DYNAMICS CORPORATION OF AMERICA
475 Steamboat Road
Greenwich, Connecticut 06830
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
May 2, 1997
----------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of DYNAMICS
CORPORATION OF AMERICA (the "Company"), a New York corporation, has been called
by the Board of Directors of the Company and will be held in the Cole Auditorium
of the Greenwich Library, West Putnam Avenue at Dearfield Drive, Greenwich,
Connecticut on May 2, 1997 at 10:30 A.M., for the following purposes:
(1) To elect four directors of the Company to serve for a term of two years
and until their respective successors shall have been elected and shall
qualify.
(2) To consider and act upon a proposal to ratify and approve the selection
of Ernst & Young LLP as independent auditors of the Company for the year
1997.
(3) To consider and act upon such other matters as may lawfully come before
the meeting and all adjournments thereof.
Only shareholders of record at the close of business on March 14, 1997 are
entitled to vote at the meeting and any adjournments thereof.
You are requested to fill in, date and sign the enclosed proxy, which is
solicited by the Board of Directors.
By order of the Board of Directors
HENRY V. KENSING
Secretary
Greenwich, Connecticut
March 26, 1997
- --------------------------------------------------------------------------------
IMPORTANT: Shareholders are requested to fill in, date, sign and mail the
accompanying proxy in the enclosed, self-addressed, stamped envelope regardless
of whether they expect to attend the meeting in person. The prompt return of
the proxy will save the Company the expense of further solicitation. Your
cooperation is respectfully requested.
- --------------------------------------------------------------------------------
<PAGE>
DYNAMICS CORPORATION OF AMERICA
---------------
PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS
----------------
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Dynamics Corporation of America (the
"Company") to be used at the Annual Meeting of Shareholders of the Company which
will be held in the Cole Auditorium of the Greenwich Library, West Putnam Avenue
at Dearfield Drive, Greenwich, Connecticut on May 2, 1997 at 10:30 A.M., and at
any adjournments thereof.
Shareholders who execute proxies retain the right to revoke them at any
time; unless so revoked, the shares represented by proxies will be voted at the
meeting. Proxies solicited by the Board of Directors will be voted in accordance
with the directions given therein; any such proxy on which no direction is
specified will be voted FOR the election as directors of the nominees named
herein, and FOR the ratification and approval of the selection of Ernst & Young
LLP as independent auditors of the Company for the year 1997. Management knows
of no matters to come before the meeting other than those set forth in the
Notice of Annual Meeting of Shareholders. Abstentions are not treated as votes
cast under New York law and will have no effect on the outcome of the matters to
be voted on at the meeting.
The principal executive offices of the Company are located at 475 Steamboat
Road, Greenwich, Connecticut 06830-7197. The approximate date on which this
Proxy Statement and the enclosed proxy were first sent or given to shareholders
was March 26, 1997.
Shareholders of record at the close of business on March 14, 1997 will be
entitled to one vote for each share of the Common Stock, par value $0.10 per
share, of the Company (the "Common Stock") then held. There were 3,818,766,
shares of Common Stock outstanding on March 14, 1997, of which 3,572 were
non-voting shares convertible at any time into voting shares.
ELECTION OF DIRECTORS
At the meeting, four directors will be elected to serve for a term of two
years and until the election and qualification of their respective successors.
The affirmative vote of the holders of a plurality of the shares
represented in person or by proxy at the meeting is required to elect the
nominees. The Board of Directors recommends that the shareholders vote FOR the
election of each of the nominees named below.
In the event that any of such nominees is unable or unwilling to serve as a
director, an event which the Company does not anticipate, the proxies hereby
solicited will be voted for the remaining nominees named below or for such
substitute person or persons as the Board of Directors may select.
<PAGE>
The following table sets forth information with respect to the nominees for
directors, each of whom is now a director and was elected to office by the vote
of the shareholders:
<TABLE>
<CAPTION>
Shares of
Common Stock Percent
Beneficially of Year First
Name and Age Principal Owned as of Common Became
of Nominees Occupation February 12, 1997(1) Stock Director
------------ ---------- -------------------- ------ ----------
<S> <C> <C> <C> <C>
CLASS A
(term expires 1999)
Harold Cohan--72 ......... Business Consultant 2,164 .06% 1986
Frank A. Gunther--89 ...... President, Highpoint 4,666(2) .12% 1966
Enterprises Incorporated,
radio and microwave
communications
engineering
Henry V. Kensing--63 ...... Vice President, 14,169.246(3) .37% 1977
General Counsel
and Secretary of
the Company
Andrew Lozyniak--65 ...... Chairman of the Board and 181,428.189(4) 4.75% 1970
President of the Company
</TABLE>
The following table sets forth information with respect to the Company's
other directors whose terms of office will continue after the meeting and will
expire at the 1998 Annual Meeting of Shareholders:
<TABLE>
<CAPTION>
Shares of
Common Stock Percent
Beneficially of Year First
Name and Age Principal Owned as of Common Became
of Directors Occupation February 12, 1997(1) Stock Director
------------ ---------- -------------------- ------- ----------
<S> <C> <C> <C> <C>
CLASS B
(term expires 1998)
Patrick J. Dorme--61 ...... Vice President--Finance 34,944.803(5) .92% 1985
and Chief Financial
Officer of the Company
Russell H. Knisel--63 ...... Business Consultant 904 .02% 1993
Saul Sperber--83 ............ Financial Advisor 4,279 .11% 1974
</TABLE>
- ------------
(1) In each case, beneficial ownership consists of sole voting and investment
power, except that l,000 shares of Mr. Cohan and 500 shares of Mr. Knisel are
owned jointly with their respective spouses. Beneficial ownership as of
February 12, 1997 includes common stock units credited to the accounts of
non-employee directors under the Company's Stock Retirement Plan for Outside
Directors described below. Except as referred to herein, no nominee or
director owns beneficially any security of the Company. In addition Messrs.
Dorme, Kensing and Lozyniak, as members of the Pension Committee for the
Retirement Plan for Employees of Dynamics Corporation of America, have the
right to instruct the Trustee to vote 100,000 shares of the Company's common
stock, which shares are not included in the foregoing tables.
(Footnotes continued on following page)
2
<PAGE>
(Footnotes continued from previous page)
(2) In addition, Mrs. Gunther owns 600 shares. Mr. Gunther disclaims beneficial
ownership of such shares.
(3) In addition, Mrs. Kensing owns 7,500 shares. Mr. Kensing disclaims
beneficial ownership of such shares.
(4) In addition, Mrs. Lozyniak owns 15,100 shares. Mr. Lozyniak disclaims
beneficial ownership of such shares.
(5) In addition, Mrs. Dorme owns 18,000 shares. Mr. Dorme disclaims beneficial
ownership of such shares.
----------------
There is no family relationship between any director, executive officer or
person nominated or chosen by the Board of Directors to become a director or
executive officer. There are no arrangements or understandings between any
director and any other person pursuant to which the director was selected as a
director.
The business experience of each of the nominees and directors during the
past five years is as listed above under principal occupation with the exception
of Mr. Knisel and Mr. Sperber.
Mr. Knisel's present occupation is and has been since January 1, 1994 as
listed above. Mr. Knisel retired as Vice Chairman of Shawmut Bank on December
31, 1993, a position he held for more than five years prior to his retirement.
Mr. Sperber's present occupation is and has been since February 9, 1993 as
listed above. From May 1, 1989 to February 9, 1993, Mr. Sperber was an
accountant with Salerno & Co., Certified Public Accountants.
Messrs. Lozyniak and Dorme also serve as directors of CTS Corporation, an
electronic components manufacturing company; the Company owns approximately
44.1% of the issued and outstanding common shares of CTS Corporation. Mr.
Lozyniak is also a director of Physicians Health Services, Inc., a corporation
engaged in the delivery of managed care health services.
The Company has a standing Audit Committee of the Board of Directors which
is comprised of Messrs. Cohan (Chairman), Gunther, Knisel and Sperber, and which
met twice during the year 1996. It performs the following functions: recommends
the engagement of the independent auditors, reviews the scope and the results of
the audit, reviews the recommendations and comments of the independent auditors
with respect to internal controls and the consideration given or the corrective
action taken by management, reviews internal accounting procedures and controls
with the Company's financial and accounting staff and reviews non-audit
services provided by the independent auditors.
The Company has a standing Compensation Committee of the Board of Directors
which is comprised of Messrs. Knisel (Chairman), Cohan, Gunther and Sperber and
which met once during the year 1996. It considers and acts upon all matters
dealing with executive compensation, including executive contracts, incentive
compensation plans and the 1980 Restricted Stock and Cash Bonus Plan.
The Company has no nominating or similar committee.
During the year 1996 the Board of Directors held twelve meetings. Each
director attended all of the meetings of the Board of Directors and of the
Committees on which he served, except that two directors were each absent from
one meeting of the Board of Directors and an Audit Committee member was absent
from one meeting of the Committee.
3
<PAGE>
Directors who are employees of the Company and are compensated as such
receive no additional compensation for their services as directors. Other
directors receive an annual retainer of $10,000 plus $800 as a fee for
attendance at each meeting of the Board. No fee is paid for services on any
committee of the Board.
Effective January 1, 1993, the Company agreed to reimburse outside
directors for certain covered prescription drug charges incurred by the
directors or their spouses net of any reimbursement from any other group
coverage and/or individual coverage independently arranged by the director or
his spouse. Under this program, no more than $25,000 in reimbursement may be
paid to any outside director over the entire life of the program ($50,000 in
case an outside director's spouse also participates in the program). The program
is subject to amendment or termination at the discretion of the Company. During
1996, pursuant to the program, the amount following each director's name was
paid: Harold Cohan $358; Frank A. Gunther $5,073; and Saul Sperber $1,222.
On June 26, 1986, the Company adopted The Dynamics Corporation of America
Stock Retirement Plan For Outside Directors (the "Plan"). Under the Plan,
separate accounts are opened by the Company in the names of non-employee
directors. On January 1 of each year, starting in 1987, a Deferred Stock Account
in the name of each outside director is credited with 100 Common Stock Units if
said director was an outside director of the Company on the last day of the
immediately preceding calendar year or ceased to be a director during such
preceding calendar year by reason of his retirement, disability or death. In
addition, on January 1, 1987 the Company credited to the Deferred Stock Account
of each such director 50 Common Stock Units for each complete calendar year of
his service to the Company as an outside director prior to January 1, 1986. Each
Deferred Stock Account will also be credited with Common Stock Units when
credits equivalent to cash dividends on the shares in an account aggregate an
amount equal to the value of a share of Common Stock on a dividend payment date.
All Deferred Stock Units in a director's account will be distributed in Common
Stock as of January 1st after the director leaves the board from treasury shares
held by the Company. Until such time the Company's obligation under the Plan is
an unsecured promise to deliver shares of Common Stock. No Common Stock will be
held in trust or as a segregated fund because of the Plan. In 1996 four members
of the Board of Directors were eligible to participate in the Plan. The Company
expensed an aggregate of $11,300 in respect of Common Stock Units credited on
January 1, 1997 to the accounts of the eligible directors as a group for the
year 1996 pursuant to the Plan.
Security Ownership of Certain Beneficial Owners
On or about January 1, 1997, to the knowledge of the Company, the following
table shows the only entities which owned beneficially more than 5% of the
Common Stock issued and outstanding on that date.
4
<PAGE>
<TABLE>
<CAPTION>
Name and Address Number of Percent of
of Beneficial Owner Shares(1) Class
------------------- --------- ----------
<S> <C> <C>
GAMCO Investors, Inc. ............... 708,600 18.59%
Gabelli Funds, Inc. .................. 153,000 4.01%
Gabelli International, Limited ...... 2,000 .05%
One Corporate Center
Rye, NY 10580-1435
Dimensional Fund Advisors Inc.
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401 ...... 311,950 8.19%
Steel Partners, II, L.P. ............ 209,700 5.50%
Steel Partners Services, Ltd.
Warren Lichtenstein
750 Lexington Avenue, 27th Floor
New York, New York 10022
</TABLE>
- ------------
(1) Information with respect to beneficial ownership is based on information
furnished by the beneficial owners named above. Under the rules of the
Securities and Exchange Commission, beneficial ownership is determined by
the possession of either voting or investment power.
Each of the above Gabelli entities has the sole power to vote or direct
the vote and sole power to dispose or to direct the disposition of the
securities reported for it, either for its own benefit or for the benefit
of its investment clients or its partners, as the case may be, except that
GAMCO Investors, Inc. does not have authority to vote 56,500 of the
reported shares, and except that Gabelli Funds, Inc. shares with the Board
of Directors of The Gabelli Asset Fund, The Gabelli Growth Fund, The
Gabelli Convertible Securities Fund and/or The Gabelli Value Fund Inc.
voting power with respect to the 153,000 shares held by such funds, so long
as the aggregate voting interest of all joint filers does not exceed 25% of
the issuer's total voting interest and, in that event, the Proxy Voting
Committee of each fund shall respectively vote that fund's shares.
Dimensional Fund Advisors Inc. has asked that the following language be
used when describing the beneficial ownership of the shares it holds.
Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, is deemed to have beneficial ownership of 311,950 shares of
Dynamics Corporation of America stock as of December 31, 1996, all of which
shares are held in portfolios of DFA Investment Dimensions Group Inc., a
registered open-end investment company, or in series of The DFA Investment
Trust Company, a Delaware business trust, or the DFA Group Trust and the
DFA Participating Group Trust, investment vehicles for qualified employee
benefit plans, all of which Dimensional serves as investment manager.
Dimensional disclaims beneficial ownership of all such shares. Dimensional
has sole voting power over 180,050 shares and officers of DFA Investment
Dimensions Group Inc. and The DFA Investment Trust Company vote 131,900
shares.
----------------
All officers and directors of the Company as a group owned as of February
12, 1997 an aggregate of 261,418 shares of Common Stock or approximately 6.8% of
the Common Stock issued and outstanding on that date.
5
<PAGE>
Compliance with Section 16(a) of the Securities Exchange Act of 1934
To the Company's knowledge, based solely on its review of the copies of
changes of ownership of Common Stock and other equity securities furnished to
the Company and written representations that no other reports were required to
be filed during the year 1996 and to date, all Section 16(a) filing requirements
applicable to its officers, directors and greater than ten percent beneficial
owners were complied with.
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
Stock All Other
Name and Principal Position (5) Year Salary($)(1) Bonus($)(2) Awards($)(3) Compensation($)(4)
------------------------------- ---- ------------ ----------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
Andrew Lozyniak, Chairman of the Board
and President ........................... 1996 351,489 -- -- 14,792
1995 341,802 -- -- 14,250
1994 333,316 -- 147,500 11,888
Henry V. Kensing, Vice President, General
Counsel, Secretary and a Director ...... 1996 182,568 10,000 -- 5,831
1995 177,536 10,000 -- 5,651
1994 173,123 10,000 110,625 5,405
Patrick J. Dorme, Vice President - Finance,
Chief Financial Officer and a Director ... 1996 151,749 10,000 -- 4,571
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:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
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 compensation called
7
<PAGE>
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>
<TABLE>
<CAPTION>
Estimated Years of
Annual Credited Service
Retirement As of
Benefits January 1, 1997
---------- ----------------
<S> <C> <C>
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
</TABLE>
- ----------
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 employment agreements, the Company will provide
9
<PAGE>
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:
<TABLE>
<S> <C>
Andrew Lozyniak ...... $175,744
Patrick J. Dorme ...... $ 80,642
Henry V. Kensing ...... $ 80,027
</TABLE>
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 account as an investment and not with a view to, or for sale in
11
<PAGE>
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>
STOCK PERFORMANCE CHART
The following graph compares the cumulative total stockholder return on the
Corporation's Common Stock for the last five fiscal years with the cumulative
total return on the Wilshire 5000 Equity Index and the S&P Hi-Tech Index over
the same period.
FIVE YEAR CUMULATIVE
TOTAL RETURNS
- --------------------------------------------
[box] Dynamics Corporation of America
[diamond] S&P High Tech Composite
[open box] Wilshire 5000
- --------------------------------------------
<TABLE>
<CAPTION>
CUMULATIVE GROWTH OF $100
Date S&P High Tech Wil. 5000 Dynamics Corp.
<S> <C> <C> <C>
12/31/91 $100 $100 $100
12/31/92 $104 $109 $129
12/31/93 $128 $121 $151
12/31/94 $149 $121 $207
12/31/95 $215 $165 $251
12/31/96 $305 $200 $292
</TABLE>
For the Year Ended December 31
Assumes $100 invested on January 1, 1992 in Dynamics Corporation of America
common stock, Standard & Poor's Hi-Tech Composite, and Wilshire 5000 Equity
Index. Assumes reinvestment of dividends.
PROPOSAL TO RATIFY AND APPROVE THE SELECTION
OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS
OF THE COMPANY FOR THE YEAR 1997
The Company is submitting for approval by the shareholders the Board of
Directors' selection of Ernst & Young LLP as auditors to examine the
consolidated financial statements of the Company for the fiscal year ending
December 31, 1997. The Audit Committee of the Board of Directors concurs in this
recommendation. The firm has served as the Company's auditors since 1972.
If the shareholders do not approve the selection of Ernst & Young LLP to
serve as auditors, the directors will, under authority of the By-laws, appoint
other auditors.
Representatives of Ernst & Young LLP will be present at the meeting. They
will have the opportunity to make a statement if they desire to do so and will
be available to respond to appropriate questions from the shareholders.
Ernst & Young LLP's auditing-related fees for 1996 aggregated $265,000.
The Board of Directors recommends a vote FOR the ratification and
approval of Ernst & Young LLP as independent auditors of the Company for the
year 1997. The affirmative vote of the holders of the majority of the shares
represented in person or by proxy at the meeting is required for such
ratification and approval.
15
<PAGE>
DATE FOR PROPOSALS FOR NEXT YEAR'S MEETING
Any proposal of a shareholder intended to be presented at the next Annual
Meeting of Shareholders must be received by the Company for inclusion in its
proxy statement and form of proxy relating to that meeting no later than
November 30, 1997.
MISCELLANEOUS
The Company will bear the cost of preparing, assembling and mailing the
proxy, this Proxy Statement and other material which may be sent to shareholders
in connection with this solicitation. Solicitation may be made by mail,
telephone, telegraph and personal interview. The Company may reimburse persons
holding shares in their names or in the names of nominees for their expense in
sending proxies and proxy material to their principals. In addition, the Company
has retained Morrow & Co. at a cost to the Company of $5,000 to aid in the
solicitation of proxies.
The Annual Report of the Company for its fiscal year ended December 31,
1996 is enclosed.
By order of the Board of Directors
HENRY V. KENSING
Secretary
Greenwich, Connecticut
March 26, 1997
16
PROXY PROXY
DYNAMICS CORPORATION OF AMERICA
475 Steamboat Road, Greenwich, CT. 06830
This Proxy is solicited on behalf of the Board of
Directors.
The undersigned, revoking all previous proxies, hereby appoints A.
LOZYNIAK and H. V. KENSING, or either of them, attorneys and proxies with power
of substitution and with all the powers the undersigned would possess if
present, to vote all shares of the common stock of DYNAMICS CORPORATION OF
AMERICA (the "Company") registered in the name of the undersigned, at the Annual
Meeting of Shareholders to be held on May 2, 1997 at 10:30 A.M. in the Cole
Auditorium of the Greenwich Library, West Putnam Avenue at Dearfield Drive,
Greenwich, Connecticut, and any adjournments thereof, as more fully described in
the accompanying Proxy Statement of the Company dated March 26, 1997.
The shares represented hereby will be voted as directed by this proxy, but if no
determination is made they will be voted FOR the election of all nominees and
FOR the selection of Ernst & Young LLP as independent auditors of the Company
for the year 1997.
MANAGEMENT RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSALS:
---
1. ELECTION OF DIRECTORS
Nominees: Harold Cohan, Frank A. Gunther, Henry V. Kensing and Andrew Lozyniak
FOR all nominees WITHHELD from all nominees
/ / / /
- --------------------------------------------------------
For all nominees except as noted above
2. Proposal to ratify and approve the selection of Ernst & Young LLP as
independent auditors of the Company for the year 1997.
/ / FOR / / AGAINST / / ABSTAIN
3. In their discretion upon such other matters as may lawfully come before the
meeting and all adjournments thereof.
Signature __________________________________
Date _______________________________________
Signature___________________________________
Date _______________________________________
NOTE: Please date and sign exactly as your name(s) appear(s). If acting
as attorney, executor, trustee, or in any other representative
capacity, sign name and title.
