of the Code) unless, in the
opinion of tax counsel ("Tax Counsel")
reasonably acceptable to the Executive and
selected by the accounting firm which was,
immediately prior to the Change in Control,
DCA's independent auditor (the "Auditor"), such
payments or benefits (in whole or in part) do
not constitute parachute payments, including by
reason of section 280G(b)(4)(A) of the Code,
(ii) all "excess parachute payments" within the
meaning of section 280G(b)(l) of the Code shall
be treated as subject to the Excise Tax unless,
in the opinion of Tax Counsel, such excess
parachute payments (in whole or in part)
represent reasonable compensation for services
actually rendered (within the meaning of
section 280G(b)(4)(B) of the Code) in excess of
the "base amount" (with the meaning of section
280G(b)(3) of the Code) allocable to such
reasonable compensation, or are otherwise not
subject to the Excise Tax, and (iii) the value
of any noncash benefits or any deferred payment
or benefit shall be determined by the Auditor
in accordance with the principles of sections
280G(d)(3) and (4) of the Code. For purposes
of determining the amount of the Gross-Up
Payment, the Executive shall be deemed to pay
federal income tax at the highest marginal rate
of federal income taxation in the calendar year
in which the Gross-Up Payment is to be made and
state and local income taxes at the highest
marginal rate of taxation in the state and
locality of the Executive's residence on the
date of the Executive's termination of
employment, net of the maximum reduction in
federal income taxes which could be obtained
from deduction of such state and local taxes.
In the event that the Excise Tax is finally
determined to be less than the amount taken
into account hereunder in calculating the
Gross-Up Payment, the Executive shall repay to
DCA, or the Successor or Parent, as the case
may be, within five (5) business days following
the time that the amount of such reduction in
the Excise Tax is finally determined, the
portion of the Gross-Up Payment attributable to
such reduction (plus that portion of the
Gross-Up Payment attributable to the Excise Tax
and federal, state and local income and
employment taxes imposed on the Gross-Up
Payment being repaid by the Executive, to the
extent that such repayment results in a
reduction in the Excise Tax and a dollar-for-
dollar reduction in the Executive's taxable
income and wages for purposes of federal, state
and local income and employment taxes, plus
interest on the amount of such repayment at
120% of the rate provided in section
1274(b)(2)(B) of the Code. In the event that
the Excise Tax is determined to exceed the
amount taken into account hereunder in
calculating the Gross-Up Payment (including by
reason of any payment the existence or amount
of which cannot be determined at the time of
the Gross-Up Payment), DCA or the Successor or
Parent, as the case may be, shall make an
additional Gross-Up Payment in respect of such
excess (plus any interest, penalties or
additions payable by the Executive with respect
to such excess) within five (5) business days
following the time that the amount of such
excess is finally determined. The Executive
and DCA or the Successor or Parent, as the case
may be, shall each reasonably cooperate with
the other in connection with any administrative
or judicial proceedings concerning the
existence or amount of liability for Excise Tax
with respect to the Total Payments.
Except as set forth above, the Agreement is
hereby ratified and confirmed in all respects.
IN WITNESS WHEREOF, each of the parties hereto
has executed this Amendment as of the day and year first
written above.
DYNAMICS CORPORATION OF AMERICA
By: /s/ Andrew Lozyniak
----------------------------
/s/ Patrick J. Dorme
----------------------------
PATRICK J. DORME
EXHIBIT 10.3
AMENDMENT TO EMPLOYMENT AGREEMENT
AMENDMENT made and entered into as of this 11th
day of April, 1997 by and between DYNAMICS CORPORATION OF
AMERICA, a New York corporation ("DCA") and Henry V.
Kensing (the "Executive").
WHEREAS, DCA and the Executive have previously
entered into an Employment Agreement as of February 1,
1996 (the "Agreement"); and
WHEREAS, DCA, and the Executive desire to amend
the Agreement in accordance with Article Tenth thereof.
NOW, THEREFORE, DCA and the Executive hereby
agree as follows:
1. Part A. of Article Fourth of the Agreement
is hereby amended in its entirety to read as follows:
FOURTH: A. In the event of the occurrence of a
Change in Control at any time during the
Employment Period, the Executive shall have the
right to terminate this Employment Agreement
upon thirty days written notice given at any
time within 3 months after the occurrence of
the Change in Control. If the Executive shall
have terminated this Employment Agreement
pursuant to the foregoing provisions of this
part A, or if DCA, any successor ("Successor")
of DCA (whether by merger, consolidation or
otherwise), or any parent ("Parent") of DCA or
of any such successor shall have terminated
this Employment Agreement during such three
month period, DCA or the Successor or Parent,
as the case may be, shall pay to the Executive
as compensation, in a lump sum on the date of
such termination, in lieu of any further
compensation provided for in Article SECOND
hereof, an amount equal to five times the sum
of (a) two-thirds of the aggregate regular
compensation provided for in part A of said
Article SECOND, at the rate in effect at the
time of such termination or, if greater, at the
rate in effect on the date of the Change in
Control and (b) two-thirds of the largest
amount earned by the Executive as stock and
cash bonuses for any of the five fiscal years
preceding that in which termination occurs.
In addition, DCA or the Successor or Parent, as
the case may be, (a) shall pay in a single lump
sum to Security Mutual Life Insurance Company
of New York, to be held in a side fund in
escrow by said carrier to pay when due the
annual premiums on the Policy, an amount equal
to ten (10) times the amount of the last annual
premium payment on the Policy made prior to the
date of the Change in Control, (b) shall
forfeit all rights under the Collateral
Assignment to be repaid the aggregate amount of
all premiums paid on the Policy prior to, on or
after the date of termination, and (c) shall
release and waive all rights under the
Collateral Assignment, shall not endanger in
any way any benefit available to the Executive
under the Policy and shall not be entitled to
any further rights or interest in the Policy.
2. Article Fourth of the Agreement is hereby
further amended by adding new parts C. and D. thereto as
follows:
C. For purposes of this Agreement, the
following terms shall have the following
meanings:
A "Change in Control" shall be deemed to have
occurred if the event set forth in any one of
the following paragraphs shall have occurred:
(I) any Person is or becomes the Beneficial
Owner, directly or indirectly, of securities of
DCA (not including in the securities
beneficially owned by such Person any
securities acquired directly from DCA or its
Affiliates) representing 25% or more of the
combined voting power of DCA's then outstanding
securities, excluding any Person who becomes
such a Beneficial Owner in connection with a
transaction described in clause (i) of
paragraph (III) below; or
(II) the following individuals cease for any
reason to constitute a majority of the number
of directors then serving on the Board of
Directors of DCA (the "Board"): individuals
who, on the date hereof, constitute the Board
and any new director (other than a director
whose initial assumption of office is in
connection with an actual or threatened
election contest, including but not limited to
a consent solicitation, relating to the
election of directors of DCA) whose appointment
or election by the Board or nomination for
election by DCA's stockholders was approved or
recommended by a vote of at least two-thirds
(2/3) of the directors then still in office who
either were directors on the date hereof or
whose appointment, election or nomination for
election was previously so approved or
recommended; or
(III) there is consummated a merger or
consolidation of DCA or any direct or indirect
subsidiary of DCA with any other corporation,
other than (i) a merger or consolidation which
would result in the voting securities of DCA
outstanding immediately prior to such merger or
consolidation continuing to represent (either
by remaining outstanding or by being converted
into voting securities of the surviving entity
or any parent thereof) at least 60% of the
combined voting power of the securities of DCA
or such surviving entity or any parent thereof
outstanding immediately after such merger or
consolidation, or (ii) a merger or
consolidation effected to implement a
recapitalization of DCA (or similar
transaction) in which no Person is or becomes
the Beneficial Owner, directly or indirectly,
of securities of DCA (not including in the
securities Beneficially Owned by such Person
any securities acquired directly from DCA or
its Affiliates other than in connection with
the acquisition by DCA or its Affiliates of a
business) representing 25% or more of the
combined voting power of DCA's then outstanding
securities; or
(IV) the stockholders of DCA approve a plan of
complete liquidation or dissolution of DCA or
there is consummated an agreement for the sale
or disposition by DCA of all or substantially
all of DCA's assets, other than a sale or
disposition by DCA of all or substantially all
of DCA's assets to an entity, at least 60% of
the combined voting power of the voting
securities of which are owned by stockholders
of DCA in substantially the same proportions as
their ownership of DCA immediately prior to
such sale.
"Person" shall have the meaning given in
Section 3(a)(9) of the Exchange Act, as
modified and used in Sections 13(d) and 14(d)
thereof, except that such term shall not
include (i) DCA or any of its subsidiaries,
(ii) a trustee or other fiduciary holding
securities under an employee benefit plan of
DCA or any of its Affiliates, (iii) an
underwriter temporarily holding securities
pursuant to an offering of such securities, or
(iv) a corporation owned, directly or
indirectly, by the stockholders of DCA in
substantially the same proportions as their
ownership of stock of DCA.
"Beneficial Owner" shall have the meaning set
forth in Rule 13d-3 under the Exchange Act.
"Affiliate" shall have the meaning set forth in
Rule 12b-2 promulgated under Section 12 of the
Exchange Act.
"Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended from time to
time.
D. If any of the payments or benefits
received or to be received by the Executive in
connection with a Change in Control or the
Executive's termination of employment (whether
pursuant to the terms of this Agreement or any
other plan, arrangement or agreement with DCA,
any Person whose actions result in a Change in
Control or any Person affiliated with DCA or
such Person) (such payments or benefits,
excluding the Gross-Up Payment, being
hereinafter referred to as the "Total
Payments") will be subject to any tax (the
"Excise Tax") imposed under section 4999 of the
Internal Revenue Code of 1986, as amended (the
"Code"), DCA or the Successor or Parent, as the
case may be, shall pay to the Executive an
additional amount (the "Gross-Up Payment") such
that the net amount retained by the Executive,
after deduction of any Excise Tax on the Total
Payments and any federal, state and local
income and employment taxes and Excise Tax upon
the Gross-Up Payment, shall be equal to the
Total Payments.
For purposes of determining whether any of the
Total Payments will be subject to the Excise
Tax and the amount of such Excise Tax, (i) all
of the Total Payments shall be treated as
"parachute payments" (within the meaning of
section 280G(b)(2) of the Code) unless, in the
opinion of tax counsel ("Tax Counsel")
reasonably acceptable to the Executive and
selected by the accounting firm which was,
immediately prior to the Change in Control,
DCA's independent auditor (the "Auditor"), such
payments or benefits (in whole or in part) do
not constitute parachute payments, including by
reason of section 280G(b)(4)(A) of the Code,
(ii) all "excess parachute payments" within the
meaning of section 280G(b)(l) of the Code shall
be treated as subject to the Excise Tax unless,
in the opinion of Tax Counsel, such excess
parachute payments (in whole or in part)
represent reasonable compensation for services
actually rendered (within the meaning of
section 280G(b)(4)(B) of the Code) in excess of
the "base amount" (with the meaning of section
280G(b)(3) of the Code) allocable to such
reasonable compensation, or are otherwise not
subject to the Excise Tax, and (iii) the value
of any noncash benefits or any deferred payment
or benefit shall be determined by the Auditor
in accordance with the principles of sections
280G(d)(3) and (4) of the Code. For purposes
of determining the amount of the Gross-Up
Payment, the Executive shall be deemed to pay
federal income tax at the highest marginal rate
of federal income taxation in the calendar year
in which the Gross-Up Payment is to be made and
state and local income taxes at the highest
marginal rate of taxation in the state and
locality of the Executive's residence on the
date of the Executive's termination of
employment, net of the maximum reduction in
federal income taxes which could be obtained
from deduction of such state and local taxes.
In the event that the Excise Tax is finally
determined to be less than the amount taken
into account hereunder in calculating the
Gross-Up Payment, the Executive shall repay to
DCA, or the Successor or Parent, as the case
may be, within five (5) business days following
the time that the amount of such reduction in
the Excise Tax is finally determined, the
portion of the Gross-Up Payment attributable to
such reduction (plus that portion of the
Gross-Up Payment attributable to the Excise Tax
and federal, state and local income and
employment taxes imposed on the Gross-Up
Payment being repaid by the Executive, to the
extent that such repayment results in a
reduction in the Excise Tax and a dollar-for-
dollar reduction in the Executive's taxable
income and wages for purposes of federal, state
and local income and employment taxes, plus
interest on the amount of such repayment at
120% of the rate provided in section
1274(b)(2)(B) of the Code. In the event that
the Excise Tax is determined to exceed the
amount taken into account hereunder in
calculating the Gross-Up Payment (including by
reason of any payment the existence or amount
of which cannot be determined at the time of
the Gross-Up Payment), DCA or the Successor or
Parent, as the case may be, shall make an
additional Gross-Up Payment in respect of such
excess (plus any interest, penalties or
additions payable by the Executive with respect
to such excess) within five (5) business days
following the time that the amount of such
excess is finally determined. The Executive
and DCA or the Successor or Parent, as the case
may be, shall each reasonably cooperate with
the other in connection with any administrative
or judicial proceedings concerning the
existence or amount of liability for Excise Tax
with respect to the Total Payments.
Except as set forth above, the Agreement is
hereby ratified and confirmed in all respects.
IN WITNESS WHEREOF, each of the parties hereto
has executed this Amendment as of the day and year first
written above.
DYNAMICS CORPORATION OF AMERICA
By: /s/ Andrew Lozyniak
----------------------------
/s/ Henry V. Kensing
----------------------------
HENRY V. KENSING
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement") made
and entered into as of the 9th day of May, 1997, by and
among CTS Corporation, an Indiana corporation ("Parent"),
Dynamics Corporation of America, a New York corporation
(the "Company"), and Andrew Lozyniak (the "Executive").
WHEREAS, Parent, a wholly owned subsidiary of
Parent ("Merger Sub") and the Company have entered into
an Agreement and Plan of Merger (the "Merger Agreement"),
dated as of May 9, 1997, pursuant to which, among other
things, the Company will be merged with and into Merger
Sub as of the "Effective Time," as defined in the Merger
Agreement;
WHEREAS, the Executive is currently serving as
Chairman, President and Chief Executive Officer of the
Company, and the Boards of Directors of Parent and the
Company ("Boards of Directors") desire to secure the
continued employment of the Executive in accordance
herewith;
WHEREAS, the Company is party to an employment
agreement (the "Employment Agreement") with the
Executive, effective as of February 1, 1996 and amended
as of April 11, 1997;
WHEREAS, the Executive is willing to commit
himself to be employed by the Company on the terms and
conditions herein set forth and in lieu of the terms and
conditions of the Employment Agreement; and
WHEREAS, the parties desire to enter into this
Agreement as of the Effective Time, setting forth the
terms and conditions for the employment relationship of
the Executive with the Company;
NOW, THEREFORE, in consideration of the mutual
premises and the respective covenants and agreements of
the parties herein contained, the parties hereto agree as
follows:
1. Operation of Agreement; Employment and Term.
(a) This Agreement shall be effective and
binding immediately upon its execution, but anything in
this Agreement to the contrary notwithstanding, this
Agreement shall not be operative unless and until the
Effective Time occurs. Upon the occurrence of the
Effective Time, without further action, this Agreement
shall become immediately operative.
(b) Employment. The Company agrees to employ
the Executive, and the Executive agrees to be employed by
the Company, in accordance with the terms and provisions
of this Agreement.
(c) Term. The term of this Agreement (the
"Term") shall commence on the date (the "Effective Date")
on which the Effective Time occurs and shall continue
until the fifth (5th) anniversary of the Effective Date.
2. Duties and Powers of Executive.
(a) Position. For the period during which the
Executive provides services to the Company (the
"Employment Period"), the Executive shall serve in such
office and have such authority, duties and
responsibilities as specified in Exhibit A hereto.
During the Employment Period, and excluding any periods
of vacation and sick leave to which the Executive is
entitled, the Executive shall devote substantially all of
his attention and time during normal business hours to
the business and affairs of the Company and shall use his
reasonable best efforts to carry out his responsibilities
faithfully and efficiently. It shall not be considered a
violation of the foregoing for the Executive to serve on
corporate, industry, civic or charitable boards or
committees, as long as such activities do not materially
interfere with the performance of his responsibilities
with the Company in accordance with this Agreement.
(b) Board Membership. The Board of Directors
of Parent shall propose each of Messrs. Lozyniak and
Dorme for reelection to the Board of Directors of Parent
throughout the Term, and shall continue each such person
and Mr. Kensing as a member of the Board of Directors of
the Company throughout the Term. The sole remedy for
breach of this provision shall be the remedy set forth in
Section 5(c) of this Agreement.
(c) Location. The Company's current office in
Greenwich, Connecticut shall remain in operation for at
least two (2) years following the Effective Date. The
Executive's services shall be performed primarily at such
current office, and in no event shall the Executive be
required to perform services at a location more than 25
miles from the Company's current office, in each case,
except for such reasonable travel obligations as are
substantially consistent with the Executive's present
travel obligations. Throughout the Employment Period,
the Executive shall be provided with appropriate office
space and secretarial services commensurate with his
title and position.
3. Compensation.
The Executive shall receive the following
compensation for his services hereunder to the Company:
(a) Salary. During the Employment Period, the
Executive's monthly base salary ("Base Salary") shall be
$37,500, provided that such amount shall be increased at
the same time and by the same percentage as is the base
salary of the Chief Executive Officer of Parent, payable
in accordance with the Company's general payroll
practices as in effect from time to time.
(b) Incentive Compensation. During the
Employment Period, the Executive shall be eligible to
participate in Parent's short-term and long-term
incentive compensation plans, including equity-based
compensation plans, on a basis no less favorable than
that of other senior executives of Parent. The Executive
shall receive an initial grant under Parent's 1996 Stock
Option Plan of an option to purchase 100,000 shares of
the common stock of Parent, on the terms and conditions
set forth on Exhibit A hereto, which shall include
acceleration of exercisability upon termination of
employment by the Executive for Good Reason, by the
Company other than for Cause, or by reason of death or
Disability.
(c) Split-Dollar Policy. Parent or the
Company shall (i) during the Employment Period, continue
to pay the annual premium, at the same annual rate and in
the same month as paid by the Company in 1997, on the
individual "split dollar" life insurance policy issued by
the Security Mutual Life Insurance Company of New York
and owned by the Executive or a trust created by the
Executive ("Policy"), and (ii), notwithstanding the
assignment of the Policy to the Company as collateral
heretofore executed by the Executive ("Collateral
Assignment"), not take any action to reduce the annual
premium, borrow against the cash surrender value of the
Policy or endanger in any way any benefit available to
the Executive or the trustee or trustees of any such
trust thereunder and shall not be entitled to be repaid
to the extent of its interest in the Policy until the
earlier of the death of the insured under the Policy or
the surrender of the Policy by the Executive.
(d) Supplemental Retirement Income. In order
to restore certain retirement income benefits which are
not available to the Executive under the Retirement Plan
for Employees of the Company ("Qualified Plan") by reason
of section 401(a)(17), section 415 and section 401(a)(4)
of the Internal Revenue Code of 1986, as amended (the
"Code"), Parent or the Company shall pay to the Executive
supplemental retirement income ("Supplemental Retirement
Income") commencing on his retirement date (normal,
early, disabled or postponed) as defined in and under the
Qualified Plan in an amount equal to the difference
between (i) the monthly amount of the retirement income
that would be payable to the Executive upon his
retirement under the Qualified Plan, assuming that such
plan continues in effect through the Executive's
retirement date on terms no less favorable to Executive
than the terms in effect on the date hereof, if such
benefit were calculated under the Qualified Plan without
giving effect to the compensation limit under section
401(a)(17) of the Code or to the limitations imposed by
the application of section 415 of the Code, and assuming
that the benefit described in section 4.01(d) of the
Qualified Plan continued to apply on and after January 1,
1989 notwithstanding the provisions of section 401(a)(4)
of the Code, expressed as a single life annuity, and (ii)
the monthly amount of retirement income payable to the
Executive upon his retirement under the Qualified Plan
and any similar plan maintained for Executive's benefit
by Parent ("Parent's Plan") based on his compensation up
to the said compensation limit and based on the
limitations imposed by the application of section 415 of
the Code, and the limitations imposed by the application
of section 401(a)(4) of the Code to section 4.01(d) of
the Qualified Plan and the applicable provision of
Parent's Plan, expressed as a single life annuity. Such
supplemental retirement income shall be paid to the
Executive in cash by Parent or the Company, to the extent
not so paid by the trustee ("Trustee") of the Trust
(defined in paragraph (g) of this Section 3), as an
Actuarial Equivalent single lump sum, as soon as
practical following the Executive's retirement.
"Actuarial Equivalent" shall mean the present value of a
life annuity, assuming the retirement age is the
Executive's age on his retirement date, which is the date
benefits hereunder are calculated; the interest rate is
the rate appearing in the table published in The Wall
Street Journal entitled "Markets Diary" under the heading
"Bond Buyer municipal", corresponding to 20-year Aaa
bonds, and reflecting the rate for the first day of the
month preceding the month in which the benefits hereunder
are calculated; and mortality is determined under the
1983 Group Annuity Mortality Table.
(e) Preretirement Death Benefit. If the
Executive dies while eligible for a retirement benefit
under paragraph (d) of this Section 3 and prior to his
retirement and/or the payment of such retirement benefit,
the Executive's surviving spouse shall be entitled to
receive a supplemental preretirement survivor benefit
equal to the difference between (i) the monthly amount of
retirement income to which the deceased Executive's
spouse would have been entitled under the Qualified Plan
if the Executive had retired on the day prior to his
death having elected a 100% joint and survivor annuity
option and if such benefit were calculated under the
Qualified Plan without giving effect to the compensation
limit under section 401(a)(17) of the Code or the
limitations imposed by the application of section 415 of
the Code, and assuming that the benefit described in
Section 4.01(d) of the Qualified Plan continued to apply
on and after January 1, 1989 notwithstanding the
provisions of section 401(a)(4) of the Code, and (ii) the
monthly amount of retirement income to which the deceased
Executive's spouse is entitled under the Qualified Plan
based on his compensation up to the said compensation
limit and based on the limitations imposed by the
application of section 415 of the Code, and the
limitations imposed by the application of section
401(a)(4) of the Code to Section 4.01(d) of the Qualified
Plan. Such supplemental preretirement survivor benefit
shall be paid to such surviving spouse in cash by Parent
or the Company, to the extent not so paid by the Trustee,
as an "Actuarial Equivalent" single lump sum, as above
defined, as soon as practicable following the Executive's
death.
(f) Supplemental Savings Plan Income. In
order to restore benefits which are not available to the
Executive under the Company's Employee Savings and
Investment Plan ("401(k) Plan") by reason of the
compensation limit under section 401(a)(17) of the Code,
Parent or the Company shall pay to the Executive on his
retirement date an amount ("Supplemental Savings Plan
Income") equal to two percent (2%) of his annual base
compensation in excess of $150,000 in calendar year 1997
and in each calendar year in the Employment Period in
which his annual base compensation exceeds $150,000
(subject to indexation by the Internal Revenue Service),
with interest at the annual rate of eight percent (8%) on
such excess amount from and after December 31 of each
such year. The aggregate of all such amounts and the
interest thereon shall be paid, to the extent not so paid
by the Trustee, to the Executive in cash by Parent or the
Company in a lump sum as soon as practical following the
Executive's retirement. If the Executive dies while
eligible for a benefit under this paragraph (f) and prior
to the payment of such benefit, the Executive's surviving
spouse shall be entitled to receive in cash from Parent
or the Company, to the extent not so received from the
Trustee, as soon as practical following the Executive's
death an amount equal to the amount the Executive would
have received under this paragraph (f) if he had retired
under the Qualified Plan on the day prior to his death.
(g) Rabbi Trust. Commencing no later than
December 31, 1997 and continuing on or before each
December 31 thereafter during the Employment Period,
Parent or the Company shall contribute additional cash or
other property to the trust established by the Company as
of December 31, 1996 (the "Trust") sufficient to pay all
of the supplemental retirement income, supplemental
preretirement survivor benefits, and the other benefits
to the Executive and his surviving spouse provided for in
paragraphs (d), (e) and (f) of this Section 3, but no
funds or assets of Parent or the Company shall be
segregated or physically set aside with respect to its
obligations under the benefit restoration plan set forth
in this paragraph (g) in a manner which would cause said
benefit restoration plan to be "funded" for purposes of
the Employee Retirement Income Security Act of 1974, as
amended. Neither the Executive nor his surviving spouse
shall have any interest in any specific asset of Parent
or the Company as a result of this paragraph (g) and any
rights to receive benefits hereunder shall be only the
right of an unsecured general creditor of Parent or the
Company. The Trust has been established in full
compliance with IRS Revenue Procedure 92-64, and the
Trustee shall continue to be the Bank of Boston
Connecticut or another financial institution reasonably
satisfactory to the Executive. Upon the last of Messrs.
Lozyniak, Kensing and Dorme to receive payment from the
Trustee, any funds remaining in the Trust shall be
distributed pro rata in equal shares to such Executives
or their surviving spouses or heirs.
(h) Postretirement Medical Coverage. For the
period commencing on the date of the formal retirement of
the Executive under the Qualified Plan or Parent's Plan
and ending on the tenth anniversary thereof, or the
earlier death of the Executive, the Executive and his
wife, and their dependent children, if any, shall be
entitled to enroll in an insured health and
hospitalization plan or plans, including, without
limitation, plans offered by health maintenance
organizations, with benefits substantially equal to the
benefits of the health and hospitalization plans of the
Company in effect on the date of said retirement or, if
earlier, on the date immediately prior to the date as of
which such plans are terminated or amended adversely with
respect to the Executive, and Parent or the Company shall
pay to the Executive quarterly and in advance an amount
in cash grossed up so as to be sufficient, after the
payment by the Executive of all federal, state and local
income and all other taxes due by reason of the receipt
of said payment, if any, to pay when due the premiums for
such insured coverage ("Postretirement Medical
Coverage"); provided, however, that during all times in
such period of the Executive's retirement as either the
Executive or his wife shall be eligible for Medicare
coverage, in lieu of such participation by the Executive
or his wife, or both of them, as the case may be, in the
insured health and hospitalization plans referred to
above, Parent or the Company shall pay to the Executive
quarterly and in advance an amount in cash grossed up so
as to be sufficient, after the payment by the Executive
of all federal, state and local income and all other
taxes due by reason of the receipt of said payment, if
any, to pay when due the annual premiums for Medigap
supplementary coverage for the Executive and/or his wife
with an insurance carrier selected by the Executive or
his wife, with the extent of such coverage to be as
provided in Standard Plan J of the National Association
of Insurance Commissioners ("NAIC") or in the NAIC
Standard Plan hereafter adopted which provides the most
extensive benefit coverage at the time of the payment to
the Executive provided for under this Section 3(h). For
purposes of this Section 3(h), the amount of any required
gross up shall be calculated by utilizing the highest tax
rate for federal income tax in effect at the time of
calculation, and 5% for state and local income taxes, and
the then current rate for Federal Insurance Contributions
Act taxes for both the Executive's share and the
Company's share of such taxes. In the event that the
Executive dies within said ten (10) year period, his wife
shall continue to be entitled to said payments for a
period of six (6) months from the date of death of the
Executive.
(i) Other Matters. The provisions of this
Section 3 which take effect upon the termination of the
Employment Period, the expiration of the Term or the
formal retirement of the Executive under the Qualified
Plan shall survive such events and shall not be affected
by any Change in Control or the consummation of the
transactions contemplated by the Merger Agreement. The
parties agree that, notwithstanding any other provision
of this Employment Agreement, the Executive shall not be
entitled to retire under the Qualified Plan during the
Employment Period unless the Board of Directors of the
Company consents to such retirement, except that the
Executive may so retire without such consent upon
expiration of the Term or termination of the Employment
Period.
(j) Other Benefits. During the Employment
Period, the Executive shall be eligible to participate in
all other savings, retirement, welfare (including without
limitation medical, dental, hospitalization and life
insurance) and fringe benefit plans, practices, policies
and programs on a basis no less favorable to the
Executive than in effect on the date hereof. During the
Employment Period, Parent or the Company shall make
available to the Executive, at its cost and expense, an
automobile on a basis substantially similar to that in
effect on the date hereof.
4. Expenses. Parent or the Company shall reimburse
the Executive for all reasonable expenses, including
those for travel and entertainment, properly incurred by
him in the performance of his duties hereunder in
accordance with policies established from time to time by
the Board of Directors of the Company.
5. Termination of Employment.
(a) Death; Disability. The Employment Period
shall terminate automatically upon the Executive's death
or Disability during such period, in which case the
Executive shall be entitled to the payments and benefits
set forth in Section 6(a) of this Agreement. For
purposes of this Agreement, "Disability" shall be deemed
to occur if, as a result of the Executive's incapacity
due to physical or mental illness, the Executive shall
have been absent from the full-time performance of his
duties with the Company for a period of six (6)
consecutive months, the Company shall have given the
Executive a Notice of Termination (as defined in
paragraph (e) of this Section 5) for Disability and,
within thirty (30) days after such Notice of Termination
is given, the Executive shall not have returned to the
full-time performance of his duties.
(b) By the Company for Cause. The Company may
terminate the Executive's employment hereunder for Cause,
in which case the Executive shall be entitled to the
payments and benefits set forth in Section 6(b) of this
Agreement. For purposes of this Agreement, "Cause" shall
mean (i) the willful and continued failure by the
Executive to substantially perform the Executive's duties
with the Company (other than any such failure resulting
from the Executive's incapacity due to physical or mental
illness or any such actual or anticipated failure after
the issuance of a Notice of Termination for Good Reason
by the Executive pursuant to paragraph (f) of this
Section 5) after a written demand for substantial
performance is delivered to the Executive by the Board of
Directors of the Company, which demand specifically
identifies the manner in which such Board believes that
the Executive has not substantially performed the
Executive's duties, or (ii) the willful engaging by the
Executive in conduct which is demonstrably and materially
injurious to Parent or its subsidiaries, monetarily or
otherwise. For purposes of clauses (i) and (ii) of this
definition, (x) no act, or failure to act, on the
Executive's part shall be deemed "willful" unless done,
or omitted to be done, by the Executive not in good faith
and without reasonable belief that the Executive's act,
or failure to act, was in the best interest of the
Company and (y) in the event of a dispute concerning the
application of this provision, no claim by the Company
that Cause exists shall be given effect unless the
Company establishes to the Board of Directors of Parent
by clear and convincing evidence that Cause exists.
(c) By the Executive for Good Reason. The
Executive may terminate his employment during the
Employment Period for Good Reason (unless Cause exists),
in which case the Executive shall be entitled to the
payments and benefits set forth in Section 6(a) of this
Agreement. For purposes of this Agreement, "Good Reason"
shall mean (i) the occurrence, without the written
consent of the Executive, of an event constituting a
material breach of this Agreement (including without
limitation a breach of Section 2(b) or 2(c) of this
Agreement) by the Company that has not been fully cured
within ten (10) days after written notice thereof has
been given by the Executive to the Company, or (ii) any
reason, at the Executive's discretion, during the three-
month period following (A) the closing of the Greenwich
office following the second anniversary of the Effective
Date or (B) the occurrence of a "Change in Control," as
defined in paragraph (d) of this Section 5.
(d) Definition of Change in Control. A
"Change in Control" shall be deemed to have occurred if
the event set forth in any one of the following
paragraphs shall have occurred:
(I) any Person is or becomes the Beneficial Owner,
directly or indirectly, of securities of Parent (not
including in the securities beneficially owned by
such Person any securities acquired directly from
Parent or its affiliates) representing 25% or more
of the combined voting power of Parent's then
outstanding securities, excluding any Person who
becomes such a Beneficial Owner in connection with a
transaction described in clause (i) of paragraph
(III) below; or
(II) the following individuals cease for any reason
to constitute a majority of the number of directors
then serving: individuals who, on the date hereof,
constitute the Board and any new director (other
than a director whose initial assumption of office
is in connection with an actual or threatened
election contest, including but not limited to a
consent solicitation, relating to the election of
directors of Parent) whose appointment or election
by the Board or nomination for election by Parent's
stockholders was approved or recommended by a vote
of at least two-thirds (2/3) of the directors then
still in office who either were directors on the
date hereof or whose appointment, election or
nomination for election was previously so approved
or recommended; or
(III) there is consummated a merger or
consolidation of Parent or any direct or indirect
subsidiary of Parent with any other corporation,
other than (i) a merger or consolidation which
would result in the voting securities of Parent
outstanding immediately prior to such merger or
consolidation continuing to represent (either by
remaining outstanding or by being converted into
voting securities of the surviving entity or any
parent thereof) at least 60% of the combined voting
power of the securities of Parent or such surviving
entity or any parent thereof outstanding
immediately after such merger or consolidation, or
(ii) a merger or consolidation effected to
implement a recapitalization of Parent (or similar
transaction) in which no Person is or becomes the
Beneficial Owner, directly or indirectly, of
securities of Parent (not including in the
securities Beneficially Owned by such Person any
securities acquired directly from Parent or its
Affiliates) representing 25% or more of the
combined voting power of Parent's then outstanding
securities; or
(IV) the stockholders of Parent approve a plan of
complete liquidation or dissolution of Parent or
there is consummated an agreement for the sale or
disposition by Parent of all or substantially all
of Parent's assets, other than a sale or
disposition by Parent of all or substantially all
of Parent's assets to an entity, at least 60% of
the combined voting power of the voting securities
of which are owned by stockholders of Parent in
substantially the same proportions as their
ownership of the Company immediately prior to such
sale.
For purposes of this Section 5(d): "Beneficial Owner"
shall have the meaning set forth in Rule 13d-3 under the
Exchange Act; "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended from time to time; and
"Person" shall have the meaning given in Section 3(a)(9)
of the Exchange Act, as modified and used in Sections
13(d) and 14(d) thereof, except that such term shall not
include (i) Parent or any of its subsidiaries, (ii) a
trustee or other fiduciary holding securities under an
employee benefit plan of Parent or any of its
"affiliates," within the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Exchange Act, (iii)
an underwriter temporarily holding securities pursuant to
an offering of such securities, or (iv) a corporation
owned, directly or indirectly, by the stockholders of
Parent in substantially the same proportions as their
ownership of stock of Parent.
(e) By the Company Other Than for Cause or by
the Executive without Good Reason. Notwithstanding any
other provision of this Agreement, the Company may
terminate the Executive's employment other than for
Cause, in which case the Executive shall be entitled to
the payments and benefits set forth in Section 6(a) of
this Agreement, and the Executive may terminate his
employment other than for Good Reason (as defined in
paragraph (c) of this Section 5), in which case the
Executive shall be entitled to the payments and benefits
set forth in Section 6(b) of this Agreement.
(f) Notice of Termination. Any termination by
the Company or by the Executive shall be communicated by
Notice of Termination to the other party hereto given in
accordance with Section 10(b) of this Agreement. For
purposes of this Agreement, a "Notice of Termination"
means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii)
to the extent applicable, sets forth in reasonable detail
the facts and circumstances claimed to provide a basis
for termination of the Executive's employment under the
provision so indicated, and (iii) if the Date of
Termination (as defined in paragraph (f) of this Section
5) is other than the date of receipt of such notice,
specifies the termination date (which date shall be not
more than thirty (30) days after the giving of such
notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any
fact or circumstance which contributes to a showing of
Good Reason shall not waive any right of the Executive
hereunder or preclude the Executive from asserting such
fact or circumstance in enforcing the Executive's rights
hereunder. Further, a Notice of Termination for Cause is
required to include a copy of a resolution duly adopted
by the affirmative vote of not less than three-quarters
(3/4) of the membership of the Board of Directors of
Parent (excluding the Executive if the Executive is then
a member of such Board) at a meeting of such Board which
was called and held for the purpose of considering such
termination (after reasonable notice to the Executive and
an opportunity for the Executive, together with the
Executive's counsel, to be heard before such Board)
finding that, in the good faith opinion of such Board,
the Executive was guilty of conduct set forth in clause
(i) or (ii) of the definition of Cause herein, and
specifying the particulars thereof in detail.
(g) Date of Termination. "Date of
Termination" means (i) if the Executive's employment is
terminated by the Executive for Good Reason, the date of
receipt of the Notice of Termination or any later date
specified therein, as the case may be, (ii) if the
Executive's employment is terminated by the Company, the
date on which the Company notifies the Executive of such
termination (except in the event of a termination for
Cause), (iii) if the Executive's employment is terminated
for Disability, thirty (30) days after Notice of
Termination is given (provided that the Executive shall
not have returned to the full-time performance of his
duties during such thirty (30) day period), and (iv) if
the Executive's employment is terminated by reason of
death, the date of death.
6. Obligations of Parent or the Company Upon
Termination.
(a) Termination for Good Reason or Other Than
for Cause. If the Executive shall terminate his
employment for Good Reason or the Company shall terminate
the Executive's employment for any reason other than
Cause, including Disability, or if such employment shall
be terminated by reason of death, the Executive shall be
entitled to the following benefits:
i) Parent or the Company shall pay
to the Executive a lump sum amount in cash
equal to the sum of (A) the Executive's Base
Salary through the Date of Termination to the
extent not theretofore paid, (B) any
compensation previously deferred by the
Executive (together with any accrued interest
or earnings thereon) and any accrued vacation
pay and (C) any other amounts due the Executive
as of the Date of Termination, in each case to
the extent not theretofore paid. (The amounts
specified in clauses (A), (B) and (C) shall be
hereinafter referred to as the "Accrued
Obligation"). The amounts specified in this
Section 6(a)(i) shall be paid within thirty
(30) days after the Date of Termination; and
ii) in lieu of any severance benefit
otherwise payable to the Executive,
(A) if the Executive shall terminate his employment
for Good Reason or the Company shall terminate the
Executive's employment for any reason other than
Disability or Cause, Parent or the Company shall pay
the Executive a lump sum amount, in cash, within
five days following the Date of Termination, equal
to three and one-third (3 1/3) times the sum of (1)
twelve (12) times Base Salary, and (2) $198,000,
which is equal to the largest aggregate amount
earned by the Executive as stock and cash bonuses
for any of the five fiscal years preceding that in
which the Effective Date occurs;
(B) if the termination of the Executive's employment
is by reason of death or Disability, or, if the
Executive so elects, in lieu of the payments
described in paragraph (A) of this Section 6(ii),
Parent or the Company shall continue to pay the
Executive (or, in the event of his death, his legal
representative) for the remainder of the Term (1)
the Base Salary as in effect immediately prior to
the Date of Termination, in accordance with the
Company's general payroll practices, and (2) for
each full twelve-month period remaining in the Term,
the highest annual aggregate cash and stock bonuses
earned by the Executive pursuant to any annual bonus
or incentive plan maintained by the Parent or
Company in respect of any of the five fiscal years
of the Parent or Company ending immediately prior to
the fiscal year in which occurs the Date of
Termination, payable in accordance with the
Company's practices with respect to the payment of
bonuses; and
(C) if the Executive's employment is terminated by
reason of death and if his wife shall survive him,
Parent or the Company shall pay to his wife the sum
of $60,000 per year, payable semi-monthly, during
the period commencing on the expiration of the Term
and ending on the tenth anniversary of date of the
death of the Executive or such earlier date of the
death of his wife; and
(D) if the Executive's employment is terminated by
reason of Disability and the Executive has not
attained the age of 65 at the expiration of the
Term, then Parent or the Company shall pay him 40%
of Base Salary, payable semi-monthly, until the date
on which he attains the age of 65; and
iii) Parent or the Company shall pay
in a single lump sum to Security Mutual Life
Insurance Company of New York, to be held in a
side fund in escrow by said carrier to pay when
due (or, at the option of the Executive, to
prepay) the annual premiums on the Policy, an
amount equal to ten (10) times the amount of
the last annual premium payment on the Policy
made prior to the date of termination, and
Parent and the Company shall forfeit all rights
under the Collateral Assignment to be repaid
the aggregate amount of all premiums paid on
the Policy prior to, on or after the Date of
Termination, and shall release and waive all
rights under the Collateral Assignment, shall
not endanger in any way any benefit available
to the Executive under the Policy and shall not
be entitled to any further rights or interest
in the Policy; and
iv) the Executive shall be entitled to
retire under the Qualified Plan and shall
immediately thereafter become entitled to payment of
his Supplemental Retirement Income and Supplemental
Savings Plan Income and shall be entitled to
Postretirement Medical Coverage; and
v) for the remainder of the Term, Parent
or the Company shall arrange to provide the
Executive and his dependents life and disability
insurance benefits substantially similar to those
provided to the Executive and his dependents as of
the date hereof, at no greater cost to the Executive
than the cost to the Executive immediately prior to
the Date of Termination.
(b) Termination for Other Reason. If the
Executive's employment shall be terminated by the Company
for Cause or by the Executive other than for Good Reason,
death or Disability, neither Parent nor the Company shall
have any further obligations to the Executive under this
Agreement other than the obligation to pay to the
Executive the Accrued Obligation and any postemployment
benefits to which the Executive is entitled under the
terms of Parent's or the Company's employee benefit
plans.
(c) Arbitration. Any dispute or controversy
arising under or in connection with this Agreement shall
be settled exclusively by arbitration, conducted before a
panel of three arbitrators sitting in New York, New York,
in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on
the arbitrator's award in any court having jurisdiction.
(d) Legal Fees. Parent or the Company shall
also pay to the Executive all reasonable legal fees and
expenses incurred by the Executive in disputing in good
faith any issue hereunder relating to the termination of
the Executive's employment, in seeking in good faith to
obtain or enforce any benefit or right provided by this
Agreement or in connection with any tax audit or
proceeding to the extent attributable to the application
of section 4999 of the Code to any payment or benefit
provided hereunder. Such payments shall be made within
five (5) business days after delivery of the Executive's
written requests for payment accompanied with such
evidence of fees and expenses incurred as is reasonable.
(e) Gross-Up. If any of the payments or
benefits received or to be received by the Executive
(whether pursuant to the terms of this Agreement or any
other plan, arrangement or agreement with Parent or the
Company, any Person (as defined in Section 5(d) of this
Agreement) whose actions result in a Change in Control or
any Person affiliated with the Company or such Person)
(such payments or benefits, excluding the Gross-Up
Payment (as defined below), being hereinafter referred to
as the "Total Payments") will be subject to the excise
tax imposed under section 4999 of the Code ("Excise
Tax"), Parent or the Company shall pay to the Executive
an additional amount (the "Gross-Up Payment") such that
the net amount retained by the Executive, after deduction
of any Excise Tax on the Total Payments and any federal,
state and local income and employment taxes and Excise
Tax upon the Gross-Up Payment, shall be equal to the
Total Payments.
For purposes of determining whether any of the
Total Payments will be subject to the Excise Tax and the
amount of such Excise Tax, (i) all of the Total Payments
shall be treated as "parachute payments" (within the
meaning of section 280G(b)(2) of the Code) unless, in the
opinion of tax counsel ("Tax Counsel") reasonably
acceptable to the Executive and selected by the
accounting firm which was, immediately prior to the date
hereof, the Company's independent auditor, or in the
event of a Change in Control, was, immediately prior to
the Change in Control, Parent's independent auditor (the
"Auditor"), such payments or benefits (in whole or in
part) do not constitute parachute payments, including by
reason of section 280G(b)(4)(A) of the Code, (ii) all
"excess parachute payments" within the meaning of section
280G(b)(l) of the Code shall be treated as subject to the
Excise Tax unless, in the opinion of Tax Counsel, such
excess parachute payments (in whole or in part) represent
reasonable compensation for services actually rendered
(within the meaning of section 280G(b)(4)(B) of the Code)
in excess of the "Base Amount," as defined in section
280G(b)(3) of the Code, allocable to such reasonable
compensation, or are otherwise not subject to the Excise
Tax, and (iii) the value of any noncash benefits or any
deferred payment or benefit shall be determined by the
Auditor in accordance with the principles of sections
280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, the
Executive shall be deemed to pay federal income tax at
the highest marginal rate of federal income taxation in
the calendar year in which the Gross-Up Payment is to be
made and state and local income taxes at the highest
marginal rate of taxation in the state and locality of
the Executive's residence on the Date of Termination (or
if there is no Date of Termination, then the date on
which the Gross-Up Payment is calculated for purposes of
this Section 6.2), net of the maximum reduction in
federal income taxes which could be obtained from
deduction of such state and local taxes.
In the event that the Excise Tax is finally
determined to be less than the amount taken into account
hereunder in calculating the Gross-Up Payment, the
Executive shall repay to Parent or the Company, as the
case may be, within five (5) business days following the
time that the amount of such reduction in the Excise Tax
is finally determined, the portion of the Gross-Up
Payment attributable to such reduction (plus that portion
of the Gross-Up Payment attributable to the Excise Tax
and federal, state and local income and employment taxes
imposed on the Gross-Up Payment being repaid by the
Executive, to the extent that such repayment results in a
reduction in the Excise Tax and a dollar-for-dollar
reduction in the Executive's taxable income and wages for
purposes of federal, state and local income and
employment taxes, plus interest on the amount of such
repayment at 120% of the rate provided in section
1274(b)(2)(B) of the Code. In the event that the Excise
Tax is determined to exceed the amount taken into account
hereunder in calculating the Gross-Up Payment (including
by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up
Payment), Parent or the Company shall make an additional
Gross-Up Payment in respect of such excess (plus any
interest, penalties or additions payable by the Executive
with respect to such excess) within five (5) business
days following the time that the amount of such excess is
finally determined. The Executive, Parent and the
Company shall each reasonably cooperate with the other in
connection with any administrative or judicial
proceedings concerning the existence or amount of
liability for Excise Tax with respect to the Total
Payments.
7. Full Settlement; Mitigation.
Parent's and the Company's obligation to make
the payments provided for in this Agreement and otherwise
to perform their obligations hereunder shall not be
subject to any set-off, counterclaim, recoupment, defense
or other claim, right or action which Parent or the
Company may have against the Executive or others. In no
event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation
of the amounts (including amounts for damages for breach)
payable to the Executive under any of the provisions of
this Agreement and such amounts shall not be reduced
whether or not the Executive obtains other employment.
8. Confidential Information.
The Executive shall hold in a fiduciary
capacity for the benefit of Parent and the Company all
secret, confidential information, knowledge or data
relating to the Company or any of its affiliated
companies and their respective businesses which shall
have been obtained by the Executive during his employment
by the Company or any of their affiliated companies and
that shall not have been or now or hereafter have become
public knowledge (other than by acts by the Executive or
representatives of the Executive in violation of this
Agreement). The Executive shall not, without the prior
written consent of Parent or as may otherwise be required
by law or legal process, communicate or divulge any such
information, knowledge or data to anyone other than
Parent and those designated by it.
9. Successors.
(a) Assignment by Executive. This Agreement
is personal to the Executive and, without the prior
written consent of Parent or the Company, shall not be
assignable by the Executive otherwise than by will or the
laws of descent and distribution. This Agreement shall
inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) Successors and Assigns. This Agreement
shall inure to the benefit of and be binding upon Parent
and the Company, and their respective successors and
assigns.
(c) Assumption. Parent or the Company, as the
case may be, shall require any successor (whether direct
or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business
and/or assets thereof to expressly assume and agree to
perform this Agreement in the same manner and to the same
extent that Parent or the Company, as the case may be,
would be required to perform this Agreement if no such
succession had taken place. In the event of the
liquidation of the Company, the Executive shall be an
employee of Parent and Parent shall be solely liable for
all obligations of the Company hereunder. As used in
this Agreement, Parent and the "Company" shall mean
Parent and the Company, respectively, as hereinbefore
defined and any successor to their businesses and/or
assets as aforesaid that assumes and agrees to perform
this Agreement by operation of law, or otherwise.
10. Miscellaneous.
(a) Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of
New York, without reference to its principles of conflict
of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect.
This Agreement may not be amended, modified, repealed,
waived, extended or discharged except by an agreement in
writing signed by the party against whom enforcement of
such amendment, modification, repeal, waiver, extension
or discharge is sought. No person, other than pursuant
to a resolution of its respective Board of Directors (or
a committee thereof), as the case may be, shall have
authority on behalf of Parent or the Company to agree to
amend, modify, repeal, waive, extend or discharge any
provision of this Agreement or take any other action in
respect thereto.
(b) Notices. All notices and other
communications hereunder shall be in writing and shall be
given by hand delivery to the other party or by
registered or certified mail, return-receipt requested,
postage prepaid, addressed, in the case of Parent, to
Parent's headquarters, in the case of the Company, to the
Company's headquarters and, in the case of the Executive,
to the address on the signature page of this Agreement
or, in either case, to such other address as any party
shall have subsequently furnished to the other parties in
writing. Notice and communications shall be effective
when actually received by the addressee.
(c) Severability. The invalidity or
unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other
provision of this Agreement.
(d) Taxes. The Company may withhold from any
amounts due and payable under this Agreement such
federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) No Waiver. Any party's failure to insist
upon strict compliance with any provision hereof or the
failure to assert any right such party may have
hereunder, including, without limitation, the right of
the Executive to terminate employment for Good Reason
pursuant to Section 5(c) of this Agreement, shall not be
deemed to be a waiver of such provision or right or any
other provision or right of this Agreement.
(f) Entire Agreement; Survival. This
Agreement entered into as of the date hereof among
Parent, the Company and the Executive contains the entire
agreement of the Executive, Parent and the Company or
their respective predecessors or subsidiaries with
respect to the subject matter of the Agreement, and all
promises, representations, understandings, arrangements
and prior agreements, including without limitation the
Employment Agreement, are merged into, and superseded by,
the Agreement. Any provision hereof which by its terms
applies in whole or part after a termination of the
Executive's employment hereunder shall survive such
termination.
IN WITNESS WHEREOF, the Executive has executed
this Agreement and, pursuant to due authorization from
its Board of Directors, each of Parent and the Company
has caused this Agreement to be executed, as of the day
and year first above written.
CTS CORPORATION
By /s/ Joseph P. Walker
-----------------------------------
Name: Joseph P. Walker
Title: Chairman, President and
Chief Executive Officer
DYNAMICS CORPORATION OF AMERICA
By /s/ Henry V. Kensing
-----------------------------------
Name: Henry V. Kensing
Title: Vice President
/s/ Andrew Lozyniak
-------------------------------------
ANDREW LOZYNIAK
Address: 41 Hermit Lane
Westport, CT 06880
EXHIBIT A
ANDREW LOZYNIAK
I. Section 2(a)
Mr. Lozyniak will be the Chairman, President
and Chief Executive Officer of the Company and will have
such duties, responsibilities and authority as are
customarily incident to the chief executive officer of a
wholly owned U.S. subsidiary of a publicly traded U.S.
company, subject to the oversight of the Board of
Directors of the Company. Mr. Lozyniak will report to
the Chief Executive Officer of Parent ("Parent's CEO").
In addition, Mr. Lozyniak will be a member with Parent's
CEO of Parent's Office of the Chairman. As such,
Parent's CEO and Mr. Lozyniak will consult on a regular
basis as to strategic matters affecting the Company or
Parent. Parent's CEO will, however, have all powers and
authorities of the Chairman and Chief Executive Office of
Parent.
II. Section 3(b)
Option term: 10 years from date of grant
Option exercise price: $62.50 per share
Option exercisability: option to become
exercisable in 20% increments over five years or, if
earlier, the earlier of (1) on the date that the
market price of shares of Parent's common stock has
been at or above $70 per share for 20 trading days
and (2) the termination of the Executive's
employment by the Executive for Good Reason, by the
Company other than for Cause or by reason of death
or Disability.
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement") made
and entered into as of the 9th day of May, 1997, by and
among CTS Corporation, an Indiana corporation ("Parent"),
Dynamics Corporation of America, a New York corporation
(the "Company"), and Patrick J. Dorme (the "Executive").
WHEREAS, Parent, a wholly owned subsidiary of
Parent ("Merger Sub") and the Company have entered into
an Agreement and Plan of Merger (the "Merger Agreement"),
dated as of May 9, 1997, pursuant to which, among other
things, the Company will be merged with and into Merger
Sub as of the "Effective Time," as defined in the Merger
Agreement;
WHEREAS, the Executive is currently serving as
Vice President and Chief Financial Officer of the Company
and the Boards of Directors of Parent and the Company
("Boards of Directors") desire to secure the continued
employment of the Executive in accordance herewith;
WHEREAS, the Company is party to an employment
agreement (the "Employment Agreement") with the
Executive, effective as of February 1, 1996 and amended
as of April 11, 1997;
WHEREAS, the Executive is willing to commit
himself to be employed by the Company on the terms and
conditions herein set forth and in lieu of the terms and
conditions of the Employment Agreement; and
WHEREAS, the parties desire to enter into this
Agreement as of the Effective Time, setting forth the
terms and conditions for the employment relationship of
the Executive with the Company;
NOW, THEREFORE, in consideration of the mutual
premises and the respective covenants and agreements of
the parties herein contained, the parties hereto agree as
follows:
1. Operation of Agreement; Employment and Term.
(a) This Agreement shall be effective and
binding immediately upon its execution, but anything in
this Agreement to the contrary notwithstanding, this
Agreement shall not be operative unless and until the
Effective Time occurs. Upon the occurrence of the
Effective Time, without further action, this Agreement
shall become immediately operative.
(b) Employment. The Company agrees to employ
the Executive, and the Executive agrees to be employed by
the Company, in accordance with the terms and provisions
of this Agreement.
(c) Term. The term of this Agreement (the
"Term") shall commence on the date (the "Effective Date")
on which the Effective Time occurs and shall continue
until the fifth (5th) anniversary of the Effective Date.
2. Duties and Powers of Executive.
(a) Position. For the period during which the
Executive provides services to the Company (the
"Employment Period"), the Executive shall serve in such
office and have such authority, duties and
responsibilities as specified in Exhibit A hereto.
During the Employment Period, and excluding any periods
of vacation and sick leave to which the Executive is
entitled, the Executive shall devote substantially all of
his attention and time during normal business hours to
the business and affairs of the Company and shall use his
reasonable best efforts to carry out his responsibilities
faithfully and efficiently. It shall not be considered a
violation of the foregoing for the Executive to serve on
corporate, industry, civic or charitable boards or
committees, as long as such activities do not materially
interfere with the performance of his responsibilities
with the Company in accordance with this Agreement.
(b) Board Membership. The Board of Directors
of Parent shall propose each of Messrs. Lozyniak and
Dorme for reelection to the Board of Directors of Parent
throughout the Term, and shall continue each such person
and Mr. Kensing as a member of the Board of Directors of
the Company throughout the Term. The sole remedy for
breach of this provision shall be the remedy set forth in
Section 5(c) of this Agreement.
(c) Location. The Company's current office in
Greenwich, Connecticut shall remain in operation for at
least two (2) years following the Effective Date. The
Executive's services shall be performed primarily at such
current office, and in no event shall the Executive be
required to perform services at a location more than 25
miles from the Company's current office, in each case,
except for such reasonable travel obligations as are
substantially consistent with the Executive's present
travel obligations. Throughout the Employment Period,
the Executive shall be provided with appropriate office
space and secretarial services commensurate with his
title and position.
3. Compensation.
The Executive shall receive the following
compensation for his services hereunder to the Company:
(a) Salary. During the Employment Period, the
Executive's monthly base salary ("Base Salary") shall be
$14,162, payable in accordance with the Company's general
payroll practices as in effect from time to time.
(b) Incentive Compensation. During the
Employment Period, the Executive shall be eligible to
participate in Parent's short-term and long-term
incentive compensation plans, including equity-based
compensation plans, on a basis no less favorable than
that of other senior executives of Parent.
(c) Split-Dollar Policy. Parent or the
Company shall (i) during the Employment Period, continue
to pay the annual premium, at the same annual rate and in
the same month as paid by the Company in 1997, on the
individual "split dollar" life insurance policy issued by
the Security Mutual Life Insurance Company of New York
and owned by the Executive or a trust created by the
Executive ("Policy"), and (ii), notwithstanding the
assignment of the Policy to the Company as collateral
heretofore executed by the Executive ("Collateral
Assignment"), not take any action to reduce the annual
premium, borrow against the cash surrender value of the
Policy or endanger in any way any benefit available to
the Executive or the trustee or trustees of any such
trust thereunder and shall not be entitled to be repaid
to the extent of its interest in the Policy until the
earlier of the death of the insured under the Policy or
the surrender of the Policy by the Executive.
(d) Supplemental Retirement Income. In order
to restore certain retirement income benefits which are
not available to the Executive under the Retirement Plan
for Employees of the Company ("Qualified Plan") by reason
of section 401(a)(17), section 415 and section 401(a)(4)
of the Internal Revenue Code of 1986, as amended (the
"Code"), Parent or the Company shall pay to the Executive
supplemental retirement income ("Supplemental Retirement
Income") commencing on his retirement date (normal,
early, disabled or postponed) as defined in and under the
Qualified Plan in an amount equal to the difference
between (i) the monthly amount of the retirement income
that would be payable to the Executive upon his
retirement under the Qualified Plan, assuming that such
plan continues in effect through the Executive's
retirement date on terms no less favorable to Executive
than the terms in effect on the date hereof, if such
benefit were calculated under the Qualified Plan without
giving effect to the compensation limit under section
401(a)(17) of the Code or to the limitations imposed by
the application of section 415 of the Code, and assuming
that the benefit described in section 4.01(d) of the
Qualified Plan continued to apply on and after January 1,
1989 notwithstanding the provisions of section 401(a)(4)
of the Code, expressed as a single life annuity, and (ii)
the monthly amount of retirement income payable to the
Executive upon his retirement under the Qualified Plan
and any similar plan maintained for Executive's benefit
by Parent ("Parent's Plan") based on his compensation up
to the said compensation limit and based on the
limitations imposed by the application of section 415 of
the Code, and the limitations imposed by the application
of section 401(a)(4) of the Code to section 4.01(d) of
the Qualified Plan and the applicable provision of
Parent's Plan, expressed as a single life annuity. Such
supplemental retirement income shall be paid to the
Executive in cash by Parent or the Company, to the extent
not so paid by the trustee ("Trustee") of the Trust
(defined in paragraph (g) of this Section 3), as an
Actuarial Equivalent single lump sum, as soon as
practical following the Executive's retirement.
"Actuarial Equivalent" shall mean the present value of a
life annuity, assuming the retirement age is the
Executive's age on his retirement date, which is the date
benefits hereunder are calculated; the interest rate is
the rate appearing in the table published in The Wall
Street Journal entitled "Markets Diary" under the heading
"Bond Buyer municipal", corresponding to 20-year Aaa
bonds, and reflecting the rate for the first day of the
month preceding the month in which the benefits hereunder
are calculated; and mortality is determined under the
1983 Group Annuity Mortality Table.
(e) Preretirement Death Benefit. If the
Executive dies while eligible for a retirement benefit
under paragraph (d) of this Section 3 and prior to his
retirement and/or the payment of such retirement benefit,
the Executive's surviving spouse shall be entitled to
receive a supplemental preretirement survivor benefit
equal to the difference between (i) the monthly amount of
retirement income to which the deceased Executive's
spouse would have been entitled under the Qualified Plan
if the Executive had retired on the day prior to his
death having elected a 100% joint and survivor annuity
option and if such benefit were calculated under the
Qualified Plan without giving effect to the compensation
limit under section 401(a)(17) of the Code or the
limitations imposed by the application of section 415 of
the Code, and assuming that the benefit described in
Section 4.01(d) of the Qualified Plan continued to apply
on and after January 1, 1989 notwithstanding the
provisions of section 401(a)(4) of the Code, and (ii) the
monthly amount of retirement income to which the deceased
Executive's spouse is entitled under the Qualified Plan
based on his compensation up to the said compensation
limit and based on the limitations imposed by the
application of section 415 of the Code, and the
limitations imposed by the application of section
401(a)(4) of the Code to Section 4.01(d) of the Qualified
Plan. Such supplemental preretirement survivor benefit
shall be paid to such surviving spouse in cash by Parent
or the Company, to the extent not so paid by the Trustee,
as an "Actuarial Equivalent" single lump sum, as above
defined, as soon as practicable following the Executive's
death.
(f) Supplemental Savings Plan Income. In
order to restore benefits which are not available to the
Executive under the Company's Employee Savings and
Investment Plan ("401(k) Plan") by reason of the
compensation limit under section 401(a)(17) of the Code,
Parent or the Company shall pay to the Executive on his
retirement date an amount ("Supplemental Savings Plan
Income") equal to two percent (2%) of his annual base
compensation in excess of $150,000 in calendar year 1997
and in each calendar year in the Employment Period in
which his annual base compensation exceeds $150,000
(subject to indexation by the Internal Revenue Service),
with interest at the annual rate of eight percent (8%) on
such excess amount from and after December 31 of each
such year. The aggregate of all such amounts and the
interest thereon shall be paid, to the extent not so paid
by the Trustee, to the Executive in cash by Parent or the
Company in a lump sum as soon as practical following the
Executive's retirement. If the Executive dies while
eligible for a benefit under this paragraph (f) and prior
to the payment of such benefit, the Executive's surviving
spouse shall be entitled to receive in cash from Parent
or the Company, to the extent not so received from the
Trustee, as soon as practical following the Executive's
death an amount equal to the amount the Executive would
have received under this paragraph (f) if he had retired
under the Qualified Plan on the day prior to his death.
(g) Rabbi Trust. Commencing no later than
December 31, 1997 and continuing on or before each
December 31 thereafter during the Employment Period,
Parent or the Company shall contribute additional cash or
other property to the trust established by the Company as
of December 31, 1996 (the "Trust") sufficient to pay all
of the supplemental retirement income, supplemental
preretirement survivor benefits, and the other benefits
to the Executive and his surviving spouse provided for in
paragraphs (d), (e) and (f) of this Section 3, but no
funds or assets of Parent or the Company shall be
segregated or physically set aside with respect to its
obligations under the benefit restoration plan set forth
in this paragraph (g) in a manner which would cause said
benefit restoration plan to be "funded" for purposes of
the Employee Retirement Income Security Act of 1974, as
amended. Neither the Executive nor his surviving spouse
shall have any interest in any specific asset of Parent
or the Company as a result of this paragraph (g) and any
rights to receive benefits hereunder shall be only the
right of an unsecured general creditor of Parent or the
Company. The Trust has been established in full
compliance with IRS Revenue Procedure 92-64, and the
Trustee shall continue to be the Bank of Boston
Connecticut or another financial institution reasonably
satisfactory to the Executive. Upon the last of Messrs.
Lozyniak, Kensing and Dorme to receive payment from the
Trustee, any funds remaining in the Trust shall be
distributed pro rata in equal shares to such Executives
or their surviving spouses or heirs.
(h) Postretirement Medical Coverage. For the
period commencing on the date of the formal retirement of
the Executive under the Qualified Plan or Parent's Plan
and ending on the tenth anniversary thereof, or the
earlier death of the Executive, the Executive and his
wife, and their dependent children, if any, shall be
entitled to enroll in an insured health and
hospitalization plan or plans, including, without
limitation, plans offered by health maintenance
organizations, with benefits substantially equal to the
benefits of the health and hospitalization plans of the
Company in effect on the date of said retirement or, if
earlier, on the date immediately prior to the date as of
which such plans are terminated or amended adversely with
respect to the Executive, and Parent or the Company shall
pay to the Executive quarterly and in advance an amount
in cash grossed up so as to be sufficient, after the
payment by the Executive of all federal, state and local
income and all other taxes due by reason of the receipt
of said payment, if any, to pay when due the premiums for
such insured coverage ("Postretirement Medical
Coverage"); provided, however, that during all times in
such period of the Executive's retirement as either the
Executive or his wife shall be eligible for Medicare
coverage, in lieu of such participation by the Executive
or his wife, or both of them, as the case may be, in the
insured health and hospitalization plans referred to
above, Parent or the Company shall pay to the Executive
quarterly and in advance an amount in cash grossed up so
as to be sufficient, after the payment by the Executive
of all federal, state and local income and all other
taxes due by reason of the receipt of said payment, if
any, to pay when due the annual premiums for Medigap
supplementary coverage for the Executive and/or his wife
with an insurance carrier selected by the Executive or
his wife, with the extent of such coverage to be as
provided in Standard Plan J of the National Association
of Insurance Commissioners ("NAIC") or in the NAIC
Standard Plan hereafter adopted which provides the most
extensive benefit coverage at the time of the payment to
the Executive provided for under this Section 3(h). For
purposes of this Section 3(h), the amount of any required
gross up shall be calculated by utilizing the highest tax
rate for federal income tax in effect at the time of
calculation, and 5% for state and local income taxes, and
the then current rate for Federal Insurance Contributions
Act taxes for both the Executive's share and the
Company's share of such taxes. In the event that the
Executive dies within said ten (10) year period, his wife
shall continue to be entitled to said payments for a
period of six (6) months from the date of death of the
Executive.
(i) Other Matters. The provisions of this
Section 3 which take effect upon the termination of the
Employment Period, the expiration of the Term or the
formal retirement of the Executive under the Qualified
Plan shall survive such events and shall not be affected
by any Change in Control or the consummation of the
transactions contemplated by the Merger Agreement. The
parties agree that, notwithstanding any other provision
of this Employment Agreement, the Executive shall not be
entitled to retire under the Qualified Plan during the
Employment Period unless the Board of Directors of the
Company consents to such retirement, except that the
Executive may so retire without such consent upon
expiration of the Term or termination of the Employment
Period.
(j) Other Benefits. During the Employment
Period, the Executive shall be eligible to participate in
all other savings, retirement, welfare (including without
limitation medical, dental, hospitalization and life
insurance) and fringe benefit plans, practices, policies
and programs on a basis no less favorable to the
Executive than in effect on the date hereof. During the
Employment Period, Parent or the Company shall make
available to the Executive, at its cost and expense, an
automobile on a basis substantially similar to that in
effect on the date hereof.
4. Expenses. Parent or the Company shall
reimburse the Executive for all reasonable expenses,
including those for travel and entertainment, properly
incurred by him in the performance of his duties
hereunder in accordance with policies established from
time to time by the Board of Directors of the Company.
5. Termination of Employment.
(a) Death; Disability. The Employment Period
shall terminate automatically upon the Executive's death
or Disability during such period, in which case the
Executive shall be entitled to the payments and benefits
set forth in Section 6(a) of this Agreement. For
purposes of this Agreement, "Disability" shall be deemed
to occur if, as a result of the Executive's incapacity
due to physical or mental illness, the Executive shall
have been absent from the full-time performance of his
duties with the Company for a period of six (6)
consecutive months, the Company shall have given the
Executive a Notice of Termination (as defined in
paragraph (e) of this Section 5) for Disability and,
within thirty (30) days after such Notice of Termination
is given, the Executive shall not have returned to the
full-time performance of his duties.
(b) By the Company for Cause. The Company may
terminate the Executive's employment hereunder for Cause,
in which case the Executive shall be entitled to the
payments and benefits set forth in Section 6(b) of this
Agreement. For purposes of this Agreement, "Cause" shall
mean (i) the willful and continued failure by the
Executive to substantially perform the Executive's duties
with the Company (other than any such failure resulting
from the Executive's incapacity due to physical or mental
illness or any such actual or anticipated failure after
the issuance of a Notice of Termination for Good Reason
by the Executive pursuant to paragraph (f) of this
Section 5) after a written demand for substantial
performance is delivered to the Executive by the Board of
Directors of the Company, which demand specifically
identifies the manner in which such Board believes that
the Executive has not substantially performed the
Executive's duties, or (ii) the willful engaging by the
Executive in conduct which is demonstrably and materially
injurious to Parent or its subsidiaries, monetarily or
otherwise. For purposes of clauses (i) and (ii) of this
definition, (x) no act, or failure to act, on the
Executive's part shall be deemed "willful" unless done,
or omitted to be done, by the Executive not in good faith
and without reasonable belief that the Executive's act,
or failure to act, was in the best interest of the
Company and (y) in the event of a dispute concerning the
application of this provision, no claim by the Company
that Cause exists shall be given effect unless the
Company establishes to the Board of Directors of Parent
by clear and convincing evidence that Cause exists.
(c) By the Executive for Good Reason. The
Executive may terminate his employment during the
Employment Period for Good Reason (unless Cause exists),
in which case the Executive shall be entitled to the
payments and benefits set forth in Section 6(a) of this
Agreement. For purposes of this Agreement, "Good Reason"
shall mean (i) the occurrence, without the written
consent of the Executive, of an event constituting a
material breach of this Agreement (including without
limitation a breach of Section 2(b) or 2(c) of this
Agreement) by the Company that has not been fully cured
within ten (10) days after written notice thereof has
been given by the Executive to the Company, or (ii) any
reason, at the Executive's discretion, during the three-
month period following (A) the closing of the Greenwich
office following the second anniversary of the Effective
Date or (B) the occurrence of a "Change in Control," as
defined in paragraph (d) of this Section 5.
(d) Definition of Change in Control. A
"Change in Control" shall be deemed to have occurred if
the event set forth in any one of the following
paragraphs shall have occurred:
(I) any Person is or becomes the Beneficial Owner,
directly or indirectly, of securities of Parent (not
including in the securities beneficially owned by
such Person any securities acquired directly from
Parent or its affiliates) representing 25% or more
of the combined voting power of Parent's then
outstanding securities, excluding any Person who
becomes such a Beneficial Owner in connection with a
transaction described in clause (i) of paragraph
(III) below; or
(II) the following individuals cease for any reason
to constitute a majority of the number of directors
then serving: individuals who, on the date hereof,
constitute the Board and any new director (other
than a director whose initial assumption of office
is in connection with an actual or threatened
election contest, including but not limited to a
consent solicitation, relating to the election of
directors of Parent) whose appointment or election
by the Board or nomination for election by Parent's
stockholders was approved or recommended by a vote
of at least two-thirds (2/3) of the directors then
still in office who either were directors on the
date hereof or whose appointment, election or
nomination for election was previously so approved
or recommended; or
(III) there is consummated a merger or
consolidation of Parent or any direct or indirect
subsidiary of Parent with any other corporation,
other than (i) a merger or consolidation which would
result in the voting securities of Parent
outstanding immediately prior to such merger or
consolidation continuing to represent (either by
remaining outstanding or by being converted into
voting securities of the surviving entity or any
parent thereof) at least 60% of the combined voting
power of the securities of Parent or such surviving
entity or any parent thereof outstanding immediately
after such merger or consolidation, or (ii) a merger
or consolidation effected to implement a
recapitalization of Parent (or similar transaction)
in which no Person is or becomes the Beneficial
Owner, directly or indirectly, of securities of
Parent (not including in the securities Beneficially
Owned by such Person any securities acquired
directly from Parent or its Affiliates) representing
25% or more of the combined voting power of Parent's
then outstanding securities; or
(IV) the stockholders of Parent approve a plan of
complete liquidation or dissolution of Parent or
there is consummated an agreement for the sale or
disposition by Parent of all or substantially all of
Parent's assets, other than a sale or disposition by
Parent of all or substantially all of Parent's
assets to an entity, at least 60% of the combined
voting power of the voting securities of which are
owned by stockholders of Parent in substantially the
same proportions as their ownership of the Company
immediately prior to such sale.
For purposes of this Section 5(d): "Beneficial Owner"
shall have the meaning set forth in Rule 13d-3 under the
Exchange Act; "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended from time to time; and
"Person" shall have the meaning given in Section 3(a)(9)
of the Exchange Act, as modified and used in Sections
13(d) and 14(d) thereof, except that such term shall not
include (i) Parent or any of its subsidiaries, (ii) a
trustee or other fiduciary holding securities under an
employee benefit plan of Parent or any of its
"affiliates," within the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Exchange Act, (iii)
an underwriter temporarily holding securities pursuant to
an offering of such securities, or (iv) a corporation
owned, directly or indirectly, by the stockholders of
Parent in substantially the same proportions as their
ownership of stock of Parent.
(e) By the Company Other Than for Cause or by
the Executive without Good Reason. Notwithstanding any
other provision of this Agreement, the Company may
terminate the Executive's employment other than for
Cause, in which case the Executive shall be entitled to
the payments and benefits set forth in Section 6(a) of
this Agreement, and the Executive may terminate his
employment other than for Good Reason (as defined in
paragraph (c) of this Section 5), in which case the
Executive shall be entitled to the payments and benefits
set forth in Section 6(b) of this Agreement.
(f) Notice of Termination. Any termination by
the Company or by the Executive shall be communicated by
Notice of Termination to the other party hereto given in
accordance with Section 10(b) of this Agreement. For
purposes of this Agreement, a "Notice of Termination"
means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii)
to the extent applicable, sets forth in reasonable detail
the facts and circumstances claimed to provide a basis
for termination of the Executive's employment under the
provision so indicated, and (iii) if the Date of
Termination (as defined in paragraph (f) of this Section
5) is other than the date of receipt of such notice,
specifies the termination date (which date shall be not
more than thirty (30) days after the giving of such
notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any
fact or circumstance which contributes to a showing of
Good Reason shall not waive any right of the Executive
hereunder or preclude the Executive from asserting such
fact or circumstance in enforcing the Executive's rights
hereunder. Further, a Notice of Termination for Cause is
required to include a copy of a resolution duly adopted
by the affirmative vote of not less than three-quarters
(3/4) of the membership of the Board of Directors of
Parent (excluding the Executive if the Executive is then
a member of such Board) at a meeting of such Board which
was called and held for the purpose of considering such
termination (after reasonable notice to the Executive and
an opportunity for the Executive, together with the
Executive's counsel, to be heard before such Board)
finding that, in the good faith opinion of such Board,
the Executive was guilty of conduct set forth in clause
(i) or (ii) of the definition of Cause herein, and
specifying the particulars thereof in detail.
(g) Date of Termination. "Date of
Termination" means (i) if the Executive's employment is
terminated by the Executive for Good Reason, the date of
receipt of the Notice of Termination or any later date
specified therein, as the case may be, (ii) if the
Executive's employment is terminated by the Company, the
date on which the Company notifies the Executive of such
termination (except in the event of a termination for
Cause), (iii) if the Executive's employment is terminated
for Disability, thirty (30) days after Notice of
Termination is given (provided that the Executive shall
not have returned to the full-time performance of his
duties during such thirty (30) day period), and (iv) if
the Executive's employment is terminated by reason of
death, the date of death.
6. Obligations of Parent or the Company Upon
Termination.
(a) Termination for Good Reason or Other Than
for Cause. If the Executive shall terminate his
employment for Good Reason or the Company shall terminate
the Executive's employment for any reason other than
Cause, including Disability, or if such employment shall
be terminated by reason of death, the Executive shall be
entitled to the following benefits:
i) Parent or the Company shall pay
to the Executive a lump sum amount in cash
equal to the sum of (A) the Executive's Base
Salary through the Date of Termination to the
extent not theretofore paid, (B) any
compensation previously deferred by the
Executive (together with any accrued interest
or earnings thereon) and any accrued vacation
pay and (C) any other amounts due the Executive
as of the Date of Termination, in each case to
the extent not theretofore paid. (The amounts
specified in clauses (A), (B) and (C) shall be
hereinafter referred to as the "Accrued
Obligation"). The amounts specified in this
Section 6(a)(i) shall be paid within thirty
(30) days after the Date of Termination; and
ii) in lieu of any severance benefit
otherwise payable to the Executive,
(A) if the Executive shall terminate his employment
for Good Reason or the Company shall terminate the
Executive's employment for any reason other than
Disability or Cause, Parent or the Company shall pay
the Executive a lump sum amount, in cash, within
five days following the Date of Termination, equal
to three and one-third (3 1/3) times the sum of (1)
twelve (12) times Base Salary, and (2) $139,500,
which is equal to the largest aggregate amount
earned by the Executive as stock and cash bonuses
for any of the five fiscal years preceding that in
which the Effective Date occurs;
(B) if the termination of the Executive's employment
is by reason of death or Disability, or, if the
Executive so elects, in lieu of the payments
described in paragraph (A) of this Section 6(ii),
Parent or the Company shall continue to pay the
Executive (or, in the event of his death, his legal
representative) for the remainder of the Term (1)
the Base Salary as in effect immediately prior to
the Date of Termination, in accordance with the
Company's general payroll practices, and (2) for
each full twelve-month period remaining in the Term,
the highest annual aggregate cash and stock bonuses
earned by the Executive pursuant to any annual bonus
or incentive plan maintained by the Parent or
Company in respect of any of the five fiscal years
of the Parent or Company ending immediately prior to
the fiscal year in which occurs the Date of
Termination, payable in accordance with the
Company's practices with respect to the payment of
bonuses; and
(C) if the Executive's employment is terminated by
reason of death and if his wife shall survive him,
Parent or the Company shall pay to his wife the sum
of $50,000 per year, payable semi-monthly, during
the period commencing on the expiration of the Term
and ending on the tenth anniversary of date of the
death of the Executive or such earlier date of the
death of his wife; and
(D) if the Executive's employment is terminated by
reason of Disability and the Executive has not
attained the age of 65 at the expiration of the
Term, then Parent or the Company shall pay him 40%
of Base Salary, payable semi-monthly, until the date
on which he attains the age of 65; and
iii) Parent or the Company shall pay
in a single lump sum to Security Mutual Life
Insurance Company of New York, to be held in a
side fund in escrow by said carrier to pay when
due (or, at the option of the Executive, to
prepay) the annual premiums on the Policy, an
amount equal to ten (10) times the amount of
the last annual premium payment on the Policy
made prior to the date of termination, and
Parent and the Company shall forfeit all rights
under the Collateral Assignment to be repaid
the aggregate amount of all premiums paid on
the Policy prior to, on or after the Date of
Termination, and shall release and waive all
rights under the Collateral Assignment, shall
not endanger in any way any benefit available
to the Executive under the Policy and shall not
be entitled to any further rights or interest
in the Policy; and
iv) the Executive shall be entitled to
retire under the Qualified Plan and shall
immediately thereafter become entitled to payment of
his Supplemental Retirement Income and Supplemental
Savings Plan Income and shall be entitled to
Postretirement Medical Coverage; and
v) for the remainder of the Term, Parent
or the Company shall arrange to provide the
Executive and his dependents life and disability
insurance benefits substantially similar to those
provided to the Executive and his dependents as of
the date hereof, at no greater cost to the Executive
than the cost to the Executive immediately prior to
the Date of Termination.
(b) Termination for Other Reason. If the
Executive's employment shall be terminated by the Company
for Cause or by the Executive other than for Good Reason,
death or Disability, neither Parent nor the Company shall
have any further obligations to the Executive under this
Agreement other than the obligation to pay to the
Executive the Accrued Obligation and any postemployment
benefits to which the Executive is entitled under the
terms of Parent's or the Company's employee benefit
plans.
(c) Arbitration. Any dispute or controversy
arising under or in connection with this Agreement shall
be settled exclusively by arbitration, conducted before a
panel of three arbitrators sitting in New York, New York,
in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on
the arbitrator's award in any court having jurisdiction.
(d) Legal Fees. Parent or the Company shall
also pay to the Executive all reasonable legal fees and
expenses incurred by the Executive in disputing in good
faith any issue hereunder relating to the termination of
the Executive's employment, in seeking in good faith to
obtain or enforce any benefit or right provided by this
Agreement or in connection with any tax audit or
proceeding to the extent attributable to the application
of section 4999 of the Code to any payment or benefit
provided hereunder. Such payments shall be made within
five (5) business days after delivery of the Executive's
written requests for payment accompanied with such
evidence of fees and expenses incurred as is reasonable.
(e) Gross-Up. If any of the payments or
benefits received or to be received by the Executive
(whether pursuant to the terms of this Agreement or any
other plan, arrangement or agreement with Parent or the
Company, any Person (as defined in Section 5(d) of this
Agreement) whose actions result in a Change in Control or
any Person affiliated with the Company or such Person)
(such payments or benefits, excluding the Gross-Up
Payment (as defined below), being hereinafter referred to
as the "Total Payments") will be subject to the excise
tax imposed under section 4999 of the Code ("Excise
Tax"), Parent or the Company shall pay to the Executive
an additional amount (the "Gross-Up Payment") such that
the net amount retained by the Executive, after deduction
of any Excise Tax on the Total Payments and any federal,
state and local income and employment taxes and Excise
Tax upon the Gross-Up Payment, shall be equal to the
Total Payments.
For purposes of determining whether any of the
Total Payments will be subject to the Excise Tax and the
amount of such Excise Tax, (i) all of the Total Payments
shall be treated as "parachute payments" (within the
meaning of section 280G(b)(2) of the Code) unless, in the
opinion of tax counsel ("Tax Counsel") reasonably
acceptable to the Executive and selected by the
accounting firm which was, immediately prior to the date
hereof, the Company's independent auditor, or in the
event of a Change in Control, was, immediately prior to
the Change in Control, Parent's independent auditor (the
"Auditor"), such payments or benefits (in whole or in
part) do not constitute parachute payments, including by
reason of section 280G(b)(4)(A) of the Code, (ii) all
"excess parachute payments" within the meaning of section
280G(b)(l) of the Code shall be treated as subject to the
Excise Tax unless, in the opinion of Tax Counsel, such
excess parachute payments (in whole or in part) represent
reasonable compensation for services actually rendered
(within the meaning of section 280G(b)(4)(B) of the Code)
in excess of the "Base Amount," as defined in section
280G(b)(3) of the Code, allocable to such reasonable
compensation, or are otherwise not subject to the Excise
Tax, and (iii) the value of any noncash benefits or any
deferred payment or benefit shall be determined by the
Auditor in accordance with the principles of sections
280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, the
Executive shall be deemed to pay federal income tax at
the highest marginal rate of federal income taxation in
the calendar year in which the Gross-Up Payment is to be
made and state and local income taxes at the highest
marginal rate of taxation in the state and locality of
the Executive's residence on the Date of Termination (or
if there is no Date of Termination, then the date on
which the Gross-Up Payment is calculated for purposes of
this Section 6.2), net of the maximum reduction in
federal income taxes which could be obtained from
deduction of such state and local taxes.
In the event that the Excise Tax is finally
determined to be less than the amount taken into account
hereunder in calculating the Gross-Up Payment, the
Executive shall repay to Parent or the Company, as the
case may be, within five (5) business days following the
time that the amount of such reduction in the Excise Tax
is finally determined, the portion of the Gross-Up
Payment attributable to such reduction (plus that portion
of the Gross-Up Payment attributable to the Excise Tax
and federal, state and local income and employment taxes
imposed on the Gross-Up Payment being repaid by the
Executive, to the extent that such repayment results in a
reduction in the Excise Tax and a dollar-for-dollar
reduction in the Executive's taxable income and wages for
purposes of federal, state and local income and
employment taxes, plus interest on the amount of such
repayment at 120% of the rate provided in section
1274(b)(2)(B) of the Code. In the event that the Excise
Tax is determined to exceed the amount taken into account
hereunder in calculating the Gross-Up Payment (including
by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up
Payment), Parent or the Company shall make an additional
Gross-Up Payment in respect of such excess (plus any
interest, penalties or additions payable by the Executive
with respect to such excess) within five (5) business
days following the time that the amount of such excess is
finally determined. The Executive, Parent and the
Company shall each reasonably cooperate with the other in
connection with any administrative or judicial
proceedings concerning the existence or amount of
liability for Excise Tax with respect to the Total
Payments.
7. Full Settlement; Mitigation.
Parent's and the Company's obligation to make
the payments provided for in this Agreement and otherwise
to perform their obligations hereunder shall not be
subject to any set-off, counterclaim, recoupment, defense
or other claim, right or action which Parent or the
Company may have against the Executive or others. In no
event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation
of the amounts (including amounts for damages for breach)
payable to the Executive under any of the provisions of
this Agreement and such amounts shall not be reduced
whether or not the Executive obtains other employment.
8. Confidential Information.
The Executive shall hold in a fiduciary
capacity for the benefit of Parent and the Company all
secret, confidential information, knowledge or data
relating to the Company or any of its affiliated
companies and their respective businesses which shall
have been obtained by the Executive during his employment
by the Company or any of their affiliated companies and
that shall not have been or now or hereafter have become
public knowledge (other than by acts by the Executive or
representatives of the Executive in violation of this
Agreement). The Executive shall not, without the prior
written consent of Parent or as may otherwise be required
by law or legal process, communicate or divulge any such
information, knowledge or data to anyone other than
Parent and those designated by it.
9. Successors.
(a) Assignment by Executive. This Agreement
is personal to the Executive and, without the prior
written consent of Parent or the Company, shall not be
assignable by the Executive otherwise than by will or the
laws of descent and distribution. This Agreement shall
inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) Successors and Assigns. This Agreement
shall inure to the benefit of and be binding upon Parent
and the Company, and their respective successors and
assigns.
(c) Assumption. Parent or the Company, as the
case may be, shall require any successor (whether direct
or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business
and/or assets thereof to expressly assume and agree to
perform this Agreement in the same manner and to the same
extent that Parent or the Company, as the case may be,
would be required to perform this Agreement if no such
succession had taken place. In the event of the
liquidation of the Company, the Executive shall be an
employee of Parent and Parent shall be solely liable for
all obligations of the Company hereunder. As used in
this Agreement, Parent and the "Company" shall mean
Parent and the Company, respectively, as hereinbefore
defined and any successor to their businesses and/or
assets as aforesaid that assumes and agrees to perform
this Agreement by operation of law, or otherwise.
10. Miscellaneous.
(a) Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of
New York, without reference to its principles of conflict
of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect.
This Agreement may not be amended, modified, repealed,
waived, extended or discharged except by an agreement in
writing signed by the party against whom enforcement of
such amendment, modification, repeal, waiver, extension
or discharge is sought. No person, other than pursuant
to a resolution of its respective Board of Directors (or
a committee thereof), as the case may be, shall have
authority on behalf of Parent or the Company to agree to
amend, modify, repeal, waive, extend or discharge any
provision of this Agreement or take any other action in
respect thereto.
(b) Notices. All notices and other
communications hereunder shall be in writing and shall be
given by hand delivery to the other party or by
registered or certified mail, return-receipt requested,
postage prepaid, addressed, in the case of Parent, to
Parent's headquarters, in the case of the Company, to the
Company's headquarters and, in the case of the Executive,
to the address on the signature page of this Agreement
or, in either case, to such other address as any party
shall have subsequently furnished to the other parties in
writing. Notice and communications shall be effective
when actually received by the addressee.
(c) Severability. The invalidity or
unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other
provision of this Agreement.
(d) Taxes. The Company may withhold from any
amounts due and payable under this Agreement such
federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) No Waiver. Any party's failure to insist
upon strict compliance with any provision hereof or the
failure to assert any right such party may have
hereunder, including, without limitation, the right of
the Executive to terminate employment for Good Reason
pursuant to Section 5(c) of this Agreement, shall not be
deemed to be a waiver of such provision or right or any
other provision or right of this Agreement.
(f) Entire Agreement; Survival. This
Agreement entered into as of the date hereof among
Parent, the Company and the Executive contains the entire
agreement of the Executive, Parent and the Company or
their respective predecessors or subsidiaries with
respect to the subject matter of the Agreement, and all
promises, representations, understandings, arrangements
and prior agreements, including without limitation the
Employment Agreement, are merged into, and superseded by,
the Agreement. Any provision hereof which by its terms
applies in whole or part after a termination of the
Executive's employment hereunder shall survive such
termination.
IN WITNESS WHEREOF, the Executive has executed
this Agreement and, pursuant to due authorization from
its Board of Directors, each of Parent and the Company
has caused this Agreement to be executed, as of the day
and year first above written.
CTS CORPORATION
By /s/ Joseph P. Walker
-----------------------------------
Name: Joseph P. Walker
Title: Chairman, President and
Chief Executive Officer
DYNAMICS CORPORATION OF AMERICA
By /s/ Andrew Lozyniak
-----------------------------------
Name: Andrew Lozyniak
Title: President
/s/ Patrick J. Dorme
-------------------------------------
PATRICK J. DORME
Address: 300 Loring Avenue
Pelham, NY 10803
EXHIBIT A
PATRICK J. DORME
Mr. Dorme will be the Vice President and Chief
Financial Officer of the Company and, in connection
therewith, will have such duties, responsibilities and
authority as are customarily incident to the principal
financial officer of a corporation that is a wholly owned
U.S. subsidiary of a publicly traded U.S. company,
subject to the oversight of the Chief Executive Officer
of the Company and the Board of Directors of the Company.
Mr. Dorme will report to the Chief Executive Officer of
the Company and will consult with and coordinate the
discharge of his activities with the Chief Financial
Officer of Parent.
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement") made
and entered into as of the 9th day of May, 1997, by and
among CTS Corporation, an Indiana corporation ("Parent"),
Dynamics Corporation of America, a New York corporation
(the "Company"), and Henry V. Kensing (the "Executive").
WHEREAS, Parent, a wholly owned subsidiary of
Parent ("Merger Sub") and the Company have entered into
an Agreement and Plan of Merger (the "Merger Agreement"),
dated as of May 9, 1997, pursuant to which, among other
things, the Company will be merged with and into Merger
Sub as of the "Effective Time," as defined in the Merger
Agreement;
WHEREAS, the Executive is currently serving as
Vice President, General Counsel and Secretary of the
Company, and the Boards of Directors of Parent and the
Company ("Boards of Directors") desire to secure the
continued employment of the Executive in accordance
herewith;
WHEREAS, the Company is party to an employment
agreement (the "Employment Agreement") with the
Executive, effective as of February 1, 1996 and amended
as of April 11, 1997;
WHEREAS, the Executive is willing to commit
himself to be employed by the Company on the terms and
conditions herein set forth and in lieu of the terms and
conditions of the Employment Agreement; and
WHEREAS, the parties desire to enter into this
Agreement as of the Effective Time, setting forth the
terms and conditions for the employment relationship of
the Executive with the Company;
NOW, THEREFORE, in consideration of the mutual
premises and the respective covenants and agreements of
the parties herein contained, the parties hereto agree as
follows:
1. Operation of Agreement; Employment and Term.
(a) This Agreement shall be effective and
binding immediately upon its execution, but anything in
this Agreement to the contrary notwithstanding, this
Agreement shall not be operative unless and until the
Effective Time occurs. Upon the occurrence of the
Effective Time, without further action, this Agreement
shall become immediately operative.
(b) Employment. The Company agrees to employ
the Executive, and the Executive agrees to be employed by
the Company, in accordance with the terms and provisions
of this Agreement.
(c) Term. The term of this Agreement (the
"Term") shall commence on the date (the "Effective Date")
on which the Effective Time occurs and shall continue
until the fifth (5th) anniversary of the Effective Date.
2. Duties and Powers of Executive.
(a) Position. For the period during which the
Executive provides services to the Company (the
"Employment Period"), the Executive shall serve in such
office and have such authority, duties and
responsibilities as specified in Exhibit A hereto.
During the Employment Period, and excluding any periods
of vacation and sick leave to which the Executive is
entitled, the Executive shall devote substantially all of
his attention and time during normal business hours to
the business and affairs of the Company and shall use his
reasonable best efforts to carry out his responsibilities
faithfully and efficiently. It shall not be considered a
violation of the foregoing for the Executive to serve on
corporate, industry, civic or charitable boards or
committees, as long as such activities do not materially
interfere with the performance of his responsibilities
with the Company in accordance with this Agreement.
(b) Board Membership. The Board of Directors
of Parent shall propose each of Messrs. Lozyniak and
Dorme for reelection to the Board of Directors of Parent
throughout the Term, and shall continue each such person
and Mr. Kensing as a member of the Board of Directors of
the Company throughout the Term. The sole remedy for
breach of this provision shall be the remedy set forth in
Section 5(c) of this Agreement.
(c) Location. The Company's current office in
Greenwich, Connecticut shall remain in operation for at
least two (2) years following the Effective Date. The
Executive's services shall be performed primarily at such
current office, and in no event shall the Executive be
required to perform services at a location more than 25
miles from the Company's current office, in each case,
except for such reasonable travel obligations as are
substantially consistent with the Executive's present
travel obligations. Throughout the Employment Period,
the Executive shall be provided with appropriate office
space and secretarial services commensurate with his
title and position.
3. Compensation.
The Executive shall receive the following
compensation for his services hereunder to the Company:
(a) Salary. During the Employment Period, the
Executive's monthly base salary ("Base Salary") shall be
$17,039, payable in accordance with the Company's general
payroll practices as in effect from time to time.
(b) Incentive Compensation. During the
Employment Period, the Executive shall be eligible to
participate in Parent's short-term and long-term
incentive compensation plans, including equity-based
compensation plans, on a basis no less favorable than
that of other senior executives of Parent.
(c) Split-Dollar Policy. Parent or the
Company shall (i) during the Employment Period, continue
to pay the annual premium, at the same annual rate and in
the same month as paid by the Company in 1997, on the
individual "split dollar" life insurance policy issued by
the Security Mutual Life Insurance Company of New York
and owned by the Executive or a trust created by the
Executive ("Policy"), and (ii), notwithstanding the
assignment of the Policy to the Company as collateral
heretofore executed by the Executive ("Collateral
Assignment"), not take any action to reduce the annual
premium, borrow against the cash surrender value of the
Policy or endanger in any way any benefit available to
the Executive or the trustee or trustees of any such
trust thereunder and shall not be entitled to be repaid
to the extent of its interest in the Policy until the
earlier of the death of the insured under the Policy or
the surrender of the Policy by the Executive.
(d) Supplemental Retirement Income. In order
to restore certain retirement income benefits which are
not available to the Executive under the Retirement Plan
for Employees of the Company ("Qualified Plan") by reason
of section 401(a)(17), section 415 and section 401(a)(4)
of the Internal Revenue Code of 1986, as amended (the
"Code"), Parent or the Company shall pay to the Executive
supplemental retirement income ("Supplemental Retirement
Income") commencing on his retirement date (normal,
early, disabled or postponed) as defined in and under the
Qualified Plan in an amount equal to the difference
between (i) the monthly amount of the retirement income
that would be payable to the Executive upon his
retirement under the Qualified Plan, assuming that such
plan continues in effect through the Executive's
retirement date on terms no less favorable to Executive
than the terms in effect on the date hereof, if such
benefit were calculated under the Qualified Plan without
giving effect to the compensation limit under section
401(a)(17) of the Code or to the limitations imposed by
the application of section 415 of the Code, and assuming
that the benefit described in section 4.01(d) of the
Qualified Plan continued to apply on and after January 1,
1989 notwithstanding the provisions of section 401(a)(4)
of the Code, expressed as a single life annuity, and (ii)
the monthly amount of retirement income payable to the
Executive upon his retirement under the Qualified Plan
and any similar plan maintained for Executive's benefit
by Parent ("Parent's Plan") based on his compensation up
to the said compensation limit and based on the
limitations imposed by the application of section 415 of
the Code, and the limitations imposed by the application
of section 401(a)(4) of the Code to section 4.01(d) of
the Qualified Plan and the applicable provision of
Parent's Plan, expressed as a single life annuity. Such
supplemental retirement income shall be paid to the
Executive in cash by Parent or the Company, to the extent
not so paid by the trustee ("Trustee") of the Trust
(defined in paragraph (g) of this Section 3), as an
Actuarial Equivalent single lump sum, as soon as
practical following the Executive's retirement.
"Actuarial Equivalent" shall mean the present value of a
life annuity, assuming the retirement age is the
Executive's age on his retirement date, which is the date
benefits hereunder are calculated; the interest rate is
the rate appearing in the table published in The Wall
Street Journal entitled "Markets Diary" under the heading
"Bond Buyer municipal", corresponding to 20-year Aaa
bonds, and reflecting the rate for the first day of the
month preceding the month in which the benefits hereunder
are calculated; and mortality is determined under the
1983 Group Annuity Mortality Table.
(e) Preretirement Death Benefit. If the
Executive dies while eligible for a retirement benefit
under paragraph (d) of this Section 3 and prior to his
retirement and/or the payment of such retirement benefit,
the Executive's surviving spouse shall be entitled to
receive a supplemental preretirement survivor benefit
equal to the difference between (i) the monthly amount of
retirement income to which the deceased Executive's
spouse would have been entitled under the Qualified Plan
if the Executive had retired on the day prior to his
death having elected a 100% joint and survivor annuity
option and if such benefit were calculated under the
Qualified Plan without giving effect to the compensation
limit under section 401(a)(17) of the Code or the
limitations imposed by the application of section 415 of
the Code, and assuming that the benefit described in
Section 4.01(d) of the Qualified Plan continued to apply
on and after January 1, 1989 notwithstanding the
provisions of section 401(a)(4) of the Code, and (ii) the
monthly amount of retirement income to which the deceased
Executive's spouse is entitled under the Qualified Plan
based on his compensation up to the said compensation
limit and based on the limitations imposed by the
application of section 415 of the Code, and the
limitations imposed by the application of section
401(a)(4) of the Code to Section 4.01(d) of the Qualified
Plan. Such supplemental preretirement survivor benefit
shall be paid to such surviving spouse in cash by Parent
or the Company, to the extent not so paid by the Trustee,
as an "Actuarial Equivalent" single lump sum, as above
defined, as soon as practicable following the Executive's
death.
(f) Supplemental Savings Plan Income. In
order to restore benefits which are not available to the
Executive under the Company's Employee Savings and
Investment Plan ("401(k) Plan") by reason of the
compensation limit under section 401(a)(17) of the Code,
Parent or the Company shall pay to the Executive on his
retirement date an amount ("Supplemental Savings Plan
Income") equal to two percent (2%) of his annual base
compensation in excess of $150,000 in calendar year 1997
and in each calendar year in the Employment Period in
which his annual base compensation exceeds $150,000
(subject to indexation by the Internal Revenue Service),
with interest at the annual rate of eight percent (8%) on
such excess amount from and after December 31 of each
such year. The aggregate of all such amounts and the
interest thereon shall be paid, to the extent not so paid
by the Trustee, to the Executive in cash by Parent or the
Company in a lump sum as soon as practical following the
Executive's retirement. If the Executive dies while
eligible for a benefit under this paragraph (f) and prior
to the payment of such benefit, the Executive's surviving
spouse shall be entitled to receive in cash from Parent
or the Company, to the extent not so received from the
Trustee, as soon as practical following the Executive's
death an amount equal to the amount the Executive would
have received under this paragraph (f) if he had retired
under the Qualified Plan on the day prior to his death.
(g) Rabbi Trust. Commencing no later than
December 31, 1997 and continuing on or before each
December 31 thereafter during the Employment Period,
Parent or the Company shall contribute additional cash or
other property to the trust established by the Company as
of December 31, 1996 (the "Trust") sufficient to pay all
of the supplemental retirement income, supplemental
preretirement survivor benefits, and the other benefits
to the Executive and his surviving spouse provided for in
paragraphs (d), (e) and (f) of this Section 3, but no
funds or assets of Parent or the Company shall be
segregated or physically set aside with respect to its
obligations under the benefit restoration plan set forth
in this paragraph (g) in a manner which would cause said
benefit restoration plan to be "funded" for purposes of
the Employee Retirement Income Security Act of 1974, as
amended. Neither the Executive nor his surviving spouse
shall have any interest in any specific asset of Parent
or the Company as a result of this paragraph (g) and any
rights to receive benefits hereunder shall be only the
right of an unsecured general creditor of Parent or the
Company. The Trust has been established in full
compliance with IRS Revenue Procedure 92-64, and the
Trustee shall continue to be the Bank of Boston
Connecticut or another financial institution reasonably
satisfactory to the Executive. Upon the last of Messrs.
Lozyniak, Kensing and Dorme to receive payment from the
Trustee, any funds remaining in the Trust shall be
distributed pro rata in equal shares to such Executives
or their surviving spouses or heirs.
(h) Postretirement Medical Coverage. For the
period commencing on the date of the formal retirement of
the Executive under the Qualified Plan or Parent's Plan
and ending on the tenth anniversary thereof, or the
earlier death of the Executive, the Executive and his
wife, and their dependent children, if any, shall be
entitled to enroll in an insured health and
hospitalization plan or plans, including, without
limitation, plans offered by health maintenance
organizations, with benefits substantially equal to the
benefits of the health and hospitalization plans of the
Company in effect on the date of said retirement or, if
earlier, on the date immediately prior to the date as of
which such plans are terminated or amended adversely with
respect to the Executive, and Parent or the Company shall
pay to the Executive quarterly and in advance an amount
in cash grossed up so as to be sufficient, after the
payment by the Executive of all federal, state and local
income and all other taxes due by reason of the receipt
of said payment, if any, to pay when due the premiums for
such insured coverage ("Postretirement Medical
Coverage"); provided, however, that during all times in
such period of the Executive's retirement as either the
Executive or his wife shall be eligible for Medicare
coverage, in lieu of such participation by the Executive
or his wife, or both of them, as the case may be, in the
insured health and hospitalization plans referred to
above, Parent or the Company shall pay to the Executive
quarterly and in advance an amount in cash grossed up so
as to be sufficient, after the payment by the Executive
of all federal, state and local income and all other
taxes due by reason of the receipt of said payment, if
any, to pay when due the annual premiums for Medigap
supplementary coverage for the Executive and/or his wife
with an insurance carrier selected by the Executive or
his wife, with the extent of such coverage to be as
provided in Standard Plan J of the National Association
of Insurance Commissioners ("NAIC") or in the NAIC
Standard Plan hereafter adopted which provides the most
extensive benefit coverage at the time of the payment to
the Executive provided for under this Section 3(h). For
purposes of this Section 3(h), the amount of any required
gross up shall be calculated by utilizing the highest tax
rate for federal income tax in effect at the time of
calculation, and 5% for state and local income taxes, and
the then current rate for Federal Insurance Contributions
Act taxes for both the Executive's share and the
Company's share of such taxes. In the event that the
Executive dies within said ten (10) year period, his wife
shall continue to be entitled to said payments for a
period of six (6) months from the date of death of the
Executive.
(i) Other Matters. The provisions of this
Section 3 which take effect upon the termination of the
Employment Period, the expiration of the Term or the
formal retirement of the Executive under the Qualified
Plan shall survive such events and shall not be affected
by any Change in Control or the consummation of the
transactions contemplated by the Merger Agreement. The
parties agree that, notwithstanding any other provision
of this Employment Agreement, the Executive shall not be
entitled to retire under the Qualified Plan during the
Employment Period unless the Board of Directors of the
Company consents to such retirement, except that the
Executive may so retire without such consent upon
expiration of the Term or termination of the Employment
Period.
(j) Other Benefits. During the Employment
Period, the Executive shall be eligible to participate in
all other savings, retirement, welfare (including without
limitation medical, dental, hospitalization and life
insurance) and fringe benefit plans, practices, policies
and programs on a basis no less favorable to the
Executive than in effect on the date hereof. During the
Employment Period, Parent or the Company shall make
available to the Executive, at its cost and expense, an
automobile on a basis substantially similar to that in
effect on the date hereof.
4. Expenses. Parent or the Company shall
reimburse the Executive for all reasonable expenses,
including those for travel and entertainment, properly
incurred by him in the performance of his duties
hereunder in accordance with policies established from
time to time by the Board of Directors of the Company.
5. Termination of Employment.
(a) Death; Disability. The Employment Period
shall terminate automatically upon the Executive's death
or Disability during such period, in which case the
Executive shall be entitled to the payments and benefits
set forth in Section 6(a) of this Agreement. For
purposes of this Agreement, "Disability" shall be deemed
to occur if, as a result of the Executive's incapacity
due to physical or mental illness, the Executive shall
have been absent from the full-time performance of his
duties with the Company for a period of six (6)
consecutive months, the Company shall have given the
Executive a Notice of Termination (as defined in
paragraph (e) of this Section 5) for Disability and,
within thirty (30) days after such Notice of Termination
is given, the Executive shall not have returned to the
full-time performance of his duties.
(b) By the Company for Cause. The Company may
terminate the Executive's employment hereunder for Cause,
in which case the Executive shall be entitled to the
payments and benefits set forth in Section 6(b) of this
Agreement. For purposes of this Agreement, "Cause" shall
mean (i) the willful and continued failure by the
Executive to substantially perform the Executive's duties
with the Company (other than any such failure resulting
from the Executive's incapacity due to physical or mental
illness or any such actual or anticipated failure after
the issuance of a Notice of Termination for Good Reason
by the Executive pursuant to paragraph (f) of this
Section 5) after a written demand for substantial
performance is delivered to the Executive by the Board of
Directors of the Company, which demand specifically
identifies the manner in which such Board believes that
the Executive has not substantially performed the
Executive's duties, or (ii) the willful engaging by the
Executive in conduct which is demonstrably and materially
injurious to Parent or its subsidiaries, monetarily or
otherwise. For purposes of clauses (i) and (ii) of this
definition, (x) no act, or failure to act, on the
Executive's part shall be deemed "willful" unless done,
or omitted to be done, by the Executive not in good faith
and without reasonable belief that the Executive's act,
or failure to act, was in the best interest of the
Company and (y) in the event of a dispute concerning the
application of this provision, no claim by the Company
that Cause exists shall be given effect unless the
Company establishes to the Board of Directors of Parent
by clear and convincing evidence that Cause exists.
(c) By the Executive for Good Reason. The
Executive may terminate his employment during the
Employment Period for Good Reason (unless Cause exists),
in which case the Executive shall be entitled to the
payments and benefits set forth in Section 6(a) of this
Agreement. For purposes of this Agreement, "Good Reason"
shall mean (i) the occurrence, without the written
consent of the Executive, of an event constituting a
material breach of this Agreement (including without
limitation a breach of Section 2(b) or 2(c) of this
Agreement) by the Company that has not been fully cured
within ten (10) days after written notice thereof has
been given by the Executive to the Company, or (ii) any
reason, at the Executive's discretion, during the three-
month period following (A) the closing of the Greenwich
office following the second anniversary of the Effective
Date or (B) the occurrence of a "Change in Control," as
defined in paragraph (d) of this Section 5.
(d) Definition of Change in Control. A
"Change in Control" shall be deemed to have occurred if
the event set forth in any one of the following
paragraphs shall have occurred:
(I) any Person is or becomes the Beneficial Owner,
directly or indirectly, of securities of Parent (not
including in the securities beneficially owned by
such Person any securities acquired directly from
Parent or its affiliates) representing 25% or more
of the combined voting power of Parent's then
outstanding securities, excluding any Person who
becomes such a Beneficial Owner in connection with a
transaction described in clause (i) of paragraph
(III) below; or
(II) the following individuals cease for any reason
to constitute a majority of the number of directors
then serving: individuals who, on the date hereof,
constitute the Board and any new director (other
than a director whose initial assumption of office
is in connection with an actual or threatened
election contest, including but not limited to a
consent solicitation, relating to the election of
directors of Parent) whose appointment or election
by the Board or nomination for election by Parent's
stockholders was approved or recommended by a vote
of at least two-thirds (2/3) of the directors then
still in office who either were directors on the
date hereof or whose appointment, election or
nomination for election was previously so approved
or recommended; or
(III) there is consummated a merger or
consolidation of Parent or any direct or indirect
subsidiary of Parent with any other corporation,
other than (i) a merger or consolidation which would
result in the voting securities of Parent
outstanding immediately prior to such merger or
consolidation continuing to represent (either by
remaining outstanding or by being converted into
voting securities of the surviving entity or any
parent thereof) at least 60% of the combined voting
power of the securities of Parent or such surviving
entity or any parent thereof outstanding immediately
after such merger or consolidation, or (ii) a merger
or consolidation effected to implement a
recapitalization of Parent (or similar transaction)
in which no Person is or becomes the Beneficial
Owner, directly or indirectly, of securities of
Parent (not including in the securities Beneficially
Owned by such Person any securities acquired
directly from Parent or its Affiliates) representing
25% or more of the combined voting power of Parent's
then outstanding securities; or
(IV) the stockholders of Parent approve a plan of
complete liquidation or dissolution of Parent or
there is consummated an agreement for the sale or
disposition by Parent of all or substantially all of
Parent's assets, other than a sale or disposition by
Parent of all or substantially all of Parent's
assets to an entity, at least 60% of the combined
voting power of the voting securities of which are
owned by stockholders of Parent in substantially the
same proportions as their ownership of the Company
immediately prior to such sale.
For purposes of this Section 5(d): "Beneficial Owner"
shall have the meaning set forth in Rule 13d-3 under the
Exchange Act; "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended from time to time; and
"Person" shall have the meaning given in Section 3(a)(9)
of the Exchange Act, as modified and used in Sections
13(d) and 14(d) thereof, except that such term shall not
include (i) Parent or any of its subsidiaries, (ii) a
trustee or other fiduciary holding securities under an
employee benefit plan of Parent or any of its
"affiliates," within the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Exchange Act, (iii)
an underwriter temporarily holding securities pursuant to
an offering of such securities, or (iv) a corporation
owned, directly or indirectly, by the stockholders of
Parent in substantially the same proportions as their
ownership of stock of Parent.
(e) By the Company Other Than for Cause or by
the Executive without Good Reason. Notwithstanding any
other provision of this Agreement, the Company may
terminate the Executive's employment other than for
Cause, in which case the Executive shall be entitled to
the payments and benefits set forth in Section 6(a) of
this Agreement, and the Executive may terminate his
employment other than for Good Reason (as defined in
paragraph (c) of this Section 5), in which case the
Executive shall be entitled to the payments and benefits
set forth in Section 6(b) of this Agreement.
(f) Notice of Termination. Any termination by
the Company or by the Executive shall be communicated by
Notice of Termination to the other party hereto given in
accordance with Section 10(b) of this Agreement. For
purposes of this Agreement, a "Notice of Termination"
means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii)
to the extent applicable, sets forth in reasonable detail
the facts and circumstances claimed to provide a basis
for termination of the Executive's employment under the
provision so indicated, and (iii) if the Date of
Termination (as defined in paragraph (f) of this Section
5) is other than the date of receipt of such notice,
specifies the termination date (which date shall be not
more than thirty (30) days after the giving of such
notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any
fact or circumstance which contributes to a showing of
Good Reason shall not waive any right of the Executive
hereunder or preclude the Executive from asserting such
fact or circumstance in enforcing the Executive's rights
hereunder. Further, a Notice of Termination for Cause is
required to include a copy of a resolution duly adopted
by the affirmative vote of not less than three-quarters
(3/4) of the membership of the Board of Directors of
Parent (excluding the Executive if the Executive is then
a member of such Board) at a meeting of such Board which
was called and held for the purpose of considering such
termination (after reasonable notice to the Executive and
an opportunity for the Executive, together with the
Executive's counsel, to be heard before such Board)
finding that, in the good faith opinion of such Board,
the Executive was guilty of conduct set forth in clause
(i) or (ii) of the definition of Cause herein, and
specifying the particulars thereof in detail.
(g) Date of Termination. "Date of
Termination" means (i) if the Executive's employment is
terminated by the Executive for Good Reason, the date of
receipt of the Notice of Termination or any later date
specified therein, as the case may be, (ii) if the
Executive's employment is terminated by the Company, the
date on which the Company notifies the Executive of such
termination (except in the event of a termination for
Cause), (iii) if the Executive's employment is terminated
for Disability, thirty (30) days after Notice of
Termination is given (provided that the Executive shall
not have returned to the full-time performance of his
duties during such thirty (30) day period), and (iv) if
the Executive's employment is terminated by reason of
death, the date of death.
6. Obligations of Parent or the Company Upon
Termination.
(a) Termination for Good Reason or Other Than
for Cause. If the Executive shall terminate his
employment for Good Reason or the Company shall terminate
the Executive's employment for any reason other than
Cause, including Disability, or if such employment shall
be terminated by reason of death, the Executive shall be
entitled to the following benefits:
(i) Parent or the Company shall pay
to the Executive a lump sum amount in cash
equal to the sum of (A) the Executive's Base
Salary through the Date of Termination to the
extent not theretofore paid, (B) any
compensation previously deferred by the
Executive (together with any accrued interest
or earnings thereon) and any accrued vacation
pay and (C) any other amounts due the Executive
as of the Date of Termination, in each case to
the extent not theretofore paid. (The amounts
specified in clauses (A), (B) and (C) shall be
hereinafter referred to as the "Accrued
Obligation"). The amounts specified in this
Section 6(a)(i) shall be paid within thirty
(30) days after the Date of Termination; and
(ii) in lieu of any severance
benefit otherwise payable to the Executive,
(A) if the Executive shall terminate his employment
for Good Reason or the Company shall terminate the
Executive's employment for any reason other than
Disability or Cause, Parent or the Company shall pay
the Executive a lump sum amount, in cash, within
five days following the Date of Termination, equal
to three and one-third (3 1/3) times the sum of (1)
twelve (12) times Base Salary, and (2) $139,500,
which is equal to the largest aggregate amount
earned by the Executive as stock and cash bonuses
for any of the five fiscal years preceding that in
which the Effective Date occurs;
(B) if the termination of the Executive's employment
is by reason of death or Disability, or, if the
Executive so elects, in lieu of the payments
described in paragraph (A) of this Section 6(ii),
Parent or the Company shall continue to pay the
Executive (or, in the event of his death, his legal
representative) for the remainder of the Term (1)
the Base Salary as in effect immediately prior to
the Date of Termination, in accordance with the
Company's general payroll practices, and (2) for
each full twelve-month period remaining in the Term,
the highest annual aggregate cash and stock bonuses
earned by the Executive pursuant to any annual bonus
or incentive plan maintained by the Parent or
Company in respect of any of the five fiscal years
of the Parent or Company ending immediately prior to
the fiscal year in which occurs the Date of
Termination, payable in accordance with the
Company's practices with respect to the payment of
bonuses; and
(C) if the Executive's employment is terminated by
reason of death and if his wife shall survive him,
Parent or the Company shall pay to his wife the sum
of $50,000 per year, payable semi-monthly, during
the period commencing on the expiration of the Term
and ending on the tenth anniversary of date of the
death of the Executive or such earlier date of the
death of his wife; and
(D) if the Executive's employment is terminated by
reason of Disability and the Executive has not
attained the age of 65 at the expiration of the
Term, then Parent or the Company shall pay him 40%
of Base Salary, payable semi-monthly, until the date
on which he attains the age of 65; and
(iii) Parent or the Company shall
pay in a single lump sum to Security Mutual
Life Insurance Company of New York, to be held
in a side fund in escrow by said carrier to pay
when due (or, at the option of the Executive,
to prepay) the annual premiums on the Policy,
an amount equal to ten (10) times the amount of
the last annual premium payment on the Policy
made prior to the date of termination, and
Parent and the Company shall forfeit all rights
under the Collateral Assignment to be repaid
the aggregate amount of all premiums paid on
the Policy prior to, on or after the Date of
Termination, and shall release and waive all
rights under the Collateral Assignment, shall
not endanger in any way any benefit available
to the Executive under the Policy and shall not
be entitled to any further rights or interest
in the Policy; and
(iv) the Executive shall be entitled to
retire under the Qualified Plan and shall
immediately thereafter become entitled to payment of
his Supplemental Retirement Income and Supplemental
Savings Plan Income and shall be entitled to
Postretirement Medical Coverage; and
(v) for the remainder of the Term, Parent
or the Company shall arrange to provide the
Executive and his dependents life and disability
insurance benefits substantially similar to those
provided to the Executive and his dependents as of
the date hereof, at no greater cost to the Executive
than the cost to the Executive immediately prior to
the Date of Termination.
(b) Termination for Other Reason. If the
Executive's employment shall be terminated by the Company
for Cause or by the Executive other than for Good Reason,
death or Disability, neither Parent nor the Company shall
have any further obligations to the Executive under this
Agreement other than the obligation to pay to the
Executive the Accrued Obligation and any postemployment
benefits to which the Executive is entitled under the
terms of Parent's or the Company's employee benefit
plans.
(c) Arbitration. Any dispute or controversy
arising under or in connection with this Agreement shall
be settled exclusively by arbitration, conducted before a
panel of three arbitrators sitting in New York, New York,
in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on
the arbitrator's award in any court having jurisdiction.
(d) Legal Fees. Parent or the Company shall
also pay to the Executive all reasonable legal fees and
expenses incurred by the Executive in disputing in good
faith any issue hereunder relating to the termination of
the Executive's employment, in seeking in good faith to
obtain or enforce any benefit or right provided by this
Agreement or in connection with any tax audit or
proceeding to the extent attributable to the application
of section 4999 of the Code to any payment or benefit
provided hereunder. Such payments shall be made within
five (5) business days after delivery of the Executive's
written requests for payment accompanied with such
evidence of fees and expenses incurred as is reasonable.
(e) Gross-Up. If any of the payments or
benefits received or to be received by the Executive
(whether pursuant to the terms of this Agreement or any
other plan, arrangement or agreement with Parent or the
Company, any Person (as defined in Section 5(d) of this
Agreement) whose actions result in a Change in Control or
any Person affiliated with the Company or such Person)
(such payments or benefits, excluding the Gross-Up
Payment (as defined below), being hereinafter referred to
as the "Total Payments") will be subject to the excise
tax imposed under section 4999 of the Code ("Excise
Tax"), Parent or the Company shall pay to the Executive
an additional amount (the "Gross-Up Payment") such that
the net amount retained by the Executive, after deduction
of any Excise Tax on the Total Payments and any federal,
state and local income and employment taxes and Excise
Tax upon the Gross-Up Payment, shall be equal to the
Total Payments.
For purposes of determining whether any of the
Total Payments will be subject to the Excise Tax and the
amount of such Excise Tax, (i) all of the Total Payments
shall be treated as "parachute payments" (within the
meaning of section 280G(b)(2) of the Code) unless, in the
opinion of tax counsel ("Tax Counsel") reasonably
acceptable to the Executive and selected by the
accounting firm which was, immediately prior to the date
hereof, the Company's independent auditor, or in the
event of a Change in Control, was, immediately prior to
the Change in Control, Parent's independent auditor (the
"Auditor"), such payments or benefits (in whole or in
part) do not constitute parachute payments, including by
reason of section 280G(b)(4)(A) of the Code, (ii) all
"excess parachute payments" within the meaning of section
280G(b)(l) of the Code shall be treated as subject to the
Excise Tax unless, in the opinion of Tax Counsel, such
excess parachute payments (in whole or in part) represent
reasonable compensation for services actually rendered
(within the meaning of section 280G(b)(4)(B) of the Code)
in excess of the "Base Amount," as defined in section
280G(b)(3) of the Code, allocable to such reasonable
compensation, or are otherwise not subject to the Excise
Tax, and (iii) the value of any noncash benefits or any
deferred payment or benefit shall be determined by the
Auditor in accordance with the principles of sections
280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, the
Executive shall be deemed to pay federal income tax at
the highest marginal rate of federal income taxation in
the calendar year in which the Gross-Up Payment is to be
made and state and local income taxes at the highest
marginal rate of taxation in the state and locality of
the Executive's residence on the Date of Termination (or
if there is no Date of Termination, then the date on
which the Gross-Up Payment is calculated for purposes of
this Section 6.2), net of the maximum reduction in
federal income taxes which could be obtained from
deduction of such state and local taxes.
In the event that the Excise Tax is finally
determined to be less than the amount taken into account
hereunder in calculating the Gross-Up Payment, the
Executive shall repay to Parent or the Company, as the
case may be, within five (5) business days following the
time that the amount of such reduction in the Excise Tax
is finally determined, the portion of the Gross-Up
Payment attributable to such reduction (plus that portion
of the Gross-Up Payment attributable to the Excise Tax
and federal, state and local income and employment taxes
imposed on the Gross-Up Payment being repaid by the
Executive, to the extent that such repayment results in a
reduction in the Excise Tax and a dollar-for-dollar
reduction in the Executive's taxable income and wages for
purposes of federal, state and local income and
employment taxes, plus interest on the amount of such
repayment at 120% of the rate provided in section
1274(b)(2)(B) of the Code. In the event that the Excise
Tax is determined to exceed the amount taken into account
hereunder in calculating the Gross-Up Payment (including
by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up
Payment), Parent or the Company shall make an additional
Gross-Up Payment in respect of such excess (plus any
interest, penalties or additions payable by the Executive
with respect to such excess) within five (5) business
days following the time that the amount of such excess is
finally determined. The Executive, Parent and the
Company shall each reasonably cooperate with the other in
connection with any administrative or judicial
proceedings concerning the existence or amount of
liability for Excise Tax with respect to the Total
Payments.
7. Full Settlement; Mitigation.
Parent's and the Company's obligation to make
the payments provided for in this Agreement and otherwise
to perform their obligations hereunder shall not be
subject to any set-off, counterclaim, recoupment, defense
or other claim, right or action which Parent or the
Company may have against the Executive or others. In no
event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation
of the amounts (including amounts for damages for breach)
payable to the Executive under any of the provisions of
this Agreement and such amounts shall not be reduced
whether or not the Executive obtains other employment.
8. Confidential Information.
The Executive shall hold in a fiduciary
capacity for the benefit of Parent and the Company all
secret, confidential information, knowledge or data
relating to the Company or any of its affiliated
companies and their respective businesses which shall
have been obtained by the Executive during his employment
by the Company or any of their affiliated companies and
that shall not have been or now or hereafter have become
public knowledge (other than by acts by the Executive or
representatives of the Executive in violation of this
Agreement). The Executive shall not, without the prior
written consent of Parent or as may otherwise be required
by law or legal process, communicate or divulge any such
information, knowledge or data to anyone other than
Parent and those designated by it.
9. Successors.
(a) Assignment by Executive. This Agreement
is personal to the Executive and, without the prior
written consent of Parent or the Company, shall not be
assignable by the Executive otherwise than by will or the
laws of descent and distribution. This Agreement shall
inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) Successors and Assigns. This Agreement
shall inure to the benefit of and be binding upon Parent
and the Company, and their respective successors and
assigns.
(c) Assumption. Parent or the Company, as the
case may be, shall require any successor (whether direct
or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business
and/or assets thereof to expressly assume and agree to
perform this Agreement in the same manner and to the same
extent that Parent or the Company, as the case may be,
would be required to perform this Agreement if no such
succession had taken place. In the event of the
liquidation of the Company, the Executive shall be an
employee of Parent and Parent shall be solely liable for
all obligations of the Company hereunder. As used in
this Agreement, Parent and the "Company" shall mean
Parent and the Company, respectively, as hereinbefore
defined and any successor to their businesses and/or
assets as aforesaid that assumes and agrees to perform
this Agreement by operation of law, or otherwise.
10. Miscellaneous.
(a) Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of
New York, without reference to its principles of conflict
of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect.
This Agreement may not be amended, modified, repealed,
waived, extended or discharged except by an agreement in
writing signed by the party against whom enforcement of
such amendment, modification, repeal, waiver, extension
or discharge is sought. No person, other than pursuant
to a resolution of its respective Board of Directors (or
a committee thereof), as the case may be, shall have
authority on behalf of Parent or the Company to agree to
amend, modify, repeal, waive, extend or discharge any
provision of this Agreement or take any other action in
respect thereto.
(b) Notices. All notices and other
communications hereunder shall be in writing and shall be
given by hand delivery to the other party or by
registered or certified mail, return-receipt requested,
postage prepaid, addressed, in the case of Parent, to
Parent's headquarters, in the case of the Company, to the
Company's headquarters and, in the case of the Executive,
to the address on the signature page of this Agreement
or, in either case, to such other address as any party
shall have subsequently furnished to the other parties in
writing. Notice and communications shall be effective
when actually received by the addressee.
(c) Severability. The invalidity or
unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other
provision of this Agreement.
(d) Taxes. The Company may withhold from any
amounts due and payable under this Agreement such
federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) No Waiver. Any party's failure to insist
upon strict compliance with any provision hereof or the
failure to assert any right such party may have
hereunder, including, without limitation, the right of
the Executive to terminate employment for Good Reason
pursuant to Section 5(c) of this Agreement, shall not be
deemed to be a waiver of such provision or right or any
other provision or right of this Agreement.
(f) Entire Agreement; Survival. This
Agreement entered into as of the date hereof among
Parent, the Company and the Executive contains the entire
agreement of the Executive, Parent and the Company or
their respective predecessors or subsidiaries with
respect to the subject matter of the Agreement, and all
promises, representations, understandings, arrangements
and prior agreements, including without limitation the
Employment Agreement, are merged into, and superseded by,
the Agreement. Any provision hereof which by its terms
applies in whole or part after a termination of the
Executive's employment hereunder shall survive such
termination.
IN WITNESS WHEREOF, the Executive has executed
this Agreement and, pursuant to due authorization from
its Board of Directors, each of Parent and the Company
has caused this Agreement to be executed, as of the day
and year first above written.
CTS CORPORATION
By /s/ Joseph P. Walker
-----------------------------------
Name: Joseph P. Walker
Title: Chairman, President and
Chief Executive Officer
DYNAMICS CORPORATION OF AMERICA
By /s/ Andrew Lozyniak
-----------------------------------
Name: Andrew Lozyniak
Title: President
/s/ Henry V. Kensing
-------------------------------------
HENRY V. KENSING
Address: 60 Orchard Road
Mount Kisco, NY 10549
EXHIBIT A
HENRY V. KENSING
Mr. Kensing will be the Vice President, General
Counsel and Secretary of the Company and in connection
therewith will have such duties, responsibilities and
authority as are customarily incident to the principal
legal officer of a corporation that is a wholly owned
U.S. subsidiary of a publicly traded U.S. company,
subject to the oversight of the Chief Executive Officer
of the Company and the Board of Directors of the Company.
Mr. Kensing will report to the Chief Executive Officer of
the Company and consult with, and coordinate the
discharge of his activities with, the General Counsel of
Parent.
EXHIBIT 10.7
AMENDMENT
TO
DYNAMICS CORPORATION OF AMERICA
1980 RESTRICTED STOCK AND CASH BONUS PLAN
The 1980 Restricted Stock and Cash Bonus Plan
(the "Plan"), as in effect since September 25, 1980 and
as previously amended, is hereby amended as of April 11,
1997, as set forth below.
Section 8(f) of the Plan is amended by changing
the second sentence of paragraph (f) thereof to read in
its entirety as follows:
For purposes of the Plan, a "Change in Control"
shall be deemed to have occurred if the event set
forth in any one of the following paragraphs shall
have occurred:
(I) any Person is or becomes the Beneficial Owner,
directly or indirectly, of securities of the
Company (not including in the securities
beneficially owned by such Person any
securities acquired directly from the Company
or its Affiliates) representing 25% or more of
the combined voting power of the Company's then
outstanding securities, excluding any Person
who becomes such a Beneficial Owner in
connection with a transaction described in
clause (i) of paragraph (III) below; or
(II) the following individuals cease for any reason
to constitute a majority of the number of
directors then serving on the Board of
Directors of the Company (the "Board"):
individuals who, on the date hereof, constitute
the Board and any new director (other than a
director whose initial assumption of office is
in connection with an actual or threatened
election contest, including but not limited to
a consent solicitation, relating to the
election of directors of the Company) whose
appointment or election by the Board or
nomination for election by the Company's
stockholders was approved or recommended by a
vote of at least two-thirds (2/3) of the
directors then still in office who either were
directors on the date hereof or whose
appointment, election or nomination for
election was previously so approved or
recommended; or
(III) there is consummated a merger or consolidation
of the Company or any direct or indirect
subsidiary of the Company with any other
corporation, other than (i) a merger or
consolidation which would result in the voting
securities of the Company outstanding
immediately prior to such merger or
consolidation continuing to represent (either
by remaining outstanding or by being converted
into voting securities of the surviving entity
or any parent thereof) at least 60% of the
combined voting power of the securities of the
Company or such surviving entity or any parent
thereof outstanding immediately after such
merger or consolidation, or (ii) a merger or
consolidation effected to implement a
recapitalization of the Company (or similar
transaction) in which no Person is or becomes
the Beneficial Owner, directly or indirectly,
of securities of the Company (not including in
the securities Beneficially Owned by such
Person any securities acquired directly from
the Company or its Affiliates other than in
connection with the acquisition by the Company
or its Affiliates of a business) representing
25% or more of the combined voting power of the
Company's then outstanding securities; or
(IV) the stockholders of the Company approve a plan
of complete liquidation or dissolution of the
Company or there is consummated an agreement
for the sale or disposition by the Company of
all or substantially all of the Company's
assets, other than a sale or disposition by the
Company of all or substantially all of the
Company's assets to an entity, at least 60% of
the combined voting power of the voting
securities of which are owned by stockholders
of the Company in substantially the same
proportions as their ownership of the Company
immediately prior to such sale.
For purposes of this Section 8(f), the
following definitions shall apply: "Person" shall
have the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d)
and 14(d) thereof, except that such term shall not
include (i) the Company or any of its subsidiaries,
(ii) a trustee or other fiduciary holding securities
under an employee benefit plan of the Company or any
of its Affiliates, (iii) an underwriter temporarily
holding securities pursuant to an offering of such
securities, or (iv) a corporation owned, directly or
indirectly, by the stockholders of the Company in
substantially the same proportions as their
ownership of stock of the Company. "Beneficial
Owner" shall have the meaning set forth in Rule
13d-3 under the Exchange Act. "Affiliate" shall
have the meaning set forth in Rule 12b-2 promulgated
under Section 12 of the Exchange Act. "Exchange
Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time.
Except as set forth above, the Plan is hereby
ratified and confirmed in all respects.
TRUST AGREEMENT
AGREEMENT made this 31st day of December, 1996, by and
between Dynamics Corporation of America ("Company") and Bank of
Boston Connecticut ("Trustee");
WHEREAS, the Company has adopted three identical
nonqualified deferred compensation plans with its President,
Andrew Lozyniak and its Vice Presidents, Patrick J. Dorme and
Henry V. Kensing, which are incorporated in subparagraph SECOND
G. of the employment contracts with each of such officers dated
February 1, 1996 ("Plans"); a copy of said subparagraph SECOND G
is attached hereto as Appendix 1;
WHEREAS, the Company has incurred and expects to incur
liability under the terms of the Plans with respect to the
officers participating therein and referred to above
("Participants");
WHEREAS, the Company wishes to establish a trust
(hereinafter called "Trust") and to contribute to the Trust
assets that shall be held therein, subject to the claims of the
Company's creditors in the event of the Company's Insolvency, as
herein defined, until paid to the Participants and their
beneficiaries in such manner and at such times as specified in
the Plans;
WHEREAS, it is the intention of the parties that this Trust
shall constitute an unfunded arrangement and shall not affect the
status of the Plans as unfunded plans maintained for the purpose
of providing deferred compensation for a select group of
management or highly compensated employees for purposes of Title
I of the Employee Retirement Income Security Act of 1974;
WHEREAS, it is the intention of the Company to make
contributions to the Trust to provide the Company with a source
of funds to assist it in meeting its liabilities under the Plans;
NOW, THEREFORE, the parties do hereby establish the Trust
and agree that the Trust shall be comprised, held and disposed of
as follows:
SECTION 1. ESTABLISHMENT OF TRUST.
(a) The Company hereby deposits with the Trustee in trust
$1,000.00 in cash, which shall become the principal of the Trust
to be held, administered and disposed of by the Trustee as
provided in this Trust Agreement.
(b) The Trust hereby established shall be irrevocable.
(c) The Trust is intended to be a grantor trust, of which
the Company is the grantor, within the meaning of subpart E, part
I, subchapter J, chapter 1, subtitle A of the Internal Revenue
Code of 1986, as amended, and shall be construed accordingly.
(d) The principal of the Trust and any earnings thereon
shall be held separate and apart from other funds of the Company
and shall be used exclusively for the uses and purposes of
Participants and their beneficiaries and general creditors as
herein set forth. Participants and their beneficiaries shall
have no preferred claim on, or any beneficial ownership interest
in, any assets of the Trust. Any rights created under the Plans
and this Trust Agreement shall be mere unsecured contractual
rights of Participants and their beneficiaries against the
Company. Any assets held by the Trust will be subject to the
claims of the Company's general creditors under federal and state
law in the event the Company becomes Insolvent, as defined in
Section 3(a) herein.
(e) The Company, in its sole discretion, may at any time, or
from time to time, make additional deposits of cash or shares of
common stock of the Company or other property in trust with the
Trustee to augment the principal to be held, administered and
disposed of by the Trustee as provided in this Trust Agreement.
Neither the Trustee nor any Participant or beneficiary shall have
any right to compel such additional deposits.
(f) Upon a Change of Control, as defined herein, the Company
shall, as soon as possible, but in no event later than ten (10)
days following the Change of Control, as defined herein, make an
irrevocable contribution to the Trust in an amount that is
sufficient to pay each Participant or beneficiary the benefits to
which Participants or their beneficiaries would be entitled
pursuant to the terms of the Plans as of the date on which the
Change of Control occurred.
(g) On or before December 31, 2000, the Company shall be
required to irrevocably deposit additional cash or other property
to the Trust in an amount sufficient to pay each Participant or
beneficiary the benefits payable pursuant to the terms of the
Plans as of January 31, 2001.
SECTION 2. PAYMENTS TO PARTICIPANTS AND THEIR BENEFICIARIES.
(a) In and for each calendar quarter while this Trust
Agreement is in effect (and not later than the tenth day of the
first month in each such calendar quarter), the Company hereby
authorizes its actuaries Foster Higgins ("Foster Higgins") to
deliver to the Trustee and to the Company a schedule (the
"Payment Schedule") that indicates the amounts payable in respect
of each Participant (and his beneficiaries) as of the last day of
the most recent calendar quarter, the form in which such amount
is to be paid (as provided for or available under the Plans), and
the earliest time for payment of such amounts to the Participant
under the Plans, and to deliver a copy of the Payment Schedule to
each Participant (which copy may delete information relating to
other Participants) at the same time Foster Higgins delivers such
Payment Schedule to the Trustee and the Company. Foster Higgins
shall also advise the Trustee in writing of amounts to be
withheld in respect of any federal, state and local taxes from
payments of benefits made by Trustee to Participants and their
beneficiaries hereunder with each delivery of a Payment Schedule
as above provided. Upon receipt of an affidavit executed by a
Participant in the form attached hereto as Exhibit A and
presented at the Trustee's office located at One Landmark
Square, Stamford, Connecticut, and except as otherwise provided
herein, the Trustee shall make payment of benefits to the
Participant and his beneficiaries in accordance with the then
most recent Payment Schedule received by the Trustee from Foster
Higgins out of the assets of the Trust to the extent there are
sufficient assets in the Trust to make such payment. The Trustee
shall make such payment in cash and as soon as is practicable
after presentation of the affidavit by the Participant. Any
shares of the common stock of the Company then held in the Trust
may be offered for sale to the Company or to any other
prospective purchasers as the Trustee in its discretion shall see
fit. The Trustee shall also make provision for the reporting and
withholding of any federal, state and local taxes to be withheld
with respect to the payment of benefits pursuant to the terms of
the Plans as specified in such written advice from Foster
Higgins, and shall pay amounts withheld to the appropriate taxing
authorities. In the event the Trustee shall not have received
such a written advice regarding the withholding of taxes, the
Trustee may assume that no federal, state or local taxes are
required to be withheld by the Trustee with respect to the
payment of the benefits to the Participant submitting the
affidavit as above provided.
(b) The Company may make payment of benefits directly to
Participants or their beneficiaries as they become due under the
terms of the Plans and, in such event, the Company shall notify
the Trustee that it has made such a payment of benefits directly
prior to the time amounts are payable to Participants or their
beneficiaries by the Trustee as provided in (a) above. In
addition, if the principal of the Trust, and any earnings
thereon, are not sufficient to make payments of benefits in
accordance with the terms of the Plans, the Company shall make
the balance of each such payment when due; the Trustee shall
notify the Company and the Participants when the principal and
earnings are not sufficient as aforesaid.
SECTION 3. TRUSTEE RESPONSIBILITY REGARDING PAYMENTS WHEN
COMPANY IS INSOLVENT.
(a) The Trustee shall cease payment of benefits to
Participants and their beneficiaries if the Company is Insolvent.
The Company shall be considered "Insolvent" for purposes of this
Trust Agreement if (i) the Company is unable to pay its debts as
they become due, or (ii) the Company is subject to a pending
proceeding as a debtor under the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, as
provided in Section 1(d) hereof, the principal and income of the
Trust shall be subject to claims of general creditors of the
Company under federal and state law as set forth below.
(1) The Board of Directors and the Chief Executive Officer
of the Company shall have the duty to inform the Trustee in
writing if and when the Company has become Insolvent. If a
person claiming to be a creditor of the Company alleges in
writing to the Trustee that the Company has become Insolvent, the
Trustee shall determine whether the Company is Insolvent and,
pending such determination, the Trustee shall discontinue payment
of benefits to Participants or their beneficiaries.
(2) Unless the Trustee has actual knowledge that the Company
is Insolvent, or has received notice from the Company or a person
claiming to be a creditor alleging that the Company is Insolvent,
the Trustee shall have no duty to inquire whether the Company is
Insolvent. The Trustee may in all events rely on such evidence
concerning the Company's solvency as may be furnished to the
Trustee and that provides the Trustee with a reasonable basis for
making a determination concerning the Company's solvency.
(3) If at any time the Trustee has determined that the
Company is Insolvent, the Trustee shall discontinue payments to
Participants or their beneficiaries and shall hold the assets of
the Trust for the benefit of the Company's general creditors.
Nothing in this Trust Agreement shall in any way diminish any
rights of Participants or their beneficiaries to pursue their
rights as general creditors of the Company with respect to
benefits due under the Plans or otherwise.
(4) The Trustee shall resume the payment of benefits to
Participants or their beneficiaries in accordance with Section 2
of this Trust Agreement only after the Trustee has determined
that the Company is not Insolvent (or is no longer Insolvent).
(c) Provided that there are sufficient assets, if the
Trustee discontinues the payment of benefits from the Trust
pursuant to Section 3(b) hereof and subsequently resumes such
payments, the first payment following such discontinuance shall
include the aggregate amount of all payments due to Participants
or their beneficiaries under the terms of the Plans for the
period of such discontinuance, less the aggregate amount of any
payments made to Participants or their beneficiaries by the
Company in lieu of the payments provided for hereunder during any
such period of discontinuance.
SECTION 4. PAYMENTS TO COMPANY.
Except as provided in Section 3 hereof, the Company shall
have no right or power to direct the Trustee to return to the
Company or to divert to others any of the Trust assets before all
payment of benefits have been made to Participants and their
beneficiaries pursuant to the terms of the Plans.
SECTION 5. INVESTMENT AUTHORITY.
(a) The Trustee may invest in securities (including stock or
rights to acquire stock) or obligations issued by the Company.
Subject to the restrictions hereinafter provided, the Trustee
shall have and may exercise all of the usual and customary
investment powers conferred upon trustees under the laws of the
United States and the State of Connecticut with respect to the
assets of the Trust that are not then subject to the investment
authority of the Company or an investment manager appointed
pursuant to Section 5(b) hereof. All investment authority herein
delegated to the Trustee with respect to the assets of the Trust
shall be exercised by the Trustee in accordance with written
investment guidelines from time to time adopted or amended by the
Company and delivered to the Trustee, and shall in no event be
exercisable by or rest with the Participants, except that voting
rights with respect to Trust assets will be exercised by the
Company.
(b) The Company may, at any time, designate one or more
persons or entities (including the Company) to serve as an
investment manager with the power and authority to direct the
investment of such portion of the assets of the Trust as the
Company shall designate. In the event the Company so designates
itself or an investment manager, the investment powers of the
Trustee described in Section 5(a) with respect to the assets of
the Trust assigned to the Company or an investment manager shall
be exercisable by the Trustee only at the direction of the
Company or such investment manager, as the case may be.
Notwithstanding such designation, the Trustee shall retain the
custody of all of the assets of the Trust. Upon such designation
of the Company or an investment manager as provided herein, the
Trustee shall not thereafter be liable or responsible for the
investment and reinvestment of the portion of the assets of the
Trust subject to the investment authority of the Company or such
investment manager, as the case may be, and the Trustee may rely
upon and shall be fully protected with respect to any action
taken or omitted with respect to such assets in reliance on any
information, statement or certificate delivered to the Trustee by
the Company or such investment manager with respect to any matter
regarding such assets.
(c) The Company shall have the right, at any time and from
time to time in its sole discretion, to substitute assets of
equal fair market value for any asset held by the Trust. This
right is exercisable by the Company in a nonfiduciary capacity
without the approval or consent of any person in a fiduciary
capacity.
SECTION 6. DISPOSITION OF INCOME.
During the term of this Trust, all income received by the
Trust, net of expenses and taxes, shall be accumulated and
reinvested.
SECTION 7. ACCOUNTING BY TRUSTEE.
The Trustee shall keep accurate and detailed records of all
investments, receipts, disbursements, and all other transactions
required to be made, including such specific records as shall be
agreed upon in writing between the Company and the Trustee.
Within forty-five (45) days following the close of each calendar
year and within fifteen (15) days after the removal or
resignation of the Trustee, the Trustee shall deliver to the
Company a written account of its administration of the Trust
during such year or during the period from the close of the last
preceding year to the date of such removal or resignation,
setting forth all investments, receipts, disbursements and other
transactions effected by it, including a description of all
securities and investments purchased and sold with the cost or
net proceeds of such purchases or sales (accrued interest paid or
receivable being shown separately), and showing all cash,
securities and other property held in the Trust at the end of
such year or as of the date of such removal or resignation, as
the case may be.
SECTION 8. RESPONSIBILITY OF TRUSTEE.
(a) The Trustee shall act with the care, skill, prudence and
diligence under the circumstances then prevailing that a prudent
person acting in like capacity and familiar with such matters
would use in the conduct of an enterprise of a like character and
with like aims, provided, however, that the Trustee shall incur
no liability to any person for any action taken pursuant to a
direction, request or approval given by the Company which is
contemplated by, and in conformity with, the terms of the Plans
or this Trust Agreement and is given in writing by the Company.
In the event of a dispute between the Company and the Trustee or
any Participant or beneficiary, the Trustee may apply to a court
of competent jurisdiction to resolve the dispute.
(b) The Company shall indemnify and hold harmless the
Trustee for any liability or expenses, including without
limitation advances for or prompt reimbursement of reasonable
fees and expenses of counsel and other agents retained by it,
incurred by the Trustee with respect to holding, managing,
investing or otherwise administering the Trust, other than
liability or expenses arising out of, related to or caused by
negligence or willful misconduct on the part of the Trustee, its
officers, employees or agents or their violation of the terms of
this Trust Agreement. If the Company does not pay such costs,
expenses and liabilities in a reasonably timely manner, the
Trustee may obtain payment from the Trust.
(c) The Trustee may consult with legal counsel (who may also
be counsel for the Company generally) with respect to any of its
duties or obligations hereunder.
(d) The Trustee may hire agents, accountants, actuaries,
investment advisors, financial consultants or other professionals
to assist it in performing any of its duties or obligations
hereunder.
(e) The Trustee shall have, without exclusion, all powers
conferred on trustees by applicable law, unless expressly
provided otherwise herein, provided, however, that if an
insurance policy is held as an asset of the Trust, the Trustee
shall have no power to name a beneficiary of the policy other
than the Trust, to assign the policy (as distinct from conversion
of the policy to a different form) other than to a successor
Trustee, or to loan to any person the proceeds of any borrowing
against such policy.
(f) Notwithstanding any powers granted to the Trustee
pursuant to this Trust Agreement or to applicable law, the
Trustee shall not have, and neither the Company nor any
investment manager shall have, any power that could give this
Trust the objective of carrying on a business and dividing the
gains therefrom, within the meaning of Section 301.7701-2 of the
Procedure and Administrative Regulations promulgated pursuant to
the Internal Revenue Code.
SECTION 9. COMPENSATION AND EXPENSES OF TRUSTEE.
The Company shall pay all administrative and Trustee's fees
and expenses, as agreed between the parties. If not so paid, the
fees and expenses shall be paid from the Trust.
SECTION 10. RESIGNATION AND REMOVAL OF TRUSTEE.
(a) The Trustee may resign at any time by written notice to
the Company, which shall be effective thirty (30) days after
receipt of such notice unless the Company and Trustee agree
otherwise.
(b) The Trustee may be removed by the Company on thirty
(30) days notice or upon shorter notice accepted by the Trustee.
(c) Upon a Change of Control, as defined herein, the Trustee
may not be removed by the Company for a period of three (3)
years.
(d) Upon resignation or removal of the Trustee and
appointment of a successor Trustee, all assets shall subsequently
be transferred to the successor Trustee. The transfer shall be
completed within thirty (30) days after receipt of notice of
resignation, removal or transfer, unless the Company extends the
time limit.
(e) If the Trustee resigns or is removed, a successor shall
be appointed by the Trustee, in accordance with Section 11
hereof, by the effective date of resignation or removal under
paragraphs (a) or (b) of this section. If no such appointment
has been made, the Trustee may apply to a court of competent
jurisdiction for appointment of a successor or for instructions.
All expenses of the Trustee in connection with the proceeding
shall be allowed as administrative expenses of the Trust.
SECTION 11. APPOINTMENT OF SUCCESSOR.
(a) If the Trustee resigns or is removed pursuant to the
provisions of Section 10(e) hereof and selects a successor
Trustee, the Trustee may appoint any third party such as a bank
trust department or other party that may be granted corporate
trustee powers under state law. The appointment of a successor
Trustee shall be effective when accepted in writing by the new
Trustee. The new Trustee shall have all the rights and powers of
the former Trustee, including ownership rights in Trust assets.
The former Trustee shall execute any instrument necessary or
reasonably requested by the successor Trustee to evidence the
transfer.
(b) The successor Trustee need not examine the records and
acts of any prior Trustee and may retain or dispose of existing
Trust assets, subject to Sections 5, 7 and 8 hereof. The
successor Trustee shall not be responsible for and the Company
shall indemnify and defend the successor Trustee from any claim
or liability resulting from any action or inaction of any prior
Trustee or from any other past event, or any condition existing
at the time it becomes successor Trustee.
(c) Any corporation into which the Trustee may be merged or
with which it may be consolidated, or any corporation resulting
from any merger, reorganization or consolidation to which the
Trustee may be a party, or any corporation to which all or
substantially all the trust business of the Trustee may be
transferred, shall be the successor of the Trustee hereunder
without the execution or filing of any instrument or the
performance of any act.
SECTION 12. AMENDMENT OR TERMINATION.
(a) This Trust Agreement may be amended by a written
instrument executed by the Trustee and the Company.
Notwithstanding the foregoing, no such amendment shall conflict
with the terms of the Plans or shall make the Trust revocable.
(b) The Trust shall not terminate until the date on which
Participants and their beneficiaries are no longer entitled to
benefits pursuant to the terms of the Plans. Upon termination of
the Trust, any assets remaining in the Trust shall be distributed
pro rata in equal shares to the Participants, or their surviving
spouses and heirs.
(c) Upon written approval of Participants or beneficiaries
entitled to payment of benefits pursuant to the terms of the
Plans, the Company may terminate this Trust prior to the time all
benefit payments under the Plans have been made. All assets in
the Trust at the time of such termination shall be returned to
the Company.
(d) This Trust Agreement may not be amended by the Company
for a period of three (3) years following a Change of Control, as
defined herein.
SECTION 13. MISCELLANEOUS.
(a) Any provision of this Trust Agreement prohibited by law
shall be ineffective to the extent of any such prohibition,
without invalidating the remaining provisions hereof.
(b) Benefits payable to Participants and their beneficiaries
under this Trust Agreement may not be anticipated, assigned
(either at law or in equity), alienated, pledged, encumbered or
subjected to attachment, garnishment, levy, execution or other
legal or equitable process.
(c) This Trust Agreement and the Trust established hereunder
shall be governed by and construed, and all provisions hereof
shall be enforced and administered, in accordance with the laws
of the State of Connecticut.
(d) For purposes of this Trust, Change of Control shall mean
the purchase or other acquisition by any person, entity or group
of persons, within the meaning of Sections 13(d) or 14(d) of the
Securities Exchange Act of 1934 ("Act"), or any comparable
successor provisions, of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Act) of 25 percent or more of
either the outstanding shares of common stock or the combined
voting power of the Company's then outstanding voting securities
entitled to vote generally, or the approval by the stockholders
of the Company of a reorganization, merger, or consolidation, in
each case, with respect to which persons who were stockholders of
the Company immediately prior to such reorganization, merger or
consolidation do not, immediately thereafter, own more than 50
percent of the combined voting power entitled to vote generally
in the election of directors of the reorganized, merged or
consolidated Company's then outstanding securities, or a
liquidation or dissolution of the Company or the sale of all or
substantially all of the Company's assets.
(e) This Trust Agreement shall be binding upon and inure to
the benefit of the Company, the Participants and the Trustee and
their respective permitted successors and assigns and
beneficiaries.
SECTION 14. EFFECTIVE DATE.
The effective date of this Trust Agreement shall be December
31, 1996.
IN WITNESS WHEREOF, the parties have executed this Trust
Agreement as of the date first above written.
Dynamics Corporation of America
By: /s/ Andrew Lozyniak
Andrew Lozyniak
President
Bank of Boston Connecticut
By: /s/ Catherine M. Tanzilli, V.P.
APPENDIX I
Subparagraph SECOND G
G.1. In order to restore certain retirement income benefits
which are not available to the Executive under the Retirement
Plan for Employees of DCA ("Qualified Plan") by reason of Section
401(a)(17), Section 415 and Section 401(a)(4) of the Internal
Revenue Code ("Code"), DCA shall pay to the Executive
supplemental retirement income commencing on his retirement date
(normal, early, disabled or postponed) as defined in and under
the Qualified Plan in an amount equal to the difference between
(a) the monthly amount of the retirement income payable to the
Executive upon his retirement under the Qualified Plan, if such
benefit were calculated under the Qualified Plan without giving
effect to the compensation limit under Section 401(a)(17) of the
Code or to the limitations imposed by the application of Section
415 of the Code, and assuming that the benefit described in
Section 4.01(d) of the Qualified Plan continued to apply on and
after January 1, 1989 notwithstanding the provisions of Section
401(a)(4) of the Code, expressed as a single life annuity, and
(b) the monthly amount of retirement income payable to the
Executive upon his retirement under the Qualified Plan based on
his compensation up to the said compensation limit and based on
the limitations imposed by the application of Section 415 of the
Code, and the limitations imposed by the application of section
401(a)(4) of the Code to section 4.01(d) of the Qualified Plan,
expressed as a single life annuity. Such supplemental retirement
income shall be paid to the Executive in cash by DCA,, to the
extent so not paid by the trustee referred to in subparagraph
G.4. below, as an Actuarial Equivalent single lump sum as soon as
practical following the Executive's retirement. "Actuarial
Equivalent" shall mean the present value of a life annuity,
assuming the retirement age is the Executive's age on his
retirement date, which is the date benefits hereunder are
calculated; the interest rate is the rate appearing in the table
published in the Wall Street Journal entitled "Markets Diary"
under the heading "Bond Buyer municipal", corresponding to 20-
year Aaa bonds, and reflecting the rate for the first day of the
month preceding the month in which the benefits hereunder are
calculated; and mortality is determined under the 1983 Group
Annuity Mortality Table.
2. If the Executive dies while eligible for a retirement
benefit under subparagraph G.l. above and prior to his retirement
and/or the payment of such retirement benefit, the Executive's
surviving spouse shall be entitled to receive a supplemental
preretirement survivor benefit equal to the difference between
(a) the monthly amount of retirement income to which the deceased
Executive's spouse would have been entitled under the Qualified
Plan if the Executive had retired on the day prior to his death
having elected a loot joint and survivor annuity option and if
such benefit were calculated under the Qualified Plan without
giving effect to the compensation limit under Section 401(a)(17)
of the Code or the limitations imposed by the application of
Section 415 of the Code,, and assuming that the benefit described
in Section 4.01(d) of the Qualified Plan continued to apply on
and after January 1, 1989 notwithstanding the provisions of
Section 401(a)(4) of the Code, and (b) the monthly amount -of
retirement income to which the deceased Executive's spouse is
entitled under the qualified Plan based on his compensation up to
the said compensation limit and based on the limitations imposed
by the application of Section 415 of the Code, and the
limitations imposed by the application of Section 401(a)(4) of
the Code to Section 4.01(d) of the Qualified Plan. Such
supplemental pre-retirement survivor benefit shall be paid to
such surviving spouse in cash by DCA, to the extent not so paid
by the trustee referred to in subparagraph G.4. below, as an
"Actuarial Equivalent" single lump sum, as above defined, as soon
as practicable following the Executive's death.
3. In order to restore benefits which are not available to
the Executive under the DCA Employee Savings and Investment Plan
("401-K Plan") by reason Of the compensation limit under Section
401(a)(17) of the Code, DcA shall pay to the Executive on his
retirement date an amount equal to two percent (2%) of his annual
base compensation in excess of $150,000 in calendar year 1996 and
in each calendar year in the Employment Period in which his
annual base compensation exceeds $150,000 (subject to indexation
by the Internal Revenue service), with interest at the annual
rate of eight percent (at) on such excess amount from and after
December 31 of each such year. The aggregate of all such amounts
and the interest thereon shall be paid, to the extent not so paid
by the trustee referred to in subparagraph G.4. below, to the
Executive in cash by DCA in a lump sum as soon as practical
following the Executive's retirement. If the Executive dies
While eligible for a benefit under this subparagraph G.3. and
prior to the payment of such benefit, the Executive's surviving
spouse shall be entitled to receive in cash from DCA, to the
extent not so received from the trustee referred to in
subparagraph G-4. below, as soon as practical following the
Executive's death an amount equal to the amount the Executive
would have received under this subparagraph G-3. if he had
retired under the Qualified Plan on the day prior to his death.
4. Commencing no later than December 31, 1996 and
continuing on or before each December 31 thereafter during the
Employment Period, DCA shall contribute cash on an annual basis
to a trust established as hereinafter provided ("Trust")
sufficient to pay all of the supplemental retirement income,
supplemental pre-retirement survivor benefits, and the other
benefits to the Executive and his surviving spouse provided for
in subparagraphs G.l.,G.2. and G.3. above, but no funds or assets
of DCA shall be segregated or physically set aside with respect
to its obligations under the benefit restoration plan set forth
in this part G. in a manner which would cause said benefit
restoration plan to be "funded" for purposes of the Employee
Retirement Income Security Act of 1974, as amended. Neither the
Executive nor his surviving spouse shall have any interest in any
specific asset of DCA as a result of this part G. and any rights
to receive benefits hereunder shall be only the right of an
unsecured general creditor of DCA. The Trust shall be
established in full compliance with I.R.S. Revenue Procedure,
9264 and the trustee shall be Chemical Bank or another financial
institution satisfactory to Executive. Upon the last of the
Executive, Andrew Lozyniak and Henry V. Kensing to receive
payment from the trustee under this subpart G., any funds
remaining in the Trust shall be distributed pro rata in equal
shares to the Executive, Andrew Lozyniak and Henry V. Kensing or
their surviving spouses or heirs.
EXHIBIT A
AFFIDAVIT
I, __________________________, do hereby certify that I am a
participant in the nonqualified deferred compensation plan
incorporated in subparagraph SECOND G of my employment contract
dated February 1, 1996 with Dynamics Corporation of America (the
"Plan"), and that I terminated my employment with Dynamics
Corporation of America effective as of _________________, _____.
I further certify that I am entitled to receive benefits under
and in accordance with the terms of the Plan on the date of this
affidavit.
IN WITNESS WHEREOF, I have executed this affidavit on this
_____ day of _________________, ________.
______________________________
[Print Name]
STATE OF CONNECTICUT )
: ss.:
COUNTY OF FAIRFIELD )
On this ______ day of ______________,_____, before me
personally came ___________________________, to me known to be
the individual described in and who executed the foregoing
affidavit and acknowledged to me that he executed the same.
_________________________
Notary Public
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