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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-9
Solicitation/Recommendation Statement
Pursuant to Section 14(d)(4) of the
Securities Exchange Act of 1934
DYNAMICS CORPORATION OF AMERICA
(Name of Subject Company)
DYNAMICS CORPORATION OF AMERICA
(Name of Person(s) Filing Statement)
COMMON STOCK, PAR VALUE $0.10 PER SHARE
(including the associated Series A Cumulative
Participating Preferred Stock Purchase Rights)
(Title of Class of Securities)
268039 10 4
(CUSIP Number of Class of Securities)
HENRY V. KENSING
VICE PRESIDENT, GENERAL
COUNSEL AND SECRETARY
475 STEAMBOAT ROAD
GREENWICH, CONNECTICUT 06830-7197
(203) 869-3211
(Name, address and telephone number of person
authorized to receive notices and communications
on behalf of the person(s) filing statement).
WITH A COPY TO:
ALAN C. MYERS
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 735-3000
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Dynamics Corporation of America, a New
York corporation (the "Company"), and the address of the principal executive
offices of the Company is 475 Steamboat Road, Greenwich, Connecticut
06830-7197. The title of the class of equity securities to which this
statement relates is the common stock, par value $0.10 per share, of the
Company (the "Common Stock"), including the associated Series A Cumulative
Participating Preferred Stock Purchase Rights (the "Rights" and, together with
the Common Stock, the "Shares") issued pursuant to the Rights Agreement, dated
as of January 30, 1986, as amended on December 27, 1995 (the "Rights
Agreement"), between the Company and First National Bank of Boston, as Rights
Agent.
ITEM 2. TENDER OFFER OF THE BIDDER.
This Schedule relates to a tender offer by SB Acquisition Corp., a New
York corporation (the "Purchaser") and a wholly-owned subsidiary of WHX
Corporation, a Delaware corporation ("Parent"), disclosed in a Tender Offer
Statement on Schedule 14D-1, dated March 31, 1997, as amended by Amendment
No. 1, dated April 9, 1997, and Amendment No. 2, dated April 10, 1997 (the
"Schedule 14D-1"), under which the Purchaser is offering to purchase up to
649,000 Shares (approximately 17% of the outstanding Shares) at a price of
$45 per Share, net to the seller in cash, upon the terms and subject to the
conditions set forth in the Offer to Purchase, dated March 31, 1997, as
amended (the "Offer to Purchase"), and the related Letter of Transmittal
(which together constitute the "Offer"). Parent, the Purchaser and none of
their affiliates are affiliated with the Company and the Offer was not
solicited by the Company.
As set forth in the Schedule 14D-1, the principal executive offices of the
Purchaser and Parent are located at 110 East 59th Street, New York, New York
10022.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
statement, are set forth in Item 1 above.
(b) Except as described in this Schedule or on pages 6-14 of the Company's
Proxy Statement, dated March 26, 1997, relating to the Company's 1997 Annual
Meeting of Shareholders (the "Annual Meeting"), which are filed as Exhibit 1 to
this Schedule and incorporated herein by reference, to the knowledge of the
Company, as of the date hereof, there are no material contracts, agreements,
arrangements or understandings, or any actual or potential conflicts of
interest between the Company or its affiliates and (i) its executive
officers, directors or affiliates or (ii) the Purchaser, its executive
officers, directors or affiliates.
EMPLOYMENT AGREEMENTS
On April 11, 1997, the Board approved amendments to the employment
agreements (the "Employment Agreements") previously entered into with Andrew
Lozyniak, Chairman of the Board of Directors and President of the Company,
Henry V. Kensing, Vice President, General Counsel and Secretary, and Patrick
J. Dorme, Vice President-Finance and Chief Financial Officer (collectively,
the "Executives") to (i) provide for a new definition of a change in control
of the Company ("Change in Control"), pursuant to which a Change in Control
is, in general, deemed to occur if (a) any person, with specified exceptions,
becomes the beneficial owner of at least 25% of the Company's voting
securities, (b) a change in the majority of the membership of the Board
occurs without approval of two-thirds of the directors who either were
directors on the date of the amendments, or whose election was previously so
approved, (c) there is consummated a merger or consolidation of the Company
or a subsidiary thereof with another company in which the Company's
shareholders do not continue to hold at least 60% of the voting securities of
the surviving entity (excepting certain recapitalizations of the Company) or
(d) there occurs a liquidation of the Company or a sale or other disposition
of all or substantially all of the Company's assets and (ii) clarify that the
payment by the Company of any excise tax imposed under section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), would itself be made
on an after-tax basis and would include all "change-in-control" payments,
whether made pursuant to the Employment Agreements or otherwise.
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TRUST AGREEMENT
On April 11, 1997, the Board approved an amendment to the grantor trust
previously established by the Company that provides for the segregation of
assets to pay liabilities under certain of the Company's employee benefit
arrangements to permit the segregation of additional assets to pay any future
severance liabilities under the Employment Agreements and the Severance
Agreements, which are described immediately below. The grantor trust agreement
was also amended to adopt the definition of Change in Control described above
under "Employment Agreements" and to provide certain other changes.
SEVERANCE AGREEMENTS
On April 11, 1997, the Board authorized the Company to enter into
severance agreements (the "Severance Agreements") with two groups of
employees: Group I (the "Group I Severance Agreements"), consisting of seven
employees, and Group II (the "Group II Severance Agreements"), consisting of
approximately 30 employees. The Severance Agreements provide for the payment
of certain severance and other benefits to covered employees who are
terminated within two years following a Change in Control (as defined above
under "Employment Agreements"). If, following a Change in Control, the
employee is terminated by the Company other than for Cause (as defined in the
Severance Agreements), or if the employee terminates employment for Good Reason
(as defined in the Severance Agreements) (each a "Qualifying Termination"),
then the Company will pay to the employee in one lump sum, as severance pay,
an amount equal to, in the case of the Group I Severance Agreements, three
times, and in the case of the Group II Severance Agreements, one times, salary
(based upon annual base salary at the date of termination) and bonus payments
(based upon the highest bonus paid in respect of the Company's prior three
full fiscal years) and will continue the employee's welfare benefits for a
period of, in the case of the Group I Severance Agreements, three years, and
in the case of the Group II Severance Agreements, one year. In no case,
however, may the employee receive any payment or benefit in connection with a
Change in Control in excess of 2.99 times his "base amount" (as that term is
defined in section 280G of the Code).
SEVERANCE POLICY
On April 11, 1997, the Board adopted a severance policy pursuant to which
six employees would be eligible, in the event of a Qualifying Termination, to
receive, in the case of covered employees with at least five years of service
with the Company or its subsidiaries, one year's, and in the case of the
remaining covered employees, six months', salary (based upon annual base
salary at the date of termination) and highest bonus paid in respect of the
Company's prior three full fiscal years, payable in one lump sum.
RESTRICTED STOCK PLAN
The Company maintains the 1980 Restricted Stock and Cash Bonus Plan, as
amended (the "Restricted Stock Plan"), which provides for the award or sale
of shares of so-called restricted stock. On April 11, 1997, the Board adopted
an amendment to the Restricted Stock Plan to adopt the definition of Change
in Control described above under "Employment Agreements."
The foregoing descriptions are qualified by reference to the texts of the
applicable agreements, copies of which are filed as Exhibits 2 through 5
hereto.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) RECOMMENDATION OF THE BOARD OF DIRECTORS.
THE BOARD OF DIRECTORS OF THE COMPANY (THE "BOARD") HAS UNANIMOUSLY
REJECTED THE OFFER AS INADEQUATE AND NOT IN THE BEST INTERESTS OF THE
COMPANY AND ITS SHAREHOLDERS. THE BOARD UNANIMOUSLY RECOMMENDS THAT ALL
HOLDERS OF SHARES REJECT THE OFFER AND NOT TENDER THEIR SHARES TO WHX.
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(b) BACKGROUND; REASONS FOR THE RECOMMENDATION.
On March 27, 1997, Parent sent the following letter to the Company
regarding a proposed business combination between the Company and Parent (the
"Merger Proposal"):
March 27, 1997
Mr. Andrew Lozyniak
Chairman of the Board and President
Dynamics Corporation of America
475 Steamboat Road
Greenwich, CT 06830
Dear Mr. Lozyniak:
We are writing to propose a business combination between our companies and
to express a desire that we work together to accomplish this transaction on
an amicable, negotiated basis.
The Board of Directors of WHX has authorized me to present an offer to
acquire in a merger transaction all of the outstanding shares of common stock
of Dynamics Corp. at a price of $40 per share. This proposal represents a
premium of 16% over the current market price and nearly 30% over the market
price at year-end.
In making this proposal, please be advised that we have no interest in
increasing the equity stake which Dynamics Corp. holds in CTS Corporation, or
in changing the nature of the current relationship between the two companies.
This proposal is subject to negotiation and execution of appropriate
definitive agreements containing customary and mutually acceptable
representations, warranties, terms and conditions. In pursuing this
transaction, we would expect representatives from your Board of Directors to
join the board of the combined enterprise and the senior management of your
company to stay with the combined enterprise under mutually satisfactory
arrangements.
We are confident of our ability to complete this transaction on these
terms. In this respect, please note that as of December 31, 1996 we have
available over $400 million in cash and cash equivalents.
We are certain that, upon reflection, your Board of Directors will
recognize the fine opportunity which a combination with WHX represents for
your stockholders. Our objective is to work with you in a professional and
constructive manner to complete our proposal so that the best interests of
your stockholders and employees can be served. Please be advised that we
would be prepared to increase our offer if additional information which may
be provided about your company demonstrates that a higher price is warranted.
We are willing to discuss with you or a committee of our directors all
aspects of our proposal and to answer any questions which you may have. I and
other representatives of WHX are available to meet with you for this purpose
at any time. If we do not hear from you by the close of business on Friday,
March 28, we are authorized to present this proposal directly to your
stockholders, through a proxy solicitation at the upcoming annual meeting and
through a cash tender offer.
Very truly yours,
/s/ Ron LaBow
Ron LaBow
Chairman of the Board
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Later that same day, Mr. Lozyniak sent a letter to Mr. LaBow in response
to Mr. LaBow's letter in which he stated that several of the Company's
directors were traveling for the Easter weekend and that the Company's
offices would be closed the next day for Good Friday. Mr. Lozyniak stated
that he would be in a position to inform all of the directors the following
week of Mr. LaBow's correspondence and would communicate further with Mr.
LaBow after discussing the matter with them.
On March 31, 1997, the Company issued a press release in which it said
that the Company had been able to contact all its directors except one and
that their unanimous initial reaction following preliminary discussions was
that the Merger Proposal was totally inadequate.
Also on March 31, Parent and the Purchaser filed with the Securities and
Exchange Commission (the "Commission") the Schedule 14D-1, which provided
that the Purchaser was offering to purchase up to 649,000 Shares, subject to
downward adjustment, at a price of $40 per Share. Parent also filed
preliminary proxy materials with the Commission on March 31, 1997, relating
to the solicitation of proxies by Parent for use at the Annual Meeting (the
"Parent Proxy Materials") to (i) elect four Parent nominees to the Board,
(ii) adopt changes to the Company's By-laws to (a) permit holders of at least
9.9% of the outstanding Shares to call a special meeting of shareholders and
(b) permit the removal of directors at any time with or without cause and
(iii) repeal any By-law changes adopted by the Board after March 14, 1997,
and prior to the adoption of such resolution (the "Proxy Solicitation").
On April 9, 1997, the Purchaser amended the Offer, among other things, to
increase the Offer and Merger Proposal price to $45 per Share.
On April 9, 1997, the Board met with representatives of Wasserstein
Perella & Co., Inc. ("Wasserstein Perella"), its financial advisor, and
Skadden, Arps, Slate, Meagher & Flom LLP, its legal advisor, to discuss the
Offer and possible actions to be taken by the Company.
On April 11, 1997, the Board met with its legal and financial advisors to
continue to discuss the Offer and possible actions to be taken by the
Company. The Board received a presentation by representatives of Wasserstein
Perella relating to the Offer, including Wasserstein Perella's opinion that
the $45 per Share cash consideration offered to holders of Shares in the
Offer was inadequate from a financial point of view. The Board also (i)
postponed the Annual Meeting to August 1, 1997, (ii) added two directors to
the Board (resulting in the Board being divided into three classes, rather
than two classes), (iii) amended the Company's By-laws to (a) eliminate the
shareholders' ability to remove directors without cause, (b) raise to
two-thirds the percentage of Shares needed to call a special meeting of
shareholders, (c) add advance-notice provisions for shareholders to nominate
persons for election to the Board or to propose business at annual or special
shareholders' meetings and (d) remove an inconsistent, and thus ineffective,
provision purporting to allow the holders of a majority of the Shares to amend
the By-laws, as the Company's Restated Certificate of Incorporation, as amended
(the "Charter"), which controls over the By-laws, provides for an 80% vote to
amend the By-laws, and (iv) approved certain employee benefits matters, as set
forth under "Identity and Background" above. As a result of these actions, it
will take at least two annual meetings to replace a majority of the Board. See
"Additional Information to Be Furnished."
After discussion and further analysis, the Board unanimously rejected the
Offer as inadequate and not in the best interests of the shareholders of the
Company and unanimously recommended that holders of Shares reject the Offer
and not tender their Shares pursuant to the Offer. In addition, the Board of
Directors has determined to explore alternative transactions to maximize
shareholder value. In reaching its determination to reject the Offer, the
Board considered the following factors:
(i) the business, results of operations, financial condition and prospects
of the Company and presentations by management of the Company and
Wasserstein Perella;
(ii) that the Offer is for only 649,000 Shares (approximately 17% of the
outstanding Shares), that there can be no assurance as to any merger
between the Company and the Purchaser or that the remaining Shares would
be purchased and that if the remaining Shares were not purchased, a large
shareholder such as Parent could have an adverse effect on the Board's
ability to effectively manage the affairs of the Company or diminish the
value of the remaining Shares;
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(iii) historical market prices and trading information for the Shares;
(iv) the opinion of Wasserstein Perella to the effect that, based upon
and subject to the matters reviewed with the Board, the $45 per Share cash
consideration offered to holders of the Shares pursuant to the Offer is
inadequate from a financial point of view to such holders; such opinion
is based on various assumptions and subject to various limitations
as discussed in the opinion. A copy of the opinion of Wasserstein Perella,
which sets forth the factors considered and the assumptions made by
Wasserstein Perella, is attached hereto as Exhibit 9, and incorporated
herein by reference. STOCKHOLDERS ARE URGED TO READ THE OPINION OF
WASSERSTEIN PERELLA CAREFULLY IN ITS ENTIRETY; and
(v) certain legal issues raised by the Offer, as set forth under
"Additional Information to be Furnished."
The foregoing discussion of the information and factors considered by the
Board is not intended to be exhaustive but includes all material factors
considered by the Board. The Board did not assign relative weights to the
foregoing factors or determine that any factor was of particular importance,
and individual directors may have given differing weights to different
factors. Rather, the Board viewed its position and recommendation as being
based on the totality of the information presented to and considered by it.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Wasserstein Perella was retained, pursuant to the terms of a letter
agreement, dated as of April 4, 1997 (the "Letter Agreement"), to provide
financial advisory services with regard to the Company's review of the Offer,
any acquisition of or similar business combination involving the Company or a
significant portion of the Company's assets or any alternative transaction
(each, a "Transaction"). Wasserstein Perella also agreed to provide, in
accordance with its customary practice, an opinion to the Board with respect
to the adequacy or fairness, from a financial point of view, of the
consideration to be paid or received, as the case may be, in any Transaction.
The Company agreed to pay Wasserstein Perella a fee of $150,000 in cash on
the date the Letter Agreement is executed, which fee is to be credited
against any other fees earned by Wasserstein Perella pursuant to the Letter
Agreement. The Company has also agreed to pay Wasserstein Perella a fee, in
connection with any Transaction, equal to 0.875% of the aggregate value of
such Transaction, as determined in accordance with the Letter Agreement, or a
fee of $750,000 if, after the passage of one year from the date of the Letter
Agreement, no Transaction shall have been consummated. The Company has also
agreed to reimburse Wasserstein Perella for its reasonable out-of-pocket
expenses, including the fees, disbursements and other costs of counsel and of
other consultants and advisors retained by Wasserstein Perella in connection
with its activities contemplated by the Letter Agreement, and to indemnify
Wasserstein Perella for certain liabilities arising out of actions taken
under the Letter Agreement.
In the ordinary course of its business, Wasserstein Perella or its
affiliates may actively trade or otherwise effect transactions in the
securities of the Company for its own account and for the account of its
customers and, accordingly, may hold long or short positions in such
securities.
In addition, the Company retained Morrow & Co., Inc. in connection with
the Offer and the Proxy Solicitation for customary fees.
Except as disclosed herein, neither the Company nor any person acting on
its behalf currently intends to employ, retain or compensate any other person
to make solicitations or recommendations to security holders on its behalf
concerning the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) No transactions in the Shares have been effected during the past 60
days by the Company or, to the best of the Company's knowledge, by any
executive officer, director, affiliate or subsidiary of the Company, except
that on April 11, 1997, the Compensation Committee of the Board awarded 22,000
shares of restricted stock to certain officers of the Company or its
subsidiaries, including 5,000 shares to Ronald Steiner.
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(b) To the best of the Company's knowledge, no executive officer,
director, affiliate or subsidiary of the Company currently intends to tender,
pursuant to the Offer, any Shares which are held of record or beneficially
owned by such person or to otherwise sell any such Shares.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY SUBJECT COMPANY.
(a) Except as set forth in this Schedule 14D-9, the Company is not engaged
in any negotiation in response to the Offer that relates to or would result
in (i) an extraordinary transaction, such as a merger or reorganization,
involving the Company or any subsidiary of the Company; (ii) a purchase, sale
or transfer of a material amount of assets by the Company or any subsidiary
of the Company; (iii) a tender offer for or other acquisition of securities
by or of the Company; or (iv) any material change in the present
capitalization or dividend policy of the Company.
In this regard, the Company has held preliminary discussions with CTS
Corporation regarding the possibility of a business combination.
In the event the Company decides to engage in a sale or other transaction
in the future, any disclosure with respect to the parties to, and the
possible terms of, any transaction or proposal might jeopardize any
discussions or negotiations that the Board might conduct. Accordingly, the
Board has instructed management not to disclose the possible terms of any
such transactions or proposals, or the parties thereto, unless and until an
agreement in principle relating thereto has been reached or, upon the advice
of counsel, required by law.
(b) To the best of the Company's knowledge, there are currently no
transactions, board resolutions, agreements in principle or signed contracts
in response to the Offer, other than as described in Item 3(b) of this
Schedule, that relate to or would result in one or more of the matters
referred to in Item 7(a).
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
(a) BOARD OF DIRECTORS
At the April 11, 1997 meeting, the Board increased the number of directors
of the Company from seven to nine. Two new directors, John A. Thompson, a
principal of IMCOR, a management consulting firm, and Ronald Steiner, President
of International Electronic Research Corporation, a subsidiary of the Company,
were elected. As a result of such increase, as provided in the Charter, the
Board has been reclassified from two classes of directors, one consisting of
four members and the other consisting of three members to three classes. At the
next annual meeting, three directors (Henry Kensing, Ronald Steiner and John
Thompson) will stand for election, the terms of Harold Cohan, Frank Gunther
and Andrew Lozyniak will expire at the second succeeding annual meeting and
the terms of Patrick Dorme, Russell Knisel and Saul Sperber will expire at the
third succeeding annual meeting. Directors will be elected to three year terms
of office. As a result, only three directors will stand for election at the
next annual meeting of shareholders, as opposed to the current four directors,
and it will take at least two, as opposed to one, annual meetings to replace a
majority of the Board.
(b) BY-LAW AMENDMENTS
At the April 11, 1997 meeting, the Board also adopted certain amendments
to the Company's By-laws. In particular, (i) Article I Section 2 of the
By-laws was amended to allow the Board to set the date of the annual
shareholders meeting, as opposed to fixing such date on the first Friday in
May, (ii) Article I Section 3 of the By-laws was amended to require the
Chairman of the Board or the President of the Company to call a special
meeting of shareholders upon the written request of the holders of record of
at least two-thirds (as opposed to the prior twenty-five percent) of the
issued and outstanding Shares, (iii) Article II Section 8 of the By-laws was
amended to eliminate the ability of the shareholders to remove a director
without cause, and (iv) Article XIII Section 1 of the By-laws was amended to
remove an inconsistent, and thus ineffective, provision purporting to allow
the holders of a majority of the Shares
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to amend the By-laws, as the Charter, which controls over the By-laws,
provides for an 80% vote to amend the By-laws. In addition, Sections
10 and 11 were added to Article I of the By-laws to require shareholders to
give advance notice to nominate persons for election to the Board and to
bring business before an annual or special meeting of shareholders.
The foregoing discussion of the By-law amendments is qualified by
reference to the text of the amendments, a copy of which is filed as Exhibit
6 hereto.
(c) CERTIFICATE OF INCORPORATION
The Company's Charter provides that 80% of the outstanding voting stock of
the Company is required to approve a merger of the Company with another
person if the other person is the "beneficial owner" of 5% or more of the
outstanding voting stock unless (i) the transaction is consistent with a
memorandum of understanding approved by the Board prior to the time such
person shall have become the beneficial owner of 5% or more of the
outstanding voting stock or (ii) the Company and its subsidiaries own a
majority of the outstanding voting stock of such person. If the Purchaser
(alone or in concert with others) acquires beneficial ownership of 5% or more
of the Shares pursuant to the Offer or otherwise, the 80% vote requirement
will apply to any proposed merger between the Company and either Parent or
the Purchaser. The Offer to Purchase fails to disclose this requirement.
The Charter provides that 80% of the outstanding voting stock of the
Company is required for shareholders to adopt, amend or repeal the By-laws of
the Company. The Offer to Purchase does not disclose this requirement. The
Parent Proxy Materials misstate that a majority vote is required to adopt the
Parent's proposed By-law amendments.
(d) LITIGATION AGAINST THE COMPANY
On April 1, 1997, a suit was filed in the Supreme Court of the State of
New York, County of New York, by an alleged stockholder of the Company
against the Company and the members of the Board (the "Individual
Defendants"). The suit was filed as a purported class action on behalf of the
public shareholders of the Company except the defendants and their
affiliates. The complaint alleges, among other things, that the Individual
Defendants have breached their fiduciary duties to plaintiffs in connection
with the Offer by (i) failing and refusing to take steps necessary to
maximize shareholder value, including considering the Offer, (ii) using their
fiduciary positions of control to thwart others in their attempt to acquire
the Company and (iii) entrenching themselves in their positions with the
Company. The complaint seeks, among other things, (i) class certification,
(ii) an order requiring the Individual Defendants to carry out their
fiduciary duties to plaintiff by (a) cooperating with any person expressing
an interest in acquiring the Company, (b) taking appropriate action to
enhance the value of the Company, (c) acting independently to protect the
interests of the Company's public shareholders and (d) ensuring that no
conflicts exist between the interests of the Individual Defendants and those
of the Company's public shareholders, (iii) damages from the Individual
Defendants and (iv) an award of the plaintiff's costs and disbursements,
including reasonable attorneys' fees.
This summary is qualifed by reference to the text of the complaint, a
copy of which is filed as Exhibit 10 hereto.
(e) LITIGATION BY THE COMPANY.
On April 14, 1997, the Company filed suit against Parent and the Purchaser
in the United States District Court for the District of Connecticut. The
complaint alleges, among other things, that Parent and Purchaser have
violated, in connection with the Offer and Proxy Solicitation, Sections
10(b), 13(d), and 14(a), (d) and (e) of the Securities and Exchange Act of
1934 (the "Exchange Act") and the rules and regulations promulgated
thereunder.
Among other things, the complaint alleges that the Schedule 14D-1 and
Parent Proxy Materials contain materially false and misleading statements and
omissions including that (i) Parent is part of a group under Section 13(d) of
the Exchange Act with Warren Lichtenstein and his affiliates, Steel Partners
II, L.P. and Steel Partners Services Ltd. which, therefore, subject to the
completion of the Offer,
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would trigger the Rights Agreement, (ii) regardless of the existence of a
Section 13(d) group, if the Offer is completed, approval of a merger between
the Company and Parent would require the affirmative vote of
80% of the outstanding Shares entitled to vote, rather than the two-thirds
stated in the Offer and (iii) shareholder amendment to the Company's By-laws
requires the affirmative vote of 80% of the outstanding Shares entitled to
vote, not a majority as stated by Parent.
The complaint seeks, among other things, an order directing Parent to file
corrective disclosure, and an order enjoining Parent from any future action
under the Offer or the Proxy Solicitation, pending compliance by Parent with
federal securities laws.
This summary is qualified by reference to the text of the complaint, a
copy of which will be filed as an exhibit to an amendment to this Schedule.
(f) BCL 912
Section 912 of the BCL regulates certain business combinations, including
mergers, of a New York corporation, such as the Company, with a stockholder
that beneficially owns 20% or more of the outstanding voting stock of such
corporation. If neither Parent nor the Purchaser (alone or in concert with
others) becomes the beneficial owner of at least 20% of the outstanding
Shares, Section 912 of the BCL would not be applicable to the Purchaser's
proposed merger with the Company.
(g) SHAREHOLDER RIGHTS PLAN
Each Right issued pursuant to the Rights Plan entitles the holder thereof
to purchase one-hundredth of a share of Series A Cumulative Preferred Stock
of the Company at an exercise price of $80, subject to adjustment, in the
event that (i) a person, together with all affiliates and associates of such
person, has acquired, or obtained the right to acquire, the beneficial
ownership of 20% or more of the outstanding Shares in a transaction not
approved by the Board prior to such acquisition or (ii) a person has
commenced a tender offer for 25% or more of the Shares. If neither Parent nor
the Purchaser (alone or in concert with others) becomes the beneficial owner
of at least 20% of the outstanding Shares, the Rights will not become
exercisable as a result of the Offer. See "Litigation by the Company," above.
For a more complete description of the Rights Plan, see the Company's Form
8-A, dated January 30, 1986, and the Company's Form 8-K, dated as of December
27, 1995, each as filed with the Commission.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
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EXHIBIT NO.
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Exhibit 1 Pages 6-14 of the Company's Proxy Statement, dated March 26, 1997, relating to
the Company's Annual Meeting of Shareholders.
Exhibit 2 Form of amended employment agreement.
Exhibit 3 Form of severance agreement.
Exhibit 4 Form of Trust Agreement amendment.
Exhibit 5 Form of Bonus Plan amendment.
Exhibit 6 By-law amendments.
Exhibit 7 Letter to Stockholders, dated April 14, 1997.*
Exhibit 8 Press Release issued by Dynamics Corporation of America, dated April 14, 1997.
Exhibit 9 Opinion of Wasserstein Perella & Co., Inc., dated April 11, 1997.*
Exhibit 10 Complaint in Kenneth Steiner v. Andrew Lozyniak et al. (Index No. 97-601661) filed
in the Supreme Court of the State of New York, County of New York, on April 1,
1997.
</TABLE>
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* Included in copies of the Schedule 14D-9 mailed to stockholders.
8
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete
and correct.
Dated: April 14, 1997 DYNAMICS CORPORATION OF
AMERICA
By: /s/ Henry V. Kensing
----------------------
Henry V. Kensing
Vice President,
General Counsel and
Secretary
9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------------- -------------------------------------------------------------------------------------
<S> <C>
Exhibit 1 PAGES 6-14 OF THE COMPANY'S PROXY STATEMENT, DATED MARCH 26, 1997, RELATING TO THE
Company's Annual Meeting of Shareholders
Exhibit 2 Form of amended employment agreement
Exhibit 3 Form of severance agreement
Exhibit 4 Form of Trust Agreement amendment
Exhibit 5 Form of Bonus Plan amendment
Exhibit 6 By-law amendments
Exhibit 7 Letter to Stockholders, dated April 14, 1997
Exhibit 8 Press Release issued by Dynamics Corporation of America, dated April 14, 1997
Exhibit 9 Opinion of Wasserstein Perella & Co., Inc., dated April 11, 1997
Exhibit 10 Complaint in Kenneth Steiner v. Andrew Lozyniak et al. (Index No. 97-601661) filed
in the Supreme Court of the State of New York, County of New York, on April 1, 1997
</TABLE>
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth current and long-term compensation information
for each of the last three fiscal years of the Chief Executive Officer and
each of the other executive officers whose salary and bonus for the fiscal
year 1996 exceeded the disclosure threshold established by the Securities and
Exchange Commission.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
------------------- ------------
Restricted All Other
Stock Compensa-
Name and Principal Position (5) Year Salary($)(1) Bonus($)(2) Awards($)(3) tion($)(4)
- ------------------------------- ---- ------------ ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Andrew Lozyniak, Chairman of 1996 351,489 -- -- 14,792
the Board and President..............
1995 341,802 -- -- 14,250
1994 333,316 -- 147,500 11,888
Henry V. Kensing, Vice 1996 182,568 10,000 -- 5,831
President, General Counsel,
Secretary and a Director.............
1995 177,536 10,000 -- 5,651
1994 173,123 10,000 110,625 5,405
Patrick J. Dorme, Vice 1996 151,749 10,000 -- 4,571
President-Finance, Chief
Financial Officer and a
Director ............................
1995 147,566 10,000 -- 4,431
1994 143,898 10,000 110,625 4,248
</TABLE>
(1) Includes salaries deferred in 1996 under the DCA Savings and
Investment Plan pursuant to Section 401(k) of the Internal Revenue
Code (see Savings and Investment Plan below).
(2) Includes bonuses paid to the executives shown in the table in the
last three years pursuant to the Company's incentive performance
plan. The Board of Directors has determined to continue for 1997 a
policy of awarding bonuses on the basis of results on both an overall
and divisional basis, and on individual performance as described in
the Report of the Compensation Committee included herein.
(3) The number of restricted shares awarded in 1994 under the Plan to the
executives named were as follows: Mr. Lozyniak, 10,000; Mr. Kensing,
7,500; Mr. Dorme, 7,500. The value of the restricted stock awards in
1994 was determined by multiplying the fair market value of the
Company's common stock on the date of grant by the number of shares
awarded. As of December 31, 1996, the number and value of aggregate
restricted stock award holdings were as follows: 6,000 shares
($169,500) by Mr. Lozyniak; 4,500 shares ($127,125) by Mr. Kensing
and 4,500 shares ($127,125) by Mr. Dorme. (Footnotes continued on
following page)
6
<PAGE>
(Footnotes continued from preceding page)
Restrictions lapse each year after the first year with respect to 20%
of the shares awarded in prior years under the Plan and cash bonuses
are paid to the holders thereof as called for by the Plan. The
aggregate amount of cash compensation paid, in 1996, 1995, and 1994,
for the executives named is as follows:
Mr. Lozyniak........ 1996 $99,000 1995 $95,750 1994 $26,500
Mr. Kensing......... 1996 $62,250 1995 $59,438 1994 $13,250
Mr. Dorme........... 1996 $62,250 1995 $59,438 1994 $13,250
Pursuant to the Plan, regular cash dividends are paid to holders of
restricted stock awarded under the Plan.
This Plan has a change of control provision under which, upon a
change of control of the Company, all restrictions on shares awarded
under the Plan will lapse and cash bonuses will be paid on those
shares.
(4) Includes the amounts contributed under the 401(k) Plan by the Company
and the imputed income value of the term life insurance portion of
the coverage under "split-dollar" life insurance policies.
(5) EMPLOYMENT AGREEMENTS. As of February 1, 1996, the Company entered
into five year employment agreements with Andrew Lozyniak, Henry V.
Kensing and Patrick J. Dorme.
The Board of Directors annually reviews the contributions of Messrs.
Lozyniak, Kensing and Dorme to the Company and may increase their
salary rates in accordance with such contributions. In addition, such
rates will be increased on March 1st of each year by no less than the
annual percentage increase in the consumer price index for the prior
calendar year.
The employment agreements of such individuals may be terminated by
the Company for cause. In the event of disability, each such employee
shall be compensated for up to six months at full salary and up to an
additional six months at no less than one-half the rate in effect at
the time such disability commenced. If such disability continues
beyond twelve months, the Company may terminate said disabled
employee's agreement but shall be obligated to pay Mr. Lozyniak, Mr.
Kensing or Mr. Dorme compensation at the rate of 40% of the regular
compensation in effect at the time of such termination during the
period commencing on the date of such termination and ending on the
earlier of the tenth anniversary thereof or the date the employee
attains age 65. If the employee dies during the employment period,
the Company shall pay to the wife of Mr. Lozyniak the sum of $60,000
and of Mr. Kensing or Mr. Dorme, the sum of $50,000 per year during
the period commencing on the date of the death of the employee and
ending on the earlier of the tenth anniversary thereof or the death
of the wife.
In the event of merger, sale or consolidation in which the Company is
not the surviving entity, or if voting control shall be obtained by
any person, firm or corporation, or group of persons, firms or
corporations, not in control as of February 1, 1996, each of said
employees shall have the right to terminate his employment agreement
upon 30 days' written notice at any time within three months after
the occurrence of such event. Upon such termination, the Company or
the consolidated or surviving entity shall pay the employee
exercising said right, in lieu of any other further compensation, in
a lump sum, undiminished by any excise tax imposed upon the receipt
thereof, on the date of such termination, an amount equal to five
times the sum of (a) two-thirds of the aggregate regular
7
<PAGE>
compensation called for by said agreement at the rate in effect at
such termination, and (b) two-thirds of the largest amount earned by
the employee as stock and cash bonuses for any of the five fiscal
years preceding that in which termination occurs.
If the Company terminates the agreement other than for cause or
disability of the employee, it shall pay to the employee in a lump
sum, undiminished by any excise tax imposed upon the receipt thereof,
within 30 days of the date of termination, in lieu of any further
regular compensation under the agreement, an amount equal to the sum
of (a) two-thirds of the employee's regular compensation at the rate
in effect at the time of such termination, from the date of such
termination to the last day of the employment period called for by
the agreement and (b) two-thirds of the largest amount earned by the
employee as stock and cash bonuses for any of the five fiscal years
preceding that in which termination occurs multiplied by the number
of years and/or fraction thereof then remaining in the employment
period called for by the agreement.
The Company also agrees not to endanger in any way, during the term
of said agreements, any benefit available to said employees under the
"split-dollar" life insurance policies on their lives and to continue
to pay the premiums thereon during such period and in the event of a
change of control. The agreements also contain provisions calling for
payment of legal fees to said employees if they are required to
enforce the agreements against the Company or a successor and for
reimbursement of premiums for health insurance coverage for said
employees and their spouses and any dependents for up to ten years
after retirement.
The Company also agrees to pay each of the employees supplementary
retirement benefits described below under the captions "Pension
Benefits" and "Savings and Investment Plan." Such benefits shall be
secured over the term of the employment agreements by annual
contributions by the Company to a trust established in 1996 in
compliance with Internal Revenue Service Revenue Procedure 92-64. In
January 1997, 11,000 shares of the common stock of the Company from
its treasury stock were contributed to the trust to secure payment of
benefits accruing for the first two years of the term of the
employment agreements. The amount and kind of assets to be
contributed to the trust shall be determined, and Company common
stock held by the trust shall be voted by the Compensation Committee
of the Board of Directors.
In addition, the executive officers received other non-cash
compensation, not otherwise described in this proxy statement, such
as perquisites, but the aggregate amount thereof did not exceed the
lesser of $50,000 or 10% of the total salary and bonus for each of
the persons named in the Table.
PENSION BENEFITS
The estimated annual benefits payable upon retirement at normal
retirement age and the years of credited service as of January 1, 1997 under
the Company's Retirement Plan for Employees (the "Pension Plan") for the
individuals named in the Executive Summary Compensation Table above and for
all the executive officers of the Company as a group are as follows:
8
<PAGE>
Estimated Years of
Annual Credited Service
Retirement As of
Benefits January 1, 1997
---------- ----------------
Andrew Lozyniak ............................ $119,970 35
Patrick J. Dorme ........................... $ 80,500 28
Henry V. Kensing ........................... $ 38,760 12
All executive officers as a group
(consisting of 4 people) .................. $295,255
- ------------
The latest available actuarial present value of normal retirement
benefits for all employees who are participants in the Pension Plan is
$18,003,643.
Under the Pension Plan, the retirement benefit, payable at normal
retirement or current age, is equal to the sum of (A) and (B) below:
(A) Past Service Benefit--equal to .7% of 1975 earnings up
to $7,800 plus 1.4% of the excess multiplied by credited service
prior to December 31, 1975.
(B) Future Service Benefit
(i) equal to 1% of annual earnings up to the Social
Security Wage Base plus 2% of the excess, for each year of
credited service after January 1, 1976 and prior to December
31, 1988.
(ii) equal to 1.1% of annual earnings up to the
Social Security Wage Base plus 1.45% of the excess, for each
year of credited service after December 31, 1988, or
(iii) equal to 1.45% of annual earnings up to the
Social Security Wage Base plus 1.80% of the excess (in lieu
of the benefit under (ii) above) for up to ten years of
credited service in excess of 25 years (but such higher
benefit to be earned no earlier than in the plan year ended
December 31, 1989).
For purposes of the Pension Plan, covered earnings for the named
Executive Officers are essentially equivalent to the amount reported as salary
in the Annual Compensation section of the Summary Compensation Table above.
The minimum annual benefit for Greenwich office employees who have
completed 20 or more years of service is 50% of the three-year average salary,
not including bonuses, for the years immediately preceding a participant's
actual retirement date. The maximum annual retirement benefit for 1996 under
the Pension Plan is $120,000 ($125,000 for 1997). The Pension Plan has been
amended and restated to comply with the requirements of the Tax Reform Act of
1986. Such amendments, which are retroactive to January 1, 1989, have reduced
retirement benefits earned by the executive officers of the Company for
service after that date and have also eliminated the minimum annual Greenwich
office benefit for such executive officers as of that date. In addition, the
estimated annual retirement benefits reflect the additional requirements of
the 1993 Tax Act limiting to $150,000 ($160,000 for 1997) the amount of
compensation which may be taken into account in calculating benefits under the
Plan.
The February 1, 1996 employment agreements provide for supplemental
retirement benefits for Messrs. Lozyniak, Dorme and Kensing to restore
benefits generally available to employees in the Greenwich office of the
Company under the Pension Plan and the Savings and Investment Plan referred to
below but which are not available to them because of the above mentioned tax
law changes and limitations. Under the
9
<PAGE>
employment agreements, the Company will provide additional retirement
benefits, payable in an actuarially determined lump sum at retirement, equal
to the difference between the benefits the executives will receive under the
Pension Plan and the benefits they would have received thereunder but for the
tax law changes and limitations. The estimated annual benefits under the
retirement benefit restoration provision of the employment agreements, when
added to the benefits under the Pension Plan referred to on page 8, and
assuming the executives were to retire at the end of the term of the
agreements, produce the following total annual estimated retirement benefits
for the executives:
Andrew Lozyniak..................................................... $175,744
Patrick J. Dorme.................................................... $ 80,642
Henry V. Kensing.................................................... $ 80,027
SAVINGS AND INVESTMENT PLAN
Effective January 1, 1985, the Company implemented a Savings and
Investment Plan for all employees not covered by collective bargaining
agreements which qualified as a profit sharing plan under Section 401(k) of
the Internal Revenue Code ("401K Plan"). The 401K Plan allows eligible
employees to defer up to 18% of their pay until retirement, death, disability
or the occurrence of certain other events. Under the 401K Plan, the Company
makes basic matching contributions, in cash (in which the employee is
immediately fully vested), of $1.00 for every $1.00 of pay deferred up to 2%
of pay, and also may match, in cash or in shares of the Company's common
stock, at the Company's option, all or part of additional deferrals of pay up
to 6% of pay, depending on the Company's current results of operations and
forecasted business conditions. Since inception of the Plan through October
31, 1991, the Company decided in each plan year to match 50% of deferrals
above 2% of pay up to 6% of pay in Company shares. Such additional matching
contributions vest if and when the employee completes five (5) years of
service with the Company.
Under the Tax Reform Act of 1986, the amount of pay employees may
defer under the Plan must be limited to $9,500 in 1996 and $9,500 in 1997 for
the Plan to retain its tax-qualified status. The tax laws have also imposed a
limit of $150,000 ($160,000 in 1997) on pay available for deferral and
matching by the Company under the 401K Plan. The employment agreements with
Messrs. Lozyniak, Dorme and Kensing provide for payment to each of the
executives at retirement of an amount equal to 2% of the excess of his base
salary over $150,000 ($160,000 in 1997) in each year of the term of the
agreements, together with interest at 8% on these amounts.
Under the Plan, all contributions of employees and all Company
matching contributions which are made in cash are invested either in
guaranteed investment contracts issued by insurance companies or other
financial institutions and/or in mutual funds, in accordance with the choice
of the contributing employee.
1980 RESTRICTED STOCK AND CASH BONUS PLAN
All officers and directors who are employees of the Company are also
eligible to participate in the 1980 Restricted Stock and Cash Bonus Plan (the
"Restricted Stock Plan"). The Restricted Stock Plan, as approved by the
shareholders on May 1, 1981, and as amended by them on May 6, 1988 to
replenish the 148,567 shares granted from 1981 to 1988, provides for the award
or sale of so-called "restricted stock", which is governed by Section 83 of
the Internal Revenue Code, to key executive personnel of the Company or any
subsidiary. The total number of shares of Common Stock which may be subject to
the Restricted Stock Plan may not exceed 400,000 shares (subject to adjustment
in certain events as described below).
10
<PAGE>
The Restricted Stock Plan is administered by the Compensation
Committee elected by the Board of Directors, presently consisting of four
directors of the Company, each of whom shall be ineligible to participate in
the Restricted Stock Plan and shall be a "non-employee director" as that term
is defined in Rule 16b-3 under the Securities Exchange Act of 1934.
In accordance with the terms of the Restricted Stock Plan, the
Committee shall select participants from among those officers and key
management executives who are full-time employees of the Company or any
subsidiary. Criteria for selection include: level of responsibility,
performance, potential, salary, bonuses, prior grants of stock options, and
similar considerations. Having selected eligible participants the Committee
will offer such persons the right to acquire by award or purchase a certain
number of shares of Common Stock on such terms and at such price, if any, as
it deems appropriate. Shares acquired by offerees pursuant to the Restricted
Stock Plan are subject to the restriction that, during the period of five
years after the date of acquisition, the participant may not sell, transfer,
or otherwise dispose of such shares as to which the restrictions shall not
have lapsed unless he or she shall first have offered such shares to the
Company for repurchase. The restrictions lapse as to 20% of the shares
acquired pursuant to the Restricted Stock Plan in each year following the
acquisition of the shares after the first year. In addition, within five years
following the date shares were acquired, upon termination of the participant's
employment for any reason, including the participant's death or disability,
the Company is required to repurchase and the participant is required to sell,
at no cost to the Company if the shares were awarded or at their original
purchase price if the shares were purchased, all shares as to which the
restrictions shall not have lapsed. In the event of a change in control of the
Company not approved by the directors in office prior to such change in
control, all restrictions upon the transfer of such shares shall lapse.
As soon as practicable after the restrictions as to any shares have
lapsed, the Company shall pay a cash bonus to the participant equal to the
fair market value of such shares as of the date of such lapse if such shares
were awarded or equal to the excess of the fair market value thereof as of the
date of such lapse over the original purchase price of such shares if such
shares were purchased. The cash bonus is intended to defray the federal income
tax payable at the time restrictions on transfer lapse. The Company may pay up
to five such cash bonuses to any participant, but in no event shall the
aggregate of such cash bonuses payable to any participant be greater than a
sum equal to twice the fair market value of such shares on the date they were
originally acquired.
In the event of stock dividends, stock splits, recapitalizations,
mergers, consolidations, combinations or exchanges of shares for other
securities, the Restricted Stock Plan provides for appropriate adjustment by
the Committee of the total number of shares which may be offered for award or
purchase under the Plan and in the price, if any, paid for shares under the
Plan.
The Restricted Stock Plan terminates upon the award or sale of all of
the shares available under the Plan. The Board of Directors may terminate or
amend the Restricted Stock Plan but may not, without approval by vote of the
holders of a majority of the shares of Common Stock present in person or by
proxy at a meeting of shareholders duly called, increase the number of shares
reserved for the Plan.
There is no limit to the number of shares that may be granted to any
individual or to the officers and directors of the Company as a group. Each
participant will be required to give a representation in writing that he or
she is acquiring the shares of Common Stock under the Restricted Stock Plan
for his or her own
11
<PAGE>
account as an investment and not with a view to, or for sale in connection
with, any distribution thereof. The approximate number of key employees which
it is estimated will participate in the Restricted Stock Plan at any one time
is no more than 35.
No shares were awarded in 1996 under the Restricted Stock Plan.
In 1996, restrictions lapsed with respect to 20% of the shares
awarded in prior years under the Restricted Stock Plan and cash bonuses were
paid to the holders thereof as called for by the Plan.
------------------------------------
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors, comprised of
Russell H. Knisel (Chairman), Harold Cohan, Frank A. Gunther and Saul Sperber,
submits this report on Executive Compensation to the Company's stockholders.
The Compensation Committee of the Board of Directors believes it has
implemented programs of executive compensation established to achieve the
following objectives:
1. Attract and retain key executives and managers;
2. Align the financial interests of those key
executives and managers with those of the
stockholders of the Company; and
3. Reward individual performance commensurate with
Corporate performance.
These objectives are achieved through a combination of compensation
arrangements including base salary, annual cash incentive compensation and
long-term incentive compensation through restricted stock and cash bonus
awards, in addition to medical, pension and other benefits available to
employees in general. The three principal components of Executive Officer
compensation at the Company are base salary, the Incentive Performance Plan
and the 1980 Restricted Stock and Cash Bonus Plan.
The Compensation Committee each year reviews the recommendations of
the Chief Executive Officer as to the amount of his proposed base salary, cash
incentive and long term compensation, if any, and that for the Company's other
executive officers. Factors considered by the Chief Executive Officer in
making his recommendations are typically subjective, such as his perception of
the individual's performance, any planned change in functional responsibility
and unusual contributions to the Company, as well as the objective criterion
of the Company's financial performance. Each of the members of the
Compensation Committee has many years of experience in business, industry and
financial and corporate affairs and utilizes that experience and his knowledge
of the Company's several lines of business in considering the recommendations
of the Chief Executive Officer and in making the final determinations on
executive compensation.
12
<PAGE>
BASE SALARY
The base salaries of the named Executive Officers of the Company are
as set forth above in the Summary Compensation Table and in the outline of
their Employment Agreements dated as of February 1, 1996. Since commencement
of the terms of the predecessor Employment Agreements on February 1, 1991, the
compensation rates for the named Executives, including the Chief Executive
Officer, have been increased each year only to the extent of the annual
percentage increase in the consumer price index for the prior calendar year.
INCENTIVE PERFORMANCE PLAN
The Board of Directors has a policy of awarding bonuses on the basis
of results on both an overall and divisional basis plus individual
performance. As indicated in the above Summary Compensation Table, no bonus
was awarded to the Chief Executive Officer during the last three years under
the Incentive Performance Plan. The Chief Financial Officer and the General
Counsel were awarded bonuses under the Plan in 1994, 1995 and 1996. The
principal criterion for a bonus award under that Plan is financial
performance, although the Plan by its terms does not limit itself to that
criterion.
13
<PAGE>
RESTRICTED STOCK AND CASH BONUS PLAN
The 1980 Restricted Stock and Cash Bonus Plan is outlined in detail
above. The Plan provides for equity participation as a key part of the
Company's executive compensation program for motivating and rewarding
executives and managers over the long term. Awards of restricted stock have
provided an important link between the executives and the stockholders of the
Company. The key employees selected for share awards under the Plan in 1994
were those who have contributed to the success of the Company and are expected
to contribute materially to its success in the future. The number of shares
awarded in 1994 to the named Executive Officers, their market value, vesting
and related cash bonuses paid are set forth in the above Summary Compensation
Table and footnote (3) thereto. The awards to the named Executive Officers in
1994 were in recognition of their effective performance, particularly in
connection with the favorable settlement of a portion of the Fermont
Division's claim against the Government for an equitable adjustment under its
3KW generator set contract. There were no awards of restricted stock to the
named Executive Officers under the Plan in 1995 and 1996.
Respectfully submitted,
Dynamics Corporation of America
Compensation Committee
/s/ Russell H. Knisel
Russell H. Knisel, Chairman
/s/ Harold Cohan
Harold Cohan
/s/ Frank A. Gunther
Frank A. Gunther
/s/ Saul Sperber
Saul Sperber
14
<PAGE>
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 ____________ (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
of DCA (whether by merger, consolidation or
<PAGE>
otherwise), or any parent of DCA or of any such successor shall have
terminated this Employment Agreement during such three month period, DCA or
such successor or parent entity, 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 such successor or parent entity (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
2
<PAGE>
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
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
3
<PAGE>
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
4
<PAGE>
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
5
<PAGE>
(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 the Executive becomes entitled to the payments or
benefits under this Article FOURTH, 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 shall pay to the
Executive an additional amount (the "Gross-Up Payment") such that the net
amount retained by
6
<PAGE>
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
7
<PAGE>
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, 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
8
<PAGE>
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
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 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."
9
<PAGE>
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:
----------------------------
----------------------------
[Name of Executive]
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<PAGE>
SEVERANCE AGREEMENT
THIS AGREEMENT, dated as of April 11, 1997, is made by and
between Dynamics Corporation of America, a New York corporation (the
"Company"), and (the "Executive").
WHEREAS, the Company considers it essential to the best
interests of its stockholders to foster the continued employment of key
management personnel; and
WHEREAS, the Board recognizes that, as is the case with many
publicly held corporations, the possibility of a Change in Control exists and
that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its stockholders; and
WHEREAS, the Board has determined that appropriate steps
should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's management, including the Executive, to
their assigned duties without distraction in the face of potentially
disturbing circumstances arising from the possibility of a Change in Control;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the Company and the Executive hereby agree
as follows:
1. Defined Terms. The definitions of capital-
ized terms used in this Agreement are provided in the
last Section hereof.
2. Term of Agreement. The Term of this Agreement shall
commence on the date hereof and shall continue in effect through December 31,
1999; provided, however, that commencing on January 1, 1999 and each January 1
thereafter, the Term shall automatically be extended for one additional year
unless, not later than September 30 of the preceding year, the Company or the
Executive shall have given notice not to extend the Term; and further
provided, however, that if a Change in Control shall have occurred during the
Term, the Term shall expire no earlier than twenty-four (24) months beyond the
month in which such Change in Control occurred.
3. Company's Covenants Summarized. In order
to induce the Executive to remain in the employ of the
<PAGE>
Company and in consideration of the Executive's covenants set forth in Section
4 hereof, the Company agrees, under the conditions described herein, to pay
the Executive the Severance Payments and the other payments and benefits
described herein. Except as provided in Section 9.1 hereof, no Severance
Payments shall be payable under this Agreement unless there shall have been
(or, under the terms of the second sentence of Section 6.1 hereof, there shall
be deemed to have been) a termination of the Executive's employment with the
Company following a Change in Control and during the Term. This Agreement
shall not be construed as creating an express or implied contract of
employment and, except as otherwise agreed in writing between the Executive
and the Company, the Executive shall not have any right to be retained in the
employ of the Company.
4. The Executive's Covenants. The Executive agrees that,
subject to the terms and conditions of this Agreement, in the event of a
Potential Change in Control during the Term, the Executive will remain in the
employ of the Company until the earliest of (i) a date which is six (6) months
from the date of such Potential Change of Control, (ii) the date of a Change
in Control, (iii) the date of termination by the Executive of the Executive's
employment for Good Reason or by reason of death, Disability or Retirement, or
(iv) the termination by the Company of the Executive's employment for any
reason.
5. Compensation Other Than Severance Payments.
5.1 Following a Change in Control and during the Term,
during any period that the Executive fails to perform the Executive's
full-time duties with the Company as a result of incapacity due to physical or
mental illness, the Company shall pay the Executive's full salary to the
Executive at the rate in effect at the commencement of any such period,
together with all compensation and benefits payable to the Executive under the
terms of any compensation or benefit plan, program or arrangement maintained
by the Company during such period, until the Executive's employment is
terminated by the Company for Disability.
5.2 If the Executive's employment shall be terminated for
any reason following a Change in Control and during the Term, the Company
shall pay the Executive's full salary to the Executive through the Date
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<PAGE>
of Termination at the rate in effect immediately prior to the Date of
Termination or, if higher, the rate in effect immediately prior to the first
occurrence of an event or circumstance constituting Good Reason, together with
all compensation and benefits payable to the Executive through the Date of
Termination under the terms of the Company's compensation and benefit plans,
programs or arrangements as in effect immediately prior to the Date of
Termination or, if more favorable to the Executive, as in effect immediately
prior to the first occurrence of an event or circumstance constituting Good
Reason.
5.3 If the Executive's employment shall be terminated for
any reason following a Change in Control and during the Term, the Company
shall pay to the Executive the Executive's normal post-termination
compensation and benefits as such payments become due. Such post-termination
compensation and benefits shall be determined under, and paid in accordance
with, the Company's retirement, insurance and other compensation or benefit
plans, programs and arrangements as in effect immediately prior to the Date of
Termination or, if more favorable to the Executive, as in effect immediately
prior to the occurrence of the first event or circumstance constituting Good
Reason.
6. Severance Payments.
6.1 Subject to Section 6.2 hereof, if the Executive's
employment is terminated following a Change in Control and during the Term,
other than (A) by the Company for Cause, (B) by reason of death or Disability,
or (C) by the Executive without Good Reason, then the Company shall pay the
Executive the amounts, and provide the Executive the benefits, described in
this Section 6.1 ("Severance Payments"), in addition to any payments and
benefits to which the Executive is entitled under Section 5 hereof. For
purposes of this Agreement, the Executive's employment shall be deemed to have
been terminated following a Change in Control by the Company without Cause or
by the Executive with Good Reason, if (i) the Executive's employment is
terminated by the Company without Cause prior to a Change in Control (whether
or not a Change in Control ever occurs) and such termination was at the
request or direction of a Person who has entered into an agreement with the
Company the consummation of which would constitute a Change in Control, (ii)
the Executive terminates his employment for
3
<PAGE>
Good Reason prior to a Change in Control (whether or not a Change in Control
ever occurs) and the circumstance or event which constitutes Good Reason
occurs at the request or direction of such Person, or (iii) the Executive's
employment is terminated by the Company without Cause or by the Executive for
Good Reason and such termination or the circumstance or event which
constitutes Good Reason is otherwise in connection with or in anticipation of
a Change in Control (whether or not a Change in Control ever occurs). For
purposes of any determination regarding the applicability of the immediately
preceding sentence, any position taken by the Executive shall be presumed to
be correct unless the Company establishes to the Board by clear and convincing
evidence that such position is not correct.
(A) In lieu of any further salary
payments to the Executive for periods subsequent to the Date of
Termination and in lieu of any severance benefit otherwise payable to
the Executive, the Company shall pay to the Executive a lump sum
severance payment, in cash, equal to [three] [one] times the sum of
(i) the Executive's base salary as in effect immediately prior to the
Date of Termination or, if higher, in effect immediately prior to the
first occurrence of an event or circumstance constituting Good
Reason, and (ii) the highest annual bonus earned by the Executive
pursuant to any annual bonus or incentive plan maintained by the
Company in respect of any of the three fiscal years ending
immediately prior to the fiscal year in which occurs the Date of
Termination or, if higher, immediately prior to the fiscal year in
which occurs the first event or circumstance constituting Good
Reason.
(B) For the [thirty-six (36)]
[twelve (12)] month period immediately following the Date of
Termination, the Company shall arrange to provide the Executive and
his dependents life, disability, accident and health insurance
benefits substantially similar to those provided to the Executive and
his dependents immediately prior to the Date of Termination or, if
more favorable to the Executive, those provided to the Executive and
his dependents immediately prior to the first occurrence of an event
or circumstance constituting Good Reason, at no greater cost to the
Executive than the cost to the Executive immediately prior to such
date
4
<PAGE>
or occurrence; provided, however, that, unless the Executive consents
to a different method (after taking into account the effect of such
method on the calculation of "parachute payments" pursuant to Section
6.2 hereof), such health insurance benefits shall be provided through
a third-party insurer. Benefits otherwise receivable by the Executive
pursuant to this Section 6.1 (B) shall be reduced to the extent
benefits of the same type are received by or made available to the
Executive during the [thirty-six (36)] [twelve (12)] month period
following the Executive's termination of employment (and any such
benefits received by or made available to the Executive shall be
reported to the Company by the Executive); provided, however, that
the Company shall reimburse the Executive for the excess, if any, of
the cost of such benefits to the Executive over such cost immediately
prior to the Date of Termination or, if more favorable to the
Executive, the first occurrence of an event or circumstance
constituting Good Reason. If the Severance Payments shall be
decreased pursuant to Section 6.2 hereof, and the Section 6.1(B)
benefits which remain payable after the application of Section 6.2
hereof are thereafter reduced pursuant to the immediately preceding
sentence, the Company shall, no later than five (5) business days
following such reduction, pay to the Executive the least of (a) the
amount of the decrease made in the Severance Payments pursuant to
Section 6.2 hereof, (b) the amount of the subsequent reduction in
these Section 6.1(B) benefits, or (c) the maximum amount which can be
paid to the Executive without being, or causing any other payment to
be, nondeductible by reason of section 280G of the Code.
(C) If the Executive would have
become entitled to benefits under the Company's post-retirement
health care or life insurance plans, as in effect immediately prior
to the Date of Termination or, if more favorable to the Executive, as
in effect immediately prior to the first occurrence of an event or
circumstance constituting Good Reason, had the Executive's employment
terminated at any time during the period of [thirty-six (36)] [twelve
(12)] months after the Date of Termination, the Company shall provide
such post-retirement health care or life insurance benefits to the
Executive
5
<PAGE>
and the Executive's dependents commencing on the later of (i) the
date on which such coverage would have first become available and
(ii) the date on which benefits described in subsection (B) of this
Section 6.1 terminate.
(D) The Company shall (i) either
prepay all remaining premiums, or establish an irrevocable grantor
trust holding an amount of assets sufficient to pay all such
remaining premiums (which trust shall be required to pay such
premiums), under any insurance policy insuring the life of the
Executive under any "split-dollar" insurance arrangement in effect
between the Executive and the Company, and (ii) shall transfer to the
Executive any and all rights and incidents of ownership in such
arrangements at no cost to the Executive.
6.2 (A) Notwithstanding any other provisions of this
Agreement, in the event that any payment or benefit received or to be received
by the Executive in connection with a Change in Control or the termination of
the Executive's employment (whether pursuant to the terms of this Agreement or
any other plan, arrangement or agreement with the Company, any Person whose
actions result in a Change in Control or any Person affiliated with the
Company or such Person) (all such payments and benefits, including the
Severance Payments, being hereinafter called "Total Payments") would not be
deductible (in whole or part), by the Company, an affiliate or Person making
such payment or providing such benefit as a result of section 280G of the
Code, then, to the extent necessary to make such portion of the Total Payments
deductible (and after taking into account any reduction in the Total Payments
provided by reason of section 280G of the Code in such other plan, arrangement
or agreement), the cash Severance Payments shall first be reduced (if
necessary, to zero), and all other Severance Payments shall thereafter be
reduced (if necessary, to zero); provided, however, that the Executive may
elect to have the noncash Severance Payments reduced (or eliminated) prior to
any reduction of the cash Severance Payments.
(B) For purposes of this limitation, (i)
no portion of the Total Payments the receipt or enjoyment of which the
Executive shall have waived at such time and in such manner as not to
constitute a "payment" within the meaning of section 280G(b) of the Code shall
be taken
6
<PAGE>
into account, (ii) no portion of the Total Payments shall be taken into
account which, 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, the Company's independent auditor
(the "Auditor"), does not constitute a "parachute payment" within the meaning
of section 280G(b)(2) of the Code, including by reason of section
280G(b)(4)(A) of the Code, (iii) the Severance Payments shall be reduced only
to the extent necessary so that the Total Payments (other than those referred
to in clauses (i) or (ii)) in their entirety constitute reasonable
compensation for services actually rendered within the meaning of section
280G(b)(4)(B) of the Code or are otherwise not subject to disallowance as
deductions by reason of section 280G of the Code, in the opinion of Tax
Counsel, and (iv) the value of any noncash benefit or any deferred payment or
benefit included in the Total Payments shall be determined by the Auditor in
accordance with the principles of sections 280G(d)(3) and (4) of the Code.
(C) If it is established pursuant to a
final determination of a court or an Internal Revenue Service proceeding that,
notwithstanding the good faith of the Executive and the Company in applying
the terms of this Section 6.2, the Total Payments paid to or for the
Executive's benefit are in an amount that would result in any portion of such
Total Payments being subject to the Excise Tax, then, if such repayment would
result in (i) no portion of the remaining Total Payments being subject to the
Excise Tax and (ii) a dollar-for-dollar reduction in the Executive's taxable
income and wages for purposes of federal, state and local income and
employment taxes, the Executive shall have an obligation to pay the Company
upon demand an amount equal to the sum of (i) the excess of the Total Payments
paid to or for the Executive's benefit over the Total Payments that could have
been paid to or for the Executive's benefit without any portion of such Total
Payments being subject to the Excise Tax; and (ii) interest on the amount set
forth in clause (i) of this sentence at the rate provided in section
1274(b)(2)(B) of the Code from the date of the Executive's receipt of such
excess until the date of such payment.
7
<PAGE>
6.3 The payments provided in subsections (A) and (D) of
Section 6.1 hereof shall be made not later than the fifth day following the
Date of Termination; provided, however, that if the amounts of such payments,
and the limitation on such payments set forth in Section 6.2 hereof, cannot be
finally determined on or before such day, the Company shall pay to the
Executive on such day an estimate, as determined in good faith by the Company
of the minimum amount of such payments to which the Executive is clearly
entitled and shall pay the remainder of such payments (together with interest
on the unpaid remainder (or on all such payments to the extent the Company
fails to make such payments when due) at 120% of the rate provided in section
1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but
in no event later than the thirtieth (30th) day after the Date of Termination.
In the event that the amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess shall constitute a loan
by the Company to the Executive, payable on the fifth (5th) business day after
demand by the Company (together with interest at 120% of the rate provided in
section 1274(b)(2)(B) of the Code). At the time that payments are made under
this Agreement, the Company shall provide the Executive with a written
statement setting forth the manner in which such payments were calculated and
the basis for such calculations including, without limitation, any opinions or
other advice the Company has received from Tax Counsel, the Auditor or other
advisors or consultants (and any such opinions or advice which are in writing
shall be attached to the statement).
6.4 The Company also shall pay to the Executive all 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 the Company
reasonably may require.
8
<PAGE>
7. Termination Procedures and Compensation
During Dispute.
7.1 Notice of Termination. After a Change in Control and
during the Term, any purported termination of the Executive's employment
(other than by reason of death) shall be communicated by written Notice of
Termination from one party hereto to the other party hereto in accordance with
Section 10 hereof. For purposes of this Agreement, a "Notice of Termination"
shall mean a notice which shall indicate the specific termination provision in
this Agreement relied upon and shall set 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. 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
entire membership of the Board at a meeting of the 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 the Board) finding that, in the good
faith opinion of the 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.
7.2 Date of Termination. "Date of Termination," with respect
to any purported termination of the Executive's employment after a Change in
Control and during the Term, shall mean (i) 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 the Executive's duties during such thirty (30) day period), and
(ii) if the Executive's employment is terminated for any other reason, the
date specified in the Notice of Termination (which, in the case of a
termination by the Company, shall not be less than thirty (30) days (except in
the case of a termination for Cause) and, in the case of a termination by the
Executive, shall not be less than fifteen (15) days nor more than sixty (60)
days, respectively, from the date such Notice of Termination is given).
7.3 Dispute Concerning Termination. If within
fifteen (15) days after any Notice of Termination is
9
<PAGE>
given, or, if later, prior to the Date of Termination (as determined without
regard to this Section 7.3), the party receiving such Notice of Termination
notifies the other party that a dispute exists concerning the termination, the
Date of Termination shall be extended until the earlier of (i) the date on
which the Term ends or (ii) the date on which the dispute is finally resolved,
either by mutual written agreement of the parties or by a final judgment,
order or decree of an arbitrator or a court of competent jurisdiction (which
is not appealable or with respect to which the time for appeal therefrom has
expired and no appeal has been perfected); provided, however, that the Date of
Termination shall be extended by a notice of dispute given by the Executive
only if such notice is given in good faith and the Executive pursues the
resolution of such dispute with reasonable diligence.
7.4 Compensation During Dispute. If a purported termination
occurs following a Change in Control and during the Term and the Date of
Termination is extended in accordance with Section 7.3 hereof, the Company
shall continue to pay the Executive the full compensation in effect when the
notice giving rise to the dispute was given (including, but not limited to,
salary) and continue the Executive as a participant in all compensation,
benefit and insurance plans in which the Executive was participating when the
notice giving rise to the dispute was given, until the Date of Termination, as
determined in accordance with Section 7.3 hereof. Amounts paid under this
Section 7.4 are in addition to all other amounts due under this Agreement
(other than those due under Section 5.2 hereof) and shall not be offset
against or reduce any other amounts due under this Agreement.
8. No Mitigation. The Company agrees that, if the
Executive's employment with the Company terminates during the Term, the
Executive is not required to seek other employment or to attempt in any way to
reduce any amounts payable to the Executive by the Company pursuant to Section
6 hereof or Section 7.4 hereof. Further, the amount of any payment or benefit
provided for in this Agreement (other than Section 6.1(B) hereof) shall not be
reduced by any compensation earned by the Executive as the result of
employment by another employer, by retirement benefits, by offset against any
amount claimed to be owed by the Executive to the Company, or otherwise.
10
<PAGE>
9. Successors; Binding Agreement.
9.1 In addition to any obligations imposed by law upon any
successor to the Company, the Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption and
agreement prior to the effectiveness of any such succession shall be a breach
of this Agreement and shall entitle the Executive to compensation from the
Company in the same amount and on the same terms as the Executive would be
entitled to hereunder if the Executive were to terminate the Executive's
employment for Good Reason after a Change in Control, except that, for
purposes of implementing the foregoing, the date on which any such succession
becomes effective shall be deemed the Date of Termination.
9.2 This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive shall die while any amount would still be payable to the Executive
hereunder (other than amounts which, by their terms, terminate upon the death
of the Executive) if the Executive had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms
of this Agreement to the executors, personal representatives or administrators
of the Executive's estate.
10. Notices. For the purpose of this Agreement, notices and
all other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, addressed,
if to the Executive, to the address inserted below the Executive's signature
on the final page hereof and, if to the Company, to the address set forth
below, or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notice of change of
address shall be effective only upon actual receipt:
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To the Company:
---------------------------------------
---------------------------------------
---------------------------------------
Attention:
11. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge
is agreed to in writing and signed by the Executive and such officer as may be
specifically designated by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of, or of any lack of compliance
with, any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. This Agreement
supersedes any other agreements or representations, oral or otherwise, express
or implied, with respect to the subject matter hereof which have been made by
either party; provided, however, that this Agreement shall supersede any
agreement setting forth the terms and conditions of the Executive's employment
with the Company only in the event that the Executive's employment with the
Company is terminated on or following a Change in Control, by the Company
other than for Cause or by the Executive other than for Good Reason. The
validity, interpretation, construction and performance of this Agreement shall
be governed by the laws of the State of New York. All references to sections
of the Exchange Act or the Code shall be deemed also to refer to any successor
provisions to such sections. Any payments provided for hereunder shall be paid
net of any applicable withholding required under federal, state or local law
and any additional withholding to which the Executive has agreed. The
obligations of the Company and the Executive under this Agreement which by
their nature may require either partial or total performance after the
expiration of the Term (including, without limitation, those under Sections 6
and 7 hereof) shall survive such expiration.
12. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
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13. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. Settlement of Disputes; Arbitration. All claims by the
Executive for benefits under this Agreement shall be directed to and
determined by the Board and shall be in writing. Any denial by the Board of a
claim for benefits under this Agreement shall be delivered to the Executive in
writing and shall set forth the specific reasons for the denial and the
specific provisions of this Agreement relied upon. The Board shall afford a
reasonable opportunity to the Executive for a review of the decision denying a
claim and shall further allow the Executive to appeal to the Board a decision
of the Board within sixty (60) days after notification by the Board that the
Executive's claim has been denied.
14.2 Any further dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
New York, New York in accordance with the rules of the American Arbitration
Association then in effect; provided, however, that the evidentiary standards
set forth in this Agreement shall apply. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. Notwithstanding any
provision of this Agreement to the contrary, the Executive shall be entitled
to seek specific performance of the Executive's right to be paid until the
Date of Termination during the pendency of any dispute or controversy arising
under or in connection with this Agreement.
15. Definitions. For purposes of this Agree-
ment, the following terms shall have the meanings indi-
cated below:
(A) "Affiliate" shall have the meaning set forth in Rule
12b-2 promulgated under Section 12 of the Exchange Act.
(B) "Auditor" shall have the meaning set forth in Section
6.2 hereof.
(C) "Base Amount" shall have the meaning set forth in
section 280G(b)(3) of the Code.
13
<PAGE>
(D) "Beneficial Owner" shall have the meaning set forth in
Rule 13d-3 under the Exchange Act.
(E) "Board" shall mean the Board of Directors of the
Company.
(F) "Cause" for termination by the Company of the
Executive's employment 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 Section 7.1 hereof) after a written demand for substantial performance is
delivered to the Executive by the Board, which demand specifically identifies
the manner in which the 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
the Company 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 by clear and convincing evidence
that Cause exists.
(G) 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
14
<PAGE>
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 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
15
<PAGE>
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; 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.
(H) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(I) "Company" shall mean and, except in determining
under Section 15(G) hereof whether or not any Change in Control of the Company
has occurred, shall include any successor to its business and/or assets which
assumes and agrees to perform this Agreement by operation of law, or
otherwise.
(J) "Date of Termination" shall have the meaning set forth
in Section 7.2 hereof.
(K) "Disability" shall be deemed the reason for the
termination by the Company of the Executive's employment, 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 the Executive's
duties with the Company for a period of six (6) consecutive months, the
Company shall have given the Executive a Notice of Termination 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 the
Executive's duties.
16
<PAGE>
(L) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended from time to time.
(M) "Executive" shall mean the individual named in the first
paragraph of this Agreement.
(N) "Good Reason" for termination by the Executive of the
Executive's employment shall mean the occurrence (without the Executive's
express written consent) after any Change in Control, or prior to a Change in
Control under the circumstances described in clauses (ii) and (iii) of the
second sentence of Section 6.1 hereof (treating all references in paragraphs
(I) through (VII) below to a "Change in Control" as references to a "Potential
Change in Control"), of any one of the following acts by the Company, or
failures by the Company to act, unless, in the case of any act or failure to
act described in paragraph (I), (V), (VI) or (VII) below, such act or failure
to act is corrected prior to the Date of Termination specified in the Notice
of Termination given in respect thereof:
(I) the assignment to the Executive of any duties
inconsistent with the Executive's status with the Company or
a substantial adverse alteration in the nature or status of
the Executive's responsibilities from those in effect
immediately prior to the Change in Control;
(II) a reduction by the Company in the Executive's
annual base salary as in effect on the date hereof or as the
same may be increased from time to time;
(III) the relocation of the Executive's principal
place of employment to a location more than 25 miles from
the Executive's principal place of employment immediately
prior to the Change in Control or the Company's requiring
the Executive to be based anywhere other than such principal
place of employment (or permitted relocation thereof) except
for required travel on the Company's business to an extent
substantially consistent with the Executive's present
business travel obligations;
17
<PAGE>
(IV) the failure by the Company to pay to the
Executive any portion of the Executive's current
compensation or to pay to the Executive any portion of an
installment of deferred compensation under any deferred
compensation program of the Company, within seven (7) days
of the date such compensation is due;
(V) the failure by the Company to continue in
effect any compensation plan in which the Executive
participates immediately prior to the Change in Control
which is material to the Executive's total compensation,
unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect
to such plan, or the failure by the Company to continue the
Executive's participation therein (or in such substitute or
alternative plan) on a basis not materially less favorable,
both in terms of the amount or timing of payment of benefits
provided and the level of the Executive's participation
relative to other participants, as existed immediately prior
to the Change in Control;
(VI) the failure by the Company to continue to
provide the Executive with benefits substantially similar to
those enjoyed by the Executive under any of the Company's
pension, savings, life insurance, medical, health and
accident, or disability plans in which the Executive was
participating immediately prior to the Change in Control,
the taking of any other action by the Company which would
directly or indirectly materially reduce any of such
benefits or deprive the Executive of any material fringe
benefit enjoyed by the Executive at the time of the Change
in Control, or the failure by the Company to provide the
Executive with the number of paid vacation days to which the
Executive is entitled on the basis of years of service with
the Company in accordance with the Company's normal vacation
policy in effect at the time of the Change in Control; or
(VII) any purported termination of the
Executive's employment which is not effected
pursuant to a Notice of Termination satisfying
18
<PAGE>
the requirements of Section 7.1 hereof; for purposes of this
Agreement, no such purported termination shall be effective.
The Executive's right to terminate the Executive's
employment for Good Reason shall not be affected by the Executive's incapacity
due to physical or mental illness. The Executive's continued employment shall
not constitute consent to, or a waiver of rights with respect to, any act or
failure to act constituting Good Reason hereunder.
For purposes of any determination regarding the existence of
Good Reason, any claim by the Executive that Good Reason exists shall be
presumed to be correct unless the Company establishes to the Board by clear
and convincing evidence that Good Reason does not exist.
(O) "Notice of Termination" shall have the meaning set forth
in Section 7.1 hereof.
(P) "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.
(Q) "Potential 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) the Company enters into an agreement,
the consummation of which would result in the occurrence of
a Change in Control;
(II) the Company or any Person publicly
announces an intention to take or to consider taking actions
which, if consummated, would constitute a Change in Control;
19
<PAGE>
(III) any Person becomes the Beneficial
Owner, directly or indirectly, of securities of the Company
representing 15% or more of either the then outstanding
shares of common stock of the Company or the combined voting
power of the Company's then outstanding securities (not
including in the securities beneficially owned by such
Person any securities acquired directly from the Company or
its affiliates); or
(IV) the Board adopts a resolution to the
effect that, for purposes of this Agreement, a Potential
Change in Control has occurred.
(R) "Retirement" shall be deemed the reason for the
termination by the Executive of the Executive's employment if such employment
is terminated in accordance with the Company's retirement policy, including
early retirement, generally applicable to its salaried employees.
(S) "Severance Payments" shall have the meaning set forth in
Section 6.1 hereof.
(T) "Tax Counsel" shall have the meaning set forth in
Section 6.2 hereof.
(U) "Term" shall mean the period of time described in
Section 2 hereof (including any extension, continuation or termination
described therein).
20
<PAGE>
(V) "Total Payments" shall mean those
payments so described in Section 6.2 hereof.
[COMPANY NAME]
By:
-----------------------------------
Name:
Title:
---------------------------------------
EXECUTIVE
Address:
---------------------------------------
---------------------------------------
---------------------------------------
(Please print carefully)
21
<PAGE>
AMENDMENT TO TRUST AGREEMENT
AMENDMENT, dated April 11, 1997, to the Trust Agreement,
dated December 31, 1996, by and between Dynamics Corporation of America (the
"Company") and Bank of Boston Connecticut (the "Trustee").
WHEREAS, the Company, as of December 31, 1996, established,
pursuant to the Trust Agreement, a "rabbi" trust (the "Trust") for the purpose
of securing benefits payable under three individual nonqualified deferred
compensations plans with Andrew Lozyniak, Patrick J. Dorme and Henry V.
Kensing, which are incorporated in subparagraph SECOND G. of the employment
agreements with each of such officers dated February 1, 1996 (the "Employment
Agreements"); and
WHEREAS, the Board of Directors of the Company (the
"Board"), on the date first written above, approved the amendment of the Trust
Agreement to secure the benefits payable under the Employment Agreements, the
Severance Agreements and the Severance Policy; to require a majority vote of
nonemployee members of the Board to authorize the contribution of funds to the
Trust with respect to the aforementioned benefits; and to make certain other
changes; and
WHEREAS, the Trust Agreement may be amended by
a written instrument executed by the Trustee and the Company;
NOW, THEREFORE, the Trust Agreement is hereby amended as set
forth below, effective as of the date hereof:
1. Section 1(e) of the Trust Agreement is
amended by adding the following at the end thereof:
"Notwithstanding the foregoing, no such additional
deposits shall be made except upon the vote of a majority of those
members of the Board who are not officers or employees of the
Company.
<PAGE>
2. Section 1 of the Trust Agreement is amended
by adding at the end of such section a new paragraph (h)
to read as follows:
Notwithstanding anything in this Trust Agreement to
the contrary, as of April 11, 1997, the term "Plans" shall mean (i)
the three individual nonqualified deferred compensations plans with
Andrew Lozyniak, Patrick J. Dorme and Henry V. Kensing, which are
incorporated in subparagraph SECOND G. of the employment agreements
with each of such officers dated February 1, 1996 (the "Employment
Agreements"), (ii) the severance arrangements incorporated as Article
FOURTH of the Employment Agreements, (iii) the severance agreements
entered into as of such date with certain of the Company's employees
and (iv) the severance policy adopted as of such date for certain
other employees of the Company.
3. Section 5 of the Trust Agreement is amended
by adding thereto a new paragraph (d) to read as follows:
Notwithstanding anything to the contrary contained
in paragraphs (b) and (c) of this Section 5, upon and following a
Change in Control, the Company (i) shall no longer have the right to
change the persons or entities serving as an investment manager with
the power and authority to direct the investment of any portion of
the assets of the Trust, (ii) may not itself serve as such investment
manager, and (iii) shall no longer have the right to substitute
assets of equal fair market value for any asset held by the Trust.
4. Section 13 of the Trust is amended by changing paragraph
(d) thereof to read in its entirety as follows:
For purposes of this Trust Agreement, 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:
2
<PAGE>
(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 indi-
3
<PAGE>
rectly, 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 as-
sets, 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 13(d), 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 Trust Agreement is hereby
ratified and confirmed in all respects.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
amendment as of the date first written above.
DYNAMICS CORPORATION OF AMERICA
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
BANK OF BOSTON CONNECTICUT
.
By:
-----------------------------------
Name:
Title:
5
<PAGE>
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
solic-
<PAGE>
itation, 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 as-
sets, 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
2
<PAGE>
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.
3
<PAGE>
By-Law Amendments
Section 2 of Article I of the By-laws is
hereby amended and restated in its entirety to read as
follows:
"Section 2. Annual Meetings. Each Annual Meeting of the
Shareholders of the Corporation for the election of directors and for
the transaction of such other business as may properly come before
the meeting shall be held at such time and place as shall be
designated from time to time by the Board of Directors of the
Corporation (hereinafter called the "Board") and specified in the
notice thereof."
Section 3 of Article I of the By-laws is hereby
amended and restated in its entirety to read as
follows:
"Section 3. Special Meetings. Special Meetings of the
stockholders, unless otherwise provided by law, may be called by the
Chairman of the Board, the President or by a majority of the Board
and shall be called by the Chairman of the Board or the President on
the written request of the holders of record of at least two-thirds
of the shares of stock of the Corporation issued and outstanding and
entitled to vote thereat. Such request in writing shall state the
purpose or purposes of such meeting."
Article I of the By-laws is hereby amended by adding
the following Section 10:
"Section 10. Nominations of Persons for Election to the
Board. Only persons who are nominated in accordance with the
following procedures shall be eligible for election as directors.
Nominations of persons for election to the Board at the annual
meeting may be made at that meeting by or at the direction of the
Board, by any nominating committee or person appointed by the Board
or by any shareholder of the Corporation entitled to vote for the
election of directors at the meeting who complies with the notice
procedures set forth in this Section 10. Such nomination, other than
those made by or at the direction of the Board, shall be made
pursuant
<PAGE>
to timely notice in writing to the secretary of the Corporation. To
be timely, a shareholder's notice must be delivered to or mailed and
received at the principal executive offices of the Corporation not
less than 75 days nor more than 90 days prior to the meeting;
provided, however, that in the event that less than 90 days' notice
or prior public disclosure of the date of the meeting is given or
made to the shareholders, notice by the shareholder to be timely must
be so received not later than the close of business on the 15th day
following the day on which such notice of the date of the meeting was
mailed or such public disclosure was made, whichever first occurs.
Such shareholder's notice to the secretary shall set forth (a) as to
each person whom the shareholder proposes to nominate for election or
reelection as a director, (i) the name, age, business address and
residence address of the person, (ii) the principal occupation or
employment of the person, (iii) the class and number of shares of
common stock of the Corporation which are beneficially owned by the
person or by any entity with which that entity is affiliated, and
(iv) any other information relating to the person that would be
required to be disclosed in solicitations for proxies for election of
directors pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended, if the Corporation were subject thereto; and
(b) as to the shareholder giving the notice (i) the name and record
address of the shareholder and (ii) the class and number of shares of
common stock of the Corporation which are beneficially owned by the
shareholder. The Corporation may require any proposed nominee to
furnish such other information as may reasonably be required by the
Corporation to determine the eligibility of such proposed nominee to
serve as a director of the Corporation.
"The chairman of the meeting may, if the facts warrant,
determine and declare to the meeting that a nomination was not made
in accordance with the foregoing procedure, and if he or she shall so
determine, he or she shall so declare to the meeting and the
defective nomination shall be disregarded."
Article I of the By-laws is hereby amended by adding
the following Section 11:
2
<PAGE>
"Section 11. Shareholder Proposed Business at Annual or
Special Meetings. To be properly brought before the annual or any
special shareholders' meeting, business must be either (a) specified
in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board, (b) otherwise properly brought before the
meeting by or at the direction of the Board or (c) otherwise properly
brought before the meeting by a shareholder. In addition to any other
applicable requirements, for business to be properly brought before
the annual or any special shareholders' meeting by a shareholder, the
shareholder must have given timely notice thereof in writing to the
secretary of the Corporation. To be timely, a shareholder's notice
must be delivered to or mailed and received at the principal
executive offices of the Corporation not less than 75 days nor more
than 90 days prior to the meeting; provided, however, that in the
event that less than 90 days' notice or prior public disclosure of
the date of the meeting is given or made to shareholders, notice by
the shareholder to be timely must be so received not later than the
close of business on the 15th day following the day on which such
notice of the date of the meeting was mailed or such public
disclosure was made, whichever first occurs. Such shareholder's
notice to the secretary shall set forth as to each matter the
shareholder proposes to bring before the meeting (i) a brief
description of the business desired to be brought before the meeting
and the reasons for conducting such business at the meeting, (ii) the
name and record address of the shareholder proposing such business,
(iii) the class and number of shares of common stock of the
Corporation which are beneficially owned by the shareholder and (iv)
any material interest of the shareholder in such business.
"Notwithstanding anything in the By-laws to the contrary, no
business shall be conducted at the annual or any special meeting
except in accordance with the procedures set forth in this Section
11; provided, however, that nothing in this Section 11 shall be
deemed to preclude discussion by any shareholder of any business
properly brought before the meeting.
3
<PAGE>
"The chairman of the meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly
brought before the meeting in accordance with the provisions of this
Section 11, and if he or she should so determine and declare, any
such business not properly brought before the meeting shall not be
transacted."
Section 8 of Article II of the By-laws is hereby
amended and restated in its entirety to read as
follows:
"Section 8. Removal of Directors. Any or all of the
directors may be removed for cause by the affirmative vote of the
holders of record of a majority of the shares of Common Stock of the
Corporation then outstanding and entitled to vote, in person or by
proxy, at a special meeting of stockholders called for such purpose.
The provisions of this Section 8 are subject to any superseding
provision contained in any duly issued and outstanding Preferred
Stock."
Section 1 of Article XIII of the By-laws is hereby
amended by deleting the first sentence thereof.
4
<PAGE>
[DYNAMICS CORPORATION OF AMERICA LOGO]
April 14, 1997
Dear Fellow Shareholders:
As you may be aware, WHX Corporation has commenced an unsolicited
tender offer for the Company's common shares and is now offering to purchase
up to 649,000 shares (approximately 17% of the outstanding shares) at a price
of $45 per share. WHX is also proposing a merger with the Company at the same
price.
AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY
DETERMINED THAT WHX'S OFFER IS INADEQUATE, IS NOT IN THE BEST INTERESTS OF THE
COMPANY AND ITS SHAREHOLDERS AND DOES NOT ADEQUATELY REFLECT THE VALUE OR
PROSPECTS OF THE COMPANY. ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDS THAT
YOU REJECT THE OFFER AND NOT TENDER YOUR SHARES TO WHX.
In arriving at its determination and recommendation, the Board gave
careful consideration to a number of factors which are described in the
enclosed Schedule 14D-9, including the opinion of Wasserstein Perella & Co.,
Inc., the Company's financial advisor, that the offer price of $45 per share
is inadequate from a financial point of view.
The Board of Directors has determined to explore alternative
transactions to maximize shareholder value. Accordingly, to provide the Board
of Directors with additional time with which to explore such alternatives, the
Board of Directors has determined to postpone the upcoming annual meeting of
shareholders, originally scheduled for May 2, 1997, until August 1, 1997. In
order to provide for stability and continuity, the Board has also increased
the size of the Board of Directors to nine members (resulting in the Board of
Directors being divided into three classes) and adopted certain
amendments to the Company's By-laws.
Additional information with respect to the Board's decision and its
actions is contained in the enclosed Schedule 14D-9, and we urge you to
consider this information carefully.
Your Board of Directors and I greatly appreciate your continued
support and encouragement.
Sincerely,
/s/ Andrew Lozyniak
Andrew Lozyniak
Chairman of the Board and
President
<PAGE>
NEWS RELEASE
IMMEDIATE
RELEASE
FROM: Dynamics Corporation of America
475 Steamboat Road
Greenwich, Connecticut 06830-7197
Contact: Henry V. Kensing
(203) 869-3211
DYNAMICS CORPORATION OF AMERICA REJECTS
WHX CORPORATION'S OFFER;
WILL EXPLORE STRATEGIC ALTERNATIVES
------------------------------------------------------------------------------
GREENWICH, CONNECTICUT (April 14, 1997)--Dynamics
Corporation of America (NYSE: DYA) announced today that its Board of Directors
has voted unanimously to recommend that shareholders reject the unsolicited
offer by WHX Corporation (NYSE: WHX) to acquire up to 649,000 shares of the
Company's common stock (or approximately 17% of the outstanding shares) at a
price of $45 per share and that they not tender their shares to WHX.
The Board of Directors concluded that the WHX offer is
inadequate, is not in the best interests of the Company and its shareholders
and does not adequately reflect the value or prospects of the Company.
In arriving at its determination and recommendation, the
Board gave careful consideration to a number of factors, including the opinion
of Wasserstein Perella & Co., Inc., the Company's financial advisor, that the
offer price is inadequate from a financial point of view.
The Board of Directors also determined to explore
alternative transactions to maximize shareholder value.
The Company also announced that the Board of Directors, in
order to provide the Board of Directors with additional time with which to
explore alternatives, has determined to postpone the upcoming annual meeting
of shareholders, originally scheduled for May 2, 1997, until August 1, 1997.
To provide for stability and continuity,
<PAGE>
the Board has also increased the size of the Board of Directors to nine
members (resulting in the Board of Directors being divided into three
classes) and adopted certain amendments to the Company's by-laws.
The new directors are John A. Thompson, a principal of
IMCOR, a management consulting firm, and Ronald Steiner, President of
International Electronic Research Corporation, a subsidiary of the Company.
The Company has retained Skadden, Arps, Slate, Meagher &
Flom LLP to act as its legal advisor.
The Company also announced today that it had filed with the
Securities and Exchange Commission, and will mail to shareholders shortly, a
Solicitation/Recommendation Statement on Schedule 14D-9 setting forth the
Company's recommendation with respect to WHX's offer. Additional information
with respect to the Board's decision to recommend that shareholders reject the
WHX offer is contained in the Schedule 14D-9.
# # #
Dynamics Corporation of America is a diversified company
which manufactures electronic components, mobile vans and transportable
shelters for specialized electronic and medical diagnostic equipment, portable
electric housewares and commercial appliances, air distribution equipment,
specialized air-conditioning equipment and generator sets. The Company
currently holds a 44.1% stake in CTS Corporation, an Indiana corporation
headquartered in Elkhart whose shares are listed on the New York Stock
Exchange (NYSE: CTS) and which manufactures electronic and electromechanical
components for the automotive, data processing, communications equipment,
instruments and controls, defense and aerospace and consumer electronic
markets.
# # #
2
<PAGE>
Wasserstein Perella & Co., Inc.
31 West 52nd Street
WASSERSTEIN New York, New York 10019
PERELLA & CO [LOGO] Telephone 212-969-2700
Fax 212-969-7836
April 11, 1997
Board of Directors
Dynamics Corporation of America
475 Steamboat Road
Greenwich, CT 06830-7197
Members of the Board:
You have asked us to advise you with respect to the adequacy, from a
financial point of view, to the holders of the Common Stock, par value $0.10 per
share (the "Shares"), of Dynamics Corporation of America (the "Company")
of the consideration to be received by such holders pursuant to the terms
of a cash tender offer by WHX Corporation to acquire up to 649,000 of the
outstanding Shares at a price of $45 per Share (the "Tender Offer"). The
terms and conditions of the Tender Offer are set forth in more detail in the
Offer to Purchase dated March 31, 1997 as amended by the Supplement dated
April 10, 1997 (the "Offer to Purchase"), relating to the Tender Offer.
In connection with rendering our opinion, we have reviewed the Offer to
Purchase. We have also reviewed and analyzed certain publicly available
business and financial information relating to the Company and CTS Corporation
for recent years, as well as certain internal financial and operating
information, including financial forecasts, analyses and projections prepared
by or on behalf of the Company and provided to us for purposes of our analysis,
and we have met with management of the Company to review and discuss such
information and, among other matters, the Company's business, operations,
assets, financial condition and future prospects.
We have reviewed and considered certain financial and stock market data
relating to the Company and CTS Corporation and we have compared that data with
similar data for certain other companies, the securities of which are publicly
traded, that we believe may be relevant or comparable in certain respects to
the Company or one or more of its businesses or assets, and we have reviewed
and considered the financial terms of certain recent acquisitions and business
combination transactions in the electronic components industry, other industries
in which the Company operates, and in other industries generally, that we
believe to be reasonably comparable to the Tender Offer or otherwise relevant
to our inquiry. We have also performed such other studies, analyses, and
investigations and reviewed such other information as we considered
appropriate for purposes of this opinion.
In our review and analysis and in formulating our opinion, we have assumed
and relied upon the accuracy and completeness of all the financial and other
information provided to or discussed with us or publicly available, and we have
not assumed any responsibility for independent verification of any of such
information. We have also relied upon the reasonableness and accuracy of the
financial projections, forecasts and analyses provided to us and we have
assumed, with your consent, that such projections, forecasts and analyses were
<PAGE>
Board of Directors
April 11, 1997
Page 2
reasonably prepared in good faith and on bases reflecting the best currently
available judgments and estimates of the Company's management, and we express
no opinion with respect to such projections, forecasts and analyses or the
assumptions upon which they are based. In addition, we have not reviewed any
of the books and records of the Company, or assumed any responsibility for
conducting a physical inspection of the properties or facilities of the
Company, or for making or obtaining an independent valuation or appraisal
of the assets or liabilities of the Company, and no such independent valuation
or appraisal was provided to us. Our opinion is necessarily based on economic
and market conditions and other circumstances as they exist and can be
evaluated by us as of the date hereof.
Our opinion addresses only the adequacy from a financial point of view
to the shareholders of the Company of the consideration to be received by
such shareholders pursuant to the Tender Offer.
It is understood that this letter is for the benefit and use of the Board
of Directors of the Company in its consideration of the Tender Offer and,
except for inclusion in its entirety in a Schedule 14D-9 required to be filed
by the Company, may not be quoted, used or reproduced for any other purpose
without our prior written consent. This opinion does not constitute a
recommendation to any shareholder with respect to whether such holder should
tender Shares pursuant to the Tender Offer, and should not be relied upon by
any shareholder as such.
Based upon and subject to the foregoing, including the various assumptions
and limitations set forth herein, it is our opinion that as the date hereof,
the $45 per Share cash consideration to be received by the shareholders of the
Company pursuant to the Tender Offer is inadequate from a financial point of
view.
Very truly yours,
WASSERSTEIN PERELLA & CO., INC.
/s/ Wasserstein Perella & Co., Inc.
<PAGE>
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
- -----------------------------------x
:
: Index No. 97-601661
KENNETH STEINER, :
:
Plaintiff, :
:
-against- :
: CLASS ACTION COMPLAINT
ANDRE LOZYNIAK, PATRICK J. DORME, :
HENRY V. KENSING, RUSSELL H. :
KNISEL, SAUL SPERBER, HAROLD
COHAN, FRANK A. GUNTHER, and : JURY TRIAL DEMAND
DYNAMICS CORP. OF AMERICA, :
:
Defendants. :
- -----------------------------------x
Plaintiff, by his knowledge as to his own acts and upon information
and belief as to all other matters, alleges as follows:
NATURE OF THE ACTION
1. This is a stockholders' class action lawsuit brought on behalf of
the public stockholders of Dynamics Corp. of America ("Dynamics" or the
"Company") who have been, and continue to be, deprived of the opportunity to
realize fully the benefits of their investment in the Company. The individual
defendants have wrongfully refused to take the steps necessary to maximize
stockholder value, including properly considering a bona fide offer for the
Company from WHX Corporation through its subsidiary SB Acquisition Corp.
(collectively "WHX"). By failing and refusing to take such steps, including
adequately considering the Offer, defendants have breached
<PAGE>
their fiduciary duties to plaintiff and the class. The individual defendants
are using their fiduciary positions of control over Dynamics to thwart others
in their legitimate attempts to acquire Dynamics, and the individual
defendants are trying to entrench themselves in their positions with the
Company.
PARTIES
2. Plaintiff Kenneth Steiner, a New York resident, is and, at all
relevant times has been, the owner of 550 shares of Dynamics' common stock.
3. Dynamics is a corporation duly organized and existing under the
laws of the State of New York. Dynamics designs, manufactures, and markets
electronic components and subsystems, such as resistors, micro-circuits,
loudspeakers, and switches. Dynamics maintains its principal executive offices
at 475 Steamboat Road, Greenwich, Connecticut 06830. Dynamics has
approximately 3.811 million shares of common stock outstanding and thousand of
stockholders of record. Dynamics's stock trades over the New York Stock
Exchange ("NYSE").
4. Defendant Andrew Lozyniak ("Lozyniak") is the Chairman of the
Board and President of Dynamics. In 1995, Lozyniak received from Dynamics
$356,052 in compensation.
5. Defendant Patrick J. Dorme ("Dorme") is the Chief Financial
Officer, Vice President, and a director
2
<PAGE>
of Dynamics. In 1995, Dorme received from Dynamics $161,997 in compensation.
6. Defendant Henry V. Kensing ("Kensing") is the Chief Legal Counsel,
Vice President, Secretary, and a director of Dynamics. In 1995, Kensing
received from Dynamics $193,187 in compensation.
7. Defendants Russell H. Knisel, Saul Sperber, Harold Cohan, and
Frank A. Gunther are directors of Dynamics.
8. The defendants named in paragraph 4 through 7 are hereinafter
referred to as the "Individual Defendants."
9. Because of their positions as officers/directors of the Company,
the Individual Defendants owe a fiduciary duty of loyalty and due care to
plaintiff and the other members of the class.
10. Each defendant herein is sued individually as a conspirator and
aider and abettor, as well as in his/her capacity as an officer and/or
director of the Company, and the liability of each arises from the fact that
he or she has engaged in all or part of the unlawful acts, plans, schemes, or
transactions complained of herein.
CLASS ACTION ALLEGATIONS
11. Plaintiff brings this case in its own behalf as a class action,
pursuant to CPLR ss. 901, on behalf of all stockholders of the Company, except
defendants herein and
3
<PAGE>
any person, firm, trust, corporation, or other entity related to or affiliated
with any of the defendants, who will be threatened with injury arising from
defendants' actions as is described more fully below (the "Class").
12. This action is properly maintainable as a class action.
13. The Class is so numerous that joinder of all members is
impracticable. The Company has hundreds of stockholders who are scattered
throughout the United States.
14. There are questions of law and fact common to the Class that
predominate over questions affecting any individual class member. The common
questions include, inter alia, whether:
a. defendants have breached their fiduciary duties owed by
them to plaintiff and other members of the Class by failing and refusing to
attempt in good faith to maximize stockholder value, including considering the
sale of Dynamics;
b. defendants have breached or aided and abetted the
breach of the fiduciary duties owed by them to plaintiff and other members of
the Class;
c. defendants engaged in a plan and scheme to thwart and
reject offers and proposals from third parties, including the one made by
WHX; and
4
<PAGE>
d. plaintiff and other members of the Class are being and
will continue to be injured by the wrongful conduct alleged herein and, if so,
what is the proper remedy and/or measure of damages.
15. Plaintiff is committed to prosecuting the action and has retained
competent counsel experienced in litigation of this nature. Plaintiff's claims
are typical of the claims of the other members of the Class and plaintiff has
the same interests as the other members of the Class. Plaintiff is an adequate
representative of the Class.
16. The prosecution of separate actions by individual members of the
Class would create the risk of inconsistent or varying adjudications with
respect to individual members of the Class which would establish incompatible
standards of conduct for defendants, or adjudications with respect to
individual members of the Class which would as a practical matter be
dispositive of the interests of the other members not parties to the
adjudications or substantially impair or impede their ability to protect their
interests.
17. The defendants have acted, or refused to act, on grounds
generally applicable to, and causing injury to, the Class and, therefore,
preliminary and final injunctive relief on behalf of the Class as a whole
are appropriate.
5
<PAGE>
SUBSTANTIVE ALLEGATIONS
18. By the acts, transactions, and courses of conduct alleged herein,
defendants, individually and as part of a common plan and scheme and/or aiding
and abetting one another in total disregard of their fiduciary duties, are
attempting to deprive plaintiff and the Class unfairly of the opportunity to
maximize the value of their investment in Dynamics.
19. On March 27, 1997, WHX offered, by letter, to acquire Dynamics in
a negotiated merger for $40.00 per share in a transaction valued at more than
$160 million (the "Offer"). The Offer represented a premium of approximately
20% above the price of Dynamics' stock.
20. In the Offer, WHX stated that it was prepared to increase its
offer if Dynamics provided additional information which demonstrated that a
higher price was warranted.
21. Dynamics responded to the Offer by saying only
that it would consider the proposal in due course.
22. Disappointed that Dynamics chose not to even consider WHX's bona
fide offer in the course of a week, WHX made the Offer public on March 31,
1997 and announced that it would immediately commence a tender offer at $40.00
per share.
23. In addition to commencing the tender offer, WHX stated its
intention to solicit proxies from shareholders
6
<PAGE>
for Dynamics' annual meeting to be held on May 2, 1997. WHX announced its
intention to elect four director/nominees and adopt shareholder by-law
provisions to permit holders of 9.9% of the outstanding common stock to call a
special meeting.
24. WHX's offer is clearly bona fide because it is an all cash offer
which is within WHX's financial means. WHX announced that the offer is not
contingent on any financing and that it had over $400 million of available
cash to proceed with the tender offer.
25. Dynamics responded to the announcement of the tender offer by
stating that all but one of the directors consider WHX's bona fide offer
"totally inadequate" and urged shareholders to take no action in tending their
shares to WHX.
26. Despite the significant interest of Dynamics stockholders,
defendants have acted without regard to the fiduciary duties they owe them by,
inter alia, failing to take the steps necessary to maximize stockholder value,
including, but not limited to, agreeing to meet with and negotiate the tender
offer and merger with WHX. Defendants have done so without business
justification and without negotiation.
27. Defendants' failure to act promptly upon the tender offer and
merger has no valid business purpose, and simply evidences their disregard for
the premium
7
<PAGE>
being offered to Dynamics stockholders. By failing to meet promptly and
negotiate, or offer to meet and negotiate, with WHX, defendants are depriving
plaintiff and the Class of their right to share in the assets and businesses
of Dynamics and receive the maximum value for their Dynamics shares.
28. Dynamics represents a highly attractive acquisition candidate.
Defendants' conduct is depriving Dynamics's public stockholders of the control
premium that WHX are prepared to pay, or of the enhanced premium that further
negotiation or exposure of Dynamics to the market could provide.
29. Defendants owe fundamental fiduciary obligations to Dynamics's
stockholders to take all necessary and appropriate steps to maximize the value
of their shares. In addition, the Individual Defendants have the
responsibility to act independently so that the interests of Dynamics's public
stockholders will be protected, to seriously consider all bona fide offers for
the Company, and to conduct fair and active bidding procedures or other
mechanisms for checking the market to assure that the highest possible price
is achieved. Further, the directors of Dynamics must adequately ensure that no
conflict of interest exists between the Individual Defendants' own interests
and their fiduciary obligations to maximize stockholder value or, if such
conflicts
8
<PAGE>
exist, to insure that all such conflicts will be resolved in the best
interests of the Company's stockholders.
30. Because defendants dominate and control the business and
corporate affairs of Dynamics and because they are in possession of private
corporate information concerning Dynamics's assets, businesses and future
prospects, there exists an imbalance and disparity of knowledge of economic
power between defendants and the public shareholders of Dynamics. This
discrepancy makes it grossly and inherently unfair for defendants to refrain
from taking those steps necessary to maximize stockholder value. Defendants
have refused to seriously consider the tender offer and merger, and have
failed to announce any active auction or open bidding procedures that would
maximize stockholder value by entertaining offers to purchase the Company.
31. The Individual Defendants have breached their fiduciary and other
common law duties owed to plaintiff and other members of the Class in that
they have not and are not exercising independent business judgment and have
acted and are acting to the detriment of the Class.
32. The Individual Defendants are acting to entrench themselves in
their offices and positions and maintain their substantial salaries and
perquisites, all at the expense and to the detriment of the public
stockholders of Dynamics.
9
<PAGE>
33. As a result of the actions of the Individual Defendants,
plaintiff and the other members of the Class have been and will be damaged in
that they have not and will not receive their fair proportion of the value of
Dynamics's assets and businesses and/or have been and will be prevented from
obtaining a fair and adequate price for their shares of Dynamics's common
stock.
34. Plaintiff seeks preliminary and permanent injunctive relief
preventing defendants from inequitably and unlawfully depriving plaintiff and
the Class of their rights to realize a full and fair value for their stock at
a premium over the market price, by unlawfully entrenching themselves in their
positions of control, and to compel defendants to carry out their fiduciary
duties to maximize stockholder value.
35. Only through the exercise of this Court's equitable powers can
plaintiff and the Class be fully protected from the immediate and irreparable
injury that defendants' actions threaten to inflict. Defendants are precluding
the enjoyment by Dynamics stockholders of the full economic value of their
investment by failing to proceed expeditiously and in good faith to evaluate
and pursue a premium acquisition proposal that would provide consideration for
all shares at a premium price.
36. Unless enjoined by the Court, defendants will
continue to breach their fiduciary duties owed to plain-
10
<PAGE>
tiff and the members of the Class, and/or aid and abet and participate in such
breaches of duty, and will prevent the sale of Dynamics at a substantial
premium, all to the irreparable harm of plaintiff and other members of the
Class.
37. Plaintiff and the Class have no adequate remedy
at law.
WHEREFORE, plaintiff demands judgment as follows:
(a) Declaring this to be a proper class action
and certifying plaintiff as a class representative;
(b) Ordering the Individual Defendants to carry out their
fiduciary duties to plaintiff and the other members of the Class by announcing
their intention to:
(i) cooperate fully with any entity or
person, including WHX, having a bona fide interest in proposing any
transaction that would maximize stockholder value including, but not limited
to, a merger or acquisition of Dynamics;
(ii) immediately undertake an appropriate
evaluation of Dynamics's worth as a merger/acquisition
candidate;
(iii) take all appropriate steps to
enhance Dynamics's value and attractiveness as a merg-
er/acquisition candidate;
11
<PAGE>
(iv) take all appropriate steps to effec-
tively expose Dynamics to the marketplace in an effort to
create an active auction of the Company;
(v) act independently so that the inter-
est of the Company's public stockholders will be protected; and
(vi) adequately ensure that no conflicts
of interest exist between the Individual Defendants' own interest and their
fiduciary obligation to maximize stockholder value or, in the event such
conflicts exist, to ensure that all conflicts of interest are resolved in the
best interests of the public stockholders of Dynamics;
(c) Ordering the Individual Defendants, jointly and
severally to account to plaintiff and the Class for all damages suffered and
to be suffered by them as a result of the acts and transactions alleged
herein;
(e) Awarding plaintiff the costs and disbursements of this
action, including a reasonable allowance for plaintiff's attorneys' and
experts' fees; and
(f) Granting such other and further relief as
may be just and proper.
Dated: April 1, 1997
WECHSLER HARWOOD
HALEBIAN & FEFFER LLP
805 Third Avenue
12
<PAGE>
New York, New York 10022
Attorneys For The Plaintiff
13
