<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1994 Commission File Number 1-5237
------------------------
E-SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 75-1183105
(STATE OR OTHER (I.R.S. EMPLOYER
JURISDICTION OF IDENTIFICATION
INCORPORATION OR NUMBER)
ORGANIZATION)
6250 LBJ Freeway, P.O. Box 660248, Dallas,
Texas 75266-0248
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES
INCLUDING ZIP CODE)
</TABLE>
Registrant's telephone number, including area code:
(214) 661-1000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
NAME AND EXCHANGE
TITLE OF CLASS ON WHICH REGISTERED
------------------------------------ -----------------------------
<S> <C>
Common Stock, $1.00 Par Value New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates
of the registrant as of March 3, 1995.
COMMON STOCK $1.00 PAR VALUE, $1,209,232,781
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of March 3, 1995.
COMMON STOCK, $1.00 PAR VALUE -- OUTSTANDING SHARES, 34,129,500
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement dated March 24, 1995 are
incorporated by reference into Part III.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS
The Company was incorporated in Delaware in 1964. The Company designs,
develops and produces advanced electronic systems and products, primarily for
sale in defense related markets, and provides various related technical
services. The Company's largest business segments are the design, development
and production of reconnaissance and surveillance systems and command, control
and communications systems which represented approximately 75% of the Company's
sales in 1994. The Company also designs, develops and manufactures intelligence
collection and processing systems, which through reconnaissance and surveillance
activities collect radio frequency signals and images, process that data,
correlate it with other information ("fusion"), and communicate the information
to users including various decision makers, such as battlefield tactical
commanders and the National Command Authority. In addition, the Company produces
navigation and control systems, and performs aircraft maintenance and
modification and other services.
Approximately 91% of the Company's sales in 1994 were made under contracts
with the U.S. Government or to prime contractors with the U.S. Government and
approximately 6% were to international customers (principally governments). A
substantial portion of the Company's business is conducted under contracts which
carry governmental security classifications, many of which prohibit the
disclosure of any of the information concerning the nature of the work being
done.
The sales and operating profits of the Company's business segments for the
three years ending December 31, 1994, are set forth in tables at page 40 of this
Annual Report on Form 10-K.
The backlog believed to be firm at December 31, 1994 was $2,631 million
compared to $2,133 million at December 31, 1993. Approximately 72% of the
backlog is represented by contracts with the U.S. Government and prime
contractors, excluding foreign military sales contracted directly with the U.S.
Government. The backlog figures consist of the sales value of U.S. Government
contracts and subcontracts which have been contractually documented and for
which funds have been authorized by the procuring agency and contracting
authority, and the aggregate sales price of firm orders for undelivered
nongovernment business. Approximately 69% of the backlog at December 31, 1994 is
expected to result in sales during 1995, and the remainder is expected to result
in sales in subsequent years. Except for the P-3C contract with the Royal
Australian Air Force which accounts for 17% of backlog at December 31, 1994, no
other single contract accounts for more than 10% of the Company's backlog.
RECONNAISSANCE AND SURVEILLANCE
The Company believes that it is a leader in design, development and
integration of sophisticated reconnaissance and surveillance systems. These
systems include signal intelligence systems (i.e., communications and electronic
intelligence systems), intrusion detection systems, electronic support measures
and automated, remotely controlled reconnaissance systems. A wholly owned
subsidiary of the Company, Engineering Research Associates, Inc., headquartered
in Vienna, Virginia ("ERA"), designs and develops high frequency surveillance
systems. Another wholly owned subsidiary, HRB Systems, Inc., ("HRB")
headquartered in State College, Pennsylvania, designs and develops signal
collection, processing and analysis systems, which complement the Company's
activities in the intelligence and reconnaissance systems market.
Strategic reconnaissance and surveillance systems produced by the Company
utilize technically advanced sensors, receivers, electro-optical devices,
processing equipment, computers and display and communications devices which
detect, locate and analyze hostile electromagnetic signals and other data. These
systems provide information as to the location and sources of such signals and
the functions, operating characteristics and intentions of such sources. The
systems consist of various electronic components and other materials
manufactured by the Company and others, which are integrated to perform
functions specified by customers. Many systems are integrated using complex
interconnection and processing equipment such as mini-computers and
micro-processors together with related software.
2
<PAGE>
These versatile systems are adaptable to meet evolving needs such as
arms-control verification, drug interdiction and improved submarine detection.
As an example, one program calls for the design, development and production of a
transportable ground station integrating multi-sensor processing and
dissemination of strategic and tactical imagery. It will provide, for the first
time, near real-time imagery intelligence to tactical commanders. Each system
will be specifically tailored to the particular branch of the service to which
it is assigned and to the commander's unique needs.
The Company has developed reconnaissance and surveillance systems which
operate in all environments. The Company's activities in the field of airborne
reconnaissance and surveillance systems also involve the modification of
aircraft, the installation of the systems, flight testing and technical support
and maintenance service for the systems.
The Company generally engages in the design, development and production of
reconnaissance and surveillance systems under a number of separate contracts,
each of which involves relatively few units of production.
COMMAND, CONTROL AND COMMUNICATIONS
The Company develops and produces a broad range of systems and products for
instantaneous communication via line-of-sight, satellites or integrated
networks. These systems receive information that is gathered by advanced
electronic means and conventional measures such as radar, photo reconnaissance
and radio. The information is then transmitted to data processing systems and is
displayed in a command center in a form which can readily be used to command and
control forces and to monitor rapidly changing strategic and tactical events.
These systems include communications (both analog and digital), large scale data
processing, software, data link terminals, antennas and display equipment.
The Commanders Tactical Terminal is a joint service, interoperable system
using airborne relays to disseminate and receive intelligence information to
widely dispersed field units on a near real-time basis. The Company is
developing a high-priority survivable communications integration system for the
U.S. Space Command. It uses microwave, satellite, land lines, fiber optics,
sensors and processors to provide secure and accurate communications between
U.S. early warning stations and The North American Air Defense Command ("NORAD")
in Colorado Springs.
The Company produces a transportable, interoperable and self-contained
signal intelligence system called Celtic, which provides a readily
reconfigurable system to support signal acquisition or a combination of signal
acquisition and direction finding. Celtic is one of the fundamental building
blocks E-Systems is using to expand in the international marketplace.
A ground-based system developed by the Company, Vista Flight Net, enhances
weather and flight information for the Federal Aviation Administration's Flight
Service Stations, making current and accurate information more readily available
to the general aviation pilot.
The emergence of the so-called "Information Highway", and its opportunities
for massive data exchange, is leading to demands for increased levels of
integrity and privacy in data systems. E-Systems has a family of products called
TeleSecurity-TM- which build on defense security communications systems and have
been developed as inexpensive and superior wide area network security systems
which control remote access to protected resources.
The Company produces a Multi-mission UHF Satcom Transceiver ("MUST"), a full
duplex radio, which combines state-of-the-art modem and transceiver functions
into a single unit. As the smallest airborne demand assured multiple access and
interoperable radio available today, the MUST transceiver supplies upgrades
while simplifying existing communication systems. E-Systems has also developed
key components of the Government Emergency Telecommunications Service ("GETS").
This service allows priority status for officials and emergency support
personnel to establish communication over public telephone networks in times of
crisis.
3
<PAGE>
E-Systems also designed and furnishes the Data Distribution System, a key
element of the United States Navy's Cooperative Engagement Capability, which
provides a highly reliable secure data communication link to distribute real
time sensor information for ship defense. Threat tracking information is shared
interactively between all ships and aircraft in the same battle group.
The Company also produces mobile command and control facilities which can be
airlifted anywhere in a worldwide command mission area. These shelters are
self-contained command centers for the control of airlift operations from
tactical airfields which have no other communications facilities in place. They
provide secure line-of-sight or satellite data and voice communications. These
systems were used during the Iraq-Kuwait war in the Middle East.
NAVIGATION AND CONTROLS
The Company develops and manufactures automatic control products for
aircraft, missile steering and tracking systems, and aircraft navigation aids.
Substantially all Boeing commercial jet aircraft, including the 757 and 767
aircraft, flown by domestic and international airlines are equipped with flight
controls designed and manufactured by the Company. Flight controls are sold to
manufacturers as original equipment and to airlines as replacements. The Company
also produces an automatic pilot module for the Boeing 737 and 757. The
Company's flight control systems provide the pilot with computer measured
responses to stress on aircraft control surfaces or perform other precision
control functions.
The Company manufactures portable tactical air navigation systems for
military use to assist pilots in landing at remote or unimproved locations.
AIRCRAFT MAINTENANCE AND MODIFICATION
The Company provides maintenance, repair and modification services for
commercial, executive and military aircraft of all types. Other similar work by
the Company involves U.S. Air Force aircraft which are regularly returned to the
Company for maintenance and systems updating. In addition, the Company maintains
field teams for servicing and operational support throughout the world. The
Company also has designed and installed a number of executive or head-of-state
custom interiors in various types of aircraft. The Company and a wholly owned
subsidiary, Serv-Air, Inc., performs special services such as facilities
operations, logistics and support, electronics repair, computer based training
and simulation systems and base management and support services at various
military installations in both the continental United States and worldwide.
The Company provides worldwide technical and logistics support for the
United States Air Force fleet of KC-10 aircraft used for in-flight refueling and
cargo transport. Logistics support includes an on-line computerized inventory
management system, which supports material procurement, inventory control and
specialized repair and overhaul activity for more than 10,000 line items.
Serv-Air, at a Government facility in Lexington, Kentucky, converts crash
damaged Apache helicopters into training devices. The Company also provides
contract field teams on call to modify, maintain or repair aircraft, watercraft,
vehicles and heavy support equipment for the U.S. military forces anywhere in
the world.
The Company has won key contracts to provide extensive modifications for two
significant fleets of P-3C "Orion" Maritime Patrol Aircraft. The first such
contract provides the Royal Australian Air Force fleet of P-3C aircraft with
major upgrades to all mission equipment and cockpit displays, communications and
navigation systems and integration of new mission equipment into the aircraft.
The second such contract involves manufacture and replacement and/or repair of
major structural components along with upgrades to other aircraft systems on the
fleet of P-3C aircraft operated by the U.S. Navy.
Operating from 17 fixed sites and additional remote sites, E-Systems
maintains a fleet of 150 aircraft for the U.S. Customs Service. These aircraft
are equipped with sophisticated airborne avionics sensor systems, including
downward and forward looking infrared sensors. The Company also performs work
for the Federal Aviation Administration on its flight inspection fleet of
aircraft used to
4
<PAGE>
verify the accuracy and integrity of the country's en route flight guidance
system and approach and takeoff airport guidance and control. The Company has a
contract to modify four Lear Jet Model 60 aircraft and a Challenger 601-3R
aircraft for the Federal Aviation Administration in connection with this
program.
OTHER PRODUCTS AND SERVICES
As the defense budget declines, the Company is devoting many of its
resources and competencies into systems suited for non-defense Government and
commercial customers using leading edge technologies developed for the
Department of Defense. Although none of the current programs contribute a
significant amount of sales or profits to the Company, management believes that
some of these projects will lead to business areas which may offer growth
potential and make contributions to earnings within the not too distant future.
Examples of the initiatives throughout the Company include the harnessing of
surveillance technology developed for the Department of Defense into products
which can provide nondisruptive means to detect traffic incidents and to
estimate traffic volume and flow rates. This system, developed in part with a
Government grant, is designed to reduce congestion on the public highways and is
expected to be part of a national intelligent vehicle highway plan. Other
products aimed at the transportation industry uses existing GPS technology to
develop real time systems for fleet management, location and status of mass
transit vehicles.
Several of the Company's divisions are working on initiatives in the medical
and health care industry. The Company manufactures teleradiology and in-hospital
image distribution systems. Also, the Company's PAC's system (Picture Archiving
and Communications System) is the core element of a comprehensive image
management and communications system within a major medical center.
The Company has joined Lockheed Missiles & Space Co., Inc. in a venture to
establish a commercial remote sensing system to provide high resolution
satellite images for commercial applications.
The Company is performing contracts involving large data handling
capabilities to apply this knowledge to the Federal Student Loan program.
Designed to detect and locate those who default on student loans, the system
provides support for the United States Health, Education and Welfare Department.
The Company's INFOSEC systems offers a completely secure information storage
and retrieval system to protect both Government and civilian sensitive data.
INFOSEC automates information processing through consolidation of data systems
using media encryptors and encrypted compact discs.
In 1994, the Company established a new subsidiary, EMASS, Inc., to complete
development and assure quality control for a commercial product line of complex,
computer-based digital data storage systems for easy information retrieval and
rapid transmission to the users. Today, the Company's
EMASS-Registered Trademark- Data Storage and Retrieval System is being marketed
to energy exploration companies and other Government and commercial customers
with huge databases to maintain and access.
A wholly owned subsidiary of the Company, Serv-Air, Inc., provides base
support to four major U.S. Army Commands, maintaining infrastructure, utilities
and services equivalent to those required in a large city. Primary functions
include facility engineering, utility systems, operations and repair, equipment
and vehicle maintenance, audio visual services, supply and inventory control,
housing management, transportation and various administrative efforts.
GOVERNMENT CONTRACTS
Companies engaged primarily in supplying defense related equipment to the
Government are subject to certain business risks unique to that industry. Among
these are dependence on Government appropriations, changing policies and
regulations, complexity of design and rapidly changing technologies and possible
cost overruns. Since the Government usually awards or funds contracts for only
one
5
<PAGE>
year at a time, the Company's business depends primarily upon such relatively
short-term contracts, the periodic exercise by the Government of contract
options and annual funding of continuing contracts.
Approximately 55% of the Company's current Government contracts are firm,
fixed price contracts accounting for approximately $1.4 billion of backlog.
Under this type of contract, the price paid to the Company is not subject to
adjustment by reason of the costs incurred by the Company in the performance of
the contract, except for costs incurred due to contract changes ordered by the
Government. Multi-year fixed price contracts normally allow for price revision
based on U.S. Government price indices.
The Company incurs significant work-in-process costs in the performance of
United States Government contracts. However, the Company is usually entitled to
invoice the U.S. Government for monthly progress payments on fixed price
contracts and twice-monthly on some cost reimbursable contracts. The Government
reduced the progress payment rate on fixed price contracts from 85% to 75%,
increasing the Company's working capital requirements. The Company does not
normally acquire inventory in advance of contract award, and the Company does
not maintain significant stocks of finished products for sale. Government
progress payments affect the amount of working capital necessary for the Company
to finance work-in-process costs in the performance of these contracts. The
Government does not recognize interest or other costs associated with the use of
capital and, therefore, progress payment reductions may have adverse effects on
the Company's profitability.
The Company also performs work for the Government under cost reimbursable
and incentive type contracts. Cost reimbursable contracts provide for
reimbursement of costs incurred, to the extent such costs are allowable under
Government regulations, plus a fee. Under incentive type contracts, the amount
of profit or fee realized varies with the attainment of incentive goals such as
costs incurred, delivery schedule, quality and other criteria. Fixed price
contracts normally carry a higher profit rate than cost reimbursable and
incentive type contracts to compensate for higher business risk. In addition,
government law and regulation provides that certain types of costs may not be
included in either the directly-billed cost or the indirect overheads for which
the government is responsible. Many of these so-called "unallowable" costs
include ordinary costs of doing business in a commercial context. These costs
must be borne out of the pretax profit of the corporation and, thus, tend to
reduce margins on government work.
The so called "unallowable costs", which are not recoverable as a cost of
business on Government contracts, although they are ordinary and necessary costs
of doing business in the commercial context, are spelled out in Government
acquisition regulations which do not permit contractors to bill the Government
directly or indirectly for specified kinds of costs on Government cost
reimbursement contracts, and do not allow these costs to be included in the
bidding and pricing structure of negotiated fixed price contracts. The
allowability or unallowability of such costs and other similar costs are covered
in detail in the Federal Acquisition Regulations. Examples of such unallowable
costs, including costs which are generally regarded as ordinary and necessary
business expenses are: public relations and advertising costs; contributions to
local civil defense funds and projects; donations; business entertainment;
independent research and development costs and bid and proposal costs over a
negotiated ceiling; insurance costs to protect from the cost of correcting
defects in material and workmanship; interest on borrowings and other financial
costs, including costs associated with raising capital; lobbying; organizational
costs including pursuit of mergers and acquisitions; patent and intellectual
property costs not specifically required by contract; reconversion costs;
employee relocation costs (with exceptions); compensation in excess of specific
levels and travel and per diem costs in excess of those reimbursed to government
employees and certain legal fees.
Any Government contract may be terminated for the convenience of the
Government at any time the Government believes that such termination would be in
its best interests. Under contracts
6
<PAGE>
terminated for the convenience of the Government, the Company is entitled to
receive payments for its allowable costs and, in general, a proportionate share
of its fee or profit for the work actually performed.
Recognition of profits is based upon estimates of final performance, which
may change as contracts progress. Work may be performed prior to formal
authorization or adjustment of contract price for increased work scope, change
orders and other funding adjustments. Because of the complexity of Government
contracts and applicable regulations, contract disputes with the Government
occur in the ordinary course of the Company's business. The resolution of such
disputes may affect the profitability of the Company in performing these
contracts. The Company believes that adequate provision has been made in its
financial statements for these and other normal uncertainties incidental to its
Government business.
Changes to procurement regulations in recent years, as well as the
Government's drive against "fraud, waste and abuse" in defense procurement
systems have increased the complexity and cost of doing business with the
Government. Some of these changes have redefined the ability to recover various
standard business costs which the Government will not allow, in whole or in
part, as the cost of doing business on Government contracts. Other legal and
regulatory practices have increased the number of auditors, inspectors general
and investigators to the point that the Company, like every other major
Government contractor, is the constant subject of audits, investigations and
inquiries concerning various aspects of its business practices.
The Company regards charges of violation of government procurement
regulations as extremely serious and recognizes that such charges could have a
material adverse effect on the Company. If the Company is determined to be in
noncompliance with any of the applicable laws and regulations, the possibility
exists of penalties and debarment or suspension from receiving additional
Government contracts.
INTERNATIONAL SALES
The distribution of the Company's international sales is shown on the table
set forth on Page 39 of the Company's 1994 Consolidated Financial Statements
included herein. These sales are primarily export sales.
Reconnaissance and surveillance systems, high altitude platforms and
ground-based transportable aircraft navigation systems are the principal source
of international sales revenues of the Company. Since most of the Company's
export sales involve technologically advanced products, services and expertise,
U.S. export control regulations limit the type of products and services that may
be offered and the countries and governments to which sales may be made.
Consequently, the Company's international sales may be adversely affected by
changes in U.S. Government export policy. In addition, the Company's
international sales are subject to risks inherent in foreign commerce, including
currency fluctuations and devaluations, changes in foreign governments and their
policies, differences in foreign laws and difficulties in negotiating and
litigating with foreign sovereigns. The Company believes that it has mitigated
certain of these risks by obtaining letters of credit and advance payments and
by denominating contracts in U.S. dollars where possible.
COMPETITION
With the recent end of the "Cold War" and substantial reductions in defense
budgets for the procurement of military systems and equipment, the Company
believes that its niche business in the reconnaissance, surveillance and
intelligence market will be funded at a level which is less drastically cut than
other elements of the defense budget. Therefore, the Company has found that its
business has become even more attractive to competitors and competition has
intensified.
The Company faces intense competition with respect to all of its products
and services. Many of the Company's significant competitors are, or are
controlled by, companies which are larger and have substantially greater
financial resources than the Company. The Company also competes with small
7
<PAGE>
companies operating within a particular business segment. Sales are made
principally through competitive proposals in response to requests for bids from
U.S. Government agencies and prime contractors. The principal competitive
factors are price, technology, service and ability to perform.
The Company's business consists largely of projects which involve the
production of a relatively small number of units. Due to the diversity and
specialized nature of the products produced and the governmental security
restrictions applicable to many of the Company's activities, the Company cannot
determine its market position in significant areas of its business. However, the
Company believes that it is one of the leading manufacturers of reconnaissance
and surveillance systems.
RESEARCH AND DEVELOPMENT
Research and development and the Company's technological expertise have been
important factors in the Company's growth. A substantial portion of the
Company's business consists of research and development oriented products
conducted under cost reimbursable contracts, many of which also result in the
production of prototype hardware and systems. It is not possible to estimate
separately the value of the research and development portion of these contracts
as compared to the preproduction and prototype portion.
In 1994, the Company spent approximately $55.4 million on product research,
design and development related to U.S. Government contracts (in addition to the
activities described in the above paragraph). This compares to approximately
$53.2 million in 1993 and $53.9 million in 1992 and includes research,
development and engineering and costs incurred to submit bids and proposals for
the Company's highly technical products and services to its customers. Most of
the expenditures during these periods were recovered by the Company pursuant to
independent research and development agreements negotiated with the U.S.
Government. These agreements generally provide that the research and development
costs up to specified ceiling limits and for specified efforts may be included
in the overhead expense charged to certain Government contracts and recovered as
part of the contract price.
RAW MATERIALS
The Company's products require a wide variety of components and materials.
The Company has multiple external sources for most of the components and
materials it uses in production and produces certain components and materials
internally. Although the Company has experienced shortages and long lead times
for certain components and materials, such shortages and long lead times have
not had a material effect on the Company's business, and the Company believes
that the sources and availability of its raw materials are adequate.
ENVIRONMENTAL PROTECTION
Federal environmental regulation of the electronics manufacturing industry
is effected primarily through the Environmental Protection Agency ("EPA").
Regulations promulgated and proposed by the EPA, as well as state and local
authorities, contain detailed provisions governing the types and amounts of
waste generated from the electronic manufacturing process and the manner of
disposal of such waste. Federal "Superfund" legislation mandates the clean-up of
toxic waste sites, which may include sites used by the Company and others in the
electronics manufacturing industry. See "Item 3. Legal Proceedings,
ENVIRONMENTAL MATTERS".
EMPLOYEES
At December 31, 1994, the Company employed approximately 16,000 persons,
approximately 42% of whom are engineers, scientists and highly skilled
technicians. Approximately 2,000 of the Company's employees are covered by
collective bargaining agreements with various unions. The Company considers its
employee relations to be good.
8
<PAGE>
PATENTS, TRADEMARKS AND LICENSES
The Company is a high technology company and, as such, is a holder of
numerous patents. In addition, the Company is a party to various license
agreements and has registered trademarks for a number of its products. None of
the business segments of the Company are materially dependent upon patents,
licenses, or trademarks.
ITEM 2. PROPERTIES.
The Company occupies buildings which contain approximately 7,615,000 square
feet of floor space. Approximately 1,900,000 square feet are owned by the
Company and the remaining 5,715,000 square feet are leased. Approximately 49,000
square feet of space are leased (or subleased) to non-affiliated persons. The
principal plants and offices are located as follows:
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE FEET
LOCATION FLOOR SPACE DESCRIPTION
---------------------------------- --------------- ------------------------------------------------------------
<S> <C> <C>
Greenville, Texas 2,936,000 Offices, engineering, research and development, production:
airborne electronic systems installation, aircraft
overhaul and maintenance.
Garland, Texas 1,407,000(a) Offices, engineering, research and development, production:
radiation laboratory, electronic components, high powered
transmitters, radar antennas and other products.
St. Petersburg, Fla. 583,000(b) Offices, engineering, research and development, electronic
assembly, production: communication systems and equipment
and electronic data handling systems.
Loudoun County, Falls Church and 808,000(c) Offices, engineering, research and development, production:
Fairfax County, Va. electronic warfare and electronics.
Salt Lake City, Utah 180,000 Offices, engineering research and development, production:
electro-mechanical, navigation and automatic controls.
State College, Penn. 327,000 Offices, engineering, research and development, production:
electronic warfare.
Dallas, Texas 80,000(d) Corporate offices.
Other Properties 1,243,000(e) Offices, production and depot maintenance of electronic
equipment and systems.
<FN>
------------------------
(a) Approximately 977,000 square feet are owned by the Company.
(b) Approximately 559,000 square feet are owned by the Company.
(c) Approximately 205,000 square feet are owned by the Company.
(d) Owned by the Company.
(e) This includes approximately 899,000 square feet at various locations owned
by the United States Government and operated by the Company.
</TABLE>
The plant located at Greenville, Texas, is held under a lease, which expires
as of October 1, 2017. A portion of the Garland, Texas, facilities of the
Company is held under a lease which expires June 1, 2001, with options to renew
for seven successive five-year periods. The Falls Church, Virginia, facility is
held under a lease which expires in December 2005, with an option to extend for
five years. The plant located at Salt Lake City, Utah, is held under a lease
which expires in October 1999, with options to renew the lease for two
successive five-year periods.
9
<PAGE>
The facilities located at State College, Pennsylvania are held under various
leases expiring from June 1992 to December 2005 with options to renew, ranging
from ten years to multiple five-year periods.
All real property and buildings are suitable for the Company's business and
are generally fully utilized. The plants, machinery and equipment owned and
leased by the Company are well maintained and suitable for its operations.
ITEM 3. LEGAL PROCEEDINGS.
ENVIRONMENTAL MATTERS
ORANGE COUNTY, FLORIDA. An administrative proceeding was instituted in 1984
by the EPA and the Florida Department of Environmental Regulation against
approximately 150 entities, including the Company, for disposal of hazardous
waste at the City Chemical Company, Inc. hazardous waste recycling plant in
Orange County, Florida. The extent of the Company's contribution of hazardous
waste to that plant was estimated at 6.55% of the total waste deposited at the
site.
In conjunction with other Potentially Responsible Parties ("PRP's"), the
Company conducted a Remedial Investigation/Feasibility Study to define the
parameters of needed remedial action. Based upon that study, a Record of
Decision was issued by the EPA on March 29, 1990. In that decision the capital
cost of the selected remedial measure was estimated at $1,516,725. Estimated
operations and maintenance expenditures over a ten year period at the site are
approximately $3,000,000. The EPA entered into a settlement agreement with the
Company and approximately 130 other PRP's to finance the remedial program. A
Consent Decree to effect that program was entered at the U. S. District Court
for the Middle District of Florida on December 9, 1991. The design of the
remedial program was completed in 1992. A contract for implementation of that
design was awarded on January 20, 1993 with construction completion expected in
early 1995. Since the date of the initial Consent Decree, a substantial number
of PRP's have exercised their right to buy-out of their liability at this site
by paying a substantial premium above their volumetric contribution. As a result
of those payments, no payment by the Company has been required to implement the
construction of the remedial program; however, at the 80% construction
completion point, the EPA demanded, pursuant to the Consent Decree, that the
PRP's replenish the trust account by funding it to 120% of the initial program
cost estimate. This required the Company to make a payment of approximately
$110,000 in 1994. The trust account will be used for annual operations and
maintenance expenditures. Should overruns occur, they will be funded at
approximately 11% by the Company. However, the Company currently anticipates no
further liability at this site.
PINELLAS COUNTY, FLORIDA. During a preliminary environmental audit of the
Pinellas Trail (jogging trail) in St. Petersburg, Florida, soil samples taken
adjacent to the Company facilities revealed contamination levels which are
expected to require remediation. An environmental consultant performed a site
characterization analysis to define the extent of the contamination. While the
characterization study has not been completed, preliminary findings indicate
that contamination has migrated approximately 475 feet downstream from its
source and has been detected at a depth of approximately 60 feet. A pump and
treat system is expected to remediate the contamination plume. Initial cost
estimates provided by the Company's environmental consultant, indicate that
remedial system installation should cost approximately $500,000 with annual
recurring operations and maintenance expenditures of approximately $35,000.
SIMPSONVILLE, SOUTH CAROLINA. An Administrative Proceeding was instituted
in 1987 by the EPA against the Company, along with other entities, for
environmental response costs at the Golden Strip Septic Tank National Priority
List (NPL) Site in Simpsonville, South Carolina. The EPA alleges that the
Company and its predecessor corporation, LTV, disposed of hazardous waste at
this site at various times prior to 1975. Documents relating to these
allegations have been destroyed due to the significant lapse of time between the
cessation of operations of the Golden Strip Site in 1975 and the notification to
the Company from the EPA in 1987. The Company and other Potentially Responsible
Parties
10
<PAGE>
formed a group to conduct a Remedial Investigation/Feasibility Study. That study
developed and analyzed several alternative remedial programs. A Record of
Decision was executed by the EPA on September 12, 1991 selecting a remedial
program estimated to cost approximately $4,000,000 with recurring annual
operations and maintenance costs of approximately $75,000. A Consent Decree
negotiated between the EPA and the PRP's was lodged in October, 1992. That
Decree approved and authorized implementation of the remedial program selected
by the EPA. The environmental consulting firm of RMT, Inc. then completed a
detailed design for the selected remedy. The remedial program is currently being
constructed by Heritage Environmental Services. The four major PRP's have
executed an agreement allocating liability for the remedial costs. Under the
terms of the agreement, the Company is responsible for 19.25% of remedial
program costs. Two additional companies will participate to the extent of their
very limited resources. As the remedial program construction should be completed
in 1995, the 1995 aggregate expenditures for the site are estimated at
$3,700,000 with the Company's share being approximately $710,000. Following
completion of the remedial program, annual operations and maintenance
expenditures are estimated at $75,000 with the Company's portion being
approximately $14,500.
SALT LAKE CITY, UTAH. The Company entered into a Consent Agreement with the
State of Utah, Division of Solid and Hazardous Waste on May 16, 1991 based upon
preliminary data which indicated that soil and groundwater contamination existed
immediately adjacent to a former underground storage tank located at the Montek
Division. The Company has identified the lateral extent of the contamination and
has proposed a remedial program consisting of limited soil removal, an
impervious barrier around the contamination and a groundwater pump and treat
system. The remedial program was approved by the State of Utah. Construction of
the remedial program began in January, 1995. The estimated cost for this program
is not expected to exceed $950,000.
The aggregate of the anticipated costs to be incurred by the Company to
clean-up the sites where the Company has been named a "Potentially Responsible
Party" is not expected to have a material adverse effect on the Company's
financial condition.
The Company is engaged in an industry which uses relatively insignificant
quantities and varieties of hazardous chemicals. However, the current state of
the law provides for liability without fault for companies dealing with
hazardous waste materials. The federal courts have held that a single company
may be held liable for the entire clean-up costs at a given site. Therefore, the
Company may be sued for the total cost of cleaning up any of the sites where the
Company's waste has been deposited. Should the Government institute such an
action, the Company will vigorously oppose any attempt to impose liability
beyond its volumetric share of waste sent to the site.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
11
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages, offices held and other information with respect to each of
the executive officers of the Company as of February 24, 1995 are as follows:
<TABLE>
<CAPTION>
OFFICER SINCE
NAME AGE OFFICE DATE(1)
---------------------- --- ----------------------------------------------------------------- ------------------
<S> <C> <C> <C>
A. Lowell Lawson 57 Chairman of the Board and Chief Executive Officer November 30, 1975
Brian D. Cullen 54 Senior Vice President April 21, 1987
J. Robert Collins 53 Vice President -- Strategic Planning and Development September 22, 1993
John R. Copple 40 Vice President -- Financial Operations (principal accounting June 22, 1994
officer)
Alan J. Doshier 46 Vice President January 25, 1995
Michael C. Eberhardt 47 Vice President, Secretary and General Counsel January 25, 1995
Terry W. Heil 57 Senior Vice President October 12, 1988
Art Hobbs 47 Vice President -- Corporate Relations and Administration April 1, 1991
Peter A. Marino 53 Senior Vice-President October 14, 1991
James W. Pope 51 Vice President -- Finance and Chief Financial Officer January 27, 1982
Harry L. Thurmon 53 Vice President -- New Business Development November 1, 1971
Marshall D. Williamson 53 Vice President July 28, 1993
<FN>
------------------------
(1) Each of the executive officers has been elected to his position until the
next annual meeting of the stockholders of the Company, April 26, 1995, or
until his successor be duly elected and qualified.
</TABLE>
12
<PAGE>
Each of the executive officers has been employed as indicated in the table
above for more than five years except as indicated below:
A. LOWELL LAWSON -- Mr. Lawson was elected Chief Executive Officer on
January 26, 1994 and Chairman of the Board on August 24, 1994. He has held the
position of President since April 25, 1989. Previously he served as Executive
Vice President from April 21, 1987 to April 25, 1989 and Senior Vice President
and Group Executive since November 1, 1983.
J. ROBERT COLLINS -- Dr. Collins was Vice President of Business Development
of the Garland Division, Garland, Texas, from March 16, 1992 to September 22,
1993 when he was elected to his current position. Prior to that, he was Division
Vice President of the Garland Division from May 20, 1985 to March 16, 1992.
JOHN R. COPPLE -- Prior to being elected to his current position, Mr. Copple
was Vice President-Finance of the Garland Division, Garland, Texas from August
19, 1991 until June 22, 1994. He served as Garland Division controller from
October 4, 1988 until August, 1991. Prior to joining the Company in 1988 he was
Executive Director, Financial Operations at Tracor, Inc., a defense contractor
that provides a broad range of electronic hardware and software products and
systems, as well as related management and technical support and services from
January 1987 until October 1988. From 1978 until 1987 he held various accounting
positions with Tracor, Inc.
BRIAN D. CULLEN -- Mr. Cullen was elected Senior Vice President of the
Company on January 26, 1994. He served as Vice President of the Company from
April 27, 1987 to January 26, 1994.
ALAN J. DOSHIER -- Mr. Doshier is Vice President and General Manager of the
Greenville Division, Greenville, Texas, the largest operating division of the
Company. From September 1, 1994 until January 25, 1995 he served as Assistant
General Manager and was Vice President of the Greenville Division from June 4,
1990 until August 31, 1994. Prior to that he held various managerial positions
since joining the Company in 1976.
MICHAEL C. EBERHARDT -- Mr. Eberhardt was elected Vice President, Secretary
and General Counsel on January 25, 1995. Prior to joining the Company he was a
partner in the Washington, D.C. law firm of Crowell and Moring from 1987 to
1994. Previously, he was counsel to special committees in the U.S. Senate and
U.S. House of Representatives, and from 1982 to 1987 he served as Assistant
Inspector General at the U.S. Department of Defense. From 1972 to 1977, Mr.
Eberhardt served as a Special Attorney with the U.S. Department of Justice in
New York and Washington, D.C.
ART HOBBS -- Prior to his current position, Mr. Hobbs was the Vice President
of Human Resources of the Greenville Division, Greenville, Texas, the largest
operating division of the Company. He had served in such capacity since 1982,
having previously been Director of Employee Relations for three years.
PETER A. MARINO -- From July 1991 until October 1991, Mr. Marino was
Executive Vice President and Chief Operating Officer of Fairchild Corporation.
From September 1989 to July 1991, Mr. Marino was President and Chief Operating
Officer of Fairchild Industries, Inc., a high-technology company engaged in
spacecraft and space subsystems, military avionics, defense communications,
telecommunications, aerospace fasteners and capital equipment for the plastics
molding industry. Between October 1988 and September 1989, he was Senior Vice
President of Fairchild Industries, Inc. From October 1986 to September 1988, Mr.
Marino was, first, Executive Vice President and then, President and Chief
Operating Officer of Lockheed Electronics Company, Inc. and a Vice President of
the parent, Lockheed Corporation. Prior to that time, Mr. Marino had been with
the United States Central Intelligence Agency from 1970 to 1986, serving in
various technical and managerial positions.
MARSHALL D. WILLIAMSON -- From February 1, 1993 until being elected to his
current position, Mr. Williamson was Vice President and Assistant General
Manager of the Garland Division, Garland, Texas. He served as Vice President of
the Garland Division from May 20, 1985 until February 1, 1993 previously having
held various managerial positions since joining the Company in 1975.
13
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's common stock is listed on the New York Stock Exchange and
principally traded in that market. The table below shows the high and low sales
prices of the Company's common stock on the New York Stock Exchange, as reported
in the WALL STREET JOURNAL, and the cash dividends declared per share for each
quarter during the past two years.
<TABLE>
<CAPTION>
QUARTER 1ST 2ND 3RD 4TH
<S> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------------
Stock Prices:
1994 High............................................. 46 3/4 45 1/8 44 7/8 42 1/2
Low.............................................. 40 36 3/8 37 1/4 36 1/2
1993 High............................................. 44 1/4 43 48 7/8 46 1/4
Low.............................................. 36 1/4 39 5/8 41 3/4 41 5/8
Dividends Declared:
1994.................................................. $ .30 $ .30 $ .30 $ .30
1993.................................................. $ .275 $ .275 $ .275 $ .275
</TABLE>
HOLDERS OF RECORD:
At March 3, 1995, there were 9,936 holders of record of the Company's common
stock.
14
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR SUMMARY OF OPERATIONS AND FINANCIAL CONDITION
YEARS ENDED DECEMBER 31
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SUMMARY OF OPERATIONS: 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------------------------
Net sales.................................. $ 2,028,300 $ 2,097,114 $ 2,094,913 $ 1,991,284 $ 1,810,172
Operating costs and expenses............... 1,850,334 1,916,458 1,924,177 1,824,238 1,663,939
Special Charges............................ (24,495) -- -- -- --
------------- ------------- ------------- ------------- -------------
Profit from continuing operations.......... 153,471 180,656 170,736 167,046 146,233
Other income (expense) -- net.............. (9,370) 5,830 (600) 264 879
Interest expense........................... (2,412) (6,211) (7,664) (8,559) (10,515)
------------- ------------- ------------- ------------- -------------
Income from continuing operations before
federal income taxes and the cumulative
effect of a change in accounting
principle................................. 141,689 180,275 162,472 158,751 136,597
Federal income taxes....................... 46,049 58,409 53,453 49,213 42,345
------------- ------------- ------------- ------------- -------------
Income from continuing operations before
the cumulative effect of a change in
accounting principle...................... 95,640 121,866 109,019 109,538 94,252
Loss from discontinued operations.......... -- -- -- -- (8,632)
------------- ------------- ------------- ------------- -------------
Income before cumulative effect of a change
in accounting principle................... 95,640 121,866 109,019 109,538 85,620
Cumulative effect of a change in accounting
principle................................. -- -- (178,510) -- --
------------- ------------- ------------- ------------- -------------
Net income (loss).......................... $ 95,640 $ 121,866 $ (69,491) $ 109,538 $ 85,620
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Earnings (loss) per share:
Continuing operations.................... $ 2.79 $ 3.58 $ 3.31 $ 3.35 $ 3.02
Discontinued operations.................. -- -- -- -- (.28)
Cumulative effect of a change in
accounting principle.................... -- -- (5.42) -- --
------------- ------------- ------------- ------------- -------------
Total.................................. $ 2.79 $ 3.58 $ (2.11) $ 3.35 $ 2.74
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Cash dividends declared per common share... $ 1.20 $ 1.10 $ 1.00 $ .75 $ .75
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
----------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR-END FINANCIAL POSITION:
<S> <C> <C> <C> <C> <C>
Bookings................................... $ 2,526,567 $ 1,910,532 $ 1,905,319 $ 2,013,431 $ 1,791,724
Backlog.................................... $ 2,631,308 $ 2,133,041 $ 2,319,623 $ 2,509,217 $ 2,487,070
Current ratio.............................. 3.97 4.44 3.01 3.51 3.12
Total assets............................... $ 1,374,167 $ 1,279,173 $ 1,253,573 $ 1,075,441 $ 967,178
Long-term debt............................. $ 10,115 $ 7,873 $ 34,119 $ 84,897 $ 118,706
Total debt................................. $ 19,632 $ 33,129 $ 103,920 $ 90,462 $ 127,671
Stockholders' equity at year-end........... $ 836,629 $ 769,996 $ 660,000 $ 750,063 $ 625,960
Total debt to equity ratio................. .02 .04 .16 .12 .20
Return on average stockholders' equity..... 11.9% 17.0% (9.9%) 15.9% 14.5%
Employees at year-end...................... 15,760 16,703 18,590 18,622 18,435
Stockholders of record at year-end......... 9,610 10,097 10,810 11,228 12,035
Year-end closing stock price............... 41 5/8 43 3/8 41 1/8 37 7/8 34 3/8
</TABLE>
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SOURCES OF LIQUIDITY AND CAPITAL RESOURCES -- Net working capital increased
slightly from the prior year-end to $584 million. Net cash provided by operating
activities was $137 million for 1994 compared to $96 million for 1993. This
change was primarily due to collections of accounts receivable. Cash and cash
equivalents at the beginning of the year and funds provided by operations were
used to finance capital expenditures of $44 million, pay dividends of $40
million, pay-off $26 million in long-term debt and installment lease
obligations, and fund acquisitions made in 1994 of $44 million.
The ratio of total debt to equity was .02 at December 31, 1994 which is down
from the total debt to equity ratio at December 31, 1993 of .04. This decrease
is primarily due to the $24 million pay-off of the ESOP line of credit in
December 1994.
The ratio of current assets to current liabilities was 4.0 at December 31,
1994 compared to 4.4 at December 31, 1993. Return on equity decreased to 12
percent in 1994 compared to 17 percent in 1993.
Current financing agreements provide lines of credit up to $360 million of
which $9 million was borrowed at December 31, 1994. Management believes these
lines of credit and internally generated funds will be more than adequate to
meet increased working capital requirements, capital expansion projects,
dividend payments to shareholders, and satisfy payment of the Company's debt
obligations as they mature.
ACQUISITIONS -- During 1994, the Company completed seven acquisitions. The
acquired businesses are involved in developing storage software, manufacturing
automated tape libraries, high-frequency communications, Global Positioning
System based automatic vehicle location systems, missile subassemblies and
components, teleradiology systems and in-hospital image distribution systems.
These seven acquisitions were purchased for approximately $44 million in cash.
The excess of the aggregate purchase price over fair market value of net assets
acquired for these acquisitions of approximately $35 million was recognized as
goodwill and is being amortized over periods from 10 to 30 years. The operating
results of all acquisitions are included in the Company's results of operations
from the dates of acquisition.
BUSINESS ENVIRONMENT -- Congress and the President will continue to express
substantially divergent views on the ability of the Department of Defense to
respond to two nearly simultaneous major regional conflicts. These concerns are
finding a resonance not only with the majority party, in the current Congress,
but a growing number of centrists in the minority party. Yet, despite these
fears the fiscal year 1996 budget submitted is approximately six percent lower
than the preceding year. Measured in terms of inflation, adjusted purchasing
power, the 1996 request is 39 percent smaller than the 1985 defense budget
(which was the largest since the Korean War). In formulating the 1996 budget,
the administration accorded the highest priority to preserving force readiness.
The Defense Department has also begun a "recapitalization" of our forces to
meet the challenge of fewer personnel to carry out broader missions. However,
the requested amount for new procurement in 1996 reflects a decline of 71
percent from FY 1985. Yet, the department felt that some systems are reaching
the end of their service life and others have not benefited from advances in
electronics, lasers, materials and other technologies. The "recapitalization" is
expected to focus on upgrading the capabilities of some existing weapons,
platforms and supporting systems. Finally, the FY96 research and development
request is a six percent decline from last year's budget. This reduction is
critical to our efforts to maintain technological superiority over the long term
and impacts our continuing development of key technologies.
The number of political and military hot spots throughout the world
continues to grow as illustrated by the international peacekeeping missions that
our government has supported. The singular nature of peacekeeping and the
uncertainty of the conflict's parameters mandates extensive reliance on our
unique collection systems. The ongoing Bosnian conflict and the uncertainty that
continues to exist in Russia, North Korea, China, Iraq, Iran and the former
Soviet Republics all
16
<PAGE>
appreciably add to world-wide instability. A top priority of the U.S. Government
is to prevent the re-emergence of the nuclear threat that was an integral part
of the cold war. Specifically, there are approximately 25,000 nuclear weapons in
Russia and three other former Soviet Republics. Preventing nuclear proliferation
remains a paramount objective. We must also ensure that hostile nations do not
threaten our security with ballistic missile threats against our forces or the
allies we currently support. The huge increase in expectations for war with
minimal casualties also drives a need for precision weapon systems and expert
command and control capabilities. That in turn sets a high value on the
collection and distribution of precise and timely intelligence information. The
administration has also identified terrorism, drug trafficking and international
crime as newer post-cold war threats that need timely, accurate intelligence.
The Company is a developer and producer of high technology electronic
systems and services, consisting principally of systems design, development,
production, integration and operation of sophisticated intelligence collection,
processing, analysis and dissemination systems. The Company offers integration
of sophisticated and complex systems incorporating diverse components in
flexible and open architecture. This capability remains in demand in friendly
and allied nations around the world. The growing use of commercial equipment
improves exportability to this market, and encourages us to raise our target for
the international component of our booking goals.
We are now applying our technical and business strengths to markets which
will continue to expand our customer base. In 1994, for example, we targeted the
Navy aircraft market and were successful in booking the U.S. Navy's P-3C
sustained readiness program and the Government of Australia's P-3C upgrade
program with a potential combined value in excess of $1 billion. This provides
an opening to markets for additional P-3 upgrades as other countries extend
their platform service life. In addition, our efforts to expand into the federal
civilian marketplace resulted in booking the Hurricane Tracker Aircraft for the
National Oceanic and Atmospheric Administration (NOAA) in the Department of
Commerce. New opportunities in the Department of Education to supplement our
earlier guaranteed student loan and national student loan data systems (NSLDS)
wins will be pursued to expand our core base in the federal information systems
marketplace. In 1994 we succeeded in bringing NSLDS on line and are storing and
managing more than 65 million loans for 26 million students, resulting in one of
the largest, realtime-accessible data bases in the Federal Government. With this
system the U.S. Government will be able to monitor and revise outstanding loans
for duplication, errors and even potential fraud, saving millions of dollars
each year.
EMASS information storage retrieval products and the associated technology
were established as a new Company in 1994. Our continuing thrust into medical
image processing and information systems is expected to provide significant
business for the organization within the next several years, both within the
military services and in the civilian world. Consider the problem with our U.S.
Navy, for instance, with thousands of sailors on ships in distant locations -
with no medical professionals on board to treat the inevitable illnesses that
develop. We are currently operating a preproduction version of one of our
medical systems aboard a deployed aircraft carrier in a foreign location linking
the medical images electronically to the Bethesda Naval Hospital in suburban
Washington where many experienced doctors are located. With our equipment the
doctors at Bethesda can diagnose, prescribe and even coach surgical procedures
on patients many miles distant at substantial medication, evacuation, an
pre-operative cost savings.
With the world's geopolitical changes, the international market for our
products and systems is taking on a new look. During the cold war our allies
looked to the United States to provide a lions share of the communications,
surveillance and analysis functions which would be needed in hostilities. They
now want to - and believe they need to - provide these capabilities for
themselves. But there are very few nations with domestic companies capable of
complex systems integration. That is perhaps the core strength of E-Systems
appeal - it gives potential to compete and win in the international defense
market.
17
<PAGE>
The Company continues to grow as a developer and producer of high technology
electronic systems and services, consisting principally of systems design,
integration, hardware modification and development for the United States
Government or other prime government contractors. The Company's business base
consists of both cost-type and fixed-price contracts with 60 percent being cost-
type. The profitability of cost-type contracts is contingent upon several
factors: customer's evaluation of performance on contracts, costs actually
incurred, delivery schedule, quality and incentive or award fee arrangements.
Given this determination of profitability, contract costs and related margins
are not readily explainable in typical manufacturing terms. Also, due to the
nature of the products or services provided by the Company, many contracts are
highly sensitive and classified under relevant U.S. Government regulations.
1994 COMPARED TO 1993
NET SALES -- Net sales for 1994 totaled $2,028 million compared to $2,097
million in 1993. Net sales in the Reconnaissance and Surveillance product
segment decreased 11 percent to $1,125 million. The decline in this product
segment is due primarily to booking delays. The decrease in the Reconnaissance
and Surveillance segment was offset by a $35 million, or 12 percent, increase in
the Aircraft Maintenance and Modification product segment and a $44 million, or
52 percent, increase in the Other Products and Services product segment. The
increase in the Aircraft Maintenance and Modification product segment is
primarily attributable to the maturing of the Company's technical and logistics
support program with the U.S. Air Force which was in the start-up phase in the
prior year. The increase in the Other Products and Services segment is primarily
attributable to increased activity on the Company's National Student Loan
program and in the Company's mass storage and retrieval systems through its
EMASS subsidiary.
COST AND EXPENSES -- Operating profits in 1994, of $153 million, were down
15 percent from the prior year operating profits of $181 million. The Company
experienced a decrease in operating profits in its Aircraft Maintenance and
Modification product segment of $2.3 million, or 11 percent due to the lower
than normal profit margin on the one-time purchase and delivery of aircraft on
certain programs. The Other Products and Services product segment declined $23.8
million from operating income of $2.1 million in 1993 to an operating loss of
$21.7 million in 1994. This decrease was primarily due to special charges
totaling $18.3 million which represents write-downs in several nontraditional
business areas such as, commercial mass storage and medical technology. See Note
M for further discussion of the special charges.
Other income totaled $5.1 million for 1994 compared to $10.8 million for the
same period in 1993. The decrease is primarily attributable to interest
associated with a one-time gain from a favorable tax settlement coupled with
unusually high capital gains earned on the Company's Supplemental Executive
Retirement Plan investments in 1993.
INCOME -- Net income decreased in the current year by $26 million from $122
million in 1993 to $96 million in 1994. This decrease was primarily due to the
special charges discussed above and in Note M to the consolidated financial
statements.
1993 COMPARED TO 1992
NET SALES -- Net sales for 1993 totaled $2,097 million compared to $2,095
million in 1992. Net sales in the Reconnaissance and Surveillance product
segment decreased nine percent to $1,260 million. The decline is attributable to
the absence of the German reconnaissance and surveillance program which was
canceled in January of 1993.
COSTS AND EXPENSES -- Operating profits increased six percent in 1993. This
increase was primarily due to increased sales in the Aircraft Maintenance and
Modification product segment and improved margins in the Command, Control and
Communications product segment. Operating profits for the Reconnaissance and
Surveillance product segment were $111 million, down $4 million when compared to
the same period in 1992. Operating profits in the Command, Control and
Communications
18
<PAGE>
product segment increased $6 million, or 23 percent, to $33 million in 1993.
Operating profits in the Aircraft Maintenance and Modification product segment
were $21 million, up 43 percent, or $6 million in 1993.
Other income totaled $10.8 million for 1993 compared to $3.8 million for the
same period in 1992. This increase was primarily due to interest associated with
a one-time gain from a favorable tax settlement coupled with an increase in
capital gains earned on the Company's Supplemental Executive Retirement Plan
investments.
INCOME -- Excluding the cumulative effect of adopting SFAS 106 in 1992, net
income increased 12 percent in 1993 to $121 million compared to $109 million in
1992. This increase was due to improved margins discussed above.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The index to Consolidated Financial Statements is found on page 22. The
Company's Financial Statements and Notes to Consolidated Financial Statements
follow the index.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Inapplicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is set forth in the Company's proxy
statement dated March 24, 1995 at pages 4 through 7 in the section entitled
"Election of Directors," and is incorporated herein by reference. Reference is
made to the section entitled "Executive Officers of the Registrant" under Part
I.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is set forth in the Company's proxy
statement, dated March 24, 1995, at pages 9 through 18, under the sections
entitled "Executive Compensation, Salaried Retirement Plan, Supplemental
Executive Retirement Plan and Employment Agreements," and is incorporated herein
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is set forth under "Security Ownership
of Certain Beneficial Owners" and "Security Ownership of Management" on pages 2
and 3 of the Company's proxy statement dated March 24, 1995, and is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Inapplicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report.
1. Financial Statements
The financial statements filed as a part of this report are listed in the
"Index to Consolidated Financial Statements" on page 22. The index and financial
statements are incorporated herein by reference.
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
19
<PAGE>
3. Exhibits required by Item 601 of Regulation S-K.
A list of the exhibits required by Item 601 of Regulation S-K and filed as
part of this report is set forth in the Index to Exhibits on pages 41 and 42,
which immediately precedes such exhibits.
(b) Reports on Form 8-K.
Form 8-K was filed electronically on October 20, 1994 reporting the adoption
of a Stockholder Rights Plan by the Board of Directors on September 28, 1994.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
E-SYSTEMS, INC.
/s/ A. LOWELL LAWSON
--------------------------------------
A. Lowell Lawson
DIRECTOR, CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
March 22, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
------------------------------------------------------ ------------------------------------- ------------------
<S> <C> <C>
/s/ E. GENE KEIFFER Director
-------------------------------------------
E. Gene Keiffer
/s/ JAMES A. BITONTI Director
-------------------------------------------
James A. Bitonti
/s/ E. F. BUEHRING Director
-------------------------------------------
E. F. Buehring
/s/ CHARLES A. GABRIEL Director
-------------------------------------------
Charles A. Gabriel
/s/ C. ROLAND HADEN Director
-------------------------------------------
C. Roland Haden
/s/ MARTIN R. HOFFMANN Director
-------------------------------------------
Martin R. Hoffmann
March 22, 1995
/s/ S. LEE KLING Director
-------------------------------------------
S. Lee Kling
/s/ FRANCINE I. NEFF Director
-------------------------------------------
Francine I. Neff
/s/ DAVID R. TACKE Director
-------------------------------------------
David R. Tacke
/s/ JAMES W. POPE Vice President -- Finance
------------------------------------------- and Chief Financial Officer
James W. Pope
/s/ JOHN R. COPPLE Vice President -- Financial
------------------------------------------- Operations (Principal Accounting
John R. Copple Officer)
</TABLE>
21
<PAGE>
E-SYSTEMS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Ernst & Young LLP,
Independent Auditors..................................................................... 23
Statements of Consolidated Operations --
Years ended December 31, 1994, 1993 and 1992............................................. 24
Consolidated Balance Sheets at
December 31, 1994 and 1993............................................................... 25
Statements of Consolidated Cash Flows -- Years ended
December 31, 1994, 1993 and 1992......................................................... 26
Statements of Consolidated Stockholders' Equity --
Years ended December 31, 1994, 1993, and 1992............................................ 27
Notes to Consolidated Financial Statements................................................ 28-40
</TABLE>
22
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Stockholders and
Board of Directors of
E-Systems, Inc.
We have audited the consolidated balance sheets of E-Systems, Inc. and
subsidiaries as of December 31, 1994 and 1993, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1994. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of E-Systems, Inc.
and subsidiaries at December 31, 1994 and 1993, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1994, in conformity with generally accepted accounting
principles.
As discussed in Note J, in 1992 the method of accounting for retiree health
care and life insurance benefits was changed.
ERNST & YOUNG LLP
Dallas, Texas
January 26, 1995
23
<PAGE>
E-SYSTEMS, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
THREE YEARS ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------
Revenues:
Net sales.......................................................... $ 2,028,300 $ 2,097,114 $ 2,094,913
Other income -- net................................................ 5,053 10,775 3,753
------------- ------------- -------------
2,033,353 2,107,889 2,098,666
------------------------------------------------------------------------------------------------------------------
Costs and Expenses:
Contract and manufacturing costs................................... 1,691,677 1,759,533 1,776,037
Selling, general and administrative expenses....................... 173,080 161,870 152,493
Special charges -- Note M.......................................... 24,495 -- --
Interest expense................................................... 2,412 6,211 7,664
------------- ------------- -------------
1,891,664 1,927,614 1,936,194
------------- ------------- -------------
Income Before Federal Income Taxes and the Cumulative Effect of a
Change in Accounting Principle.................................. 141,689 180,275 162,472
------------------------------------------------------------------------------------------------------------------
Federal Income Taxes (Note E):
Current............................................................ 55,411 62,893 51,266
Deferred........................................................... (9,362) (4,484) 2,187
------------- ------------- -------------
46,049 58,409 53,453
------------- ------------- -------------
Income before the Cumulative Effect of a Change in Accounting
Principle....................................................... 95,640 121,866 109,019
------------------------------------------------------------------------------------------------------------------
Cumulative Effect of a Change in Accounting Principle (Note J):
Retiree health care and life insurance benefits -- net of tax
benefit of $91,960................................................ -- -- (178,510)
------------- ------------- -------------
Net Income (Loss)................................................ $ 95,640 $ 121,866 $ (69,491)
------------- ------------- -------------
------------- ------------- -------------
------------------------------------------------------------------------------------------------------------------
Net Income (Loss) Per Share (Note A):
Income before the cumulative effect of a change in accounting
principle......................................................... $ 2.79 $ 3.58 $ 3.31
Cumulative effect of a change in accounting principle.............. -- -- (5.42)
------------- ------------- -------------
Earnings (Loss) Per Share........................................ $ 2.79 $ 3.58 $ (2.11)
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See "Notes to Consolidated Financial Statements."
24
<PAGE>
E-SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
------------------------------------------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents........................................................... $ 24,401 $ 32,638
Accounts receivable (Note B)........................................................ 438,205 426,404
Unreimbursed costs and fees under cost-plus-fee contracts (Note B).................. 186,855 207,519
Fixed-price contracts:
Fixed-priced contracts in progress (Note C)....................................... 83,903 54,644
Less progress and advance payments................................................ 11,802 21,580
------------ ------------
72,101 33,064
Raw materials and purchased parts................................................... 40,272 11,714
Prepaid expenses and other assets................................................... 18,877 38,623
------------ ------------
Total Current Assets.............................................................. 780,711 749,962
------------------------------------------------------------------------------------------------------------------
Other Assets:
Prepaid pension costs (Note I)...................................................... 34,485 36,489
Deferred charges and other (Note K)................................................. 69,022 56,653
Deferred federal income taxes (Note E).............................................. 72,160 65,544
Costs in excess of net assets acquired (Note A)..................................... 101,962 62,401
------------ ------------
277,629 221,087
------------------------------------------------------------------------------------------------------------------
Property, Plant and Equipment (Notes A and H):
Land................................................................................ 7,871 7,279
Buildings........................................................................... 100,244 94,731
Machinery and equipment............................................................. 334,156 306,915
Leasehold improvements -- net....................................................... 72,793 75,572
Construction in progress............................................................ 16,506 13,957
------------ ------------
531,570 498,454
Less allowances for depreciation.................................................... 215,743 190,330
------------ ------------
315,827 308,124
------------ ------------
$ 1,374,167 $ 1,279,173
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------------------------------------------------------------------------------------
Current Liabilities:
Accounts payable.................................................................... $ 95,316 $ 70,313
Accrued liabilities (Note F)........................................................ 92,065 73,495
Short-term obligations and current portion of long-term debt (Note D)............... 9,517 25,256
------------ ------------
Total Current Liabilities..................................................... 196,898 169,064
------------------------------------------------------------------------------------------------------------------
Long-Term Debt:
Long-term debt (Note D)............................................................. 3,769 738
Installment lease obligations (Note H).............................................. 6,346 7,135
------------ ------------
10,115 7,873
------------------------------------------------------------------------------------------------------------------
Deferred Items:
Retiree health care and life insurance benefits (Note J)............................ 284,227 290,795
Other deferred items................................................................ 46,298 41,445
------------ ------------
330,525 332,240
------------------------------------------------------------------------------------------------------------------
Stockholders' Equity (Note G):
Common stock, par value $1.00....................................................... 34,071 33,885
Additional capital.................................................................. 178,810 172,300
Retained earnings................................................................... 623,748 563,811
------------ ------------
836,629 769,996
------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Notes H and L)
------------ ------------
$ 1,374,167 $ 1,279,173
------------ ------------
------------ ------------
</TABLE>
See "Notes to Consolidated Financial Statements."
25
<PAGE>
E-SYSTEMS, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
Net Income (Loss)....................................................... $ 95,640 $ 121,866 $ (69,491)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Cumulative effect of a change in accounting principle................. -- -- 178,510
Depreciation and amortization......................................... 54,674 54,858 53,583
(Benefit) provision for deferred income taxes......................... (9,362) (4,484) 2,187
Gain on sale of investment securities................................. (1,032) (2,205) (453)
Changes in operating assets and liabilities, net of effects from
Acquisitions:
Accounts receivable................................................... 98,069 84,794 20,813
Unreimbursed costs and fees under cost-plus-fee
contracts............................................................ 20,664 (21,448) (30,505)
Fixed-price contracts in progress..................................... (28,814) 17,002 5,340
Progress and advance payments......................................... (105,531) (91,600) (47,050)
Prepaid pension costs................................................. 2,004 (6,631) 8,995
Accounts payable...................................................... 18,631 (25,223) 16,937
Accrued liabilities................................................... 6,074 (9,596) (16,318)
Other assets and liabilities.......................................... (14,196) (21,520) 502
------------ ----------- -----------
Net Cash Provided By Operating Activities........................... 136,821 95,813 123,050
------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Purchases of property, plant and equipment.............................. (43,547) (52,063) (90,837)
Proceeds from disposals of property, plant and equipment................ 1,560 942 992
Acquisitions, net of cash acquired...................................... (43,513) -- (9,959)
------------ ----------- -----------
Net Cash Used In Investing Activities............................... (85,500) (51,121) (99,804)
------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Net (payments) borrowings under short-term line-of-credit agreements.... (23) (19,533) 19,533
Principal payments on long-term debt and installment lease
obligations............................................................ (26,340) (51,693) (8,855)
Proceeds from exercise of stock options................................. 6,696 32,655 15,692
Dividends paid.......................................................... (39,891) (35,723) (30,445)
------------ ----------- -----------
Net Cash Used in Financing Activities............................... (59,558) (74,294) (4,075)
------------ ----------- -----------
Net (Decrease) Increase in Cash and Cash Equivalents...................... (8,237) (29,602) 19,171
Cash and cash equivalents at beginning of year............................ 32,638 62,240 43,069
------------ ----------- -----------
Cash and Cash Equivalents at End of Year.................................. $ 24,401 $ 32,638 $ 62,240
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
See "Notes to Consolidated Financial Statements."
26
<PAGE>
E-SYSTEMS, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1994
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
------------------------ ADDITIONAL RETAINED
SHARES AMOUNT CAPITAL EARNINGS
<S> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------------
Balance January 1, 1992...................................... 32,417,150 $ 32,417 $ 125,421 $ 592,225
Net loss..................................................... (69,491)
Exercise of stock options, net of stock tendered (including
tax benefit of $1,501)...................................... 474,965 475 15,217
Adjustment for minimum pension liability (net of tax effect
of $1,910).................................................. (3,708)
Cash dividends on commom stock
($1.00 per share)........................................... (32,556)
------------- --------- ----------- -----------
Balance December 31, 1992.................................... 32,892,115 32,892 140,638 486,470
Net income................................................... 121,866
Exercise of stock options, net of stock tendered (including
tax effect of $5,850)....................................... 992,682 993 31,662
Adjustment for minimum pension liability (net of tax benefit
of $4,133).................................................. (7,676)
Cash dividends on common stock ($1.10 per share)............. (36,849)
------------- --------- ----------- -----------
Balance December 31, 1993.................................... 33,884,797 33,885 172,300 563,811
Net income................................................... 95,640
Exercise of stock options, net of stock tendered (including
tax benefit of $986)........................................ 186,316 186 6,510
Adjustment for minimum pension liability (net of tax effect
of $2,475).................................................. 4,597
Unrealized gain on available-for-sale securities reported at
market value (net of tax effect
of $151).................................................... 280
Foreign currency translation adjustment...................... 216
Cash dividends on common stock ($1.20 per share)............. (40,796)
------------- --------- ----------- -----------
Balance December 31, 1994................................ 34,071,113 $ 34,071 $ 178,810 $ 623,748
------------- --------- ----------- -----------
------------- --------- ----------- -----------
</TABLE>
See "Notes to Consolidated Financial Statements."
27
<PAGE>
E-SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION -- The accounts of all subsidiaries have been
included in the consolidated financial statements. All significant intercompany
accounts and transactions have been eliminated.
REVENUE AND PROFIT DETERMINATION -- Sales and costs of sales (including
general and administrative expenses) on long-term fixed-price contracts and
sales (costs and fees) on cost reimbursable contracts are generally recorded
under the percentage-of-completion method of accounting as costs are incurred.
Sales and costs of sales (including general and administrative expenses) on
fixed-price production contracts with substantial quantities are recorded when
units are delivered, based on the profit rates anticipated on the contracts at
completion. Profits expected to be realized on contracts are based on estimates
of total sales value and costs at completion. These estimates are reviewed and
revised periodically throughout the lives of the contracts and adjustments to
profits resulting from such revisions are made cumulative to the date of change.
Amounts in excess of agreed upon contract price for customer-caused delays,
errors in specification and design, unapproved change orders or other causes of
unanticipated additonal costs are recognized in contract value if it is probable
that the claim will result in additional revenue and the amount can be
reasonably estimated (See Note C). Losses on contracts are recorded in full as
they are identified.
FIXED-PRICE CONTRACTS AND RAW MATERIALS -- Costs incurred in advance of
contractual coverage receive an allocated portion of general and administrative
expenses and are valued at the lower of cost incurred or market. Raw materials
and purchased parts are valued at average cost not in excess of market.
PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment are stated at
cost. Capitalized leases are recorded at the present value of the net fixed
minimum lease commitments (See Note H). Provisions for depreciation are computed
on both accelerated and straight-line methods using rates calculated to amortize
the cost of the assets over their estimated useful lives and include
amortization of capitalized leases. Leasehold improvements are amortized over
the life of the lease and renewal options which are expected to be exercised.
The Company's policy is to remove the amounts related to fully-depreciated
assets from the financial records.
EARNINGS PER SHARE -- Earnings per share are computed based on the sum of
the average outstanding common shares and common equivalent shares (1994 --
34,335,000; 1993 -- 34,041,000; 1992 -- 32,941,000). Common equivalent shares
assume the exercise of all dilutive stock options. Primary and fully diluted
earnings per share are essentially the same.
STATEMENT OF CASH FLOWS -- All highly liquid investments with a maturity of
three months or less when purchased are considered to be cash equivalents.
COSTS IN EXCESS OF NET ASSETS ACQUIRED -- The costs in excess of net assets
acquired (goodwill) are being amortized using the straight-line method over a
period of 10 to 40 years. The increase in costs in excess of net assets acquired
during 1994 was due to seven acquisitions during the year and to contingent
consideration made related to prior year acquisitions. Accumulated amortization
was $9,346,000 and $6,557,000 at December 31, 1994 and 1993, respectively.
FINANCIAL INSTRUMENTS AND RISK CONCENTRATION -- Financial instruments which
potentially subject the Company to concentrations of credit risk consist of cash
equivalents, billed accounts receivable and unreimbursed costs and fees under
cost-plus-fee contracts. The Company's cash equivalents consist principally of
U.S. Government securities and Eurodollar accounts with high credit quality
financial institutions. Generally, the investments mature within 90 days and
therefore are subject to
28
<PAGE>
E-SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
minimal risk. Billed accounts receivable and unreimbursed costs and fees under
cost-plus-fee contracts result primarily from contracts with the U.S. Government
or prime contractors with the U.S. Government and some international customers
(principally governments). Contracts involving the U.S. Government do not
require collateral or other security. The Company conducts ongoing credit
evaluations of domestic non-U.S. Government customers and generally does not
require collateral or other security from these customers. Generally
international customers are required to furnish letters of credit or make
advance payments in amounts sufficient to limit the Company's credit risk to a
minimal level. Historically, no significant credit-related losses have been
incurred.
NOTE B -- RECEIVABLES
Accounts Receivable and Unreimbursed Costs and Fees Under Cost-Plus-Fee
Contracts by major classification are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1994 1993
<S> <C> <C>
--------------------------------------------------------------------------------------------------------
Accounts Receivable Billed:
U.S. Government............................................................. $ 98,420 $ 54,305
Commercial and International................................................ 25,169 20,169
Other....................................................................... 10,792 9,790
Accrued recoverable costs and profits
(primarily U.S. Government).................................................. 303,824 342,140
----------- -----------
Total..................................................................... $ 438,205 $ 426,404
----------- -----------
----------- -----------
Unreimbursed Costs and Fees Under Cost-Plus-Fee Contracts to the U.S.
Government:
Billed...................................................................... $ 66,261 $ 91,872
Accrued costs and fees (including fee retentions of $8,168 and $7,756,
respectively).............................................................. 120,594 115,647
----------- -----------
Total..................................................................... $ 186,855 $ 207,519
----------- -----------
----------- -----------
</TABLE>
Accrued recoverable costs and profits and accrued costs and fees under
customer contracts represent revenue earned under the percentage-of-completion
method but not yet billable under the terms of the contracts. These amounts are
billable based on the terms of the contract which include shipments of the
product, achievement of milestones or completion of the contract. Substantially
all of the accrued recoverable costs and profits and accrued costs and fees at
December 31, 1994 are to be billed during 1995.
Offset against accrued recoverable costs and profits are unliquidated
progress payments of $374,851,000 for 1994 and $470,604,000 for 1993.
29
<PAGE>
E-SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
NOTE C -- FIXED-PRICE CONTRACTS
Cost elements included in Fixed-Price Contracts in Progress are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1994 1993
<S> <C> <C>
-------------------------------------------------------------------------------------------------------
Production costs consisting of material, labor, and overhead:
Currently in process........................................................... $ 37,097 $ 31,002
Produced in advance of contractual coverage.................................... 7,732 497
Claim recovery recorded, requests for equitable adjustment and unnegotiated
change orders in dispute...................................................... 23,496 10,984
General and administrative costs............................................... 15,578 12,161
--------- ---------
$ 83,903 $ 54,644
--------- ---------
--------- ---------
</TABLE>
Substantially all of the costs incurred in advance of negotiated contracts
at December 31, 1994 are expected to receive firm contractual coverage in 1995.
NOTE D -- DEBT
Long-term debt at December 31 is summarized as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1994 1993
<S> <C> <C>
-------------------------------------------------------------------------------------------------------
Line of credit, at 78 percent of the bank's prime rate or 91 percent of the
bank's certificate of deposit rate at the Company's option...................... $ -- $ 24,000
Other............................................................................ 13,286 1,994
--------- ---------
Total.......................................................................... 13,286 25,994
Less current maturities.......................................................... 9,517 25,256
--------- ---------
$ 3,769 $ 738
--------- ---------
--------- ---------
</TABLE>
As of December 31, 1994, the maturities of long-term debt were as follows:
<TABLE>
<S> <C>
1995............................................................... $ 9,517
1996............................................................... 704
1997............................................................... 679
1998............................................................... 323
1999............................................................... 323
Thereafter......................................................... 1,740
</TABLE>
The Company has one line of credit dated October 19, 1994, with total credit
available of $250 million. This credit agreement terminates October 19, 1998.
This agreement, with a group of seven banks, provides for a floating interest
rate based upon competitive bids from the member banks and repayment terms
negotiated at the time of each borrowing. The credit agreement provides for a
facility fee of .13 percent of the committed amount and requires that the
Company maintain a specified debt to equity ratio. The Company had no borrowings
under this line in 1994.
The Company has total lines of credit available under short-term borrowing
agreements of $110 million of which $9,195,000 and none were borrowed at
December 31, 1994 and 1993, respectively. The lines of credit provide for
interest at each bank's offered rate at the date of the advance. The short-term
average borrowing rate under these lines of credit was 4.9 percent and 6.5
percent in 1994 and 1993, respectively.
30
<PAGE>
E-SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
NOTE D -- DEBT (CONTINUED)
The Company made interest payments in 1994, 1993, and 1992, of $1,613,000,
$7,027,000, and $6,817,000, respectively.
NOTE E -- INCOME TAXES
A reconciliation of the provision for taxes on income to the U.S. statutory
rate follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------
Federal income tax...................... $ 49,591 35% $ 63,096 35% $ 55,240 34%
ESOP dividends.......................... (1,847) (1) (1,695) (1) (1,512) (1)
Tax settlements......................... (2,804) (2) (1,532) (1) -- --
Effect of tax rate change on net
deferred tax
assets................................. -- -- (1,857) (1) -- --
Other................................... 1,109 1 397 -- (275) --
-------- ----- -------- ----- -------- -----
$ 46,049 33% $ 58,409 32% $ 53,453 33%
-------- ----- -------- ----- -------- -----
-------- ----- -------- ----- -------- -----
</TABLE>
The tax effects of the significant temporary differences which comprise the
deferred tax assets and liabilities at December 31, 1994 and 1993 are as
follows:
<TABLE>
<CAPTION>
ASSETS 1994 1993
<S> <C> <C>
--------------------------------------------------------------
Retiree health care benefits............ $101,612 $103,077
Supplemental executive retirement
plan................................... 8,149 7,569
Pension plan minimum liabilities........ 5,095 7,571
Other................................... 10,799 5,954
-------- --------
Gross Deferred Tax Assets............... $125,655 $124,171
-------- --------
<CAPTION>
LIABILITIES
<S> <C> <C>
--------------------------------------------------------------
Depreciation............................ $ 21,441 $ 21,489
Pension................................. 13,778 13,778
Safe harbor lease....................... 7,395 7,963
Other................................... 8,956 13,592
-------- --------
Gross Deferred Tax Liabilities.......... $ 51,570 $ 56,822
-------- --------
Net Asset............................... $ 74,085 $ 67,349
-------- --------
-------- --------
</TABLE>
A valuation allowance has not been recorded for the deferred federal income
tax benefits as the Company believes it will generate sufficient taxable income
in the future to realize all of the recorded benefits.
Included in operating costs and expenses are state income and franchise
taxes of $6,595,000, $6,688,000, and $6,575,000 in 1994, 1993, and 1992,
respectively.
The Company made federal income tax payments in 1994, 1993, and 1992 of
$53,650,000, $55,450,000, and $62,027,000, respectively.
31
<PAGE>
E-SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
NOTE F -- ACCRUED LIABILITIES
<TABLE>
<CAPTION>
(IN THOUSANDS) 1994 1993
<S> <C> <C>
------------------------------------------------------------
Accrued liabilities include the
following:
Compensation.......................... $27,679 $25,162
Advances from customers............... 7,451 1,088
Insurance............................. 9,436 8,559
Taxes, other than income.............. 7,776 8,511
Dividends............................. 10,171 9,269
Other accrued items................... 29,552 20,906
------- -------
$92,065 $73,495
------- -------
------- -------
</TABLE>
NOTE G -- STOCKHOLDERS' EQUITY
At December 31, 1994, there were 50,000,000 authorized shares of common
stock and 185,000 shares of authorized but undesignated preferred stock, par
value $20.
During 1994, the Board of Directors adopted a Stockholder Rights Plan to
distribute under certain circumstances, rights for each outstanding share of the
Company's common stock which entitles the shareholder to buy one one-thousandth
of a share of Series A Junior Participating Preferred Stock for $130, subject to
adjustment. The Rights will be exercisable if an acquiring person or group has
acquired 15 percent or more of the Company's common stock or commences a tender
offer which would result in beneficial ownership of 15 percent or more of the
Company's common stock.
The Rights expire on October 17, 2004 and may be redeemed by the Company for
$0.01 per right at any time until 10 days following a public announcement that a
15 percent position has been acquired.
If a person or group acquires 15 percent or more of the outstanding common
stock of the Company without the consent of the Board of Directors, the holder
of each Right not owned by the 15 percent or more shareholder would be entitled
to purchase, at the Right's then current exercise price, shares of the Company's
common stock having a value of twice the Right's then current exercise price.
The exercise price is the purchase price times the number of shares of common
stock associated with each Right (initially one).
In the event the Company is not the surviving corporation in a merger or
other business combination, or more than 50 percent of the Company's assets or
earnings power is sold or transferred, each holder of a Right will have the
right to receive upon exercise, common stock of the acquiring company having a
value equal to two times the exercise price of the Right.
32
<PAGE>
E-SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
NOTE G -- STOCKHOLDERS' EQUITY (CONTINUED)
Stock option plans, which include both "nonqualified" and incentive stock
options, provide for options to be granted to key employees at prices equal to,
greater than or less than market value at the date of grant and for terms not to
exceed ten years. The options outstanding under the plans expire at various
dates through 2004. Information on stock options is as follows:
<TABLE>
<CAPTION>
1994 1993
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NUMBER NUMBER
OF AGGREGATE OF AGGREGATE
SHARES PRICES PER SHARE OPTION PRICES SHARES PRICES PER SHARE OPTION PRICES
-----------------------------------------------------------------------------------------------------------------------------
Options outstanding at be-
ginning of year.............. 2,649,890 $ 24.74 to $46.13 $ 95,248,300 3,133,152 $ 24.75 to $40.25 $ 99,670,400
Options granted............... 74,000 36.75 to 44.25 2,855,100 869,050 39.94 to 46.13 37,698,400
Options exercised............. (202,222) 24.75 to 45.44 (6,411,400) (1,336,949) 24.75 to 40.25 (41,568,000)
Options expired or
cancelled.................... (40,515) 33.57 to 43.38 (1,432,000) (15,363) 24.75 to 34.00 (552,500)
------------ ------------- --------- -------------
Options oustanding at end of
year......................... 2,481,153* $ 24.75 to $46.13 $ 90,260,000 2,649,890 $ 24.75 to $46.13 $ 95,248,300
------------ ------------- --------- -------------
------------ ------------- --------- -------------
Shares reserved for future op-
tions........................ 63,363*
------------
------------
Shares exercisable at Decem-
ber 31, 1994................. 1,752,661
------------
------------
<CAPTION>
1992
NUMBER
OF AGGREGATE
SHARES PRICES PER SHARE OPTION PRICES
<S> <C> <C> <C>
------------------------------
Options outstanding at be-
ginning of year.............. 3,629,432 $ 18.00 to $40.25 $ 114,403,800
Options granted............... 51,000 32.00 to 37.32 1,854,500
Options exercised............. (498,546) 18.00 to 34.63 (15,038,700)
Options expired or
cancelled.................... (48,734) 24.75 to 34.00 (1,549,200)
----------- -------------
Options oustanding at end of
year......................... 3,133,152 $ 24.75 to $40.25 $ 99,670,400
----------- -------------
----------- -------------
Shares reserved for future op-
tions........................
Shares exercisable at Decem-
ber 31, 1994.................
<FN>
* Total common shares reserved for exercise of stock options at December 31,
1994 were 2,544,516.
</TABLE>
NOTE H -- LEASE COMMITMENTS
Certain plant facilities are leased under agreements expiring at various
dates through 2017. Substantially all of the leases for plant facilities may be
renewed for up to seven years after the initial term of the lease. The
capitalized value of leases amounted to $15,140,000 and $17,461,000 at December
31, 1994 and 1993, respectively, and net book value amounted to approximately
$8,158,000 and $9,765,000 at December 31, 1994 and 1993, respectively.
Future minimum payments as of December 31, 1994 under the capital leases and
noncancelable operating leases with initial or remaining terms of one year or
more follow:
<TABLE>
<CAPTION>
CAPITAL OPERATING
(IN THOUSANDS) LEASES LEASES
<S> <C> <C>
------------------------------------------------------------------------------------------------------------------
1995...................................................................................... $ 1,363 $ 18,890
1996...................................................................................... 1,215 15,722
1997...................................................................................... 1,245 12,593
1998...................................................................................... 1,165 9,982
1999...................................................................................... 1,205 9,292
Thereafter................................................................................ 3,583 44,502
--------- -----------
Total minimum lease payments.............................................................. 9,776 $ 110,981
-----------
-----------
Amounts representing interest............................................................. (2,607)
---------
Present value of net minimum lease payments............................................... $ 7,169
---------
---------
</TABLE>
Lease expense on plant facilities, machinery and equipment amounted to
$18,380,000, $18,890,000, and $22,616,000 in 1994, 1993, and 1992, respectively.
33
<PAGE>
E-SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1994
NOTE I -- EMPLOYEE BENEFITS
The Company has several noncontributory defined benefit pension plans
covering substantially all employees. Plans covering salaried and non-union
employees provide pension benefits that are based on the highest consecutive 60
months of an employee's compensation. Plans covering employees governed by
collective bargaining agreements generally provide pension benefits of stated
amounts for each year of service and provide for supplemental benefits for
employees who retire with 20 years of service before age 62. The Company's
funding policy for all plans is to make annual contributions generally equal to
the amounts accrued for pension expense, up to the maximum amount that can be
deducted for federal income tax purposes.
A summary of the components of net periodic expense for the Company's
defined benefit plans and Supplemental Executive Retirement Program (SERP),
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1994 1993 1992
<S> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------
Service cost -- benefits earned during this period............................ $ 37,221 $ 31,985 $ 29,655
Interest cost on projected benefit obligation................................. 54,954 48,762 44,015
Actual loss (return) on plan assets........................................... 22,198 (19,027) (8,135)
Net amortization and deferral................................................. (66,598) (29,634) (42,644)
---------- ---------- ----------
Net periodic pension expense.................................................. $ 47,775 $ 32,086 $ 22,891
---------- ---------- ----------
---------- ---------- ----------
Assumptions used in the accounting for the plans were as follows:
------------------------------------------------------------------------------------------------------------------
Weighted-average discount rate................................................ 8.5% 7.45% 8.25%
Rates of increase in compensation levels -- defined benefit plans............. 5.0% 5.75% 5.75%
Rates of increase in compensation levels -- SERP.............................. 7.0% 7.0% 7.0%
Expected long-term rate of return on assets................................... 10.0% 10.0% 10.0%
</TABLE>
The following table sets forth the funded status and amounts recognized in
the Consolidated Balance Sheets for the Company's defined benefit pension plans,
excluding the SERP:
<TABLE>
<CAPTION>
1994 1993
--------------------------------- ---------------------------------
ACCUMULATED ASSETS EXCEED ACCUMULATED ASSETS EXCEED
BENEFITS EXCEED ACCUMULATED BENEFITS EXCEED ACCUMULATED
(IN THOUSANDS) ASSETS BENEFITS ASSETS BENEFITS
<S> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------------
Actuarial present value of benefit
obligations:
Vested benefit obligation............... $ (63,742) $ (448,904) $ (68,428) $ (446,254)
-------- -------------- -------- --------------
-------- -------------- -------- --------------
Accumulated benefit obligation.......... $ (69,680) $ (480,261) $ (76,626) $ (497,263)
-------- -------------- -------- --------------
-------- -------------- -------- --------------
Projected benefit obligation............ $ (71,066) $ (576,217) $ (81,133) $ (644,950)
Plan assets at fair value................. 56,050 497,240 60,122 501,410
-------- -------------- -------- --------------
Plan assets less than projected benefit
obligation............................... (15,016) (78,977) (21,011) (143,540)
Unrecognized net loss..................... 17,383 202,706 25,186 258,796
Prior service cost (credit) not yet
recognized in net periodic pension
cost..................................... 11,372 (22,908) 13,506 (1,556)
Unrecognized net asset at January 1, 1986,
net of amortization...................... (7,888) (66,336) (9,202) (77,211)
Adjustment to recognize minimum
liability................................ (20,132) -- (24,982) --
-------- -------------- -------- --------------
(Accrued) Prepaid Pension Cost............ $ (14,281) $ 34,485 $ (16,503) $ 36,489
-------- -------------- -------- --------------
-------- -------------- -------- --------------
</TABLE>
34
<PAGE>
E-SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
NOTE I -- EMPLOYEE BENEFITS (CONTINUED)
Approximately 53 percent of the defined benefit plans' assets at December
31, 1994 are invested in mutual funds, commercial paper, common stocks and other
assets, and 47 percent of the plans' assets are invested in real estate. The
market value of the Company's common stock held by the plans was $61,380,000 at
December 31, 1994.
The SERP, which is a nonqualified plan, provides certain officers with
defined pension benefits in excess of limits imposed by federal tax laws. See
Note K for discussion of the Trust established to fund pension benefits under
the SERP. The following table sets forth the funded status and amounts
recognized in the Consolidated Balance Sheets for the Company's SERP:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1994 1993
<S> <C> <C>
----------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefit obligation................................... $(15,284) $(17,767)
-------- --------
-------- --------
Accumulated benefit obligation.............................. $(20,640) $(22,515)
-------- --------
-------- --------
Projected benefit obligation................................ $(23,397) $(25,449)
Unrecognized net loss......................................... 4,131 8,578
Prior service cost not yet recognized in net periodic pension
cost......................................................... 520 318
Unrecognized net obligation at January 1, 1986, net of
amortization................................................. 2,153 2,512
Adjustment required to recognize minimum liability............ (4,047) (8,474)
-------- --------
Net pension liability of the SERP............................. $(20,640) $(22,515)
-------- --------
-------- --------
</TABLE>
An Employee Stock Ownership Plan (ESOP), which includes substantially all
employees, provides for voluntary annual contributions in amounts determined by
the Board of Directors. The contributions may be in cash, common stock,
securities or other property. The annual contributions are to be at least
sufficient to discharge any current obligations of the Employee Stock Ownership
Trust. Contributions to the Trust are accrued quarterly and for 1994, 1993, and
1992 were $10,949,000, $11,709,000, and $13,045,000, respectively.
Certain subsidiaries sponsor separate 401(k) savings plans which provide for
voluntary annual contributions at the discretion of management. Contributions of
$6,250,000 $4,202,000, and $2,480,000 were made to the plans in 1994, 1993, and
1992, respectively.
During 1987, the Board of Directors approved a retirement policy for its
outside directors which provides for post retirement remuneration and death
benefits. The expense of the plan is being amortized over the anticipated
remaining terms of the directors.
NOTE J -- RETIREE HEALTH CARE AND LIFE INSURANCE BENEFITS
Certain health care and life insurance benefits are provided for retired
employees. Employees retiring between the ages of 55 and 65 with at least 10
years of service or who age vest under the E-Systems, Inc. Salaried Retirement
Plan are eligible for these benefits. Election to participate must be made as of
the date of retirement, and the retiree may elect to cover qualifying
dependents. If the retiree elects no medical coverage, it may not be added at a
later date.
Prior to 1992, the costs for providing retiree health care and life
insurance benefits were recognized as an expense as claims were paid. In 1992,
the company began to recognize the projected future
35
<PAGE>
E-SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
NOTE J -- RETIREE HEALTH CARE AND LIFE INSURANCE BENEFITS (CONTINUED)
cost of providing postretirement benefits, such as health care and life
insurance, as an expense during the employee's vesting service. Upon
implementation of this change, as of January 1, 1992, an accumulated
postretirement benefit obligation (APBO) of $270.5 million was recognized.
A summary of the components of net periodic retiree health care and life
insurance benefits cost follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1994 1993 1992
<S> <C> <C> <C>
-----------------------------------------------------------------------------------------------
Service cost......................................................... $ 7,665 $ 6,546 $6,962
Interest cost........................................................ 19,232 21,068 21,931
Actual loss (return) on plan assets.................................. 562 (1,930) --
Net amortization and deferral........................................ (4,499) 1,275 --
------- ------- ------
Net periodic postretirement benefits cost............................ $22,960 $26,959 $28,893
------- ------- ------
------- ------- ------
</TABLE>
In 1993, the Company began contributing to a Voluntary Employees'
Beneficiary Association trust and a 401(h) trust that will be used to partially
fund health care benefits for retirees. Benefits are funded to the extent
contributions are tax-deductible, which under current legislation is limited. In
general, retiree health care benefits are paid as covered expenses are incurred.
Plan assets consist of listed mutual funds, and the expected long-term rate of
return on plan assets is 9 percent. The funded status and amounts recognized in
the Consolidated Balance Sheets for the company's retiree health care and life
insurance plans are:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1994 1993
<S> <C> <C>
-----------------------------------------------------------------------------------
Discount Rate.................................................. 8.5% 7.45%
Accumulated postretirement benefit obligation (APBO):
Retirees....................................................... $178,905 $164,354
Fully eligible active employees................................ 12,740 15,137
Active employees not yet eligible.............................. 74,606 86,655
Less fair value of plan assets................................. (27,605) (13,614)
-------- --------
Excess of APBO over assets..................................... 238,646 252,532
Unrecognized prior service cost................................ 12,547 13,383
Unrecognized net gain.......................................... 33,034 24,880
-------- --------
Accrued retiree health care and life insurance benefits
liability..................................................... $284,227 $290,795
-------- --------
-------- --------
</TABLE>
The health care cost trend rates, used to calculate both net periodic cost
and the APBO, are as follows:
<TABLE>
<CAPTION>
COST
TREND
YEARS ENDING DECEMBER 31 RATES
<S> <C>
-------------------------------------------------------------------------
1995-1996......................................................... 7.6%
1997-1998......................................................... 7.7%
1999.............................................................. 7.8%
2000 and beyond................................................... 5.8%
</TABLE>
36
<PAGE>
E-SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1994
NOTE J -- RETIREE HEALTH CARE AND LIFE INSURANCE BENEFITS (CONTINUED)
Increasing the assumed health care cost trend rates by one percentage point
in each year would increase the APBO as of December 31, 1994 by $25,352,000 and
the net periodic benefit cost for the year ended December 31, 1994 by
$3,042,000.
NOTE K -- INVESTMENTS
A trust was established to fund the payment of pension benefits under the
Supplemental Executive Retirement Program (SERP) (See Note I). Trust assets
totaled $45,000,000 and $42,134,000 at December 31, 1994 and 1993, respectively,
and are included in Deferred Charges and Other. The assets of the Trust are
invested at the discretion of the outside trustee, and at December 31, 1994,
consisted primarily of listed common stock, convertible securities, and
fixed-income investments. The Trust became irrevocable in 1988 subject only to
the claims of creditors in the event of insolvency of the Company.
In the first quarter of 1994, Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities" was
adopted. This Statement defines the accounting treatment for marketable equity
and debt securities by their classification as either held-to-maturity, trading
or available-for-sale securities.
Trust investments are considered available-for-sale and are stated at fair
value, based on quoted market prices as determined by an outside trustee, with
the unrealized gains and losses, net of tax, reported as a separate component of
shareholders' equity. In 1993, the marketable equity securities held by the
Trust were carried at the lower of cost or market. At December 31, 1993, the
outside trustee estimated the market value of the trust assets to be
$46,119,000. Interest, dividends and realized gains and losses of the Trust are
included in other income. The cost of securities sold is based on the average
cost method. The following is a summary of trust investments at December 31,
1994:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
(IN THOUSANDS) COST GAINS LOSSES FAIR VALUE
<S> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------------
U.S. corporate securities............................... $ 3,532 $ 21 $ 314 $ 3,239
Other debt securities................................... 18,226 480 404 18,302
--------- ----------- ----------- -----------
Total debt securities............................... 21,758 501 718 21,541
Equity securities....................................... 22,811 2,244 1,596 23,459
--------- ----------- ----------- -----------
$ 44,569 $ 2,745 $ 2,314 $ 45,000
--------- ----------- ----------- -----------
--------- ----------- ----------- -----------
</TABLE>
The gross realized gains on sales of available-for-sale securities totaled
$1,361,000 and gross realized losses totaled $329,000 for the year-ended
December 31, 1994.
37
<PAGE>
E-SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
NOTE K -- INVESTMENTS (CONTINUED)
The amortized cost and estimated fair value of debt and marketable equity
securities at December 31, 1994, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because the issuers
of the securities may have the right to prepay obligations without prepayment
penalties.
<TABLE>
<CAPTION>
ESTIMATED
(IN THOUSANDS) COST FAIR VALUE
<S> <C> <C>
-----------------------------------------------------------------------------------------------
Due in one to three years.............................................. $ 4,344 $ 4,342
Due after three years.................................................. 17,414 17,199
--------- -----------
21,758 21,541
Equity securities...................................................... 22,811 23,459
--------- -----------
$ 44,569 $ 45,000
--------- -----------
--------- -----------
</TABLE>
NOTE L -- COMMITMENTS AND CONTINGENCIES
Changes to procurement regulations in recent years, as well as the
Government's drive against "fraud, waste and abuse" in defense procurement
systems have increased the complexity and cost of doing business with the
Government. Some of these changes have redefined the ability to recover various
standard business costs which the Government will not allow, in whole or in
part, as the cost of doing business on Government contracts. Other legal and
regulatory practices have increased the number of auditors, inspectors general
and investigators to the point that the Company, like every other major
Government contractor, is the constant subject of audits, investigations and
inquiries concerning various aspects of its business practices.
The Company regards charges of violation of government procurement
regulations as extremely serious and recognizes that such charges could have a
material adverse effect on the Company. If the Company is determined to be in
noncompliance with any of the applicable laws and regulations, the possibility
exists of penalties and debarment or suspension from receiving additional
Government contracts.
The Company has become aware through press reports of the filing of a civil
lawsuit, by a former employee, in the United States District Court for the
Southern District of Texas (Galveston), brought under the so-called QUI TAM
provisions of the False Claims Act, which permit an individual to bring suit in
the name of the Government and share in any recovery received by the Government.
This lawsuit is currently under seal while the Justice Department conducts an
investigation to determine whether it should intervene in the prosecution of the
case. The Company is cooperating in that investigation. Although the Company is
unaware of the specific nature of the allegations in the sealed lawsuit, the
Company is also unaware of any conduct which it believes would support a QUI TAM
recovery under the False Claims Act.
The Company is involved in other disagreements which are in the ordinary
course of the Company's business activities that are not expected to have a
material adverse effect on the Company's financial position. In addition, the
Company is involved in certain environmental investigation matters with
governmental agencies, and pending or threatened lawsuits and claims of current
and former employees alleging various age, race, sex and disability
discrimination or retaliatory discharge.
Management believes that if there is any impact of the foregoing matters on
the Company's financial condition it will not be material.
38
<PAGE>
E-SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
NOTE L -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
In the normal course of its business activities, the Company is required
under certain contracts to provide letters of credit which may be drawn down in
the event the Company fails to perform under the contracts. At December 31,
1994, letters of credit outstanding amounted to $55.6 million.
NOTE M -- SPECIAL CHARGES
Special charges reflect adjustments to the net realizable value of
investments in several nontraditional business areas such as mass storage,
medical technology and others. The charges of $24.5 million as they impacted
each business area are as follows: mass storage, $15.6 million; medical
technology, $7.1 million; and other areas, $1.8 million.
NOTE N -- OPERATIONS BY PRODUCT CATEGORY
The Company has five significant product segments. The Reconnaissance and
Surveillance category includes strategic systems for intelligence,
reconnaissance and surveillance applications and tactical systems relating to
electronic countermeasures and jamming and deception devices. The Command,
Control and Communications category includes communications equipment and
command and control systems which process data for ready analysis and decision
making. In the Navigation and Controls category, automatic control products for
aircraft, missile steering and tracking systems, and aircraft navigation aids
are developed and manufactured. The Company provides maintenance, repair and
modification services for aircraft of all types and other maintenance services
through its Aircraft Maintenance and Modification product segment. In 1994, a
determination was made to remove the Other Products and Services from the
Aircraft Maintenance and Modification segment; accordingly, the segment
information for 1993 and 1992 has been reclassified to conform to the 1994
presentation. Included in the Other Products and Services category is the mass
storage and retrieval product line (EMASS), medical technology capabilities,
data handling, depot maintenance and language processing capabilities. Also
included is the Company's transportation technology business which provides for
real-time location and status of mass transit vehicles. Product category
information is reported herein by product type since each category involves
several divisions. There are no sales between product categories.
Identifiable assets by product category include both assets specifically
identified with those operations and an allocable share of jointly used assets.
Corporate assets consist primarily of cash, deferred federal income taxes,
miscellaneous receivables, investments and fixed assets.
Sales to the United States Government from all categories amounted to
$1,848,326,000, $1,865,069,000, and $1,867,043,000, in 1994, 1993, and 1992,
respectively.
International sales which are primarily export sales to foreign governments
and from all categories are summarized by geographic area as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1994 1993 1992
<S> <C> <C> <C>
-------------------------------------------------------------------------
Middle East............................. $ 20,989 $ 63,610 $ 68,309
Europe.................................. 59,160 76,722 77,129
Australia and Pacific................... 20,156 19,436 22,921
Other regions........................... 28,023 18,990 12,371
-------- -------- --------
$128,328 $178,758 $180,730
-------- -------- --------
-------- -------- --------
</TABLE>
39
<PAGE>
E-SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
NOTE N -- OPERATIONS BY PRODUCT CATEGORY (CONTINUED)
Financial information by product category (in thousands) is summarized as
follows:
<TABLE>
<CAPTION>
UNAUDITED DEPRECIATION
------------------------ INCOME AND CAPITAL
1994 BOOKINGS BACKLOG NET SALES BEFORE TAX ASSETS AMORTIZATION EXPENDITURES
<S> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------------
Reconnaissance and
Surveillance.................... $ 1,060,557 $ 1,106,724 $ 1,125,025 $ 110,157 $ 630,844 $ 32,515 $ 26,587
Command, Control and
Communications.................. 548,993 593,227 385,599 37,005 152,092 8,653 6,397
Navigation and Controls.......... 22,117 82,856 55,000 9,138 40,889 1,966 2,256
Aircraft Maintenance &
Modification.................... 760,726 763,364 335,531 18,830 160,432 5,334 4,890
Other Products and Services...... 134,174 85,137 127,145 (21,659) 171,693 3,177 3,168
----------- ----------- ----------- ----------- ----------- ------------ ------------
Total for Operating Segments... 2,526,567 2,631,308 2,028,300 153,471 1,155,950 51,645 43,298
Corporate........................ (9,370) 218,217 3,029 375
Interest expense................. (2,412)
----------- ----------- ----------- ----------- ----------- ------------ ------------
Consolidated Total............. $ 2,526,567 $ 2,631,308 $ 2,028,300 $ 141,689 $ 1,374,167 $ 54,674 $ 43,673
----------- ----------- ----------- ----------- ----------- ------------ ------------
----------- ----------- ----------- ----------- ----------- ------------ ------------
<CAPTION>
1993
<S> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------------
Reconnaissance and
Surveillance.................... $ 996,875 $ 1,171,192 $ 1,259,651 $ 110,611 $ 648,277 $ 33,710 $ 33,085
Command, Control and
Communications.................. 344,001 429,833 389,852 32,805 160,408 9,992 8,619
Navigation and Controls.......... 30,202 115,739 63,518 14,093 27,344 2,431 1,958
Aircraft Maintenance &
Modification.................... 433,328 338,169 300,621 21,081 145,125 4,924 5,127
Other Products and Services...... 106,126 78,108 83,472 2,066 48,135 825 2,856
----------- ----------- ----------- ----------- ----------- ------------ ------------
Total for Operating Segments... 1,910,532 2,133,041 2,097,114 180,656 1,029,289 51,882 51,645
Corporate........................ 5,830 249,884 2,976 441
Interest expense................. (6,211)
----------- ----------- ----------- ----------- ----------- ------------ ------------
Consolidated Total............. $ 1,910,532 $ 2,133,041 $ 2,097,114 $ 180,275 $ 1,279,173 $ 54,858 $ 52,086
----------- ----------- ----------- ----------- ----------- ------------ ------------
----------- ----------- ----------- ----------- ----------- ------------ ------------
<CAPTION>
1992
<S> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------------
Reconnaissance and
Surveillance.................... $ 1,144,397 $ 1,433,968 $ 1,379,019 $ 114,339 $ 664,773 $ 34,889 $ 70,571
Command, Control and
Communications.................. 407,472 475,684 340,632 26,698 163,852 9,924 11,931
Navigation and Controls.......... 51,810 149,055 57,351 11,673 30,987 2,313 2,038
Aircraft Maintenance &
Modification.................... 224,525 205,462 252,841 14,704 117,625 3,683 5,220
Other Products and Services...... 77,115 55,454 65,070 3,322 36,444 223 319
----------- ----------- ----------- ----------- ----------- ------------ ------------
Total for Operating Segments... 1,905,319 2,319,623 2,094,913 170,736 1,013,681 51,032 90,079
Corporate........................ (600) 239,892 2,551 911
Interest expense................. (7,664)
----------- ----------- ----------- ----------- ----------- ------------ ------------
Consolidated Total............. $ 1,905,319 $ 2,319,623 $ 2,094,913 $ 162,472 $ 1,253,573 $ 53,583 $ 90,990
----------- ----------- ----------- ----------- ----------- ------------ ------------
----------- ----------- ----------- ----------- ----------- ------------ ------------
</TABLE>
40
<PAGE>
INDEX OF EXHIBITS
Securities Exchange Act of 1934
PAGE IN
FORM
EXHIBIT NO. ITEM 10-K
------------------------------------------------------------------------------
3(i) Composite Articles of Incorporation as Amended April 21, 1987. X
3(ii) Bylaws as Amended and Restated January 26, 1994. X
4(a) Rights Agreement dated October 7, 1994 between E-Systems,
Inc. and Society National Bank, Rights Agent (filed electronically
as Exhibit 4 to Form 8A12B on October 12, 1994, incorporated
herein by reference).
10(b)* Employment Agreement of A. Lowell Lawson dated September
27, 1989 including Amendment No. One dated January 26, 1994
(filed electronically as Exhibit 10(b) to Annual Report on Form
10-K for the fiscal year ended December 31, 1993, incorporated
herein by reference).
10(c)* Employment Agreement of Terry W. Heil dated as of December
19, 1990 including Amendment No. One dated November 22, 1993
and Amendment No. Two dated April 27, 1994. X
10(d)* Employment Agreement of Peter A. Marino dated October 14, 1991
including Amendment No. One dated November 22, 1993 and
Amendment No. Two dated April 27, 1994. X
10(e)* Employment Agreement of Brian D. Cullen dated October 14, 1991
including Amendment No. One dated November 22, 1993 and
Amendment No. Two dated April 27, 1994. X
10(f)* Employment Agreement of James W. Crowley as Restated
June 1, 1982. X
10(g)* Form of Amended and Restated Indemnification Agreement
with Officers and Directors X
10(h)* E-Systems, Inc. 1982 Incentive Stock Option Plan, as amended
January 24, 1994. X
10(i)* E-Systems, Inc. 1980 Stock Option Plan X
10(j)* Form of Stock Option Agreement X
10(k)* Form of Restricted Stock Award Agreement X
10(l) Lease Agreement between City of Greenville and
E-Systems, Inc. dated October 1, 1977, as amended
by Amendments No. 1 and 2 dated October 15, 1980;
Amendment No. 3 dated October 1, 1981; Amendment
No. 4 dated July 15, 1990 and Amendment No. 5 dated
December 11, 1990 (filed electronically as Exhibit 10I on
Form 10-K for the fiscal year ended December 31, 1993,
incorporated herein by reference).
<PAGE>
PAGE IN
FORM
EXHIBIT NO. ITEM 10-K
------------------------------------------------------------------------------
10(m)* Executive Supplemental Retirement Plan effective
June 1, 1982, as amended through November 18, 1986 X
10(n)* E-Systems, Inc. 1988 Employee Stock Option Plan,
as amended (filed electronically as Exhibit 10(n) on Form
10-K for the fiscal year ended December 31, 1993,
incorporated herein by reference).
10(o)* Trust Agreement dated June 23, 1987 between E-Systems,
Inc. and AmeriTrust Company, National Association, Trustee,
including First Amendment dated September 23, 1987 and
Second Amendment dated February 4, 1988 X
10(p)* Trust Agreement dated May 19, 1994 between E-Systems,
Inc. and Society National Bank, National Association, Trustee. X
10(q)* E-Systems, Inc. 1995 Directors' Stock Option Plan (filed
electronically as Exhibit 1 to the E-Systems, Inc. 1995 Proxy
Statement dated March 24, 1995, incorporated herein by reference).
10(r)* 1994 Employee Stock Option Plan (filed electronically as
Exhibit 1 to the E-Systems, Inc. 1994 Proxy Statement dated
March 25, 1994, incorporated herein by reference).
11 Statement re computation of per share earnings X
21 Subsidiaries of Resgistrant. X
23 Consent of Independent Auditors X
27 Financial Data Schedule X
99 Additional Exhibits (Annual Report on Form 11-K for the
fiscal year ended December 31, 1994, for the E-Systems
Tax Advantaged Capital Accumulation Plan: to be filed by
amendment).
_______________________
* Each of these exhibits is a "management contract or compensatory plan,
contract, or arrangement".
<PAGE>
CERTIFICATE AUTHORIZING THE FILING OF COMPOSITE
CERTIFICATE OF INCORPORATION
E-SYSTEMS, INC., a corporation organized and existing
under and by virtue of the General Corporation Law of the State
of Delaware, DOES HEREBY CERTIFY.
That the filing and recording of the Composite Certificate
of Incorporation of E-SYSTEMS, INC., a true and correct copy of
which is attached hereto, was duly authorized by the Company's
Board of Directors at a meeting duly called and held on
November 24, 1987.
IN WITNESS WHEREOF, said E-SYSTEMS, INC. has caused this
certificate to be signed by JAMES W. CROWLEY, its Vice
President and attested by LUTHER B. TERRY, its Assistant
Secretary this 16th day of March, 1988.
By: James W. Crowley
Vice President
ATTEST:
By: Luther B. Terry
Assistant Secretary
<PAGE>
COMPOSITE
CERTIFICATE OF INCORPORATION
OF
E-SYSTEMS, INC.
FIRST. The name of the corporation is
E-SYSTEMS, INC.
SECOND. The corporation's principal office in the State
of Delaware is located at No. 100 West Tenth Street, in the
City of Wilmington, County of New Castle. The name and address
of its resident agent is The Corporation Trust Company, No. 100
West Tenth Street, Wilmington 99, Delaware.
THIRD. The purpose of the corporation is to engage in any
lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.
FOURTH. This corporation is authorized to issue
50,185,000 shares of capital stock. Fifty million (50,000,000)
of the authorized shares shall be Common Stock, One Dollar
($1.00) par value each; and One Hundred Eighty-five Thousand
(185,000) of the authorized shares shall be preferred stock,
Twenty Dollars ($20.00) par value each. Shares of preferred
stock may be issued from time to time in one or more series to
have such distinctive designation and title as may be fixed by
the Board of Directors prior to the issuance of any shares
thereof. Each such series shall have such preferences and
relative, participating, optional or other special rights, with
such qualifications, limitations, or restrictions of such
preferences and/or rights as shall be stated in the resolution
or resolutions providing for the issue of such series of
preferred stock, as may be adopted from time to time by the
Board of Directors prior to the issuance of any shares thereof,
in accordance with the laws of the State of Delaware. Each
share of any series of preferred stock shall be identical with
all other shares of such series, except as to the date from
which accumulated preferred dividends, if any, shall be
cumulative.
FIFTH. Cumulative voting for the election of directors
shall not be permitted.
SIXTH. The minimum amount of capital with which the
corporation will commence business is One Thousand Dollars
($1,000).
SEVENTH. The names and places of residence of the
incorporators are as follows:
<PAGE>
Names Residences
A. D. Atwell Wilmington, Delaware
F. J. Obara, Jr. Wilmington, Delaware
A. D. Grier Wilmington, Delaware
EIGHTH: The corporation is to have perpetual existence.
NINTH. The private property of the stockholders shall not
be subject to the payment of the corporate debts or any extent
whatever.
TENTH. The following provisions are adopted for the
management of the business and for the conduct of the affairs
of the corporation, and for creating, defining, limiting and
regulating the powers of the corporation, its directors, and
stockholders:
(a) The business of the corporation shall be
managed by its Board of Directors and the Board of Directors
shall have power to exercise all the powers of the corporation,
including (but without limiting the generality hereof)the power
to create mortgages upon the whole or any part of the property
of the corporation, real or personal, without any action of or
by the stockholders, except as otherwise provided by statute or
by the By-Laws.
(b) The number of directors which shall
constitute the whole Board of Directors shall be such as is
from time to time fixed in the manner provided in the By-Laws,
but in no case shall the number be less than three (3).
(c) (1) The directors (other than any directors
which may be elected by the class vote of any series of the
preferred stock of the corporation pursuant to the terms
thereof, which directors shall be elected at the time and serve
for the term specified in the resolutions providing for the
issue of such series of preferred stock) shall be divided into
three classes, each consisting of one-third of such directors
as nearly as may be.
(2) At the annual meeting of stockholders in
1972, one class of such directors shall be elected for a one-
year term, one class for a two-year term and one class for a
three-year term. At each succeeding annual meeting of
stockholders, successors to the class of directors whose term
expires in that year shall be elected for a three-year term.
If the number of such directors is changed, any increase or
decrease in such directors shall be apportioned among the
classes so as to maintain the classes as nearly equal in number
as possible, and any additional director to any class shall
hold office for a term which shall coincide with the term of
such class.
<PAGE>
(3) A director shall hold office until the
annual meeting for the year in which his term expires or his
successor is elected and qualified; subject however, to prior
resignation, death or removal of any director, the term of his
successor shall be the same term as that of the director who
has so resigned, died or been removed. At each election the
persons receiving the greatest number of votes shall be the
directors.
(d) The Board of Directors shall have power to
make, alter or repeal By-Laws, subject to such restrictions
upon the exercise of such power as may be imposed by the
stockholders in any By-Laws adopted by them from time to time.
(e) The Board of Directors shall have power in
its discretion to fix, determine, and vary form time to time
the amount to be retained as surplus, and the amount or amounts
to be set apart out of any of the funds of the corporation
available for dividends, as working capital, or a reserve or
reserves for any proper purpose, and to abolish any such
reserve in the manner in which it was created.
(f) The Board of Directors shall have power in its
discretion from time to time to determine whether and to what
extent and at what times and places and under what conditions
and regulations the books and accounts of the corporation, or
any of them, other than the stock ledger shall be open to the
inspection of the stockholders; and no stockholder shall have
any right to inspect any account or book or document of the
corporation, except as conferred by law or authorized by
resolution of the directors of the stockholders.
(g) Upon any sale, exchange or other disposal of
the property and/or assets of the corporation, payment
therefore may be made either to the corporation or directly to
the stockholders in proportion to their interests, upon the
surrender of their respective stock certificates, or otherwise,
as the Board of Directors may determine.
(h) The Board of Directors shall have the power,
by resolution adopted by the affirmative vote of a majority of
the whole Board of Directors, to appoint one or more
committees, including, but not limited to, an executive
committee, each committee to consist of two or more of the
directors of the corporation. Any such committee or committees,
to the extent provided in the resolution or in the By-Laws or
in the laws of the State of Delaware and subject thereto, shall
have and may exercise the powers of the Board of Directors in
the management of the business and affairs of the corporation.
(i) A special meeting of the stockholders, for any
purpose or purposes, unless otherwise prescribed by statute,
may be called by the Chairman of the Board or by the President
and shall be called by the President or Secretary at the
<PAGE>
request in writing of a majority of the Board of Directors or
at the request in writing of stockholders owning a majority in
amount of the entire capital stock of the corporation issued
and outstanding and entitled to vote.
(j) Notice of each meeting of stockholders,
whether annual or special, shall, at least ten days before the
day on which the meeting is to be held, be given to each
stockholder of record entitled to vote by delivering a written
or printed notice thereof to him personally, or by mailing such
notice in a postage paid envelope addressed to him at his
address as it appears on the stock books of the corporation;
provided, that no notice of any character of any meeting of
stockholders need be given to any stockholder to whom the
delivery, mailing or other giving of such notice would be
unlawful (either absolutely or without official license or
consent) pursuant to the provisions of any law of the United
States or any rule, regulation, proclamation or executive order
issued pursuant thereto. Except as otherwise required by
statute, no publication of any notice of a meeting of
stockholders shall be required. Every notice of a special
meeting of stockholders, besides stating the time and place of
the meeting, shall state briefly the purposes thereof.
(k) (1) Except as otherwise provided in this
certificate of incorporation, the affirmative vote of the
holders of at least a majority of the outstanding capital stock
of the corporation entitled to vote shall be required to
authorize, adopt or approve any of the following:
A. The merger or consolidation of this
corporation with or into any other corporation or corporations
organized under the laws of the State of Delaware or any other
state or country in the manner now or hereafter permitted by
law, except to the extent the vote of the stockholders is not
required under Sections 251 (f), 252 (e) or 253 of the General
Corporation Law of the State of Delaware or similar provisions
of any succeeding legislation; or
B. The sale, exchange, lease, transfer or
other disposition of all or substantially all the property or
assets of this corporation including its good will in a manner
now or hereafter permitted by law, and in connection therewith
the winding up of its affairs and its dissolution.
(2) The affirmative vote of the holders of at
least 80% of the outstanding capital stock of the corporation
entitled to vote shall be required to authorize, adopt or
approve any of the following:
A. The sale, exchange, lease, transfer or
other disposition by the corporation of all or substantially
all of its property or assets to a related corporation or an
affiliate of a related corporation; or
<PAGE>
B. The consolidation of the corporation
or its merger with or into a related corporation or an
affiliate of a related corporation; or
C. The merger into the corporation of a
related corporation or an affiliate of a related corporation;
or
D. Any issuance or delivery of capital
stock or other securities of the corporation in exchange or
payment for any properties or assets of any related corporation
or any affiliate of a related corporation in a transaction for
which the approval of stockholders of the corporation is
required by law or by any agreement between the corporation and
any national securities exchange; or
E. An agreement, contract or other
arrangement with a related corporation providing for any of the
transactions described in the foregoing clauses of this
paragraph (2).
For the purpose of this paragraph (k), a 'related
corporation' in respect of a given transaction shall mean any
corporation (other than the corporation) which, together with
affiliated and associated persons, owns of record or
beneficially, directly or indirectly, shares of the corporation
representing more than 5% of the total voting power of
outstanding capital stock entitled to vote upon such
transaction as of the record date used to determine the
stockholders of the corporation entitled to vote on such
transaction; an 'affiliate' of a related corporation shall mean
any individual, joint venture, trust, partnership or
corporation which directly or indirectly through one or more
intermediaries, controls, or is controlled by, or is under
common control with, the related corporation; and an
'associated person' of a related corporation shall mean any
officer or director or any beneficial owner directly or
indirectly of 10% or more of any class of equity security of
such related corporation or any affiliate. The determination of
the Board of Directors of the corporation, based on information
known to the Board of Directors and made in good faith, shall
be conclusive as to whether any corporation is a related
corporation as defined in this paragraph (k).
(1) No action of the holders of the Common
Stock of the corporation may be taken by consent in lieu of a
meeting.
ELEVENTH. Whenever a compromise or arrangement is proposed
between this corporation and its creditors or any class of them
and/or between this corporation and its stockholders or any
class of them, any court of equitable jurisdiction within the
State of Delaware may, on the application in a summary way of
this corporation or of any creditor or stockholder thereof, or
on the application of any receiver or receivers appointed for
<PAGE>
this corporation under the provisions of Section 291 of Title 8
of the Delaware Code, or the application of trustees in
dissolution or of any receiver or receivers appointed for this
corporation under the provisions of Section 279 of Title 8 of
the Delaware Code, order a meeting of the creditors or class of
creditors, and/or of the stockholders or class of stockholders
of this corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class
of creditors, and/or of the stockholders, or class of
stockholders of this corporation, as the case may be, agree to
any compromise or arrangement and to any reorganization of this
corporation as consequence of such compromise or arrangement,
the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of
creditors, and/or on all the stockholders or class of
stockholders, of this corporation, as the case may be, and also
on this corporation.
TWELFTH. No contract or other transaction between the
corporation and any other corporation, firm or invididual shall be
affected or invalidated by the fact that any one or more of the
directors or officers of this corporation is or are interested in
or is a director or officer of such other corporation, or a member
of such firm, and any director or officer, individually or jointly,
may be a party to or may be interested in any contract, or transaction,
of this corporation or in which this corporation is interested, and no
contract, act or transaction of this corporation with any person or
persons, firms for corporations, shall be affected or invalidated by
the fact that any director or officer of this corporation is a party
to or interested in such contract, act or transaction, or in any way
connected with such person or persons, firms or corporations, and each
and every person who may become a director or officer of this corporation
is hereby relieved from any liability that might otherwise exist from
contracting with the corporation for the benefit of himself or any firm
or corporation in which he may be in anywise interested.
THIRTEENTH. Meetings of stockholders may be held outside the State
of Delaware, if the By-Laws so provide. The books of the corporation may
be kept (subject to any provision contained in the statutes) outside the
State of Delaware at such place or places as may be designated from time
to time by the Board of Directors or in the By-Laws. Elections of directors
need not be by ballot unless the By-Laws shall so provide.
FOURTEENTH. To the full extent permitted by the General Corporation
Law of the State of Delaware or any other applicable laws as presently or
hereafter in effect, no Director of the corporation shall be personally
liable to the corporation or its stockholders for or with respect to any
acts or omissions in the performance of his or her duties as a
<PAGE>
Director of the corporation. No amendment to or repeal of this Article
Fourteenth shall apply to or have any effect on the liability or alleged
liability of any Director of the corporation for or with respect to any acts
or omissions of such Director occurring prior to such amendment.
FIFTEENTH. The corporation reserves the right to amend, alter, change
or repeal any provision contained in this certificate of incorporation, in
the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
We, the undersigned, being each of the incorporators hereinbefore named,
for the purposed of forming a corporation pursuant to the General Corporation
law of the State of Delaware, do make this certificate, hereby declaring and
certifying that the facts herein stated are true, and accordingly have
hereunto set our hands and seals this 28th day of December, A.D. 1964.
A. D. ATWELL (L.S.)
F. J. OBARA, JR (L.S.)
A. D. GRIER (L.S.)
STATE OF DELAWARE )
)
COUNTY OF NEW CASTLE )
BE IT REMEMBERED that on this 28th day of December, 1964, personally came
before me, a Notary Public for the State of Delaware, A. D. Atwell,
F. J. Obara, Jr. and A. D. Grier, all of the parties to the foregoing
certificate of incorporation, known to me personally to be such, and
severally acknowledged the said certificate to be the act and deed of the
signers respectively and that the facts therein stated are truly set forth.
GIVEN UNDER MY HAND AND SEAL of office the day and
HOWARD K. WEBB
NOTARY PUBLIC
APPOINTED JUNE 27, 1964
STATE OF DELAWARE
TERM 2 YEARS
HOWARD K. WEBB
Notary Public
<PAGE>
AS AMENDED AND RESTATED JANUARY 26, 1994
BYLAWS
OF
E-SYSTEMS, INC.
ARTICLE I
OFFICES
Section 1. The principal office shall be in the city
of Wilmington, County of New Castle, State of Delaware.
Section 2. The corporation may also have offices at
such other places both within and without the State of
Delaware as the board of directors may from time to time
determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Annual or special meetings of the
stockholders shall be held at such place within the United
States of America as may be fixed by the board of directors,
as shall be stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
Section 2. Annual meetings of stockholders shall be
held such day and at such time as may be fixed by the board
of directors at which they shall elect by a plurality vote a
board of directors and transact such other business as may
properly be brought before the meeting.
Section 3. Written notice of the annual meeting shall
be given to each stockholder entitled to vote thereat at
least ten days before the date of the meeting.
Section 4. A complete list of the stockholders
entitled to vote at any election of directors, arranged in
alphabetical order and showing the address of each
stockholder and the number of voting shares held by each,
shall be prepared by the officer in charge of the stock
ledger and shall be filed at the place where the election is
to be held or at another place within the city, town or
village where the election is to be held (which place, if
other than the meeting place, shall be specified in the
notice of the meeting) at least ten (10) days before such
election and shall at all times prior to the election during
the usual hours for business, and during the whole time of
<PAGE>
said election, be open to examination and inspection of any
stockholder.
Section 5. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by
statute or by the certificate of incorporation, may be
called by the Chairman of the Board or by the Chief
Executive Officer or the President and shall be called by
the Chief Executive Officer, the President or the Secretary
at the request in writing of a majority of the board of
directors, or at the request in writing of stockholders
owning a majority in amount of the entire capital stock of
the corporation issued and outstanding and entitled to vote.
Such request shall state the purpose or purposes of the
proposed meeting.
Section 6. Written notice of a special meeting of
stockholders, stating the time, place and object thereof,
shall be given to each stockholder entitled to vote thereat,
at least ten days before the date fixed for the meeting.
Section 7. Business transacted at any special meeting
of stockholders shall be limited to the purposes stated in
the notice.
Section 8. The holders of a majority of the stock
issued and outstanding and entitled to vote thereat, present
in person or represented by proxy, shall constitute a quorum
at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall
not be present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power
to adjourn the meeting until a quorum shall be present or
represented. At such adjourned meeting at which a quorum
shall be present or represented, any business may be
transacted which might have been transacted at the meeting
as originally notified.
Section 9. When a quorum is present at any meeting,
the vote of the holders of a majority of the stock having
voting power present in person or represented by proxy shall
decide any question brought before such meeting, unless the
question is one upon which by express provision of the
statutes or of the certificate of incorporation a different
vote is required, in which case such express provision shall
govern and control the decision of such question.
Section 10. Each stockholder shall at every meeting of
the stockholders be entitled to one vote in person or by
proxy for each share of the capital stock having voting
power held by such stockholder, but no proxy shall be voted
on after three years from its date, unless the proxy
<PAGE>
provides for a longer period; and, except where the transfer
books of the corporation have been closed or a date has been
fixed as a record date for the determination of its
stockholders entitled to vote, no share of stock shall be
voted on at any election for directors which has been
transferred on the books of the corporation within twenty
days next preceding such election of directors.
Section 11. Whenever the vote of stockholders at a
meeting thereof is required or permitted to be taken in
connection with any corporate action by any provisions of
the statutes or of the certificate of incorporation, the
meeting and vote of stockholders may be dispensed with if
all the stockholders who would have been entitled to vote
upon the action if such meeting were held shall consent in
writing to such corporate action being taken.
ARTICLE III
DIRECTORS
Section 1. The number of directors shall be the number
fixed from time to time by resolutions of the board of
directors; provided that the number shall be not less than
three (3) nor more than fifteen (15). Unless otherwise
provided in the certificate of incorporation, the directors
shall be elected annually and each director shall continue
in office until a successor shall have been elected and
qualified, or until death, or until he or she shall resign,
or shall have been removed for adequate cause. Directors
need not be stockholders.
Section 2. Vacancies and newly created directorships
resulting from any increase in the authorized number of
directors may be filled by a majority of the directors then
in office, though less than a quorum; and the directors so
chosen shall hold office until the next annual election and
until their successors are duly elected and shall qualify,
unless sooner displaced.
Section 3. The business of the corporation shall be
managed by its board of directors, which may exercise all
such powers of the corporation and do all such lawful acts
and things as are not by statute or by the certificate of
incorporation or by these Bylaws directed or required to be
exercised or done by the stockholders.
Section 4. There shall be the position of "Chairman
Emeritus" of the board of directors, which shall be an
honorary title which is bestowed on such person or persons
as the board may from time to time designate and shall carry
with it such rights, privileges, and perquisites as the
board may establish.
<PAGE>
MEETINGS OF THE BOARD OF DIRECTORS
Section 5. The board of directors of the corporation
may hold meetings, both regular and special, either within
or without the State of Delaware.
Section 6. The first meeting of each newly elected
board of directors shall be held immediately following the
meeting of stockholders at which such directors were
elected, or be fixed by the vote of the stockholders at the
annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to
constitute the meeting, provided a quorum shall be present.
In the event such meeting is not held immediately following
the annual meeting, or at the time and place so fixed by the
stockholders, the meeting may be held at such time and place
as shall be specified in a notice given as hereinafter
provided for special meetings of the board of directors, or
as shall be specified in a written waiver signed by all of
the directors.
Section 7. Regular meetings of the board of directors
shall be held without special notice at such time and at
such place as shall from time to time be determined by the
board.
Section 8. Special meetings of the board of directors
may be called by the Chairman of the Board or by the
President, or, on the written request of two directors, by
the Secretary on twenty-four hours' notice to each director
either personally or by mail or telegram.
Section 9. At any stated or special meeting of the
board of directors a majority of the directors at the time
in office (but not less than one-third of the whole board)
shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any
meeting at which a quorum is present shall be the act of the
board of directors except as may be otherwise specifically
provided by statute or by the certificate of incorporation.
In the absence of a quorum, a majority of the directors
present may adjourn any meeting from time to time until a
quorum is present. No notice of any adjourned meeting need
be given.
COMMITTEES OF DIRECTORS
Section 10. The board of directors may, by resolution
adopted by affirmative vote of a majority of the whole
board, appoint one or more committees, including, but not
limited to, an executive committee, each committee to
consist of two or more of the directors of the corporation.
At any meeting of the committees a majority of the members
<PAGE>
of the committee shall constitute a quorum for the
transaction of business, and the act of a majority of the
members present at any meeting at which a quorum is present
shall be the act of the committee. Any such committee or
committees, other than the executive committee, appointed by
the board of directors shall have and may exercise only the
power of recommending action to the board of directors and
of carrying out and implementing any instructions or any
policies, plans and programs theretofore approved and
adopted by the board of directors. The executive committee
shall, during the intervals between meetings of the board of
directors, have and may exercise all of the powers of the
board of directors in the management of the business and
affairs of the corporation, including the election or
appointment of officers of the corporation (other than the
President, Secretary and Treasurer), the declaration of
dividends upon the capital stock of the corporation subject
to the provisions of these Bylaws, and may authorize the
seal of the corporation be affixed to all papers which may
require it; provided, however, that the executive committee
may not rescind any action previously taken by the board of
directors. Meetings of the executive committee may be called
and notices given in the same manner as calling and giving
notice of special meetings of the board of directors.
Section 11. The committee shall keep regular minutes
of their proceedings and report the same to the board of
directors, when required.
COMPENSATION OF DIRECTORS
Section 12. The directors may be paid their expenses,
if any, of attendance at each meeting of the board of
directors and may, if authorized by the board of directors,
be paid a fixed sum for attendance at each meeting of the
board of directors, a stated salary as a director. No such
payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be
allowed like compensation for attending committee meetings.
Section 13. Any action required or permitted to be
taken at any meeting of the board of directors or of any
committee thereof may be taken without a meeting if prior to
such action a written consent thereto is signed by all
members of the board or of such committee, as the case may
be, and such written consent is filed with the minutes of
the proceedings of the board or committees.
<PAGE>
ARTICLE IV
NOTICES
Section 1. Notices to directors and stockholders shall
be in writing and delivered personally or mailed to the
directors or stockholders at their addresses appearing on
the books of the corporation. Notice by mail shall be deemed
given at the time when the same shall be mailed. Notice to
directors may also be given personally and by telegram.
Section 2. Whenever any notice is required to be given
under the provisions of the statutes or of the certificate
of incorporation or of these Bylaws, a waiver thereof in
writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein,
shall be deemed equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The elected officers of the corporation
shall be a Chairman of the Board, a Chief Executive Officer
(each of whom shall be a director), a President and one or
more Vice Presidents, with or without such descriptive
titles and designations as the board of directors shall deem
appropriate, a Vice President - Finance and Chief Financial
Officer, a Vice President - Financial Operations, a
Treasurer, and a Secretary. The board of directors by
resolution may also appoint one or more Assistant
Secretaries, Assistant Treasurers, Assistant Controllers and
such other officers and agents as from time to time may
appear to be necessary or advisable in the conduct of the
affairs of the corporation. Any two or more offices may be
held by the same person except as noted herein the Chairman
of the Board, Chief Executive Officer or President shall not
hold the office of Secretary; and the offices of Treasurer
and Vice President - Financial Operations may not be held by
the same person.
Section 2. The board of directors at its first meeting
after each annual meeting of stockholders shall elect and
appoint the officers to fill the positions designated in
Section 1 of this Article V.
Section 3. The salaries of all elected officers of the
corporation shall be fixed by the board of directors.
Section 4. The officers of the corporation shall hold
office until their successors are chosen and qualified. Any
officer elected or appointed by the board of directors may
be removed at any time by the affirmative vote of a majority
of the whole board of directors. Any vacancy occurring in
<PAGE>
any office of the corporation by death, resignation, removal
or otherwise shall be filled by the board of directors.
CHAIRMAN OF THE BOARD
Section 5. The Chairman of the Board shall preside at
all meetings of stockholders, except as otherwise may be
provided by statute, and at all meetings of the board of
directors. The Chairman of the Board shall perform such
other duties as the board of directors may from time to time
designate.
CHIEF EXECUTIVE OFFICER
Section 6. The Chief Executive Officer shall be the
chief executive officer of the corporation, and, subject to
the provisions of these Bylaws, shall be responsible for
general management of the affairs of the corporation. The
Chief Executive Officer shall preside in the absence of the
Chairman of the Board at all meetings of stockholders,
except as otherwise be provided by statute, and at all
meetings of the board of directors. The Chief Executive
Officer shall have general authority to execute all bonds,
deeds, contracts, agreements and instruments in the name of
the corporation and to cause the corporate seal to be
affixed thereto; and to delegate any such authority to any
other elected officer of the corporation. The Chief
Executive Officer shall have general authority to cause the
employment or appointment of employees and agents of the
corporation and to fix their compensation; and to remove or
suspend any employee or agent who shall have been employed
or appointed pursuant to this authority or under authority
of an officer subordinate to the Chief Executive Officer.
The Chief Executive Officer shall direct and supervise
the corporate staff, including corporate staff officers, who
shall report to the Chief Executive Officer; and shall have
the power to remove or suspend for cause any subordinate
officer to the Chief Executive Officer, pending final action
by the authority which elected or appointed such officer.
In general, the Chief Executive Officer is authorized
to exercise all powers usually appertaining to the office of
the chief executive of a corporation under applicable
corporate law; and shall be primarily responsible for
implementing the policy of the board of directors towards
achieving objectives established for growth, profitability,
corporate conduct and image. In the absence of the Chief
Executive Officer, such duties shall be performed and such
powers may be exercised by the President, or by such other
officer as the Chief Executive Officer may designate in
writing, subject to review and superseding action by the
board of directors.
<PAGE>
PRESIDENT
Section 7. The President shall be the chief operating
officer of the corporation and, subject to the general
supervision and direction of the Chairman of the Board and
Chief Executive Officer, shall be responsible for the
business and operations of the corporation. The President
shall have authority to execute contracts, agreements and
instruments in the name of the corporation in the ordinary
course of business and to cause the corporate seal to be
affixed thereto; and to delegate any such authority to any
subordinate elected officer of the corporation. The
President shall have general authority to cause the
employment of employees and agents for the business and
operations of the corporation and to fix their compensation
and to remove or suspend any employee or agent who shall
have been employed under the President's authority or under
authority of a subordinate officer. The President shall
direct and supervise the operating officers and group
executives, who shall report to the President; and shall
have the power to remove or suspend for cause any
subordinate officer pending final action by the authority
which elected or appointed such officer.
In general, the President is authorized to exercise all
powers usually necessary to conduct the everyday business
and operations of the corporation towards achieving
corporate goals and objectives.
In the absence of the President, the duties and powers
of the office shall be performed and be exercised by such
other officer as the President shall designate in writing,
subject to review and superseding action by the Chief
Executive Officer or the board of directors.
VICE PRESIDENT - FINANCE AND CHIEF FINANCIAL OFFICER
Section 8. The Vice President - Finance and Chief
Financial Officer shall be chief accounting and financial
officer of the corporation and shall have active control of
and shall be responsible for all matters pertaining to the
accounts and finances of the corporation; and all decisions
affecting either accounts or finances shall be subject to
approval or concurrence by this officer. The Vice President
- Finance and Chief Financial Officer shall be responsible
for maintaining liaison with all government and other
regulatory bodies and shall establish comprehensive budget
and cost control programs; internal audit and operational
analysis of overhead functions and approve all major
financial aspects of all contractual arrangements. The Vice
President - Finance and Chief Financial Officer shall be
responsible for all financial planning for the corporation
on both a long-term and short-term basis and the disposition
<PAGE>
of investments held by the corporation as authorized by the
board of directors or executive committee. The Vice
President - Finance and Chief Financial Officer shall direct
the Treasurer and the Vice President - Financial Operations
in the performance of their duties. The Vice President -
Finance and Chief Financial Officer shall audit all payrolls
and vouchers of the corporation and shall direct the manner
of certifying the same; shall supervise the manner of
keeping all vouchers for payment by the corporation and all
other documents relating to such payment; shall receive,
audit and consolidate all operating and financial statements
of the corporation and its various subsidiaries and
divisions and shall have supervision of the books of account
of the corporation, its various subsidiaries and divisions,
their arrangement and classification; shall supervise the
accounting and auditing practices of the corporation, and
shall have charge of all matters relating to insurance and
taxation. The Vice President - Finance and Chief Financial
Officer may assign to the Treasurer and the Vice President -
Financial Operations or to one or more Assistant Treasurers
and Assistant Controllers such duties as may be deemed
necessary or advisable.
VICE PRESIDENTS
Section 9. The several Vice Presidents shall perform
duties and services as shall be assigned to or required of
them from time to time by the board of directors or the
officer to whom they report. Except as otherwise provided in
these Bylaws, the staff Vice Presidents shall report to and
be under the supervision and direction of the Chief
Executive Officer, and the operating Vice Presidents
(including group executives) shall report to and be under
the supervision and direction of the President. Each Vice
President shall have authority to execute contracts,
agreements and instruments in the name of the corporation in
the ordinary course of business and to cause the corporate
seal to be affixed thereto, subject to such limitations or
restrictions as the officer to whom such Vice President
reports may direct.
SECRETARY AND ASSISTANT SECRETARIES
Section 10. The Secretary shall attend all meetings of
the board of directors and all meetings of the stockholders
and record all proceedings of the meetings of the
stockholders of the corporation and of the board of
directors in a book to be kept for that purpose, and shall
perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given,
notice of all meetings of the stockholders and meetings of
the board of directors. The Secretary shall be under the
supervision of the Chairman of the Board and the Chief
Executive Officer and shall perform such other duties as may
<PAGE>
be prescribed by either the Chairman of the Board or the
Chief Executive Officer. The Secretary shall have charge of
the seal of the corporation and have authority to affix the
same to any instrument requiring it, and when so affixed it
may be attested by the Secretary's signature or by the
signature of the Treasurer or an Assistant Secretary, which
may be facsimile. The Secretary shall keep and account for
all books, documents, papers and records of the corporation
except those for which some other officer or agent is
properly accountable. The Secretary shall have authority to
sign stock certificates, and shall generally perform all the
duties usually appertaining to the office of the secretary
of a corporation.
Assistant Secretaries in the order of their seniority,
unless otherwise determined by the board of directors, shall
assist the Secretary, and in the absence or disability of
the Secretary perform the duties and exercise the powers of
the Secretary. They shall perform such other duties and
have such other powers as the board of directors may from
time to time prescribe.
TREASURER AND ASSISTANT TREASURERS
Section 11. Under the general direction of the Vice
President - Finance and Chief Financial Officer of the
corporation, the Treasurer shall be responsible for all
matters pertaining to the finances of the corporation and
its subsidiaries. The Treasurer shall have charge of all
matters pertaining to taxation and insurance. The Treasurer
shall have the care and custody of all monies, funds and
securities of the corporation and shall deposit all monies
and other valuable effects in the name of and to the credit
of the corporation in such depositories as may be designated
by the board of directors. The Treasurer shall cause to be
recorded a statement of all receipts and disbursements of
the corporation in order that proper entries may be made in
the books of account. The Treasurer shall have the power to
sign stock certificates, to endorse for deposit or
collection, or otherwise, all checks, drafts, notes, bills
of exchange, or other commercial paper payable to the
corporation, and to give proper receipts or discharges for
all payments to the corporation. The Treasurer shall be
responsible for all terms of credit granted by the
corporation and for the collection of all its accounts. The
Treasurer shall perform such other duties as may be
prescribed by the Vice President - Finance and Chief
Financial Officer. If required by the board of directors,
the Treasurer shall give the corporation a bond in such sum
and with such surety or sureties as shall be satisfactory to
the board of directors for the faithful performance of the
duties of the office and for the restoration to the
corporation, in case of death, resignation, retirement or
removal from office, of all books, papers, vouchers, money
<PAGE>
and other property of whatever kind in the possession or
under control of the Treasurer belonging to the corporation.
In the absence of disability of the Treasurer, the
duties of the office shall be performed by an Assistant
Treasurer or other designated person.
VICE PRESIDENT - FINANCIAL OPERATIONS
Section 12. Under the general direction of the Vice
President - Finance and Chief Financial Officer, the Vice
President - Financial Operations shall be responsible for
all matters pertaining to the accounts of the corporation,
its subsidiaries and divisions, with the supervision of the
books of account, their installation, arrangement, and
classification. The Vice President - Financial Operations
shall maintain adequate records of all assets, liabilities,
and transactions; shall audit all payrolls and vouchers for
payment by the corporation and all documents pertaining to
such vouchers; coordinate the efforts of the company's
independent public accountants in its external audit
program; receive, review, and consolidate all operating and
financial statements of the corporation and its various
departments and subsidiaries; and prepare financial
statements, reports and analyses; supervising the accounting
practices of the corporation and of each subsidiary and
division of the corporation, and prescribing the duties and
powers of the chief accounting personnel of the subsidiaries
and divisions. The Vice President - Financial Operations
shall cause to be maintained an adequate system of financial
control through a program of budgets, financial planning and
interpretive reports; and shall initiate and enforce
measures and procedures whereby the business of the
corporation and its subsidiaries and divisions shall be
conducted with the maximum integrity, efficiency, and
economy. The Vice President - Financial Operations shall
perform such other duties as may be prescribed by the Vice
President - Finance and Chief Financial Officer.
ASSISTANT CONTROLLERS
Section 13. One or more Assistant Controllers may be
designated to perform such functions under the supervision
of the Vice President - Financial Operations as may be
delegated or prescribed; and in the absence or disability of
the Vice President - Financial Operations, the duties of
such office shall be performed by the Assistant Controllers,
in order of their seniority, unless otherwise determined by
the Board of Directors.
<PAGE>
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
Section 1. Each person who is or was or had agreed to
become a director or officer of the corporation, or each
such person who is or was serving or had agreed to serve at
the request of the board of directors or an officer of the
corporation as an employee or agent of the corporation or as
a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise (including the heirs, executors, administrators
or estate of such person), shall be indemnified by the
corporation to the full extent permitted by the General
Corporation Law of the State of Delaware or any other
applicable laws as presently or hereafter in effect. Without
limiting the generality or effect of the foregoing, the
corporation may enter into one or more agreements with any
person which provide for indemnification greater or
different than that provided in this Article. No amendment
or repeal of this Article VI shall apply to or have any
effect on the right to indemnity permitted or authorized
hereunder for or with respect to claims asserted before or
after such amendment or repeal arising from acts or
omissions occurring in whole or in part before the effective
date of such amendment or repeal.
ARTICLE VII
CERTIFICATES OF STOCK
Section 1. Every holder of stock in the corporation
shall be entitled to have a certificate, signed by, or in
the name of the corporation by, the Chief Executive Officer,
the President or Vice President and the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant
Secretary of the corporation, certifying the number of
shares owned by him in the corporation. If the corporation
shall be authorized to issue more than one class of stock,
the designation, preferences and relative, participating,
optional or other special rights of each class and the
qualifications, limitations or restrictions of such
preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the
corporation shall issue to represent such class of stock;
provided, however, except as otherwise provided in Section
194 of the General Corporation Law of Delaware, 1953, in
lieu of the foregoing requirements, there may be set forth
on the face or the back of the certificate which the
corporation shall issue to represent such class or series of
stock, a statement that the corporation will furnish without
charge to each stockholder who so requests, the
designations, preferences and relative, participating,
optional or other special rights of each class of stock or
<PAGE>
shares thereof and the qualifications, limitations or
restrictions of such preferences and/or rights.
Section 2. Where a certificate is countersigned by a
transfer agent other than the corporation or its employee,
or by a registrar other than the corporation or its
employees, any other signature on the certificate may be a
facsimile, engraved, stamped or printed. In case any officer
or officers who have signed, or whose facsimile signature or
signatures have been used on, any such certificate or
certificates shall cease to be such officer or officers of
the corporation, whether because of death, resignation or
otherwise, before such certificate or certificates have been
delivered by the corporation such certificate or
certificates may nevertheless be adopted by the corporation
and be issued and delivered as though the person or persons
who signed such certificate or certificates or whose
facsimile signature or signatures have been used thereon had
not ceased to be such officer or officers of the
corporation.
LOST CERTIFICATES
Section 3. The board of directors may direct a new
certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the
corporation alleged to have been lost or destroyed, upon the
making of an affidavit of that fact by the person claiming
the certificate of stock to be lost or destroyed. When
authorizing such issue of a new certificate or certificates,
the board of directors may, in its discretion and as a
condition precedent to the issuance thereof, require the
owner of such lost or destroyed certificate or certificates,
or his or her legal representative, to advertise the same in
such manner as it shall require and/or to give the
corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost or
destroyed.
TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for
shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
<PAGE>
RECORD DATE
Section 5. The board of directors shall fix in advance
a date, not exceeding fifty days preceding the date of any
meeting of stockholders, or the date for the payment of any
dividend, or the date for the allotment of rights, or the
date when any change or conversion or exchange of capital
stock shall go into effect, or a date in connection with
obtaining such consent, as a record date for the
determination of the stockholders entitled to notice of, and
to vote at, any such meeting, and any adjournment thereof,
or entitled to receive payment of any such dividend, or to
any such allotment of rights, or to exercise the rights in
respect of any such change, conversion or exchange of
capital stock, or to give such consent, and such
stockholders and only such stockholders as shall be
stockholders of record on the date so fixed shall be
entitled to such notice of, and to vote at, such meeting and
any adjournment thereof, or to receive payment of such
dividend, or to receive such allotment of rights, or to
exercise such rights, or to give such consent, as the case
may be notwithstanding any transfer of any stock on the
books of the corporation after any such record date fixed as
aforesaid.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to
recognize the exclusive right of a person registered on its
books as the owner of shares to receive dividends, and to
vote as such owner, and to hold liable for calls and
assessments, a person registered on its books as the owner
of shares, and shall not be bound to recognize an equitable
or other claim to or interest in such share or shares on the
part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise
provided by the laws of Delaware.
STOCK OPTIONS AND AGREEMENTS
Section 7. Any stockholder of this corporation may
enter into agreements giving to any other stockholder or
stockholders or any third party an option to purchase any of
his or her stock in the corporation; and such shares of
stock shall thereupon be subject to such agreement and
transferable only upon proof of compliance therewith;
provided, however, that a copy of such agreement be filed
with the corporation and reference thereto placed upon the
certificates representing said shares of stock.
<PAGE>
ARTICLE VIII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the
corporation subject to the provisions of the certificate of
incorporation, if any, may be declared by the board of
directors or by the executive committee of the board of
directors at any regular or special meeting thereof,
pursuant to law. Dividends may be paid in cash, in property,
or in shares of the capital stock, subject to the provisions
of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be
set aside out of any funds of the corporation available for
dividends such sum or sums as the directors from time to
time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of
the corporation, or for such other purpose as the directors
shall think conducive to the interest of the corporation;
and the directors may modify or abolish any such reserve in
the manner in which it was created.
ANNUAL STATEMENT
Section 3. The board of directors shall present at each
annual meeting, and when called for by vote of the
stockholders at any special meeting of the stockholders, a
full and clear statement of the business and condition of
the corporation.
CHECKS
Section 4. All checks or demands for money and notes of
the corporation shall be signed by such officer or officers
or such other person or persons as the board of directors
may from time to time designate.
FISCAL YEAR
Section 5. The fiscal year of the corporation shall be
fixed by resolution of the board of directors.
SEAL
Section 6. The corporate seal shall have inscribed
thereon the name of the corporation, the year of its
organization and the words "Corporate Seal, Delaware". The
<PAGE>
seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE IX
AMENDMENTS
Section 1. These Bylaws may be altered or repealed at
any regular meeting of the stockholders or of the board of
directors or at any special meeting of the stockholders or
of the board of directors if notice of such alteration or
repeal be contained in the notice of such special meeting.
<PAGE>
EMPLOYMENT AGREEMENT
between
E-SYSTEMS, INC.
and
TERRY W. HEIL
December 19, 1990
<PAGE>
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is made and
entered into effective as of the 19th day of December, 1990 (the
"Effective Date"), by E-Systems, Inc. (hereinafter referred to as
"ESY") and Terry W. Heil (hereinafter referred to as "Employee").
RECITALS
WHEREAS, ESY and Employee have previously entered into an
Employment Agreement dated as of October 12, 1988, which the
parties desire to replace in order to provide for various matters
as set forth in this Agreement;
WHEREAS, Employee is an executive officer of ESY and has made
and is expected to continue to make major contributions to the
profitability, growth and financial strength of ESY;
WHEREAS, ESY desires that Employee agree to serve as an
executive officer of ESY;
WHEREAS, Employee is willing to serve as an executive officer
of ESY if the rewards for successful management of the enterprise
and for relinquishment of other opportunities which may be
available to him are commensurate with the responsibilities that
would be undertaken by him; and
WHEREAS, the Board of Directors of ESY recognizes Employee's
contributions to the growth and success of ESY during his
employment and desires to recognize such performance and to take
into account compensation and benefits, trends and practices in the
high technology industry in which ESY competes for business and
executive talent.
NOW, THEREFORE, in consideration of these premises and other
good and valuable consideration, receipt of which is hereby
acknowledged, ESY and Employee hereby agree as follows:
1. EMPLOYMENT AND TERM. Commencing on the Effective Date,
Employee's employment shall continue hereunder through
February 24, 1995, unless Employee retires pursuant to Section
2(c)(3) hereof prior to such date. The term of this Agreement
shall be automatically extended for an additional period of five
years commencing February 25, 1995, and ending February 24, 2000,
unless either the Board of Directors or the Employee shall, not
less than 120 days prior to February 25, 1995, give notice in
writing to the other that this Agreement shall not be extended or
unless this Agreement shall have been otherwise terminated. An
additional automatic renewal period shall extend from February 25,
2000, to February 24, 2003; provided that the first renewal shall
have occurred and that neither party has given notice not less than
120 days prior to February 25, 2000, to the other in writing that
this Agreement shall not be so extended or unless this Agreement
shall have been otherwise terminated. Employee will devote his
full time and efforts to ESY's business and not engage in any
activities that would be inconsistent with the strategies and
objectives of ESY. During this term (hereinafter referred to as
the "Employment Period"), Employee shall serve as an executive of
ESY and agrees to serve in such office or offices in ESY to which
<PAGE>
the Board of Directors of ESY may from time to time elect or
appoint him, as currently set forth in Schedule 1 hereto.
2. COMPENSATION AND BENEFITS. In consideration of his
services during the Employment Period, Employee shall be
paid compensation and receive benefits from ESY as
follows:
(a) During the Employment Period, Employee shall be paid
a base salary in equal installments not less frequently than
monthly at an annual rate not less than
the greater of (1) $275,000, or (2) the base salary of the Employee
most recently approved by the Board of Directors of ESY.
Employee's base salary shall be subject to such increases as may be
approved by the Board of Directors of ESY.
(b) Employee shall also receive such incentive
compensation as may be approved by the Board of Directors of ESY
and any profit sharing, retirement rights, or other perquisites to
which Employee may be entitled under the terms of this Agreement or
otherwise. A description of current perquisites is contained in
Exhibit B attached hereto.
(c) ESY will provide Employee with supplemental
retirement, death, and disability benefits as follows:
(l) Following Employee's retirement, he shall be
paid a "Normal Retirement Benefit" equal to 50 percent (55 percent
if the Agreement is extended to February 24, 2000, as provided above
and Employee retires on or after February 24, 2000; 65 percent if
the Agreement is extended to February 24, 2003, as provided above and
Employee retires on or after February 24, 2003) of "Average Monthly
Compensation". "Normal Retirement Benefit" and "Average Monthly
Compensation" are defined in the E-Systems, Inc. Executive Supplemental
Retirement Plan as amended (the "Executive Plan"), a copy of which is
attached to this Agreement as Exhibit A. The Executive Plan is
incorporated in all respects herein; provided, however, that the terms of
this Agreement shall take precedence over any provisions to the contrary
contained in the Executive Plan. Employee may retire at any time
after February 24, 1998, upon providing the company with reasonable
notice. Notwithstanding Section 5.1 of the Executive Plan,
Employee shall be eligible for benefits under the Executive Plan
unless (i) Employee voluntarily terminates his employment in breach
of his obligations under this Agreement, or (ii) ESY terminates
Employee's employment pursuant to Section 10 hereof. Employee
shall otherwise remain eligible for benefits under the Executive
Plan upon involuntary termination of employment by ESY, or upon
termination of employment due to death or disability.
Employee's eligibility for benefits under the Executive Plan and
this Section 2(c)(l) upon voluntary retirement shall not be
accelerated by any provision of Section 5.3 of the Executive Plan.
The amounts payable pursuant to this Section shall be paid Employee
as provided in the Executive Plan. By way of example, and not as
a limitation on the foregoing provisions of this Section 2(c)(1),
if the employment of Employee by ESY
<PAGE>
continues until February 24, 1998, Employee's rights to benefits
under the Executive Plan shall become nonforfeitable, and Employee
may retire at any time after February 24, 1998, and commence
receiving his Normal Retirement Benefit. If Employee is not
employed by ESY following the termination of this Agreement, the
benefit provided by the Executive Plan shall be a deferred, vested
benefit available any time after February 24, 1998, at Employee's
election.
(2) If Employee should die before retiring, or
while permanently disabled or retired, his surviving
widow shall be paid a Spouse's Pension as set forth in the
Executive Plan. If the Employee dies without a surviving spouse,
but with one or more children who have not attained the age of 22
years, a Children's Pension shall be paid in accordance with the
Executive Plan. Upon the death of a surviving spouse who is
receiving a Spouse's Pension, surviving children of Employee shall
receive a Children's Pension if the requirements of the Executive
Plan are met.
(3) If Employee should become permanently disabled,
he shall be entitled to retire as of the
date of such a permanent disability without prior notice to ESY.
The retirement benefit provided hereunder to Employee shall be two-
thirds of that amount specified in Section 2(c)(l) above, payable
in accordance with the Executive Plan.
(4) It is expressly understood that ESY's
obligations pursuant to this Section 2(c) may or may not be funded,
but neither Employee nor his surviving spouse or children shall
have any interest present or otherwise in such payments until they
are actually made.
(5) "Permanent disability" as used herein shall be
defined as Employee's physical or mental condition
which totally prevents Employee from performing the duties required
of his position, and is reasonably expected to be of a permanent
duration. Employee's inability to perform such services due to
illness or accident reasonably expected to incapacitate him for no
longer than three months shall not be deemed a permanent
disability. If Employee and ESY are in disagreement as to the
existence of such permanent disability, the parties hereby agree to
be unconditionally bound by the majority decision of three
arbitrators who shall be licensed physicians. The arbitrators
shall be selected one by Employee, one by ESY and the third by the
first two arbitrators.
(6) The obligations of ESY under Sections 2(c)
2(e), 2(f), 10, and 19 shall survive expiration of
the Employment Period and any extension thereof.
(d) Employee shall be excused from performing any
services for ESY hereunder during periods of temporary incapacity
and during reasonable vacations without thereby in any way
affecting the compensation to which he is entitled hereunder. In
no event shall Employee be assigned duties that would (i) involve
unreasonable personal hazard; (ii) necessitate prolonged absences
<PAGE>
or changes in the place of his residence without his consent; or
(iii) require the Employee to have as his principal location of
work any location that is in excess of 25 miles from the Employee's
principal residence as of the date hereof without his consent.
(e) Medical, hospital, surgical, dental, prescription
drugs and eye care coverage equivalent to that presently
furnished to Employee and his wife by ESY will be provided
to them for their lifetime during the Employment Period and
retirement through insurance or otherwise; provided, however, that
dental coverage after retirement shall be limited to a combined
aggregate of $500 per year for Employee and spouse. A description
of the present benefits at the date of this Agreement is contained
in Exhibit B hereto.
(f) It is the intention of the parties that this
Agreement be an enhancement of, and not a reduction or limitation
in, any benefit to which Employee may be entitled whether under
this Agreement or under any benefit plan, program or policy in
which Employee may be a participant during the Employment Period,
while disabled or while retired. If the benefit to Employee shall
be greater under any benefit plan, program or policy maintained by
ESY, ESY shall promptly notify Employee in writing and Employee
shall be entitled to receive such larger or greater benefit
pursuant to such benefit plan, program or policy in lieu of or in
addition to (but not in duplication of) the benefit set forth in
this Agreement without in any respect waiving Employee's rights to
receive any other payment of benefits to which he may be entitled
otherwise under this Agreement.
(g) The participation of the Employee in the qualified
benefit plans, programs, and policies maintained by ESY
shall not be reduced or altered except, and only to the extent, as
required by law or governmental regulation.
3. EXPENSES AND PERQUISITES. During the Employment
Period, Employee shall be allowed all reasonable expenses and
perquisites and shall be furnished office space and facilities
suitable to his position and adequate for the performance of his
duties, in accordance with such general policies as may be
established by ESY from time to time for executive employees
receiving comparable compensation.
4. CONFLICTS OF INTEREST AND COMPETITION. Without the
prior consent of ESY, Employee shall not, during the Employment
Period, engage in any business (directly or through any kind of
ownership or other arrangement other than ownership of securities
of publicly-held corporations) that is competitive with that of ESY
or its subsidiaries or accept employment with or render services to
a competitor or take action inconsistent with the fiduciary
relationship of an executive to his corporation. Subject to such
limitations, Employee may make investments for his own account in
any business or enterprise whatsoever and serve as an officer or
director thereof and receive compensation therefor, provided such
<PAGE>
activity does not conflict with his obligation to render his
exclusive full-time services to ESY and its subsidiaries during his
employment hereunder.
5. PARTICIPATION IN BENEFIT PLANS. Except as expressly
provided herein, this Agreement shall not in any way modify, limit,
impair, or affect the existing or future rights or interests of
Employee to receive any employee benefit to which he would
otherwise be entitled or as a participant in the present or future
employee benefit plans of ESY.
6. INSURANCE. ESY in its sole discretion, may purchase
in its name and for its own benefit, life and disability insurance
on Employee in any amount or amounts considered advisable.
Employee shall have no right, title or interest therein, and will
submit to required medical examinations and execute and deliver any
application, or other instrument in
writing, reasonably necessary to effectuate such insurance.
7. MITIGATION. In the event that this Agreement or the
employment of Employee by ESY hereunder is terminated by ESY other
than pursuant to Section 10 hereof, ESY shall acknowledge by notice
to Employee that Employee offered to continue employment with ESY
and that such offer was rejected, and Employee shall use reasonable
efforts to mitigate his damages by seeking other comparable
employment; provided, however, that (a) in no event shall Employee
be required to accept a position of less importance or dignity or
of substantially different character, compensation or benefits than
the position held as of the date of this Agreement, nor shall he be
required to accept a position other than in a location within 25
miles of his principal residence immediately prior to the date of
termination of employment, and (b) mitigation shall not be required
if the Employee is eligible at the time of termination to receive
payments under the Executive Plan. Subject to the foregoing
provisions of this Section 7, in the event that Employee secures
other permanent employment with another corporation or other legal
person, he shall promptly pay over to ESY, as received by him in
his new employment, an amount equal to the total cash compensation
actually paid to him in his new employment for services rendered
during the Employment Period; provided that in no event shall
Employee be required to repay any amounts earned in new employment
that exceed the amounts otherwise payable to him under this
Agreement for a comparable period. Except as otherwise expressly
provided in this Section 7, Employee shall not be required to
mitigate the amount of any payment provided for in this Agreement
by seeking other employment or otherwise.
8. SET-OFF; IMPACT ON OTHER AGREEMENTS. There shall be
no right of set-off or counterclaim in respect of any claim, debt
or obligation against any payment to Employee provided for in this
Agreement. A termination of this Agreement by ESY or Employee
pursuant to this Agreement shall not affect any rights that
Employee may have pursuant to any other agreement, policy, plan,
program or arrangement of ESY, which rights shall be governed by
the terms thereof, and the obligations of ESY with respect to
<PAGE>
amounts payable pursuant thereto shall not be affected by
termination of this Agreement.
9. INDEMNIFICATION. If an amount paid hereunder is
subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code") or any successor
provision thereto, ESY shall pay to Employee an additional amount
in cash equal to the amount necessary to cause the aggregate
remuneration received by Employee under this Agreement, including
such additional cash payment (net of all federal, state, and local
income taxes and all taxes payable as the result of the application
of Sections 280G and 4999 of the Code or any successor provision
thereto) to be equal to the aggregate remuneration Employee would
have received under this Agreement, excluding such additional
payment (net of all federal, state, and local income taxes), as if
Sections 280G and 4999 (and any successors thereto) had not been
enacted into law.
10. (a) TERMINATION. Subject to the provisions of Section
2(c)(1) hereof, ESY may terminate this Agreement and all of its
obligations hereunder, except for obligations accrued but unpaid to
the effective date of termination, solely for "Cause". "Cause"
shall mean (i) the Employee's willful refusal, without reasonable
excuse, to render services hereunder on substantially a full-time
basis; (ii) an intentional act of fraud, embezzlement or theft in
connection with his duties or in the course of his employment with
ESY; (iii) intentional wrongful damage to property of ESY; (iv)
intentional wrongful disclosure of secret processes or confidential
information of ESY; or (v) intentional wrongful engagement in any
competitive activity (as defined in Section 4); and any such act
shall have been materially harmful to ESY; provided, however, that
no such act shall constitute "Cause" if the Employee did not directly
or indirectly induce the act or acts resulting in harm to ESY. For
purposes of this Agreement, no act or failure to act on the part of
the Employee shall be deemed "intentional" or "willful" if it was due
primarily to an error in judgment or negligence, but shall be deemed
"intentional" or "willful" only if done or omitted to be done by the
Employee not in good faith and without reasonable belief that his action
or omission was in the best interest of ESY. Notwithstanding the
foregoing, the Employee shall not be deemed to have been terminated
for "Cause" hereunder unless and until there shall have been
delivered to the Employee a copy of a resolution duly adopted by
the affirmative vote of not less than three-quarters of the Board
then in office at a meeting of the Board called and held for such
purpose, after reasonable notice to the Employee and an opportunity
for the Employee, together with his counsel (if the Employee
chooses to have counsel present at such meeting), to be heard
before the Board, finding that, in the good faith opinion of the
Board, the Employee had committed an act constituting "Cause" as
herein defined and specifying the particulars thereof in detail.
Nothing herein will limit the right of the Employee or his
<PAGE>
beneficiaries to contest the validity or propriety of any such
determination.
(b) EFFECT ON PRIOR VESTED BENEFITS. It is specifically
agreed that, although restated herein, all the Vested Benefits under
the Prior Agreement shall remain fully vested and that termination
of this Agreement for "Cause" or otherwise shall in no way abrogate
ESY's obligation to pay or furnish the Vested Benefits. This
Employment Agreement shall increase or enhance and not reduce the
benefits available to Employee under the Prior Agreement.
11. GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of
Texas, without giving effect to the principles of conflict of laws
of such State.
12. ENTIRE AGREEMENT. This Agreement constitutes the whole
agreement of the parties hereto in reference to any employment of
Employee by ESY and in reference to any of the matters or things
herein provided for or hereinbefore discussed or mentioned in
reference to such employment, all prior agreements, promises,
representations, and understandings relative thereto being herein
merged.
13. ASSIGNABILITY.
(a) In the event that ESY shall merge or consolidate
with any other corporation or all or substantially all of ESY's
business or assets shall be transferred in any manner to any other
person, such successors shall thereupon succeed to, and be subject
to, all rights, interests, duties and obligations of, and shall
thereafter be deemed for all purposes hereof to be ESY hereunder.
This Agreement shall be binding upon and inure to the benefit of
any such successor and the legal representatives of Employee.
(b) This Agreement is personal in nature and neither of
the parties hereto shall without the consent of the other assign or
transfer this Agreement or any rights or obligations hereunder
except for operation of law or pursuant to the terms of this
Section 13. Without limiting the generality of the foregoing,
Employee's right to receive payments hereunder shall not be
assignable or transferable, whether by pledge, creation of a
security interest or otherwise, other than by a transfer by his
will or by the laws of descent and distribution and, in the event
of any assignment or transfer contrary to this Section 13, ESY
shall have no liability to pay any amount so attempted to be
assigned or transferred.
14. REMEDIES CUMULATIVE. Remedies under this Agreement
of either party hereto are in addition to any remedy or remedies to
which such party is entitled or may become entitled at law or in
equity.
15. SEVERABILITY. If any provision of this Agreement is
determined by a court of competent jurisdiction to be void or
unenforceable, such provision shall be regarded as severable and
shall not affect the validity or enforceability of the remaining
provisions hereof.
<PAGE>
16. WITHHOLDING OF TAXES. ESY may withhold from any
amounts payable under this Agreement all federal, state, city or
other taxes as shall be required pursuant to any law or government
regulation or ruling.
17. AMENDMENTS AND WAIVERS. This Agreement may be
amended, modified, superseded, canceled, renewed or extended and
the terms and covenants hereof may be waived, only by written
instrument executed by both of the parties hereto or in the case of
a waiver executed by the party waiving compliance. The failure of
either party at any time or times to require performance of any
provisions hereof shall in no manner affect the right at a later
time to enforce the same. No waiver by either party of the breach
of any term or covenant contained in this Agreement whether by
conduct or otherwise by any one or more instances shall be deemed
to be or construed as a further or continuing waiver of any such
breach or a waiver of the breach of any other term or covenant
contained in this Agreement.
18. NOTICE. For the purpose of this Agreement, all
communications provided for herein shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United
States registered or certified mail, return receipt requested,
postage prepaid, addressed to ESY at its principal executive office
and to Employee at his principal residence, or to such other
address as any party may have furnished to the other in writing and
in accordance herewith, except that notices of change of address
shall be effective only upon receipt.
19. LEGAL FEES AND EXPENSES. It is the intent of ESY
that Employee not be required to incur the expenses associated with
the enforcement of his rights under this Agreement by litigation or
other legal action because the cost and expense thereof would
substantially detract from the benefits intended to be extended to
Employee hereunder. Accordingly, if it should appear to Employee
that ESY has failed to comply with any of its obligations under
this Agreement or in the event that ESY or any other person takes
any action to declare this Agreement void or unenforceable, or
institutes any litigation designed to deny, or to recover from,
Employee the benefits intended to be provided to Employee
hereunder, ESY irrevocably authorizes Employee from time to time to
retain counsel of his choice, at the expense of ESY as hereafter
provided, to represent Employee in connection with the initiation
or defense of any litigation or other legal action, whether by or
against ESY or any director, officer, stockholder or other person
affiliated with ESY, in any jurisdiction. Notwithstanding any
existing or prior attorney-client relationship between ESY and such
counsel, ESY irrevocably consents to Employee's entering into an
attorney-client relationship with such counsel, and in that
connection ESY and Employee agree that a confidential relationship
shall exist between Employee and such counsel. ESY shall pay and
be solely responsible for any and all attorneys' and related fees
and expenses incurred by Employee (a) as a result of ESY's failure
to perform under this Agreement or any provision thereof, or (b) as
<PAGE>
a result of ESY or any person contesting the validity or
enforceability of this Agreement or any provision thereof.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first above written.
ATTEST: E-SYSTEMS, INC.:
James W. Crowley By: E. Gene Keiffer
Secretary Chairman of the Board and
Chief Executive Officer
EMPLOYEE:
Terry W. Heil
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
Between
E-Systems, Inc.
and Terry W. Heil
dated
December 19, 1990
The first sentence in Section 2(c)(1) of this Agreement is
amended to read as follows:
(1) On December 1, 1993, Employee shall be entitled to a
"Normal Retirement Benefit", commencing on February 24, 1998 (or at
retirement if later), equal to 50 percent (55 percent if the
Agreement is extended to February 24, 2000, as provided above and
Employee retires on or after February 24, 2000; 65 percent if the
Agreement is extended to February 24, 2003, as provided above and
Employee retires on or after February 24, 2003) of "Average Monthly
Compensation".
Section 2(c)(1) is further amended by restating the final two
sentences to read as follows:
By way of example, and not as a limitation on the foregoing
provisions of this Section 2(c)(1), if the employment of Employee
by ESY continues until December 1, 1993, Employee's rights to
benefits under the Executive Plan shall become nonforfeitable, and
Employee may retire at any time thereafter, and after February 24,
1998, commence receiving his Normal Retirement Benefit. If
Employee is not employed by ESY following December 1, 1993, the
benefit provided by the Executive Plan shall be a deferred, vested
benefit available any time after February 24, 1998, at Employee's
election.
In Witness Whereof, the parties have duly executed this
Amendment as of this date November 22, 1993.
ATTEST: E-SYSTEMS, INC.
James W. Crowley A. Lowell Lawson
Secretary President
(CORPORATE SEAL)
Employee:
<PAGE>
AMENDMENT NO. TWO TO EMPLOYMENT AGREEMENT
DATED AS OF DECEMBER 19, 1990
BETWEEN
E-SYSTEMS, INC.
AND
TERRY W. HEIL
In consideration of the mutual promises herein contained, the
Employment Agreement dated as of December 19, 1990, between E-
Systems, Inc. and Dr. Terry W. Heil is hereby amended as follows:
E-Systems, Inc. and Dr. Terry W. Heil agree that the
automatic extension from February 25, 1995, and ending
February 24, 2000, is to take effect and neither party
shall exercise its right to notify the other that the
Agreement shall not be so extended.
IN WITNESS WHEREOF, the parties have caused this Amendment No.
Two to the Agreement dated as of December 19, 1990, as of this 27th
day of April, 1994.
ATTEST: E-SYSTEMS, INC.
James W. Crowley, Secretary A. Lowell Lawson
Chief Executive Officer
and President
EMPLOYEE:
Terry W. Heil
<PAGE>
EMPLOYMENT AGREEMENT
between
E-SYSTEMS, INC.
and
PETER A. MARINO
OCTOBER 14, 1991
<PAGE>
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
effective as of the 14th day of October 1991 (the "Effective Date"), by
E-Systems, Inc. (hereinafter referred to as "ESY") and Peter A. Marino
(hereinafter referred to as "Employee").
RECITALS
WHEREAS, Employee is willing to serve as an executive officer of ESY
and has the education, background and experience to make major contributions to
the profitability, growth and business of ESY;
WHEREAS, ESY desires that Employee agree to serve as an executive officer
of ESY;
WHEREAS, Employee is willing to serve as an executive officer of ESY if
the rewards for successful management of the enterprise and for relinquishment
of other opportunities which may be available to him are commensurate with the
responsibilities that would be undertaken by him; and
WHEREAS, the Board of Directors of ESY recognizes Employee's abilities
to contribute to the growth and success of ESY during his employment and
desires to reward such performance and to take into account compensation and
benefits, trends and practices in the high technology industry in which ESY
competes for business and executive talent.
NOW, THEREFORE, in consideration of these premises and other good and
valuable consideration, receipt of which is hereby acknowledged, ESY and
Employee hereby agree as follows:
1. EMPLOYMENT AND TERM. Commencing on the Effective Date, Employee's
employment shall continue hereunder through October 14, 1996, unless Employee
retires pursuant to Section 2(c)(3) hereof prior to such date. The term of
this Agreement shall be automatically extended for an additional period of
five years commencing October 14, 1996, and ending October 14, 2001, unless
either the Board of Directors or the Employee shall, not less than 120 days
prior to October 14, 1996, give notice in writing to the other that this
Agreement shall not be extended or unless this Agreement shall have been
otherwise terminated. Two additional automatic renewal periods shall extend
from October 14, 2001 to February 3, 2004 and February 3, 2004 to February 3,
2007, respectively; provided that each prior renewal shall have occurred and
that neither party has given notice not less than 120 days prior to February 3,
2001 and February 3, 2004, respectively, to the other in writing that this
Agreement shall not be so extended or unless this Agreement shall have been
otherwise terminated. Employee will devote his full time and efforts to ESY's
business and not engage in any activities that would be inconsistent with the
strategies and objectives of ESY. During this term (hereinafter referred to as
the "Employment Period"), Employee shall serve as an executive of ESY and
agrees to serve in such office or offices in ESY to which the Board of
Directors of ESY may from time to time elect or appoint him, as currently set
forth in Schedule 1 hereto.
2. COMPENSATION AND BENEFITS. In consideration of his services during
the Employment Period, Employee shall be paid compensation and receive benefits
from ESY as follows:
<PAGE>
(a) During the Employment Period, Employee shall be paid a base salary
in equal installments not less frequently than monthly at an annual rate
not less than the greater of (1) $275,000, or (2) the base salary of the
Employee most recently approved by the Board of Directors of ESY.
Employee's base salary shall be subject to such increases as may be
approved by the Board of Directors of ESY.
(b) Employee shall also receive such incentive compensation as may be
approved by the Board of Directors of ESY and any profit sharing,
retirement rights, or other perquisites to which Employee may be entitled
under the terms of this Agreement or otherwise. A description of current
perquisites is contained in Exhibit B attached hereto.
(c) ESY will provide Employee with supplemental retirement, death, and
disability benefits as follows:
(1) Following Employee's retirement, he shall be paid a "Normal
Retirement Benefit" equal to 50 percent of his Average Monthly
Compensation, but without reduction as specified in Section 6.1(a) of
the Executive Supplemental Retirement Plan ("Executive Plan") for less
than 10 years' vesting. If the Agreement is not extended beyond
February 3, 2001, and the employee retires on or after his "Normal
Retirement Date", the "Normal Retirement Benefit" shall be 50 percent.
If the Agreement is extended to February 3, 2004, as provided above
and Employee retires on or after February 3, 2004, the "Normal
Retirement Benefit" shall be 55 percent; and 65 percent if the
Agreement is extended to February 3, 2007, as provided above and
Employee retires on or after February 3, 2007. "Normal Retirement
Benefit" and "Average Monthly Compensation" are defined in the
E-Systems, Inc. Executive Supplemental Retirement Plan as amended (the
"Executive Plan"), a copy of which is attached to this Agreement as
Exhibit A. The Executive Plan is incorporated in all respects herein;
provided, however, that the terms of this Agreement shall take
precedence over any provisions to the contrary contained in the
Executive Plan. Notwithstanding Section 5.1 of the Executive Plan,
Employee shall be eligible for benefits under the Executive Plan
unless (i) Employee voluntarily terminates his employment in breach
of his obligations under this Agreement, or (ii) ESY terminates
Employee's employment pursuant to Section 9 hereof. Employee shall
otherwise remain eligible for benefits under the Executive Plan upon
involuntary termination of employment by ESY, or upon termination of
employment due to death or disability. Employee's eligibility for
benefits under the Executive Plan and this Section 2(c)(1) upon
voluntary retirement shall not be accelerated by any provision of
Section 5.3 of the Executive Plan. The amounts payable pursuant to
this Section shall be paid Employee as provided in the Executive Plan.
By way of example, and not as a limitation on the foregoing provisions
of this Section 2(c)(1), if the employment of Employee by ESY
continues until October 14, 1996, Employee's rights to benefits
<PAGE>
under the Executive Plan shall become nonforfeitable. If Employee is
not employed by ESY following the termination of this Agreement, the
benefit provided by the Executive Plan shall be a deferred, vested
benefit available any time after the "Normal Retirement Date" as
defined in the Executive Plan.
(2) If Employee should die before retiring, or while permanently
disabled or retired, his surviving widow shall be paid a Spouse's
Pension as set forth in the Executive Plan. If the Employee dies
without a surviving spouse, but with one or more children who have not
attained the age of 22 years, a Children's Pension shall be paid in
accordance with the Executive Plan. Upon the death of a surviving
spouse who is receiving a Spouse's Pension, surviving children of
Employee shall receive a Children's Pension if the requirements of the
Executive Plan are met.
(3) If Employee should become permanently disabled, he shall be
entitled to retire as of the date of such a permanent disability
without prior notice to ESY. The retirement benefit provided
hereunder to Employee shall be two-thirds of the applicable amount
specified in Section 2(c)(1) above, payable in accordance with the
Executive Plan.
(4) It is expressly understood that ESY's obligations pursuant to
this Section 2(c) may or may not be funded, but neither Employee nor
his surviving spouse or children shall have any interest present or
otherwise in such payments until they are actually made.
(5) "Permanent disability" as used herein shall be defined as
Employee's physical or mental condition which totally prevents
Employee from performing the duties required of his position, and is
reasonably expected to be of a permanent duration. Employee's
inability to perform such services due to illness or accident
reasonably expected to incapacitate him for no longer than three
months shall not be deemed a permanent disability. If Employee and
ESY are in disagreement as to the existence of such permanent
disability, the parties hereby agree to be unconditionally bound by
the majority decision of three arbitrators who shall be licensed
physicians. The arbitrators shall be selected one by Employee, one
by ESY and the third by the first two arbitrators.
(6) The obligations of ESY under Sections 2(c) 2(e), 2(f), 9, and
18 shall survive expiration of the Employment Period and any extension
thereof.
(d) Employee shall be excused from performing any services for ESY
hereunder during periods of temporary incapacity and during reasonable
vacations without thereby in any way affecting the compensation to which
he is entitled hereunder. In no event shall Employee be assigned duties
that would (i) involve unreasonable personal hazard; (ii) necessitate
prolonged absences or changes in the place of his residence without his
consent; or (iii) require the Employee to have as his principal location
of work any location that is in excess of 25 miles from the Employee's
<PAGE>
principal residence specified in Schedule 1 attached without his consent.
(e) Medical, hospital, surgical, dental, prescription drugs and eye
care coverage equivalent to that presently furnished to Employee and his
wife by ESY will be provided to them for their lifetime during the
Employment Period and retirement through insurance or otherwise;
provided, however, that dental coverage after retirement shall be limited
to a combined aggregate of $500 per year for Employee and spouse. A
description of the present benefits at the date of this Agreement is
contained in Exhibit B hereto.
(f) It is the intention of the parties that this Agreement be an
enhancement of, and not a reduction or limitation in, any benefit to
which Employee may be entitled whether under this Agreement or under any
benefit plan, program or policy in which Employee may be a participant
during the Employment Period, while disabled or while retired. If the
benefit to Employee shall be greater under any benefit plan, program or
policy maintained by ESY, ESY shall promptly notify Employee in writing
and Employee shall be entitled to receive such larger or greater benefit
pursuant to such benefit plan, program or policy in lieu of or in
addition to (but not in duplication of) the benefit set forth in this
Agreement without in any respect waiving Employee's rights to receive any
other payment of benefits to which he may be entitled otherwise under
this Agreement.
(g) The participation of the Employee in the qualified benefit plans,
programs, and policies maintained by ESY shall not be reduced or altered
except, and only to the extent, as required by law or governmental
regulation.
3. EXPENSES AND PERQUISITES. During the Employment Period, Employee
shall be allowed all reasonable expenses and perquisites and shall be furnished
office space and facilities suitable to his position and adequate for the
performance of his duties, in accordance with such general policies as may be
established by ESY from time to time for executive employees receiving
comparable compensation.
4. CONFLICTS OF INTEREST AND COMPETITION. Without the prior consent of
ESY, Employee shall not, during the Employment Period, engage in any business
(directly or through any kind of ownership or other arrangement other than
ownership of securities of publicly-held corporations) that is competitive with
that of ESY or its subsidiaries or accept employment with or render services to
a competitor or take action inconsistent with the fiduciary relationship of an
executive to his corporation. Subject to such limitations, Employee may make
investments for his own account in any business or enterprise whatsoever and
serve as an officer or director thereof and receive compensation therefor,
provided such activity does not conflict with his obligation to render his
exclusive full-time services to ESY and its subsidiaries during his employment
hereunder.
5. PARTICIPATION IN BENEFIT PLANS. Except as expressly provided herein,
this Agreement shall not in any way modify, limit, impair, or affect the
existing or future rights or interests of Employee to receive any employee
benefit to which he would otherwise be entitled or as a participant in the
present or future employee benefit plans of ESY.
<PAGE>
6. INSURANCE. ESY in its sole discretion, may purchase in its name and
for its own benefit, life and disability insurance on Employee in any amount
or amounts considered advisable. Employee shall have no right, title or
interest therein, and will submit to required medical examinations and execute
and deliver any application, or other instrument in writing, reasonably
necessary to effectuate such insurance.
7. MITIGATION. In the event that this Agreement or the employment of
Employee by ESY hereunder is terminated by ESY other than pursuant to Section 9
hereof, ESY shall acknowledge by notice to Employee that Employee offered to
continue employment with ESY and that such offer was rejected, and Employee
shall use reasonable efforts to mitigate his damages by seeking other
comparable employment; provided, however, that (a) in no event shall Employee
be required to accept a position of less importance or dignity or of
substantially different character, compensation or benefits than the position
held as of the date of this Agreement, nor shall he be required to accept a
position other than in a location within 25 miles of his principal residence
immediately prior to the date of termination of employment, and (b) mitigation
shall not be required if the Employee is eligible at the time of termination to
receive payments under the Executive Plan. Subject to the foregoing provisions
of this Section 7, in the event that Employee secures other permanent
employment with another corporation or other legal person, he shall promptly
pay over to ESY, as received by him in his new employment, an amount equal to
the total cash compensation actually paid to him in his new employment for
services rendered during the Employment Period; provided that in no event shall
Employee be required to repay any amounts earned in new employment that exceed
the amounts otherwise payable to him under this Agreement for a comparable
period. Except as otherwise expressly provided in this Section 7, Employee
shall not be required to mitigate the amount of any payment provided for in
this Agreement by seeking other employment or otherwise.
8. SET-OFF; IMPACT ON OTHER AGREEMENTS. There shall be no right of
set-off or counterclaim in respect of any claim, debt or obligation against
any payment to Employee provided for in this Agreement. A termination of this
Agreement by ESY or Employee pursuant to this Agreement shall not affect any
rights that Employee may have pursuant to any other agreement, policy, plan,
program or arrangement of ESY, which rights shall be governed by the terms
thereof, and the obligations of ESY with respect to amounts payable pursuant
thereto shall not be affected by termination of this Agreement.
9. TERMINATION. Subject to the provisions of Section 2(c)(1) hereof,
ESY may terminate this Agreement and all of its obligations hereunder, except
for obligations accrued but unpaid to the effective date of termination, solely
for "Cause". "Cause" shall mean (i) the Employee's willful refusal, without
reasonable excuse, to render services hereunder on substantially a full-time
basis; (ii) an intentional act of fraud, embezzlement or theft in connection
with his duties or in the course of his employment with ESY or any prior
employment; (iii) intentional wrongful damage to property of ESY;
(iv) intentional wrongful disclosure of secret processes or confidential
information of ESY; or (v) intentional wrongful engagement in any competitive
activity (as defined in Section 4); provided that any such act or acts must
have been materially harmful to ESY; and further provided, however, that no
<PAGE>
such act shall constitute "Cause" if the Employee did not directly or
indirectly induce the act or acts resulting in material harm to ESY. For
purposes of this Agreement, no act or failure to act on the part of the
Employee shall be deemed "intentional" or "willful" if it was due primarily
to an error in judgment or negligence, but shall be deemed "intentional" or
"willful" only if done or omitted to be done by the Employee not in good faith
and without reasonable belief that his action or omission was in the best
interest of ESY. Notwithstanding the foregoing, the Employee shall not be
deemed to have been terminated for "Cause" hereunder unless and until there
shall have been delivered to the Employee a copy of a resolution duly adopted
by the affirmative vote of not less than three-quarters of the Board then in
office at a meeting of the Board called and held for such purpose, after
reasonable notice to the Employee and an opportunity for the Employee, together
with his counsel (if the Employee chooses to have counsel present at such
meeting), to be heard before the Board, finding that, in the good faith opinion
of the Board, the Employee had committed an act constituting "Cause" as herein
defined and specifying the particulars thereof in detail. Nothing herein will
limit the right of the Employee or his beneficiaries to contest the validity or
propriety of any such determination.
10. GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Texas, without giving
effect to the principles of conflict of laws of such State.
11. ENTIRE AGREEMENT. This Agreement constitutes the whole agreement of
the parties hereto in reference to any employment of Employee by ESY and in
reference to any of the matters or things herein provided for or hereinbefore
discussed or mentioned in reference to such employment, all prior agreements,
promises, representations, and understandings relative thereto being herein
merged.
12. ASSIGNABILITY.
(a) In the event that ESY shall merge or consolidate with any other
corporation or all or substantially all of ESY's business or assets shall be
transferred in any manner to any other person, such successors shall thereupon
succeed to, and be subject to, all rights, interests, duties and obligations
of, and shall thereafter be deemed for all purposes hereof to be ESY hereunder.
This Agreement shall be binding upon and inure to the benefit of any such
successor and the legal representatives of Employee.
(b) This Agreement is personal in nature and neither of the parties
hereto shall without the consent of the other assign or transfer this Agreement
or any rights or obligations hereunder except for operation of law or pursuant
to the terms of this Section 12. Without limiting the generality of the
foregoing, Employee's right to receive payments hereunder shall not be
assignable or transferable, whether by pledge, creation of a security interest
or otherwise, other than by a transfer by his will or by the laws of descent
and distribution and, in the event of any assignment or transfer contrary to
this Section 12, ESY shall have no liability to pay any amount so attempted
to be assigned or transferred.
13. REMEDIES CUMULATIVE. Remedies under this Agreement of either party
hereto are in addition to any remedy or remedies to
<PAGE>
which such party is entitled or may become entitled at law or in equity.
14. SEVERABILITY. If any provision of this Agreement is determined by
a court of competent jurisdiction to be void or unenforceable, such provision
shall be regarded as severable and shall not affect the validity or
enforceability of the remaining provisions hereof.
15. WITHHOLDING OF TAXES. ESY may withhold from any amounts payable
under this Agreement all federal, state, city or other taxes as shall be
required pursuant to any law or government regulation or ruling.
16. AMENDMENTS AND WAIVERS. This Agreement may be amended, modified,
superseded, canceled, renewed or extended and the terms and covenants hereof
may be waived, only by written instrument executed by both of the parties
hereto or in the case of a waiver executed by the party waiving compliance. The
failure of either party at any time or times to require performance of any
provisions hereof shall in no manner affect the right at a later time to
enforce the same. No waiver by either party of the breach of any term or
covenant contained in this Agreement whether by conduct or otherwise by any
one or more instances shall be deemed to be or construed as a further or
continuing waiver of any such breach or a waiver of the breach of any other
term or covenant contained in this Agreement.
17. NOTICE. For the purpose of this Agreement, all communications
provided for herein shall be in writing and shall be deemed to have been duly
given when delivered or mailed by United States registered or certified mail,
return receipt requested, postage prepaid, addressed to ESY at its principal
executive office and to Employee at his principal residence, or to such other
address as any party may have furnished to the other in writing and in
accordance herewith, except that notices of change of address shall be
effective only upon receipt.
18. LEGAL FEES AND EXPENSES. It is the intent of ESY that Employee not
be required to incur the expenses associated with the enforcement of his rights
under this Agreement by litigation or other legal action because the cost and
expense thereof would substantially detract from the benefits intended to be
extended to Employee hereunder. Accordingly, if it should appear to Employee
that ESY has failed to comply with any of its obligations under this Agreement
or in the event that ESY or any other person takes any action to declare this
Agreement void or unenforceable, or institutes any litigation designed to deny,
or to recover from, Employee the benefits intended to be provided to Employee
hereunder, ESY irrevocably authorizes Employee from time to time to retain
counsel of his choice, at the expense of ESY as hereafter provided, to
represent Employee in connection with the initiation or defense of any
litigation or other legal action, whether by or against ESY or any director,
officer, stockholder or other person affiliated with ESY, in any jurisdiction.
Notwithstanding any existing or prior attorney-client relationship between ESY
and such counsel, ESY irrevocably consents to Employee's entering into an
attorney-client relationship with such counsel, and in that connection ESY and
Employee agree that a confidential relationship shall exist between Employee
and such counsel. ESY shall pay and be solely responsible for any and all
attorneys' and related fees and expenses incurred by Employee (a) as a result
of ESY's failure to perform under this Agreement or any provision thereof,
or (b) as
<PAGE>
a result of ESY or any person contesting the validity or enforceability of this
Agreement or any provision thereof.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as
of the date first above written.
ATTEST: E-SYSTEMS, INC.:
James W. Crowley, Secretary E. Gene Keiffer
Chairman of the Board and
Chief Executive Officer
EMPLOYEE:
Peter A. Marino
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
Between
E-Systems, Inc. and
Peter A. Marino, dated October 14, 1991
The first sentence in Section 2(c)(1) of this Agreement is
amended to read as follows:
(1) On December 1, 1993, Employee shall be entitled to a
"Normal Retirement Benefit", commencing at "Normal Retirement
Date" (or at retirement if later), equal to 50 percent of his
Average Monthly Compensation, but without reduction as specified
in Section 6.1(a) of the Executive Supplemental Retirement Plan
("Executive Plan") for less than 10 years' vesting.
Section 2(c)(1) is also amended by adding the following
after the first sentence:
"Normal Retirement Date" is defined in the Executive Plan.
Section 2(c)(1) is further amended by restating the final
two sentences to read as follows:
By way of example, and not as a limitation on the foregoing
provisions of this Section 2(c)(1), if the employment of Employee
by ESY continues until December 1, 1993, Employee's rights to
benefits under the Executive Plan shall become nonforfeitable. If
Employee is not employed by ESY following December 1, 1993, the
benefit provided by the Executive Plan shall be a deferred,
vested benefit available any time after the "Normal Retirement
Date" as defined in the Executive Plan.
In Witness Whereof, the parties have duly executed this
Amendment as of this date November 22, 1993.
ATTEST: E-SYSTEMS, INC.
James W. Crowley A. Lowell Lawson
Secretary President
(CORPORATE SEAL)
Employee:
Peter A. Marino
<PAGE>
AMENDMENT NO. TWO TO EMPLOYMENT AGREEMENT
DATED AS OF OCTOBER 14, 1991
BETWEEN
E-SYSTEMS, INC.
AND
PETER A. MARINO
In consideration of the mutual promises herein contained,
the Employment Agreement dated as of October 14, 1991, between
E-Systems, Inc. and Peter A. Marino is hereby amended as follows:
E-Systems, Inc. and Mr. Peter A. Marino agree that the
automatic extension from October 14, 1996, and ending
October 13, 2001, is to take effect and neither party
shall exercise its right to notify the other that the
Agreement shall not be so extended.
IN WITNESS WHEREOF, the parties have caused this Amendment
No. Two to the Agreement dated as of October 14, 1991, as of this
27th day of April, 1994.
ATTEST: E-SYSTEMS, INC.
___________________________ ________________________________
James W. Crowley, Secretary A. Lowell Lawson
Chief Executive Officer
and President
EMPLOYEE:
________________________________
Peter A. Marino
<PAGE>
EMPLOYMENT AGREEMENT
between
E-SYSTEMS, INC.
and
BRIAN D. CULLEN
October 14, 1991
<PAGE>
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is made and
entered into effective as of the 14th day of October, 1991 (the
"Effective Date"), by E-Systems, Inc. (hereinafter referred to as
"ESY") and Brian D. Cullen (hereinafter referred to as
"Employee").
RECITALS
WHEREAS, Employee is an executive officer of ESY and has
made and is expected to continue to make major contributions to
the profitability, growth and financial strength of ESY;
WHEREAS, ESY desires that Employee agree to serve as an
executive officer of ESY;
WHEREAS, Employee is willing to serve as an executive
officer of ESY if the rewards for successful management of the
enterprise and for relinquishment of other opportunities which
may be available to him are commensurate with the
responsibilities that would be undertaken by him; and
WHEREAS, the Board of Directors of ESY recognizes
Employee's abilities to contribute to the growth and success of
ESY during his employment and desires to reward such performance
and to take into account compensation and benefits, trends and
practices in the high technology industry in which ESY competes
for business and executive talent.
NOW, THEREFORE, in consideration of these premises and
other good and valuable consideration, receipt of which is hereby
acknowledged, ESY and Employee hereby agree as follows:
1. EMPLOYMENT AND TERM. Commencing on the Effective
Date, Employee's employment shall continue hereunder through
November 8, 1996, unless Employee retires pursuant to Section
2(c)(3) hereof prior to such date. The term of this Agreement
shall be automatically extended for an additional period of five
years commencing November 8, 1996, and ending November 8, 2000,
unless either the Board of Directors or the Employee shall, not
less than 120 days prior to November 8, 2000, give notice in
writing to the other that this Agreement shall not be extended or
unless this Agreement shall have been otherwise terminated. Two
additional automatic renewal periods shall extend from November
8, 2000 to November 8, 2002, and from November 8, 2002 to
November 8, 2005, respectively; provided that each prior renewal
shall have occurred and that neither party has given notice not
less than 120 days prior to November 8, 2000 or November 8, 2002,
respectively, to the other in writing that this Agreement shall
not be so extended or unless this Agreement shall have been
otherwise terminated. Employee will devote his full time and
efforts to ESY's business and not engage in any activities that
would be inconsistent with the strategies and objectives of ESY.
During this term (hereinafter referred to as the "Employment
Period"), Employee shall serve as an executive of ESY and agrees
to serve in such office or offices in ESY to which the Board of
Directors of ESY may from time to time elect or appoint him, as
currently set forth in Schedule 1 hereto.
<PAGE>
2. COMPENSATION AND BENEFITS. In consideration of his
services during the Employment Period, Employee shall be paid
compensation and receive benefits from ESY as follows:
(a) During the Employment Period, Employee shall be
paid a base salary in equal installments not less frequently than
monthly at an annual rate not less than the greater of (1)
$187,000 or (2) the base salary of the Employee most recently
approved by the Board of Directors of ESY. Employee's base
salary shall be subject to such increases as may be approved by
the Board of Directors of ESY.
(b) Employee shall also receive such incentive
compensation as may be approved by the Board of Directors of ESY
and any profit sharing, retirement rights, or other perquisites
to which Employee may be entitled under the terms of this
Agreement or otherwise. A description of current perquisites is
contained in Exhibit B attached hereto.
(c) ESY will provide Employee with supplemental
retirement, death, and disability benefits as follows:(1)
Following Employee's retirement, he shall be paid a "Normal
Retirement Benefit" equal to 50 percent (55 percent if the
Agreement is extended to November 8, 2002, as provided above and
Employee retires on or after November 8, 2002; 65 percent if the
Agreement is extended to November 8, 2005, as provided above and
Employee retires on or after November 8, 2005) of "Average
Monthly Compensation". "Normal Retirement Benefit" and "Average
Monthly Compensation" are defined in the E-Systems, Inc.
Executive Supplemental Retirement Plan as amended (the "Executive
Plan"), a copy of which is attached to this Agreement as Exhibit
A. The Executive Plan is incorporated in all respects herein;
provided, however, that the terms of this Agreement shall take
precedence over any provisions to the contrary contained in the
Executive Plan. Notwithstanding Section 5.1 of the Executive
Plan, Employee shall be eligible for benefits under the Executive
Plan unless (i) Employee voluntarily terminates his employment in
breach of his obligations under this Agreement, or (ii) ESY
terminates Employee's employment pursuant to Section 9 hereof.
Employee shall otherwise remain eligible for benefits under the
Executive Plan upon involuntary termination of employment by ESY,
or upon termination of employment due to death or disability.
Employee's eligibility for benefits under the Executive Plan and
this Section 2(c)(1) upon voluntary retirement shall not be
accelerated by any provision of Section 5.3 of the Executive
Plan. The amounts payable pursuant to this Section shall be paid
Employee as provided in the Executive Plan. By way of example,
and not as a limitation on the foregoing provisions of this
Section 2(c)(1), if the employment of Employee by ESY continues
until November 8, 1996, Employee's rights to benefits under the
Executive Plan shall become nonforfeitable. If Employee is not
employed by ESY following the termination of this Agreement, the
benefit provided by the Executive Plan shall be a deferred,
vested benefit available at Employee's "Normal Retirement Date"
as defined in the Executive Plan.
<PAGE>
(2) If Employee should die before retiring, or
while permanently disabled or retired, his surviving widow shall
be paid a Spouse's Pension as set forth in the Executive Plan.
If the Employee dies without a surviving spouse, but with one or
more children who have not attained the age of 22 years, a
Children's Pension shall be paid in accordance with the Executive
Plan. Upon the death of a surviving spouse who is receiving a
Spouse's Pension, surviving children of Employee shall receive a
Children's Pension if the requirements of the Executive Plan are
met.
(3) If Employee should become permanently
disabled, he shall be entitled to retire as of the date of such a
permanent disability without prior notice to ESY. The retirement
benefit provided hereunder to Employee shall be two-thirds of the
applicable amount specified in Section 2(c)(1) above, payable in
accordance with the Executive Plan.
(4) It is expressly understood that ESY's
obligations pursuant to this Section 2(c) may or may not be
funded, but neither Employee nor his surviving spouse or children
shall have any interest present or otherwise in such payments
until they are actually made.
(5) "Permanent disability" as used herein
shall be defined as Employee's physical or mental condition which
totally prevents Employee from performing the duties required of
his position, and is reasonably expected to be of a permanent
duration. Employee's inability to perform such services due to
illness or accident reasonably expected to incapacitate him for
no longer than three months shall not be deemed a permanent
disability. If Employee and ESY are in disagreement as to the
existence of such permanent disability, the parties hereby agree
to be unconditionally bound by the majority decision of three
arbitrators who shall be licensed physicians. The arbitrators
shall be selected one by Employee, one by ESY and the third by
the first two arbitrators.
(6) The obligations of ESY under Sections 2(c)
2(e), 2(f), 9, and 18 shall survive expiration of the Employment
Period and any extension thereof.
<PAGE>
(d) Employee shall be excused from performing any
services for ESY hereunder during periods of temporary incapacity
and during reasonable vacations without thereby in any way
affecting the compensation to which he is entitled hereunder. In
no event shall Employee be assigned duties that would (i) involve
unreasonable personal hazard; (ii) necessitate prolonged absences
or changes in the place of his residence without his consent; or
(iii) require the Employee to have as his principal location of
work any location that is in excess of 25 miles from the
Employee's principal residence specified in Schedule 1 attached
without his consent.
(e) Medical, hospital, surgical, dental,
prescription drugs and eye care coverage equivalent to that
presently furnished to Employee and his wife by ESY will be
provided to them for their lifetime during the Employment Period
and retirement through insurance or otherwise; provided, however,
that dental coverage after retirement shall be limited to a
combined aggregate of $500 per year for Employee and spouse. A
description of the present benefits at the date of this Agreement
is contained in Exhibit B hereto.
(f) It is the intention of the parties that this
Agreement be an enhancement of, and not a reduction or limitation
in, any benefit to which Employee may be entitled whether under
this Agreement or under any benefit plan, program or policy in
which Employee may be a participant during the Employment Period,
while disabled or while retired. If the benefit to Employee
shall be greater under any benefit plan, program or policy
maintained by ESY, ESY shall promptly notify Employee in writing
and Employee shall be entitled to receive such larger or greater
benefit pursuant to such benefit plan, program or policy in lieu
of or in addition to (but not in duplication of) the benefit set
forth in this Agreement without in any respect waiving Employee's
rights to receive any other payment of benefits to which he may
be entitled otherwise under this Agreement.
(g) The participation of the Employee in the
qualified benefit plans, programs, and policies maintained by ESY
shall not be reduced or altered except, and only to the extent,
as required by law or governmental regulation.
3. EXPENSES AND PERQUISITES. During the Employment
Period, Employee shall be allowed all reasonable expenses and
perquisites and shall be furnished office space and facilities
suitable to his position and adequate for the performance of his
duties, in accordance with such general policies as may be
established by ESY from time to time for executive employees
receiving comparable compensation.
<PAGE>
4. CONFLICTS OF INTEREST AND COMPETITION. Without the
prior consent of ESY, Employee shall not, during the Employment
Period, engage in any business (directly or through any kind of
ownership or other arrangement other than ownership of securities
of publicly-held corporations) that is competitive with that of
ESY or its subsidiaries or accept employment with or render
services to a competitor or take action inconsistent with the
fiduciary relationship of an executive to his corporation.
Subject to such limitations, Employee may make investments for
his own account in any business or enterprise whatsoever and
serve as an officer or director thereof and receive compensation
therefor, provided such activity does not conflict with his
obligation to render his exclusive full-time services to ESY and
its subsidiaries during his employment hereunder.
5. PARTICIPATION IN BENEFIT PLANS. Except as expressly
provided herein, this Agreement shall not in any way modify,
limit, impair, or affect the existing or future rights or
interests of Employee to receive any employee benefit to which he
would otherwise be entitled or as a participant in the present or
future employee benefit plans of ESY.
6. INSURANCE. ESY in its sole discretion, may purchase
in its name and for its own benefit, life and disability
insurance on Employee in any amount or amounts considered
advisable. Employee shall have no right, title or interest
therein, and will submit to required medical examinations and
execute and deliver any application, or other instrument in
writing, reasonably necessary to effectuate such insurance.
7. MITIGATION. In the event that this Agreement or the
employment of Employee by ESY hereunder is terminated by ESY
other than pursuant to Section 9 hereof, ESY shall acknowledge by
notice to Employee that Employee offered to continue employment
with ESY and that such offer was rejected, and Employee shall use
reasonable efforts to mitigate his damages by seeking other
comparable employment; provided, however, that (a) in no event
shall Employee be required to accept a position of less
importance or dignity or of substantially different character,
compensation or benefits than the position held as of the date of
this Agreement, nor shall he be required to accept a position
other than in a location within 25 miles of his principal
residence immediately prior to the date of termination of
employment, and (b) mitigation shall not be required if the
Employee is eligible at the time of termination to receive
payments under the Executive Plan. Subject to the foregoing
provisions of this Section 7, in the event that Employee secures
other permanent employment with another corporation or other
legal person, he shall promptly pay over to ESY, as received by
him in his new employment, an amount equal to the total cash
compensation actually paid to him in his new employment for
services rendered during the Employment Period; provided that in
no event shall Employee be required to repay any amounts earned
in new employment that exceed the amounts otherwise payable to
him under this Agreement for a comparable period. Except as
otherwise expressly provided in this Section 7, Employee shall
not be required to mitigate the amount of any payment provided
for in this Agreement by seeking other employment or otherwise.
<PAGE>
8. SET-OFF; IMPACT ON OTHER AGREEMENTS. There shall be
no right of set-off or counterclaim in respect of any claim, debt
or obligation against any payment to Employee provided for in
this Agreement. A termination of this Agreement by ESY or
Employee pursuant to this Agreement shall not affect any rights
that Employee may have pursuant to any other agreement, policy,
plan, program or arrangement of ESY, which rights shall be
governed by the terms thereof, and the obligations of ESY with
respect to amounts payable pursuant thereto shall not be affected
by termination of this Agreement.
9. TERMINATION. Subject to the provisions of Section
2(c)(1) hereof, ESY may terminate this Agreement and all of its
obligations hereunder, except for obligations accrued but unpaid
to the effective date of termination, solely for "Cause".
"Cause" shall mean (i) the Employee's willful refusal, without
reasonable excuse, to render services hereunder on substantially
a full-time basis; (ii) an intentional act of fraud, embezzlement
or theft in connection with his duties or in the course of his
employment with ESY or any prior employment; (iii) intentional
wrongful damage to property of ESY; (iv) intentional wrongful
disclosure of secret processes or confidential information of
ESY; or (v) intentional wrongful engagement in any competitive
activity (as defined in Section 4); provided that any such act or
acts must have been materially harmful to ESY; and further
provided, however, that no such act shall constitute "Cause" if
the Employee did not directly or indirectly induce the act or
acts resulting in material harm to ESY. For purposes of this
Agreement, no act or failure to act on the part of the Employee
shall be deemed "intentional" or "willful" if it was due
primarily to an error in judgment or negligence, but shall be
deemed "intentional" or "willful" only if done or omitted to be
done by the Employee not in good faith and without reasonable
belief that his action or omission was in the best interest of
ESY. Notwithstanding the foregoing, the Employee shall not be
deemed to have been terminated for "Cause" hereunder unless and
until there shall have been delivered to the Employee a copy of a
resolution duly adopted by the affirmative vote of not less than
three-quarters of the Board then in office at a meeting of the
Board called and held for such purpose, after reasonable notice
to the Employee and an opportunity for the Employee, together
with his counsel (if the Employee chooses to have counsel present
at such meeting), to be heard before the Board, finding that, in
the good faith opinion of the Board, the Employee had committed
an act constituting "Cause" as herein defined and specifying the
particulars thereof in detail. Nothing herein will limit the
right of the Employee or his beneficiaries to contest the
validity or propriety of any such determination.
10. GOVERNING LAW. This Agreement shall be governed by
and construed and enforced in accordance with the laws of the
State of Texas, without giving effect to the principles of
conflict of laws of such State.
11. ENTIRE AGREEMENT. This Agreement constitutes the
whole agreement of the parties hereto in reference to any
employment of Employee by ESY and in reference to any of the
matters or things herein provided for or hereinbefore discussed
or mentioned in reference to such employment, all prior
<PAGE>
agreements, promises, representations, and understandings
relative thereto being herein merged.
12. ASSIGNABILITY.
(a) In the event that ESY shall merge or
consolidate with any other corporation or all or substantially
all of ESY's business or assets shall be transferred in any
manner to any other person, such successors shall thereupon
succeed to, and be subject to, all rights, interests, duties and
obligations of, and shall thereafter be deemed for all purposes
hereof to be ESY hereunder. This Agreement shall be binding upon
and inure to the benefit of any such successor and the legal
representatives of Employee.
(b) This Agreement is personal in nature and
neither of the parties hereto shall without the consent of the
other assign or transfer this Agreement or any rights or
obligations hereunder except for operation of law or pursuant to
the terms of this Section 12. Without limiting the generality of
the foregoing, Employee's right to receive payments hereunder
shall not be assignable or transferable, whether by pledge,
creation of a security interest or otherwise, other than by a
transfer by his will or by the laws of descent and distribution
and, in the event of any assignment or transfer contrary to this
Section 12, ESY shall have no liability to pay any amount so
attempted to be assigned or transferred.
13. REMEDIES CUMULATIVE. Remedies under this Agreement
of either party hereto are in addition to any remedy or remedies
to which such party is entitled or may become entitled at law or
in equity.
14. SEVERABILITY. If any provision of this Agreement is
determined by a court of competent jurisdiction to be void or
unenforceable, such provision shall be regarded as severable and
shall not affect the validity or enforceability of the remaining
provisions hereof.
15. WITHHOLDING OF TAXES. ESY may withhold from any
amounts payable under this Agreement all federal, state, city or
other taxes as shall be required pursuant to any law or
government regulation or ruling.
<PAGE>
16. AMENDMENTS AND WAIVERS. This Agreement may be
amended, modified, superseded, canceled, renewed or extended and
the terms and covenants hereof may be waived, only by written
instrument executed by both of the parties hereto or in the case
of a waiver executed by the party waiving compliance. The
failure of either party at any time or times to require
performance of any provisions hereof shall in no manner affect
the right at a later time to enforce the same. No waiver by
either party of the breach of any term or covenant contained in
this Agreement whether by conduct or otherwise by any one or more
instances shall be deemed to be or construed as a further or
continuing waiver of any such breach or a waiver of the breach of
any other term or covenant contained in this Agreement.
17. NOTICE. For the purpose of this Agreement, all
communications provided for herein shall be in writing and shall
be deemed to have been duly given when delivered or mailed by
United States registered or certified mail, return receipt
requested, postage prepaid, addressed to ESY at its principal
executive office and to Employee at his principal residence, or
to such other address as any party may have furnished to the
other in writing and in accordance herewith, except that notices
of change of address shall be effective only upon receipt.
18. LEGAL FEES AND EXPENSES. It is the intent of ESY
that Employee not be required to incur the expenses associated
with the enforcement of his rights under this Agreement by
litigation or other legal action because the cost and expense
thereof would substantially detract from the benefits intended to
be extended to Employee hereunder. Accordingly, if it should
appear to Employee that ESY has failed to comply with any of its
obligations under this Agreement or in the event that ESY or any
other person takes any action to declare this Agreement void or
unenforceable, or institutes any litigation designed to deny, or
to recover from, Employee the benefits intended to be provided to
Employee hereunder, ESY irrevocably authorizes Employee from time
to time to retain counsel of his choice, at the expense of ESY as
hereafter provided, to represent Employee in connection with the
initiation or defense of any litigation or other legal action,
whether by or against ESY or any director, officer, stockholder
or other person affiliated with ESY, in any jurisdiction.
Notwithstanding any existing or prior attorney-client
relationship between ESY and such counsel, ESY irrevocably
consents to Employee's entering into an attorney-client
relationship with such counsel, and in that connection ESY and
Employee agree that a confidential relationship shall exist
between Employee and such counsel. ESY shall pay and be solely
responsible for any and all attorneys' and related fees and
expenses incurred by Employee (a) as a result of ESY's failure to
perform under this Agreement or any provision thereof, or (b) as
a result of ESY or any person contesting the validity or
enforceability of this Agreement or any provision thereof.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first above written.
ATTEST: E-SYSTEMS, INC.:
James W. Crowley, Secretary E. Gene Keiffer
<PAGE>
Chairman of the Board and
Chief Executive Officer
EMPLOYEE:
Brian D. Cullen
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT Between
E-Systems, Inc. and
Brian D. Cullen
dated October 14,1991
The first sentence in Section 2(c)(1) of this Agreement is
amended to read as follows:
(1) On December 1, 1993, Employee shall be entitled to a
"Normal Retirement Benefit", commencing at "Normal Retirement
Date" (or at retirement if later), equal to 50 percent (55
percent if the Agreement is extended to November 8, 2002, as
provided above and Employee retires on or after November 8, 2002;
65 percent if the Agreement is extended to November 8, 2005, as
provided above and Employee retires on or after November 8, 2005)
of "Average Monthly Compensation".
Section 2(c)(1) is also amended by adding the following
after the first sentence:
"Normal Retirement Date" is defined in the Executive Plan.
Section 2(c)(1) is further amended by restating the final
two sentences to read as follows:
By way of example, and not as a limitation on the foregoing
provisions of this Section 2(c)(1), if the employment of Employee
by ESY continues until December 1, 1993, Employee's rights to
benefits under the Executive Plan shall become nonforfeitable. If
Employee is not employed by ESY following December 1, 1993, the
benefit provided by the Executive Plan shall be a deferred,
vested benefit available at Employee's "Normal Retirement Date"
as defined in the Executive Plan.
In Witness Whereof, the parties have duly executed this
Amendment as of this date November 22, 1993.
ATTEST: E-SYSTEMS, INC.
James W. Crowley, Secretary A. Lowell Lawson
President
(CORPORATE SEAL)
Employee:
Brian D. Cullen
<PAGE>
AMENDMENT NO. TWO TO EMPLOYMENT AGREEMENT
DATED AS OF OCTOBER 14, 1991
BETWEEN
E-SYSTEMS, INC.
AND
BRIAN D. CULLEN
In consideration of Mr. Brian D. Cullen being elected Senior
Vice President, E-Systems,Inc., effective January 26, 1994, and
in further consideration of the mutual promises herein contained,
the Employment Agreement dated as of October 14, 1991, between
E-Systems, Inc. and Mr. Brian D. Cullen is hereby amended as
follows:
1. E-Systems, Inc. and Mr. Brian D. Cullen agree
that the automatic extension from November 8,
1996, and ending November 7, 2000, is to take
effect and neither party shall exercise its right
to notify the other that the Agreement shall not
be so extended.
2. Effective January 26, 1994, Exhibit B is amended
to specify that the position of Mr. Brian D. Cullen is:
Senior Vice President.
IN WITNESS WHEREOF, the parties have caused this Amendment
No. Two to the Agreement dated as of October 14, 1991, as of this
27th day of April, 1994.
ATTEST: E-SYSTEMS, INC.
James W. Crowley, Secretary A. Lowell Lawson
Chief Executive Officer
and President
EMPLOYEE:
Brian D. Cullen
<PAGE>
AMENDED EMPLOYMENT AGREEMENT
James W. Crowley
Employment Agreement
AS RESTATE EFFECTIVE JUNE 1, 1982
This amended Employment Agreement is executed as of the 1st day of June,
1982, between E-Systems, Inc. (hereinafter referred to as "ESY") and James W.
Crowley (hereinafter referred to as "Employee").
ESY and Employee have previously entered into an Employment Agreement dated
as of the 28th day of June, 1978, which the parties desire to amend by
restatement in its entirety in order to provide for various matters as set
forth in this amended Employment Agreement. The Employment Agreement, as
restated hereby, is referred to as the "Agreement" or "Employment Agreement".
ESY desires that Employee agree to continue to serve as a senior executive
officer of ESY.
Employee is willing to continue to serve as a senior executive officer of ESY
if the rewards for successful management of the enterprise and for
relinquishment of other opportunities which may be available to him are
commensurate with the responsibilities that would be undertaken by him.
The Board of Directors of ESY recognizes that employee's contribution to the
growth and success of ESY during his employment has been superior and desires
to make certain changes in the Agreement in recognition of such performance
and to take into account compensation and benefits, trends and practices in
the high technology industry in which E-Systems competes for business and
executive talent.
Esy and Employee in consideration of the premises and other good and valuable
consideration, receipt of which is hereby acknowledged, hereby agree as
follows:
1. EMPLOYMENT AND TERM. Commencing on the effective date of this Agreement
and continuing through February 18, 1990, unless Employee retires pursuant to
Pragraph 2(c)(3) hereof prior to such date, Employee will devote his full
time and efforts to ESY's business and not engage in any activities which
would be inconsistent with strategies and objectives of ESY. During this
term (hereinafter referred to as the "Employment Period"), Employee shall
serve as an executive of ESY and agrees to serve in such office or offices in
ESY as the Board of Directors of ESY may from time to time elect him or
appoint him.
2. COMPENSATION AND BENEFITS. In consideration of his services during the
Employment Period, Employee shall be paid compensation and receive benefits
from ESY as follows:
(a) During the Employment Period, except as provided in
Paragraph 8, Employee will receive an annual base salary of $145,000, payable
in equal monthly installments effective upon this amendment. Employee's
annual base salary shall be subject to such increases as may be approved by
the Board of Directors of ESY.
(b) Employee shall also receive such incentive compensation as may be
approved by the Board of Directors of ESY and any profit-sharing, retirement
rights, or other perquisites to which Employee may be entitled under the
terms of this Agreement or otherwise.
<PAGE>
(c) ESY will provide Employee with supplemental retirement, death, and
disability benefits as follows:
(1) Upon Employee's retirement, he shall be paid a Normal Retirement Benefit
equal to 65% of "Average Monthly Compensation". "Normal Retirement Benefit"
and "Average Monthly Compensation" are defined in the E-Systems, Inc.
Executive Supplemental Retirement Plan (the "Executive Plan"), a copy of
which is attached to this Agreement as Exhibit "A" and incorporated in all
respects herein. Employee may retire at any time after February 18 1990,
upon providing the Board of Directors with reasonable notice. The amounts
payable pursuant to this paragraph shall be paid Employee as provided in the
Executive Plan.
(2) If Employee should die during the Employment Period, or while permanently
disabled or retired, his surviving widow shall be paid a Spouse's Pension as
set forth in the Executive Plan. If the Employee dies without a surviving
widow, but with one or more children who have not attained the age of 22
years, a Children's Pension shall be paid in accordance with the Executive
Plan. Upon the death of a surviving spouse who is receiving a Spouse's
Pension, surviving children of Employee shall receive a Children's Pension if
the requirements of the Executive Plan are met.
(3) If Employee should become permanently disabled, he shall be entitled to
retire as of the date of such a permanent disability without prior notice to
ESY. The retirement benefit provided hereunder to the Employee shall be
two-thirds of that amount specified in Paragraph 2(c)(1) above payable in
accordance with the Executive Plan.
(4) It is expressly understood that ESY's obligations pursuant to this
paragraph (c) shall not be funded, and neither Employee nor his surviving
widow shall have any interest present or otherwise in such payments until
they are actually made.
(5) "Permanent disability" as used herein shall be defined as Employee's
physical or mental condition which totally and presumably permanently
prevents Employee from performing the duties required of his position.
Employee's inability to perform such services due to illness or accident
reasonably expected to incapacitate him for no longer than three months
shall not be deemed a permanent disability. If Employee and ESY are in
disagreement as to the existence of such permanent disability, the parties
hereby agree to be unconditionally bound by the majority decision of three
arbitrators who shall be licensed physicians. The arbitrators shall be
selected one by Employee, one by ESY and the third by the first two
arbitrators.
(d) Employee shall be excused from performing any services for ESY hereunder
during periods of temporary incapacity and during reasonable vacations
without thereby in any way affecting the compensation to which he is entitled
hereunder. In no event shall Employee be assigned duties which would involve
unreasonable personal hazard nor shall he be assigned duties which would
necessitate prolonged absences or changes in the place of his residence
without his consent.
(e) Medical, hospital, surgical, dental, prescription drugs and eyecare
coverage equal to that presently furnished to Employee and his wife by ESY
will be provided to them for their lifetime through insurance or otherwise;
provided, however, that dental coverage after retirement shall be limited to
a combined aggregate of $500 per year for Employee and his Spouse.
(f) It is the intention of the parties that this Agreement be an enhancement
of, and not a reduction or limitation in, any benefit to which Employee may
be
<PAGE>
entitled whether under this Agreement or under any benefit plan, program or
policy in which Employee may be a participant during the Employment Period,
while disabled or while retired. If the benefit to Employee shall be greater
under any benefit plan, program or policy maintained by ESY, ESY shall
promptly notify Employee in writing and Employee shall be entitled to receive
such larger or greater benefit pursuant to such benefit plan, program or
policy in lieu of or in addition to (but not in duplication of) the benefit
set forth in this Agreement without in any respect waiving Employee's rights
to receive any other payment of benefits to which he may be entitled
otherwise under this Agreement.
3. EXPENSES AND PERQUISITES. During the Employment Period, Employee shall
be allowed all reasonable expenses and perquisites and shall be furnished
office space and facilities suitable to his position and adequate for the
performance of his duties, in accordance with such general policies as may be
established by ESY from time to time by ESY's Board of Directors for
executive employees receiving comparable compensation.
4. CONFLICTS OF INTEREST AND COMPETITION. Without the prior consent of ESY,
Employee shall not, during the Employment Period, engage in any business
(directly or through any kind of ownership or other arrangement other than
ownership of securities of publiclyheld corporations) which is competitive
with that of ESY or its subsidiaries or accept employment with or render
services to a competitor or take action inconsistent with the fiduciary
relationship of an executive to his corporation. Subject to such
limitations, Employee may make investments for his own account in any
business or enterprise whatsoever and serve as an officer of director thereof
and receive compensation therefor, provided such activity does not conflict
with his obligation to render his exclusive full-time services to ESY and its
subsidiaries during his employment hereunder.
After retirement or during any period when disability payments are being made
hereunder, Employee agrees, without the prior written consent of ESY, not to
engage in any consulting services for others or any activities which are
directly or indirectly competitive with those of ESY.
5. PARTICIPATION IN BENEFIT PLANS. This Agreement shall not in any way
modify, limit, impair, or affect the existing or future rights or interests
of Employee to receive any employee benefit to which he would otherwise be
entitled or as a participant in the present or future employee benefit plans
of ESY.
6. INSURANCE. ESY, in its sole discretion, may purchase in its name and for
its own benefit, life and disability insurance on Employee in any amount
considered advisable. Employee shall have no right, title or interest
therein; and will submit to required medical examinations and execute and
deliver any application, or other instrument in writing, reasonably
necessary to effectuate such insurance.
7. CHANGE OF CONTROL. For purpose of this Employment Agreement, a "Change
of Control" of ESY shall mean a change in control of a nature that would be
required to be reported in response to Item 5(f) of Schedule 14-A of
Regulation 14-A promulgated under the Securities Exchange Act of 1934 (the
"Exchange Act") or any similar successor rule or regulation; provided that,
without limitation, such a Change of Control shall be conclusively deemed to
have occurred if (a) any "person" as such term is used in Sections 13(d)(1),
13(d)(3), 14(d)(1), and 14(d)(2) of the Exchange Act and the rules and
regulations promulgated thereunder, is or become the beneficial owner,
directly or indirectly, of Securities of ESY representing 20% or more of the
combined voting power of ESY's then outstanding securities (except for ESY or
<PAGE>
any Employee Benefit Plan or Trustee or Custodian therefor, now or hereafter
established by ESY) or (b) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board of
Directors of ESY cease for any reason to constitute at least a majority
thereof, unless the election of each Director who was not a Director at the
beginning of such period has been approved in advance by Directors
representing at least two-third of the Directors then in office who were
Directors at the beginning of the period. A Change of Control by virtue of
a change in the ownership of ESY's securities shall be deemed not to have
occurred for purposes of this Employment Agreement if such Change of Control
occurs as the result of a transaction or series of transactions which is
approved by the vote of three quarters of the entire membership of the Board
of Directors prior to the time the person acquiring control acquires
securities of ESY representing 10% or more of the combined voting power of
ESY's then outstanding securities.
8. COMPENSATION AND BENEFITS FOLLOWING A CHANGE OF CONTROL. If a Change of
Control shall have occurred, the Employee shall be paid a salary at an annual
rate not less than the rate of his Average Aggregate Compensation (as
hereinafter defined). All such compensation shall be paid in appropriate
installment to conform with the regular payroll payments dates of ESY, but
in no event less frequently than once each month. Following a Change of
Control the Employee shall be entitled to participate in all of ESY's
employee benefit plans and executive perquisites existing prior to the Change
of Control, including without limitation any stock option plans, restricted
stock awards, Employee Stock Ownership Plans, incentive compensation plans,
retirement savings plans, and any other pension and retirement plans, group
life insurance, hospitalization, medical, surgical, major medical and dental
coverage, sick leave, vacations, holidays, long-term disability, travel
accident plans, accidental death and dismemberment plans, and other related
fringe benefits as are made or may be made available from time to time to
executive employees of ESY, and any perquisites which the Employee has
received prior to the date of such Change of Control.
9. AVERAGE AGGREGATE COMPENSATION. Aggregate Average Compensation shall
mean the sum of (1) the Employee's salary at the annual rate in effect at the
time the Change of Control occurs plus (2) an amount determined by
multiplying such annual salary by a fraction, the numerator of which is such
Employee's aggregate incentive compensation payments during the three fiscal
years preceding the Change of Control and the denominator of which is such
Employee's aggregate salary payments during the three fiscal years preceding
the Change of Control.
10. TERMINATION.
(a) ESY may terminate this Agreement and all of its obligations hereunder,
except for obligations accrued but unpaid to the effective date of
termination, solely for "cause". "Cause" shall mean (i) the Employee's
willful refusal, without reasonable excuse, to render services hereunder on
substantially a full-time basis or (ii) conviction of a crime involving
moral turpitude, or (iii) the Employee's engaging in business activities or
consulting services in violation of paragraph 4 of this agreement. Such
termination shall be effected by written notice thereof, delivered by the
Company to the Employee and, as except as hereinafter provided shall be
effective as of the 30th day after receipt by the Employee of such notice.
If, within the 30 day period following the date of receipt of such notice of
termination for cause as defined in Paragraph 10(a)(i) above, the Employee
shall resume rendering services on substantially a full-time basis, the
termination shall not be effective. If, within the 30 day period following
the receipt of such notice of termination for cause as defined in Paragraph
<PAGE>
10(a)(iii), the Employee shall terminate the activities which are the subject
of such notice and to so certify to ESY, the termination shall not be
effective.
(b) After the occurrence of a Change of Control, this Employment Agreement
may be terminated by the Employee upon not less than ten days prior written
notice to ESY because of the breach by ESY of its obligations hereunder. In
the event the Employee terminates this agreement because of a breach by ESY
of its obligations hereunder, although the Employment Period will then be
terminated, the Employee shall continue to receive all compensation provided
for herein for the remainder of the Employment Period and shall be entitled
to all the benefits otherwise provided for herein notwithstanding such
termination.
(c) After the occurrence of a Change of Control, benefits provided under the
Executive Plan shall be vested as provided for in Section 5.3 of the
Executive Plan. Termination of this Agreement by either party for any reason
shall not thereafter affect the benefits provided in the Executive Plan.
(d) In the event of termination of this Employment Agreement by the Employee
as a result of the breach by ESY of any of its obligations hereunder, or in
the event of the termination of the Employee's employment by ESY in breach of
this Employment Agreement, the Employee shall not be required to seek or
accept other employment in order to mitigate his damages hereunder.
(e) In the event that the Employee engages in any legal action involving his
rights under, or to receive damages for breach of this Employment Agreement,
the Employee, if he is the prevailing party, shall be entitled to recover
from ESY any actual expenses for attorneys' fees and disbursements incurred
by him in connection with such action.
11. INDEMNIFICATION. After the occurrence of a Change of Control ESY shall
throughout the remaining term of this Employment Agreement and thereafter,
indemnify the Employee for losses or damages, including without limitation,
attorneys' fees and costs, in respect of any actions or omissions as an
employee, officer or director of ESY (or any successor pursuant to Paragraph
16 hereof), whether occurring before or after such Change of Control, to the
fullest extent permitted by law.
12. REMEDIES. Effective upon the occurrence of a Change of Control ESY
waives and will not assert any right to set off the amount of any claims,
liabilities, damages or losses ESY may have against any amounts payable by
ESY to the Employee hereunder, and any amounts payable to or otherwise
accrued for the account of the Employee in respect of any period prior to
the effective termination of this Agreement shall be paid as provided for in
this Employment Agreement. After the occurrence of a Change of Control,
ESY's sole remedy for any asserted violation of any provision of this
Employment Agreement shall be to terminate the Employee's employment in
accordance with this Employment Agreement.
13. GOVERNING LAW. This Employment Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Texas.
14. ENTIRE AGREEMENT. This Agreement constitutes the whole agreement of the
parties hereto in reference to any employment of the Employee by ESY and in
reference to any of the matters or things herein provided for or hereinbefore
discussed or mentioned in reference to such employment, all prior agreements,
promises, representations, and understandings relative thereto being herein
merged.
<PAGE>
15. ASSIGNABILITY.
(a) In the event that ESY shall merge or consolidate with any other
corporation or all or substantially all of ESY's business or assets shall be
transferred in any manner to any other person, such successors shall
thereupon succeed to, and be subject to, all rights, interests, duties and
obligations of, and shall thereafter to deemed for all purposes hereof to be
ESY hereunder. This Employment Agreement shall be binding upon and inure to
the benefit of any such successor and the legal representatives of the
Employee.
(b) This Employment Agreement is personal in nature and neither of the
parties hereto shall assign or transfer this Agreement or any rights or
obligations hereunder except for operation of law or pursuant to the terms of
this Paragraph 15.
16. AMENDMENTS AND WAIVERS. This Employment Agreement may be amended,
modified, superseded, canceled, renewed or extended and the terms and
covenants hereof may be waived, only by written instrument execute by both of
the parties hereto or in the case of a waiver by the party waiving
compliance. The failure of either party at any time or times to require
performance of any provisions hereof shall in no manner effect the right at a
later time to enforce the same. No waiver by either party of the breach of
any term or covenant contained in this Employment Agreement whether by
conduct or otherwise by any one or more instances shall be deemed to be or
construed as a further or continuing waiver of any such breach or a waiver
of the breach of any other term or covenant contained in this Employment
Agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written
ATTEST:
James M. Bolding
Assistant Secretary
E-SYSTEMS, INC.
BY:
John W. Dixon
Chairman of the Board
and Chief Executive Officer
"EMPLOYEE"
James W. Crowley
<PAGE>
FORM OF
AMENDED AND RESTATED INDEMNIFICATION AGREEMENT
This AMENDED AND RESTATED INDEMNIFICATION AGREEMENT (the
"Agreement") is made and entered into as of this _____ day of
__________________, 19__, by and between E-Systems, Inc., a
Delaware corporation (the "Company"), and ______________ , a
________ resident ("Indemnitee").
RECITALS:
A. The Company and Indemnitee have previously entered into
an Indemnification Agreement dated _ (the "Prior
Agreement").
B. Certain court decisions in Delaware have construed the
law with respect to indemnification by a Delaware corporation of
its officers and directors and expense advances in connection
therewith.
C. The Company and Indemnitee wish to amend and restate the
Prior Agreement to reflect such Delaware court decisions and to
amend certain other aspects of the Prior Agreement.
D. Competent and experienced persons are reluctant to serve
or to continue to serve corporations as directors or in other
capacities unless they are provided with adequate protection
through insurance or indemnification (or both) against claims and
actions against them arising out of their service to and
activities on behalf of those corporations.
E. The current uncertainties relating to the availability of
adequate insurance for directors and officers have increased the
difficulty for corporations to attract and retain competent and
experienced persons.
F. The Board of Directors of the Company has determined that
the continuation of present trends in litigation will make it
more difficult to attract and retain competent and experienced
persons, that this situation is detrimental to the best interests
of the Company's stockholders, and that the Company should act to
assure its directors and officers that there will be increased
certainty of adequate protection in the future.
G. The Certificate of Incorporation of the Company requires
the Company to indemnify its directors and officers to the
fullest extent permitted by law.
H. It is reasonable, prudent and necessary for the Company
to obligate itself contractually to indemnify its directors and
<PAGE>
officers to the fullest extent permitted by applicable law in
order to induce them to serve or continue to serve the Company.
I. Indemnitee is willing to serve, continue to serve, and to
take on additional service for or on behalf of the Company on the
condition that he be indemnified to the fullest extent permitted
by law.
J. Concurrently with the execution of this Agreement,
Indemnitee is agreeing to serve or to continue to serve as a
director or officer of the Company.
K. Indemnitee and the Company agree that this document is an
amendment and restatement of the Prior Agreement, and the terms
and provisions hereof override, as of the date hereof, all of the
terms and provisions of the Prior Agreement, with this document
being a continuation of the Prior Agreement in an amended form.
AGREEMENTS:
NOW, THEREFORE, in consideration of the foregoing premises,
Indemnitee's agreement to serve or continue to serve as a
director or officer of the Company, and the covenants contained
in this Agreement, the Company and Indemnitee hereby covenant and
agree as follows (which covenants and agreements shall amend and
restate the Prior Agreement in its entirety):
1. CERTAIN DEFINITIONS:
(a) ACQUIRING PERSON: shall mean any Person other than
(i) the Company, (ii) any of the Company's Subsidiaries, (iii)
any employee benefit plan of the Company or of a Subsidiary of
the Company or of 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, or (iv)
any trustee or other fiduciary holding securities under an
employee benefit plan of the Company or of a Subsidiary of the
Company or of 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. Notwithstanding the
foregoing, an Acquiring Person shall not include (i) the Company,
(ii) any Subsidiary of the Company, (iii) any employee benefit
plan of the Company or of any Subsidiary of the Company, (iv) any
Person or entity organized, appointed or established by the
Company for or pursuant to the terms of any such plan or (iv) any
such Person who has reported or is required to report such
ownership (but less than 25%) on Schedule 13G under the Exchange
Act (or any comparable or successor report) or on Schedule 13D
under the Exchange Act (or any comparable or successor report)
which Schedule 13D does not state any intention to or reserve the
right to control or influence the management or policies of the
Company or engage in any of the actions specified in Item 4 of
2
<PAGE>
such Schedule (other than the disposition of the Common Stock)
and, within 10 Business Days of being requested by the Company to
advise it regarding the same, certifies to the Company that such
Person acquired shares of Common Stock in excess of 14.9%
inadvertently or without knowledge of the terms of the Rights and
who, together with all Affiliates and Associates, thereafter does
not acquire additional shares of Common Stock while the
Beneficial Owner of 15% or more of the shares of Common Stock
then outstanding; provided, however, that if the Person requested
to so certify fails to do so within 10 Business Days, then such
Person shall become an Acquiring Person immediately after such 10
Business Day Period.
(b) CHANGE IN CONTROL: shall be deemed to have occurred
if:
(i) any Acquiring Person is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), directly
or indirectly, of securities of the Company representing fifteen
percent or more of the combined voting power of the then
outstanding Voting Securities of the Company; or
(ii) members of the Incumbent Board cease for
any reason to constitute at least a majority of the Board of
Directors of the Company; or
(iii) the stockholders of the Company approve
a merger or consolidation of the Company with any other
corporation or partnership (or, if no such approval is required,
the consummation of such a merger or consolidation of the
Company), other than a merger or consolidation that would result
in the Voting Securities of the Company outstanding immediately
prior to the consummation thereof continuing to represent (either
by remaining outstanding or by being converted into Voting
Securities of the surviving entity or of a parent of the
surviving entity) eighty percent of the combined voting power of
the Voting Securities of the surviving entity (or its parent)
outstanding immediately after that merger or consolidation; or
(iv) the stockholders of the Company approve
a plan of complete liquidation of the Company or an agreement for
the sale or disposition by the Company of all or substantially
all the Company's assets (or, if no such approval is required,
the consummation of such a liquidation, sale or disposition in
one transaction or series of related transactions) other than a
liquidation, sale or disposition of all or substantially all the
Company's assets in one transaction or a series of related
transactions to 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.
3
<PAGE>
(c) CLAIM: any threatened, pending or complete action,
suit or proceeding (including, without limitation, securities
laws actions, suits, and proceedings), or any inquiry or
investigation (including discovery), whether conducted by the
Company or any other party, that Indemnitee in good faith
believes might lead to the institution of any action, suit or
proceeding, whether civil, criminal, administrative,
investigative or other.
(d) EXPENSES: all costs, expenses (including
attorneys' and expert witnesses' fees), and obligations paid or
incurred in connection with investigating, defending (including
affirmative defenses and counterclaims), being a witness in, or
participating in (including on appeal), or preparing to defend,
be a witness in, or participate in, any Claim relating to any
Indemnifiable Event.
(e) INCUMBENT BOARD: individuals who, as of
February 1, 1994, constitute the Board of Directors of the
Company and any other individual who becomes a director of the
Company after that date and whose election or appointment by the
Board of Directors or nomination for election by the Company's
stockholders was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board.
(f) INDEMNIFIABLE EVENT: any event or occurrence
related to the fact that Indemnitee is or was a director,
officer, employee, agent or fiduciary of the Company, or is or
was serving at the request of the Company as a director, officer,
employee, trustee, agent or fiduciary of another corporation,
partnership, joint venture, employee benefit plan, trust or other
enterprise, or by reason of anything done or not done by
Indemnitee in any such capacity. For purposes of this Agreement,
the Company agrees that Indemnitee's service on behalf of or with
respect to any Subsidiary of the Company shall be deemed to be at
the request of the Company.
(g) PERSON: shall mean any person or entity of any
nature whatsoever, specifically including an individual, a firm,
a company, a corporation, a partnership, a trust, or other
entity. A Person, together with that Person's Affiliates and
Associates (as those terms are defined in Rule 12b-2 under the
Exchange Act), and any Persons acting as a partnership, limited
partnership, joint venture, association, syndicate or other group
(whether or not formally organized), or otherwise acting jointly
or in concert or in a coordinated or consciously parallel manner
(whether or not pursuant to any express agreement), for the
purpose of acquiring, holding, voting or disposing of securities
of the Company with such Person, shall be deemed a single
"Person."
(h) POTENTIAL CHANGE IN CONTROL: shall be deemed to
have occurred if (i) the Company enters into an agreement, the
4
<PAGE>
consummation of which would result in the occurrence of a Change
in Control; (ii) any Person (including the Company) publicly
announces an intention to take or to consider taking actions
that, if consummated, would constitute a Change in Control; (iii)
any Acquiring Person who is or becomes the beneficial owner,
directly or indirectly, of securities of the Company representing
10% or more of the combined voting power of the then outstanding
Voting Securities of the Company increases his beneficial
ownership of such securities by 5% or more over the percentage so
owned by that Person on the date hereof; or (iv) the Board of
Directors of the Company adopts a resolution to the effect that,
for purposes of this Agreement, a Potential Change in Control has
occurred.
(i) REVIEWING PARTY: any appropriate person or body
consisting of a member or members of the Company's Board of
Directors or any other person or body appointed by the Board
(including Special Counsel referred to in Section 3) who is not a
party to the particular Claim for which Indemnitee is seeking
indemnification.
(j) SPECIAL COUNSEL: special, independent counsel
selected by Indemnitee and approved by the Company (which
approval shall not be unreasonably withheld), and who has not
otherwise performed services for the Company or for Indemnitee
within the last three years (other than as Special Counsel under
this Agreement or similar agreements).
(k) SUBSIDIARY: with respect to any Person, any
corporation or other entity of which a majority of the voting
power of the voting equity securities or equity interest is
owned, directly or indirectly, by that Person.
(l) VOTING SECURITIES: any securities that vote
generally in the election of directors, in the admission of
general partners, or in the selection of any other similar
governing body.
2. BASIC INDEMNIFICATION AND EXPENSE REIMBURSEMENT
ARRANGEMENT.
(a) In the event Indemnitee was, is, or becomes a party
to or witness or other participant in, or is threatened to be
made a party to or witness or other participant in, a Claim by
reason of (or arising in part out of) an Indemnifiable Event, the
Company shall indemnify Indemnitee to the fullest extent
permitted by law as soon as practicable but in any event no later
than 30 days after written demand is presented to the Company,
against any and all Expenses, judgments, fines, penalties, and
amounts paid in settlement (including all interest, assessments,
and other charges paid or payable in connection with or in
respect of such Expenses, judgment, fines, penalties, or amounts
paid in settlement) of or with respect to that Claim.
5
<PAGE>
Notwithstanding the foregoing, the obligations of the Company
under Section 2(a) shall be subject to the condition that the
Reviewing Party shall not have determined (in a written opinion,
in any case in which Special Counsel referred to in Section 3
hereof is involved) that Indemnitee would not be permitted to be
indemnified under applicable law. Nothing contained in this
Agreement shall require any determination under this Section 2(a)
to be made by the Reviewing Party prior to the disposition or
conclusion of the Claim against the Indemnitee; provided,
however, that Expense Advances shall continue to be made by the
Company pursuant to and to the extent required by the provisions
of Section 2(b).
(b) If so requested by Indemnitee, the Company shall
pay any and all Expenses incurred by Indemnitee (or, if
applicable, reimburse Indemnitee for any and all Expenses
incurred by Indemnitee and previously paid by Indemnitee) within
two business days after such request (an "Expense Advance). The
Company shall be obligated to make or pay an Expense Advance in
advance of the final disposition or conclusion of any Claim. In
connection with any request for an Expense Advance, if requested
by the Company, Indemnitee or Indemnitee's counsel shall submit
an affidavit stating that the Expenses incurred were reasonable.
Any dispute as to the reasonableness of any Expense shall not
delay an Expense Advance by the Company, and the Company agrees
that any such dispute shall be resolved only upon the disposition
or conclusion of the underlying Claim against the Indemnitee. If,
when, and to the extent that the Reviewing Party determines that
Indemnitee would not be permitted to be indemnified with respect
to a Claim under applicable law, the Company shall be entitled to
be reimbursed by Indemnitee and Indemnitee hereby agrees to
reimburse the Company without interest (which agreement shall be
an unsecured obligation of Indemnitee) for all related Expense
Advances theretofore made or paid by the Company; provided,
however, that if Indemnitee has commenced legal proceedings in a
court of competent jurisdiction to secure a determination that
Indemnitee should be indemnified under applicable law, any
determination made by the Reviewing Party that Indemnitee would
not be permitted to be indemnified under applicable law shall not
be binding and Indemnitee shall not be required to reimburse the
Company for any Expense Advance, and the Company shall be
obligated to continue to make Expense Advances, until a final
judicial determination is made with respect thereto (as to which
all rights of appeal therefrom have been exhausted or lapsed). If
there has not been a Change in Control, the Reviewing Party shall
be selected by the Board of Directors of the Company. If there
has been a Change in Control, the Reviewing Party shall be
advised by or shall be Special Counsel referred to in Section 3
hereof, if and as Indemnitee so requests. If there has been no
determination by the Reviewing Party or if the Reviewing Party
determines that Indemnitee substantively would not be permitted
to be indemnified in whole or in part under applicable law,
Indemnitee shall have the right to commence litigation in any
6
<PAGE>
court in the states of Texas or Delaware having subject matter
jurisdiction thereof and in which venue is proper seeking an
initial determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof, and
the Company hereby consents to service of process and to appear
in any such proceeding. Any determination by the Reviewing Party
otherwise shall be conclusive and binding on the Company and
Indemnitee.
3. CHANGE IN CONTROL. The Company agrees that, if there is a
Change in Control and if Indemnitee requests in writing that
Special Counsel advise the Reviewing Party or be the Reviewing
Party, then the Company shall not deny an indemnification
payments (and Expense Advances shall continue to be paid by the
Company pursuant to Section 2b)) that Indemnitee requests or
demands under this Agreement or any other agreement or law now or
hereafter in effect relating to Claims for Indemnifiable Events
and not to request or seek reimbursement from Indemnitee of any
related Expense Advance unless, with respect to a denied
indemnification payment, Special Counsel has rendered its written
opinion to the Company and Indemnitee that the Company would not
be permitted under applicable law to pay Indemnitee such
indemnification payment. The Company agrees to pay the reasonable
fees of Special Counsel referred to in this Section 3 and to
indemnify fully Special Counsel against any and all expenses
(including attorney's fees), claims, liabilities, and damages
arising out of or relating to this Agreement or Special Counsel's
engagement pursuant hereto.
4. ESTABLISHMENT OF TRUST. In the event of a Potential
Change in Control, the Company shall, upon written request by
Indemnitee, create a trust for the benefit of Indemnitee (the
"Trust) and from time to time upon written request of Indemnitee
shall fund the Trust in an amount sufficient to satisfy any and
all Expenses reasonably anticipated at the time of each such
request to be incurred in connection with investigating,
preparing for, and defending any Claim relating to an
Indemnifiable Event, and any and all judgments, fines, penalties,
and settlement amounts of any and all Claims relating to an
Indemnifiable Event from time to time actually paid or claimed,
reasonably anticipated, or proposed to be paid. The amount or
amounts to be deposited in the Trust pursuant to the foregoing
funding obligation shall be determined by the Reviewing Party, in
any situation in which Special Counsel referred to in Section 3
is involved. The terms of the Trust shall provide that, upon a
Change in Control, (i) the Trust shall not be revoked or the
principal thereof invaded, without the written consent of
Indemnitee, (ii) the trustee of the Trust shall advance, within
two business days of a request by Indemnitee, any and all
Expenses to Indemnitee (and Indemnitee hereby agrees to reimburse
the Trust under the circumstances in which Indemnitee would be
required to reimburse the Company for Expense Advances under
Section 2(b) of this Agreement); (iii) the Trust shall continue
7
<PAGE>
to be funded by the Company in accordance with the funding
obligation set forth above; (iv) the trustee of the Trust shall
promptly pay to Indemnitee all amounts for which Indemnitee shall
be entitled to indemnification pursuant to this Agreement or
otherwise; and (v) all unexpended funds in that Trust shall
revert to the Company upon a final determination by the Reviewing
Party or a court of competent jurisdiction, as the case may be,
that Indemnitee has been fully indemnified under the Terms of
this Agreement. The trustee of the Trust shall be chosen by
Indemnitee. Nothing in this Section 4 shall relieve the Company
of any of its obligations under this Agreement.
5. INDEMNIFICATION FOR ADDITIONAL EXPENSES. The Company
shall indemnify Indemnitee against any and all costs and expenses
(including attorneys' and expert witnesses' fees) and, if
requested by Indemnitee, shall (within two business days of that
request) advance those costs and expenses to Indemnitee, that are
incurred by Indemnitee in connection with any claim asserted
against or action brought by Indemnitee for (i) indemnification
or advance payments of Expenses by the Company under this
Agreement or any other agreement or provision of the Company's
Certificate of Incorporation or By-laws now or hereafter in
effect relating to Claims for Indemnifiable Events or (ii)
recovery under any directors' and officers' liability insurance
policies maintained by the Company, regardless of whether
Indemnitee ultimately is determined to be entitled to that
indemnification, advance expense payment, or insurance recovery,
as the case may be.
6. PARTIAL INDEMNITY. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for
some or a portion of the Expenses, judgments, fines, penalties,
and amounts paid in settlement of a Claim but not, however, for
all of the total amount thereof, the Company shall nevertheless
indemnify Indemnitee for the portion thereof to which Indemnitee
is entitled. Moreover, notwithstanding any other provision of
this Agreement, to the extent that Indemnitee has been successful
on the merits or otherwise in defense of any or all Claims
relating in whole or in part to an Indemnifiable Event or in
defense of any issue or matter therein, including dismissal
without prejudice. Indemnitee shall be indemnified against all
Expenses incurred in connection therewith.
7. CONTRIBUTION
(a) CONTRIBUTION PAYMENT. To the extent the
indemnification provided for under any provisions of this
Agreement is determined (in the manner hereinabove provided) not
to be permitted under applicable law, then in the event
Indemnitee was, is, or becomes a party to or witness or other
participant in, or is threatened to be made a party to or witness
or other participant in, a Claim by reason of (or arising in part
out of) an Indemnifiable event, the Company, in lieu of
8
<PAGE>
indemnifying Indemnitee, and to the extent permitted by law,
shall contribute to the amount of any and all Expenses,
judgments, fines, or penalties assessed against or incurred or
paid by Indemnitee on account of that Claim and any and all
amounts paid in settlement of that Claim (including all interest,
assessments, and other charges paid or payable in connection with
or in respect of such Expenses, judgments, fines, penalties, or
amounts paid in settlement) for which such indemnification is not
permitted ("Contribution Amounts"), in such proportion as is
appropriate to reflect the relative fault with respect to the
Indemnifiable Event giving rise to the Contribution Amounts of
Indemnitee, on the one hand, and of the Company and any and all
other parties (including officers and directors of the Company
other than Indemnitee) who may be at fault with respect to such
Indemnifiable Event (collectively, including the Company, the
"Third Parties") on the other hand.
(b) RELATIVE FAULT. The relative fault of the Third
Parties and the Indemnitee shall be determined (i) by reference
to the relative fault of Indemnitee as determined by the court or
other governmental agency assessing the Contribution Damages or
(ii) to the extent such court or other governmental agency does
not apportion relative fault, by the Reviewing Party (which shall
include Special Counsel) after giving effect to, among other
things, the relative intent, knowledge, access to information,
and opportunity to prevent or correct the applicable
Indemnifiable Event and other relevant equitable considerations
of each party. The Company and Indemnitee agree that it would not
be just and equitable if contribution pursuant to this Section 7
were determined by pro rata allocation or by any other method of
allocation which does take account of the equitable
considerations referred to in this Section 7(b).
8. BURDEN OF PROOF. In connection with any determination by
the Reviewing Party or otherwise as to whether Indemnitee is
entitled to be indemnified under any provisions of this Agreement
(or to receive contribution pursuant to Section 7 of this
Agreement), the burden of proof shall be on the Company to
establish that Indemnitee is not so entitled.
9. NO PRESUMPTION. For purposes of this Agreement, the
termination of any claim, action, suit, or proceeding, by
judgment, order, settlement (whether with or without court
approval), or conviction, or upon a plea of nolo contendere, or
its equivalent, shall not create a presumption that Indemnitee
did not meet any particular standard of conduct or have any
particular belief or that a court has determined that
indemnification is not permitted by applicable law.
10. NON-EXCLUSIVITY. The rights of Indemnitee hereunder
shall be in addition to any other rights Indemnitee may have
under the Company's By-laws or Certificate of Incorporation or
the Delaware General Corporation Law or otherwise. To the extent
9
<PAGE>
that a change in the Delaware General Corporation Law (whether by
statute or judicial decision) permits greater indemnification by
agreement than would be afforded currently under the Company's By-
laws or Certificate of Incorporation and this Agreement, it is
the intent of the parties hereto that Indemnitee shall enjoy by
this Agreement the greater benefits so afforded by that change.
11. LIABILITY INSURANCE. Except as otherwise agreed to by
the Company and Indemnitee in a written agreement, to the extent
the Company maintains an insurance policy or policies providing
directors' and officers' liability insurance, Indemnitee shall be
covered by that policy or those policies, in accordance with its
or their terms, to the maximum extent of the coverage available
for any Company director or officer.
12. PERIOD OF LIMITATIONS. No legal action shall be brought
and no cause of action shall be asserted by or on behalf of the
Company or any affiliate of the Company against Indemnitee or
Indemnitee's spouse, heirs, executors, or personal or legal
representatives after the expiration of three years from the date
of accrual of that cause of action, and any claim or cause of
action of the Company or its affiliate shall be extinguished and
deemed released unless asserted by the timely filing of a legal
action within that three-year period; provided, however, that, if
any shorter period of limitations is otherwise applicable to any
such cause of action, the shorter period shall govern.
13. AMENDMENTS. No supplement, modification, or amendment of
this Agreement shall be binding unless executed in writing by
both of the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of
any other provisions hereof (whether or not similar) nor shall
that waiver constitute a continuing waiver.
14. SUBROGATION. In the event of payment under this
Agreement, the Company shall be subrogated to the extent of that
payment to all of the rights of recovery on Indemnitee, who shall
execute all papers required and shall do everything that may be
necessary to secure those rights, including the execution of the
documents necessary to enable the Company effectively to bring
suit to enforce those rights.
15. NO DUPLICATION OF PAYMENTS. The Company shall not be
liable under this Agreement to make any payment in connection
with any claim made against Indemnitee to the extent Indemnitee
has otherwise actually received payment (under any insurance
policy, provision of the Company's Certificate of Incorporation
or By-laws, or otherwise) of the amounts otherwise indemnifiable
hereunder.
16. BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the parties hereto
and their respective successors, assigns (including any direct or
10
<PAGE>
indirect successor by purchase, merger, consolidation, or
otherwise to all or substantially all of the business or assets
of the Company), spouses, heirs, and personal and legal
representatives. This Agreement shall continue in effect
regardless of whether Indemnitee continues to serve as an officer
or director of the Company or another enterprises at the
Company's request.
17. SEVERABILITY. If any provision of this Agreement is held
to be illegal, invalid, or unenforceable under present or future
laws effective during the term hereof, that provision shall be
fully severable; this Agreement shall be construed and enforced
as if that illegal, invalid, or unenforceable provision has never
comprised a part hereof; and the remaining provisions shall
remain in full force and effect and shall not be affected by the
illegal, invalid or unenforceable provision or by its severance
from this Agreement. Furthermore, in lieu of that illegal,
invalid, or unenforceable provision, there shall be added
automatically as a part of this Agreement a provision as similar
in terms to the illegal, invalid, or unenforceable provision as
may be possible and be legal, valid and enforceable.
18. GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State
of Delaware applicable to contracts made and to be performed in
that state without giving effect to the principles of conflicts
of laws.
19. HEADINGS. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
20. NOTICES. Whenever this Agreement requires or permits
notice to be given by one party to the other, such notice must be
in writing to be effective and shall be deemed delivered and
received by the party to whom it is sent upon actual receipt (by
any means) of such notice. Receipt of a notice by any officer of
the Company shall be deemed receipt of such notice by the
Company.
21. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an
original, but in making proof hereof it shall not be necessary to
produce or account for more than one such counterpart.
EXECUTED as of the date first written above.
E-SYSTEMS, INC.
11
<PAGE>
A. Lowell Lawson
Title: Chairman of the Board
and Chief Executive Officer
____________________________
Indemnitee
12
<PAGE>
E-SYSTEMS, INC.
1982 INCENTIVE STOCK OPTION PLAN
AS AMENDED JANUARY 24, 1984
This 1982 Incentive Stock Option Plan adopted by the Board of
Directors of E-Systems, Inc. on January 27, 1982 and amended by the
Board of Directors on January 24, 1984:
WITNESSETH:
1. PURPOSE. The Plan is to provide key employees with a
proprietary interest in the Company through the granting of options to
purchase shares of the Company and the granting of awards of shares of
the Company to key employees subject to certain restrictions, as more
specifically hereinafter set forth, for the following purposes:
(a) to increase the interest in the Company's welfare of
those key employees who share primary responsibility for the
management, growth and protection of the business of the Company;
(b) to furnish an incentive to such employees to continue
their services for the Company; and
(c) to provide a means through which the Company may attract
able persons to enter its employment.
2. ADMINISTRATION. The Plan shall be administered by a Stock
Option Committee ("Committee") composed of members of the Board. The
Committee, which shall consist of three members unless otherwise set as
a greater number by the Board, shall be appointed and vacancies shall
be filled by the Board. The Committee shall keep minutes of its
activities.
3. PARTICIPANTS. The Committee shall determine from time to time
those key employees of the Company or of any subsidiary corporation of
the Company to whom options or stock awards are to be granted and the
number of shares optioned or granted to each such employee. Such
employees upon the grant of options or award of shares to them shall
become participants in the Plan.
4. RESTRICTIONS ON ELIGIBILITY. No option shall be granted to
or award made to:
(a) any director of the Company who is not an employee of the
company or a subsidiary corporation; or
(b) any person who is the beneficial owner of 10% or more of
the voting power of all classes of stock of the Company or a subsidiary
corporation; however, the stock ownership limitation will not apply in
the case of an "ISO" (as hereinafter defined) if the option price is at
least 110% of the fair market value (at the time the option is granted)
of the stock subject to the option and the option by its terms is not
exercisable more than five years from the date it is granted.
<PAGE>
5. SHARES SUBJECT TO THE PLAN. The Committee from time to time may
provide for options and awards of common stock under this Plan not in
excess of an aggregate of 3,000,000 shares of the Common Stock of the
Company. These shares shall be made available from either the
authorized but unissued Common Stock of the Company or treasury stock
held by the Company. Any shares that by reason of the expiration of an
option or otherwise are no longer subject to purchase pursuant to an
option granted, or are no longer subject to delivery under an award
made, under the Plan may be reoffered under the Plan.
6. ALLOTMENT OF SHARES. The Committee shall determine the number
of shares of Common Stock to be offered from time to time by grant of
options or awards to key employees of the Company or its subsidiary
corporations. The selection of an employee as a participant in any
grant of options or awards under the Plan shall not be deemed to either
entitle such employee to, or to disqualify such employee from, any
participation in any other grant of options or awards under the Plan.
7. GRANT OF OPTIONS AND AWARDS. The Committee shall be responsible
for and authorized to grant options and awards under the Plan. Grants
of options may include Incentive Stock Options as defined in the
Economic Recovery Tax Act of 1981 adopted August 13, 1981 ("ISO's"),
and non-statutory options, or combinations of both, as the Committee
may direct. ISO's shall meet all required terms and conditions set
forth in Section 12 hereof in addition to other terms and conditions
required or permitted by this Plan. The grant of options and awards
shall be evidenced by agreements containing such terms and provisions
as are approved by the Committee, but not more favorable than the terms
of the Plan. The Company shall execute such agreements upon instruction
from the Committee. Stock Appreciation Rights may be granted from time
to time with respect to any options granted under the Plan, as an
alternative method of exercise of any option. All provisions, terms and
conditions of the E-Systems Inc. Stock Appreciation Rights Plan ("SAR
Plan") adopted January 30, 1979 and approved and ratified by the
stockholders on April 18, 1979 and as amended of even date herewith are
incorporated herein by reference. For purposes of such incorporation by
reference, the "Stock Option Plan" as defined in the SAR Plan shall be
deemed to include this Plan.
8. OPTION AND AWARD PRICE. The price of the common stock with
respect to which an option or award is granted pursuant to this Plan
shall be determined by the Committee on the date of grant or award. The
price at which each option or award is granted may be any price set by
the Committee and may be equal to, less than or greater than the fair
market value of the stock on the date of grant except as specified in
Sections 4(b) and 1 2(b). The Committee shall also determine the fair
market value of the stock on the date of grant and shall set forth the
determination in its minutes; provided if the stock is listed on a
recognized securities exchange, the fair market value will be taken as
the reported closing price of the stock on such exchange on the date of
grant of the option or award, or if no sale of the stock shall have
<PAGE>
been reported on such date of grant, on the next preceding day when a
sale was reported.
9. STOCK OPTION EXERCISE PERIOD. The option period shall commence on the
date the Committee authorizes the grant of an option. The Committee may
provide any period of time for exercising an option, provided that no option
shall be for a period of more than 10 years from the date of grant of the
option by the Committee. The Committee may provide for the exercise of
options in installments and upon such terms, conditions and restrictions as
may be determined by the Committee.
10. RIGHTS IN EVENT OF DEATH OF OPTIONEE. If a participant dies prior to
termination of his or her rights to exercise an option in accordance with the
provisions of the stock option agreement without having exercised his or her
option as to all shares covered thereby, the option may be exercised to the
extent of the shares with respect to which the option could have been
exercised on the date of the participant's death by the participant's estate
or a person who acquired the right to exercise the option by bequest or
inheritance or by reason of the death of the participant, provided the period
during which the option may be so exercised shall not continue beyond the
earlier of 10 years from the date of grant of the option or such period
following the date of the participant's death as the Committee shall specify.
11. SPECIAL PROVISIONS WITH RESPECT TO RESTRICTED STOCK AWARDS.
The following special restrictions apply to the award of shares by the
Committee:
(a) Shares of common stock awarded pursuant to this Plan
shall be issued and registered in the name of the employee participant,
but the participant may not voluntarily dispose of such award shares
prior to the earliest of the following events:
(i) the participant's retirement under any retirement
plan of the Company or a subsidiary corporation;
(ii) the participant's death;
(iii) in extraordinary cases, with the consent of the
Committee, delivery of such shares to the participant following the
participant's termination of employment prior to retirement or death;
or
(iv) expiration of the period of time specified in the
award, not to exceed ten years, during which time the shares are to
be held in escrow.
<PAGE>
(b) The Committee may, but need not, at the time of making of
an award or at any subsequent time prior to expiration of the
restrictions set forth in subparagraph (a) above, impose additional
restrictions on voluntary disposition and release from escrow of the
shares awarded pursuant to this Plan, including, without limitation,
permitting disposition and release of shares only in installments over
a period of years.
(c) In order to administer restrictions required or permitted
on the release and delivery of award shares to a participant, the
certificates evidencing such shares awarded hereunder, although issued
in the name of the participant, shall be held in escrow by an escrow
agent appointed from time to time by the Company, subject to delivery
to the participant or to the Company at such times and in such amounts
as shall be directed by the Committee under the terms of this Plan or
the agreement of award with the participant. A participant's acceptance
of an award of shares pursuant to the Plan shall constitute such
participant's irrevocable power of attorney to the escrow agent to
cause the transfer and delivery to the Company of any such award shares
which the Committee shall direct to be so transferred and delivered
pursuant to the provisions of this Plan or of the award agreement with
the participant.
(d) Unless otherwise provided by the Committee, the voting
rights on restricted shares shall belong to each participant with
respect to those share awards held in escrow. Dividends, if any, on
shares held in escrow shall be paid to each participant unless the
Committee provides otherwise at the time of making the award.
12. SPECIAL PROVISIONS WITH RESPECT TO INCENTIVE STOCK OPTIONS. As
designated by the Committee any option or part thereof granted pursuant to
this plan may be designated as an incentive stock option as defined in the
Economic Recovery Tax Act of 1981 adopted August 13, 1981. Any option or part
thereof designated as an incentive stock option is hereinafter referred to as
an "ISO." The following special provisions shall apply to any ISO granted
under this Plan:
(a) Maximum amount subject to ISO's: The maximum aggregate
fair market value (determined as the time the ISO is granted) of the
common stock for which any employee may be granted ISO's in any
calendar year shall not exceed $100,000 plus a carry-over amount, if
any. The carry-over amount from any year is one half the amount by
which $100,000 exceeds the aggregate fair market value of the stock for
which ISO's were granted in any such prior year. Carry over amounts may
be carried over for three years. ISO's granted in any year use up the
$100,000 limitation first and then the carry-over amount from the
earliest year.
(b) ISO Exercise Price: The purchase price of Common Stock
subject to an ISO granted pursuant to this Plan shall be determined by
<PAGE>
the Committee on the date of the grant. The price shall not be less
than 100 percent of the fair market value of the Common Stock on the
date of the grant of the ISO; provided however, that if the participant
owns more than 10 percent of the Common Stock of the Company, the
exercise price shall not be less than I 10 percent of the fair market
value of the Common Stock on the date of the grant.
(c) Exercise of ISO: ISO's granted under the Plan may not be
exercised while there is outstanding any ISO previously granted to the
option holder. An ISO will be considered outstanding until such ISO is
exercised in full or expires by reason of lapse of time.
(d) Notice upon disposition: The Company shall be notified
immediately upon sale of any Common Stock acquired pursuant to the
exercise of an ISO granted under the Plan, if such sale occurs within 2
years from the date of the grant of the ISO or I year from the date of
issuance of the stock certificates evidencing exercise of the ISO.
13. PAYMENTS AND WITHHOLDING TAX.
(a) As to option shares, full payment for shares purchased
upon exercise of an option shall be made at the time of exercise. Any
federal, state or local taxes required to be paid by or withheld from
the employee at the time of exercise shall also be paid or withheld
prior to delivery of any shares upon such exercise. No participant
shall have any rights as a stockholder until such shares are issued
upon exercise of the options.
(b) As to award shares, upon the satisfaction of any
conditions for delivery to the employee otherwise set forth in the Plan
or in the award share agreement with the participant, shares will be
delivered to the participant only upon payment by him to the Company of
the amount of any withholding tax which may be imposed thereon under
the provisions of the Internal Revenue Code as then in effect or any
law of any other taxing jurisdiction requiring payment of any such
taxes or withholding tax. Should such participant fail to make the
required payment within 30 days following the date of removal of
restrictions on the delivery of such shares, such participant shall be
deemed to have instructed the escrow agent to sell for such
participant's account at the best price reasonably obtainable as many
of the shares deliverable to such participant as may be necessary to
obtain the amount of the required tax payment and the balance of such
shares shall then be delivered to the participant.
14. ISSUANCE OF SHARES. The provisions governing options granted and
shares awarded under this Plan shall be evidenced in an appropriate agreement
with each participant and shall set forth such terms, conditions,
restrictions and agreements as the Committee may provide; however, no such
agreement shall conflict with the terms of this Plan
<PAGE>
and, in the event of any such conflict, the provisions of this Plan shall be
deemed to control.
15. CAPITAL ADJUSTMENTS. The number of shares authorized in the
aggregate for this Plan shall be adjusted, and the number of shares of Common
Stock covered by each outstanding option or award granted by this Plan and
the option price (where applicable) thereof shall be subject to an equitable
adjustment, as determined by the Committee, to reflect any stock dividend,
stock split, or share combination, or to reflect any exchange of shares,
recapitalization, merger, consolidation, separation, reorganization,
liquidation, or the like, of or by the Company.
16. NONASSIGNABILITY. The options and awards granted pursuant to this
Plan shall not be transferable (other than by will or by the laws of dissent
and distribution) assigned, pledged or hypothecated in any way whether by
operation of law or otherwise, or be subject to execution, attachment or
similar process. Upon any attempt to so transfer, assign, pledge,
hypothecate, or upon the levy by reason of any attachment or similar process,
contrary to the provisions hereof, of any option or award, such option or
award shall immediately become null and void. During a participant's lifetime
options shall be exercisable only by him and awards deliverable only to him.
17. CHANGE IN CONTROL OF COMPANY. In order to provide maximum incentive
for continued dedication to employment duties of the key employees to whom
options and awards are granted pursuant to this Plan in the face of
potentially disruptive circumstances, the Committee may provide that all
options granted pursuant to this Plan, whether otherwise fully exercisable by
the participant or not, and all share awards pursuant hereto, whether fully
deliverable to a participant hereunder or not under the terms of the award,
shall, without further action by any party, become immediately exercisable in
full with respect to options and shall become fully deliverable to the
participant with respect to share awards upon the happening of either of the
following events:
(a) Common Stock of the Company has been acquired other than
directly from the Company in exchange for cash or property by one
person (as defined in Section 13 of the Securities Exchange Act of
1934) who thereby becomes the owner of more than 10% of the Company's
outstanding Common Stock if such person (as defined) is not the Company
or the trustee administrator or custodian for any employee benefit plan
now or hereafter constituted of the Company.
(b) Any person or corporation other than the Company or
trustee administrator or custodian for one of the Company's employee
benefit plans now or hereafter constituted has made a tender offer for
or a request or invitation for tenders of Common Stock of the Company.
<PAGE>
In the event of a question or controversy concerning whether or not either
of the preceding events has taken place, a determination by the Committee
that such event has or has not occurred shall be conclusive and binding
upon the Company and participants in this Plan.
18. TERMINATION OF OPTIONS RIGHTS AND AWARDS. The Committee may provide
for the termination of options and the revocation of share awards in the case
of a participant's termination of employment with the Company or a subsidiary
corporation for cause for defalcation, theft, embezzlement, falsification of
records with intent to defraud or any act involving moral turpitude or crime
constituting a felony. Upon such termination of employment, the participant's
rights to exercise any options granted pursuant to this Plan or to receive
any shares awarded pursuant hereto shall cease. In the case of award shares
the Committee shall direct the escrow agent to return all forfeited shares to
the Company.
19. INTERPRETATION. The Committee shall interpret this Plan and shall
prescribe such rules and regulations in connection with the operation of the
Plan as it shall determine to be necessary or advisable for the
administration hereof consistent with the purposes herein contained. The
Committee shall have the power and authority to rescind, amend and modify its
rules and regulations.
20. AMENDMENT OR DISCONTINUATION. This Plan may be amended, altered or
discontinued by the Company without approval of the shareholders, except the
Board of Directors shall not have the power or authority to change the
employees or class of employees who are eligible to participate or the
aggregate number of shares which may be issued under options and awards. In
the event any law, rule or regulation issued or promulgated by the Internal
Revenue Service, New York Stock Exchange, Securities and Exchange Commission
or other governmental agency requires the Plan to be amended, the Plan will
be amended at the time and all options and awards granted and outstanding
will be subject to such amendment.
<PAGE>
21. EFFECT OF THE PLAN. Neither the adoption of this Plan nor any action
of the Board or Committee shall be deemed to give any officer or employee any
right to be granted an option or award with respect to the common stock of
the Company or to any other rights whatsoever except as may be evidenced by a
stock option agreement or share award agreement and any amendment thereto,
duly executed on behalf of the Company, and then only to the extent and on
terms and conditions expressly set forth therein.
22. TERM. Unless sooner terminated by action of the Board, this Plan
shall terminate January 26, 1992 and no options or awards may be granted
pursuant hereto after such date.
23. DEFINITIONS. For purpose of this Plan, unless the context requires
otherwise, the following words shall have the meanings indicated:
(a) "Plan" shall mean this 1982 Incentive Stock Option Plan
as amended from time to time in accordance with the terms thereof.
(b) "Company" shall mean E-Systems, Inc. and its successors
and assigns.
(c) "Board" shall mean the Board of Directors of E-Systems,
Inc. and its successors and assigns.
(d) "Committee" shall mean the Stock Option Committee
appointed by the Board and described in Paragraph 2., Administration,
of this Plan.
(e) "Common Stock" shall mean the $1.00 par value common
stock of the Company authorized by amendment of the Certificate of
Incorporation effective January 29, 1982, subject to the right of the
Company to change the authorized number of shares of such class and to
provide no par or change in par value for such stock.
(f) "Subsidiary corporation" shall mean any corporation
(other than the employer corporation) in an unbroken chain of
corporations beginning with the employer corporation if, at the time of
the granting of the option or making of the award hereunder, each of
the corporations other than the last corporation in the unbroken chain
owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain.
24. EFFECTIVENESS OF THE PLAN. This Plan shall be subject to approval
and ratification on or before the next regular stockholders' meeting of the
Company by the vote of the holders of the majority of the shares of stock of
the Company present or represented at the meeting to which the Plan is
submitted. Subject to such approval and ratification, the Plan is effective
at once. Options and awards may be
<PAGE>
granted under the Plan prior to such approval and ratification, but each such
option or award granted shall be subject to the approval and ratification of
the Plan by the stockholders. If the Plan shall not be so approved and
ratified, all options and awards granted shall be of no effect. The date of
the grant of any option or award granted prior to such approval and
ratification by the stockholders shall be determined for all purposes as if
the option or award had not been subject to such approval and ratification;
however, no option granted may be exercised and no award made may be
delivered to a participant prior to such approval and ratification.
<PAGE>
E-SYSTEMS, INC.
1980 STOCK OPTION PLAN
This 1980 Stock Option Plan adopted by the Board of Directors of
E-Systems, Inc. on July 29, 1980:
1. PURPOSE. The Plan is to provide key employees with a
proprietary interest in the Company through the granting of
option to purchase shares of the Company and the granting of
awards of shares of the Company to key employees subject to
certain restrictions, as more specifically hereinafter set forth,
for the following purpose:
(a) to increase the interest in the Company's welfare of those
key employees who share primary responsibility for the
management, growth and protection of the business of the Company:
(b) to furnish an incentive to such employees to continue their
services for the Company: and
(c) to provide a means through which the Company may attract able
person to enter its employment.
2. ADMINISTRATION. The Plan shall be administered by a Stock
Option Committee ("Committee") composed of members of the Board.
The Committee, which shall consist of three members unless
otherwise set as a greater number by the Board, shall be
appointed and vacancies shall be filled by the Board. The
Committee shall keep minutes of its activities.
3. PARTICIPANTS. The Committee shall determine from time to
time those key employees of the Company or of any subsidiary
corporation of the Company to whom options or stock awards are to
be granted and the number of shares optioned or granted to each
such employees upon the grant of options or award of share to
them shall become participants in the Plan.
4. RESTRICTIONS OF ELIGIBILITY. No option shall be granted to
or award made to:
<PAGE>
(a) any director of the Company who is not an employee of the
Company or a subsidiary corporation: or
(b) any person who is the beneficial owner of 5% or more of the
total combined voting power or value of all classes of stock of
the Company or a subsidiary corporation: or who upon exercise of
the option granted or award of the stock awarded would become the
beneficial owner of 5% or more of such combined voting power or
value of all classes of stock of the Company.
5. SHARES SUBJECT TO THE PLAN. The Committee from time to time
may provide for options and awards of common stock under this
Plan not in excess of an aggregate of 500,000 shares of the
Common Stock of the Company. These shares shall be made
available from either the authorized by unissued Common Stock of
the Company or treasury stock held by the Company. Any shares
that by reason of the Expiration of an option or otherwise are no
longer subject to purchase pursuant to an option granted, or are
no longer subject to delivery under an award made, under the Plan
may be reoffered under the Plan.
6. ALLOTMENT OF SHARES. The Committee shall determine the
number of shares of Common Stock to be offered from time to time
by grant of options or awards to key employees of the Company or
its subsidiary corporation. The selection of an employee as a
participant in any grant of options or awards under the Plan
shall not be deemed to either entitle such employee to, or to
disqualify such employee from, any participation in any other
grant of options or awards under the Plan.
7. GRANT OF OPTIONS AND AWARDS. The Committee shall be
responsible for and authorized to grant options and awards under
the Plan. The grant of options and awards shall be evidenced by
agreements containing such terms and provisions as are approved
by the committee, but not more favorable that the terms of the
Plan. The Company shall execute such agreements upon instruction
from the Committee. Stock Appreciation Rights may be granted
from time to time with respect to any options granted under the
<PAGE>
Plan, as an alternative method of exercise of any option. All
provisions, terms and conditions of the E-Systems, Inc. Stock
Appreciation Rights Plan ("SAR Plan") adopted January 30, 1979
and approved and ratified by the stockholder on April 18, 1979
are incorporated herein by reference. For purposes of such
incorporation by reference the "Stock Option Plan" as defined in
the SAR Plan shall be deemed to include this Plan.
8. OPTION AND AWARD PRICE. The price of the common stock with
respect to which an option or award is granted pursuant to this
plan shall be determined by the Committee on the date of grant or
award. The price at which each option or award is granted may be
any price set by the Committee and may be equal to, less than or
greater that the fair market value of the stock on the date of
grant. The Committee shall also determine the fair market value
of the stock on the date of grant, and shall set forth the
determination in its minutes provided if the stock is listed on a
recognized securities exchange, the fair market value will be
taken as the reported closing price of the stock on such exchange
on the date of grant of the option or award, or if no sale of the
stock shall have been reported on such date of grant, on the next
preceding day when a sale was reported.
9. STOCK OPTION EXERCISE PERIOD. The option period shall
commence on the date the Committee authorizes the grant of an
option. The Committee may provide any period of time for
exercising an option, provided that no option shall be for a
period of more than 10 years from the date of grant of the option
by the Committee. The Committee may provide for the exercise of
options and installments and upon such terms, conditions and
restrictions as may be determined by the Committee.
10. RIGHTS IN EVENT OF DEATH OF OPTIONEE. It a participant dies
prior to termination of his or her rights to exercise an option
in accordance with the provisions of the stock option agreement
without having exercised his or her option as to all shares
covered thereby, the option may be exercised to the extent of the
shares with respect to which the option could have been exercised
on the date of the participant's death by the participant's
<PAGE>
estate or a person who acquired the right to exercise the option
by bequest or inheritance or by reason of the death of the
participant, provided the period during which the option may be
so exercised shall not continue beyond the earlier of 10 years
from the date of grant of the option or one year from the date of
the participant's death.
11. SPECIAL PROVISIONS WITH RESPECT TO RESTRICTED STOCK AWARDS.
The following special restrictions apply to the award of shares
by the Committee:
(a) Shares of common stock awarded pursuant to this Plan shall be
issued and registered in the name of the employee participant,
but the participant may not voluntarily disposed of such award
shares prior to the earliest of the following events:
(i) the participant's retirement under any retirement plan of the
Company or a subsidiary corporation:
(ii) the participant's death:
(iii) in extraordinary cases, with the consent of the Committee,
delivery of such shares to the participant following the
participant's termination of employment prior to retirement or
death: or
(iv) expiration of the period of time specified in the award, not
to exceed ten years, during which time the shares are to be held
in escrow.
(b) The Committee may, but need not, at the time of making of an
award or at any subsequent time prior to expiration of the
restrictions set forth in subparagraph (a) above, impose
additional restrictions on voluntary disposition and release from
escrow of the shares awarded pursuant to this Plan, including,
without limitation, permitting disposition and release of shares
only in installments over a period of years.
<PAGE>
(c) In order to administer restrictions required or permitted on
the release and delivery of award shares to a participant the
certificates evidencing such shares awarded hereunder, although
issued in the name of the participant, shall be held in escrow by
an escrow agent appointed from time to time by the Company,
subject to delivery to the participant or to the Company at such
times and in such amounts as shall be directed by the Committee
under the terms of this Plan or the agreement of award with
participant. A participant's acceptance of an award of shares
pursuant to the Plan shall constitute such participant's
irrevocable power of attorney to the escrow agent to cause the
transfer and delivery to the Company of any such award shares
which the Committee shall direct to be so transferred and
delivered pursuant to the provisions of this Plan or of the award
agreement with the participant.
(d) Unless otherwise provided by the Committee, the rights on
restricted shares shall belong to each participant with respect
to those share awards held in escrow. Dividends, if any, on
shares held in escrow shall be paid to each participant unless
the Committee provides otherwise at the time of making the award.
12. PAYMENTS AND WITHHOLDING TAX.
(a) As to option share, full payment for shares purchased upon
exercise of an option shall be made at the time of exercise. Any
federal, state or local taxes required to be paid by or withheld
from the employee at the time of exercise shall also be paid or
withheld prior to delivery of any shares upon such exercise. No
participant shall have any rights as a stockholder until such
shares are issued upon exercise of the options.
(b) As to award shares, upon the satisfaction of any conditions
for delivery to the employee otherwise set forth in the Plan or
in the award share agreement with the participant, shares will be
delivered to the participant only upon payment by him to the
Company of the amount of any withholding tax which may be imposed
thereon under the provisions of the Internal Revenue Code as then
in effect or any law of any other taxing jurisdiction requiring
<PAGE>
payment of any such taxes or withholding tax. Should such
participant fail to make the required payment within 30 days
following the date of removal of restrictions on the delivery of
such shares, such participant shall be deemed to have instructed
the escrow agent to sell for such participant's account at the
best price reasonably obtained as many of the shares deliverable
to such participant as may be necessary to obtain the amount of
the required tax payment and the balance of such shares shall be
delivered to the participant.
13. ISSUANCE OF SHARES. The provisions governing options granted
and shares awarded under this Plan shall be evidence in an
appropriate agreement as the Committee may provide; however, no
such agreement shall conflict with the terms of this Plan and ,
in the event of any such conflict, the provisions of this Plan
shall be deemed to control.
14. CAPITAL ADJUSTMENTS. The number of shares authorized in the
aggregate for this Plan shall be adjusted, and the number of
shares of common stock covered by each outstanding option or
award granted by this Plan and the option price (where
applicable) thereof shall be subject to an equitable adjustment,
as determined by the Committee, to reflect any stock dividend,
stock split, or share combination, or to reflect any exchange of
shares, recapitalization, merger, consolidation, separation,
reorganization, liquidation, or the like, of or by the Company.
15. NONASSIGNABILITY. The options and awards granted pursuant to
this Plan shall not be transferable (other than by will or by the
laws of dissent and distribution) assigned, pledged or
hypothecated in any way whether by operation of law or otherwise,
or be subject to execution, attachment or similar process. Upon
any attempt to so transfer, assign, pledge, hypothecate, or upon
the levy by reason of any attachment or similar process, contrary
to the provisions hereof, of any option or award such option or
award shall immediately become null and void. During a
participant's lifetime options shall be exercisable only by him
and awards deliverable only to him.
<PAGE>
16. CHANGE IN CONTROL OF COMPANY. In order to provide maximum
incentive for continued dedication to employment duties of the
key employees to whom options and awards are granted pursuant to
this Plan in the face of potentially disruptive circumstances,
the Committee may provide that all options granted pursuant to
this Plan, whether otherwise fully exercisable by the participant
or not, and all share awards pursuant hereto, whether fully
deliverable to a participant hereunder or not under the terms of
the award, shall without further action by any party become
immediately exercisable in full with respect to options and shall
become fully deliverable to the participant with respect to share
awards upon the happening of either of the following events:
(a) Common stock of the Company has been acquired other than
directly from the Company exchange for cash or property by one
person (as defined in Section 13 of the Securities and Exchange
Act of 1934) who thereby becomes the owner of more than 10% of
the Company's outstanding common stock if such person (as
defined) is not the Company or the trustee administrator or
custodian for any employee benefit plan now or hereafter
constituted to the Company.
(b) Any person or corporation other than the Company or trustee
administrator or custodian for one of the Company's employee
benefit plans nor or hereafter constituted has made a tender
offer for or a request or invitation for tenders of common stock
of the Company.
In the event of a question or controversy concerning whether or
not either of the proceeding events has taken place, a
determination by the Committee that such event has or has not
occurred shall be conclusive and binding upon the Company and
participants in the Plan.
17. TERMINATION OF OPTIONS RIGHTS AND SWARDS. The Committee may
provide for the termination of options and the revocation of
share awards in the case of a participant's termination of
employment with the Company or a subsidiary corporation for cause
for defalcation, theft, embezzlement, falsification of records
<PAGE>
with intent to defraud or any act involving moral turpitude or
crime constituting a felony. Upon such termination of
employment, the participant's rights to exercise any options
granted pursuant to this Plan or to receive any shares awarded
pursuant hereto shall cease. In the case of award shares the
Committee shall direct the escrow agent to return all forfeited
shares to the Company.
18. INTERPRETATION. The Committee shall interpret this Plan and
shall prescribe such rules and regulation in connection with the
operation of the Plan as it shall determine to be necessary or
advisable for the administration hereof consistent with the
purposes herein contained. The Committee shall have the power
and authority to rescind, amend and modify its rules and
regulations.
19. AMENDMENT OR DISCONTINUATION. This Plan may be amended,
altered or discontinued by the Company without approval of the
share holders, except the Board of Directors shall not have the
power or authority to change the employees or class of employees
who are eligible to participate or the aggregate number of shares
which may be issued under options and awards. In the event any
law, rule or regulation issued or promulgated by the Internal
Revenue Service, New York Stock Exchange, Securities and Exchange
Commission or other governmental agency requires the Plan to be
amended, the Plan will be amended at the time and all options and
awards granted and outstanding will be subject to such amendment.
20. EFFECT OF THE PLAN. Neither the adoption of this Plan nor
any action of the Board or Committee shall be deemed to give any
officer or employee any right to be granted an option or award
with respect to the common stock of the Company or to any other
rights whatsoever except as may be evidenced by a stock option
agreement or share award agreement and any amendment thereto,
duly executed on behalf of the Company, and then only to the
extent and on terms and conditions expressly set forth therein.
<PAGE>
21. TERMS. Unless sooner terminated by action of the Board, this
Plan shall terminate July 28, 1990 and no options or awards may
be granted pursuant hereto after such date.
22. DEFINITIONS. For purpose of this Plan, unless the context
requires otherwise, the following words shall have the meanings
indicated:
(a) "Plan" shall mean this 1980 Stock Option Plan as amended from
time to time in accordance with the terms thereof.
(b) "Company" shall mean E-Systems, Inc. and its successors and
assigns.
(c) "Board" shall mean the Board of Directors of E-Systems, Inc.
and its successors and assigns.
(d) "Committee" shall mean the Stock Option Committee appointed
by the Board and described in Paragraph 2., Administration, of
this Plan.
(e) "Common Stock" shall mean the $1.25 par value common stock of
the Company subject to the right of the Company to change the
authorized number of shares of such class and to provide no par
or change in par value for such stock.
(f) "Subsidiary corporation" shall mean any cooperation (other
than the employer corporation) in an unbroken chain of
corporations beginning with the employer corporation if, at the
time of the granting of the option or making of the award
hereunder, each of the corporation other than the last
corporation in the unbroken chain owns stock possessing 50% or
more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
23. EFFECTIVENESS OF THE PLAN. This Plan shall be subject to
approval and ratification on or before the next regular or
special stockholders' meeting of the company by the vote of the
holder of the majority of the shares of stock of the Company
<PAGE>
present or represented at the meeting to which the Plan is
submitted. Subject to such approval and ratification, but each
such option or award granted shall be subject to the approval and
ratification of the Plan by the stockholders. If the Plan shall
not be so approved and ratified, all options and awards granted
shall be of no effect. The date of the grant of any option or
award grated prior to such approval and ratification by the
stockholders shall be determined for all purposes as if the
option or award had not been subject to such approval and
ratification: however, no option granted may be exercised and no
award made may be delivered to a participant prior to such
approval and ratification.
<PAGE>
FORM OF
STOCK OPTION AGREEMENT
THIS AGREEMENT IS MADE in Dallas, Texas, by and between the
employee whose name appears below (the "Employee" ) and E-SYSTEMS, INC.
(the "Company" ).
The Board of Directors of the Company adopted a certain Stock
Option Plan, as amended, the ("Plan").
The Company acting through the Compensation and Benefits
Committee of the Board, has granted to the Employee the Stock Option
described below, subject to the provisions of the Plan and the terms of
this Agreement.
NOW THEREFORE, in consideration of the recitals, the Company
grants and the Employee accepts the Stock Option described below on the
terms contained herein.
<TABLE>
<CAPTION>
EMPLOYEE: OPTION PRICE
GRANT DATE ------------
----------- NUMBER OF DOLLARS SOCIAL SECURITY
MO DAY YR SHARES PER SHARE NUMBER
----------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
EXPIRATION DATE
---------------
</TABLE>
THIS STOCK OPTION SHALL BECOME EXERCISABLE (VEST) IN THREE
INSTALLMENTS:
An amount of shares equal to one-third of the total shares set forth
above shall become available for exercise on the first, second and third
anniversary dates from the grant of this option, respectively.
If the total shares set forth is not divisable by three without resulting
in a fractional share, fractional shares may not be issued and the amount
of such fraction shall be dropped from the first increment and the
following adjustment(s) made in the number of shares in the second or third
(or both) increments:
- if the fractions aggregate one whole share the third
increment shall be increased by one share;
- if the fractions aggregate two whole shares, the second
and third increments shall each be increased by one share.
In no event shall the aggregate number of shares of all three vesting
increments exceed the total number of option shares set forth above.
IN WITNESS WHEREOF, the Company and the Employee have duly executed
this Agreement.
EMPLOYEE: E-SYSTEMS, INC.:
Chairman of the Board and
Chief Executive Officer
WITNESS: ATTEST:
Secretary
Page 1
<PAGE>
TERMS & CONDITIONS OF STOCK OPTION AGREEMENT
1. GRANT OF OPTION. Pursuant to the Stock Options Plan for key
employees of E-Systems, Inc. and its subsidiaries, the Company hereby
grants to the Employee an option (the "Option") to purchase from the
Company certain shares of $1.00 par value Common Stock of the Company in
the amounts, during the periods, and upon the terms and conditions herein
set forth. The number and price per share of such Option shares is set out
on page 1 of this Agreement.
2. TIME OF EXERCISE. Except as provided elsewhere herein, this
Option shall become exercisable in installments as set forth on page 1.
In no event may this Option be exercised in whole or in part after the
termination date set forth in paragraph 3 below, which shall not be later
than ten (10) years from the date of grant.
3. TERM. This Option shall terminate at the earliest of:
(a) 5:00 p.m. Dallas time on the Expiration Date indicated on
page 1;
(b) two (2) years following the date of Employee's death; or
(c) ninety (90) days after termination of Employee's
employment with the Company for any reason other than death or
retirement under any retirement plan of the Company.
4. WHO MAY EXERCISE. During the lifetime of the Employee, this
Option may be exercised only by the Employee. If there is any attempt to
transfer, assign, pledge, dispose of, or upon the levy by reason of any
attachment or similar process, contrary, to the provisions of this
Agreement, this Option shall become null and void.
If the Employee dies while this Option is in effect all remaining
unexercised shares shall become fully vested as of the date of death and
such option may be exercised by the Employee's estate or a person who has
acquired the right to exercise the Option by the Employee's will or by the
laws of descent and distribution at anytime or times prior to the
termination date specified in Section 3, (a) and (b).
5. OTHER RESTRICTIONS ON EXERCISE. The Option evidenced by this
Agreement may not be exercised in whole or in part, and no certificates
representing shares subject to such Option shall be delivered, if any
requisite registration with, or approval or consent of, any governmental
authority having jurisdiction over the exercise of this Option or shares
delivered pursuant to this Option shall not have been secured.
6. MANNER OF EXERCISE. To exercise this Option, Employee shall give
written notice to the Company of the number of shares being purchased
pursuant to the exercise of this Option and the purchase price to be paid
therefor, accompanied by the following:
(a) full payment of the Option price.
(b) an undertaking to furnish or execute such documents as
the Company in its discretion shall deem necessary to comply with
governmental requirements and to complete Company records;
(c) full payment of any federal, state or local taxes
required to be paid or withheld from the Employee at the time of
exercise of the Option;
(d) any other requirements that the Compensation and Benefits
Committee administering the Plan (the "Committee") may establish.
<PAGE>
7. RIGHTS AS STOCKHOLDER. The Employee shall have no rights as a
stockholder with respect to any shares covered by this Option until the
issuance of a certificate or certificates to the Employee for such shares.
8. CAPITAL ADJUSTMENTS. The number of shares of common stock
covered by this Option and the Option price thereof shall be subject to
such adjustment as the Committee administering the Plan may deem
appropriate to reflect any stock dividend, stock split, share combination,
exchange of shares, recapitalization, merger, consolidation, separation,
reorganization, liquidation, or the like, of or by the Company. However,
in no event shall such adjustment exceed the aggregate stock option price
of the Options granted by this Agreement, except for rounding upward to the
next whole cent of the per share price (if necessary to prevent fractional
cents per share).
9. COMPANY DEFINED. The "Company" as herein used shall mean
E-Systems, Inc., or any subsidiary thereof.
10. SUCCESSOR. This Agreement shall be binding upon any successor of
the Company.
11. LAW GOVERNING. This agreement is intended to be performed in the
State of Texas and shall be construed and enforced in accordance with and
governed by the laws of Texas.
12. EMPLOYMENT. Neither the granting of this Option nor any term or
provision of this Agreement shall constitute or be evidence of any
understanding, expressed or implied, on the part of the Company, to employ
the Employee for any specified period.
13. ADMINISTRATION OF PLAN AND AGREEMENT. This Option and the
exercise thereof is subject to the terms and conditions of the Plan which
is incorporated herein by reference and made a part hereof, and this Stock
Option Agreement. However, the terms of the Plan shall not be considered
an enlargement of any benefits under this Agreement. The Committee's
interpretation and resolution of any conflict between the Plan and this
Agreement shall be final. The Committee may exercise all discretionary
powers granted to it under the Plan. In addition, performance of this
Agreement is subject to any rules and regulations promulgated by the
Committee pursuant to the Plan, now or hereafter in effect.
Page 2
<PAGE>
FORM OF
RESTRICTED STOCK AWARD AGREEMENT
THIS AGREEMENT IS MADE in Dallas, Texas, by and between the
employee whose name appears below (the "Employee" ) and E-SYSTEMS, INC.
(the "Company" ).
The Board of Directors of the Company adopted a certain Stock
Option Plan, as amended, the ("Plan").
The Company acting through the Compensation and Benefits
Committee of the Board, has granted to the Employee the Stock Award
described below, subject to the provisions of the Plan and the terms of
this Agreement.
NOW THEREFORE, in consideration of the recitals, the Company
grants and the Employee accepts the Stock Award on the terms contained on
page 2.
<TABLE>
<CAPTION>
AWARD PRICE
GRANT DATE -----------
EMPLOYEE: ---------- NUMBER OF DOLLARS SOCIAL SECURITY
MO DAY YR SHARES PER SHARE NUMBER
----------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
DELIVERY DATE
IN WITNESS WHEREOF, the Company and the Employee have duly executed
this Agreement.
EMPLOYEE: E-SYSTEMS, INC.:
Chairman and C.E.O.
WITNESS: ATTEST:
Secretary
<PAGE>
1. STOCK HELD IN ESCROW. All Award Stock shall be issued and
registered in the name of the Employee but held in escrow for a period of
time determined by the Stock Option Committee administering the Plan (the
"Committee") in accordance with Section 11 of this Agreement. The
following terms shall govern the escrow arrangement:
(a) ESCROW AGENT. The Escrow Agent shall be located at P.O.
Box 660248, Dallas, Texas 75266-0248, (214)661-1000. The Company may
change the Escrow Agent at any time and from time to time and the
Employee shall be notified in writing of any such changes in the address
and telepone number of the Escrow Agent.
(b) IRREVOCABLE POWER OF ATTORNEY. The execution of this Agreement.
and Employee's acceptance of this award and delivery of the award
into escrow shall constitute the Employee's Irrevocable Power of
Attorney to the Escrow Agent to act on the Employee's behalf in
connection with the Award Stock. The Escrow Agent shall have the
right to transfer and deliver all such escrowed Award Stock to
the Employee or to the Company at such times and in such amounts
as directed by the Committee.
(c) VOTING RIGHTS AND DIVIDENDS. During the term of the escrow,
the Employee shall have all voting rights and shall receive all dividends
declared and paid on such Award Stock.
2. NON-ASSIGNABILITY. During the duration of the escrow provided
for under the terms of the Agreement, the Award Stock is non-transferable,
except by will, or by the laws of descent and distribution, and the shares
shall not be assigned, pledged, or disposed of in any way whether by
operation or law or otherwise, or be subject to execution, attachment, or
similar process. If there is any attempt to transfer, assign, pledge,
dispose of, or upon the levy by reason of any attachment or similar
process, contrary, to the provisions of this Agreement, the Employee's
interest in the Award Stock shall be forfeited and the Escrow Agent shall
deliver such Award Stock to the Company for transfer out of the Employee's
name.
3. DELIVERY OF AWARD STOCK TO EMPLOYEE. The Award Stock shall
not be deliverable out of escrow until the first of the following events
occurs:
(a) The Employee retires under the terms of any retirement plan
of the Company;
(b) The Employee dies;
(c) The Employee is granted special permission by the Company
allowing the Employee to dispose of Award Stock; or
(d) The expiration of ten (10) years from the date Award Stock
is granted, (shown on page 1 as delivery date).
At such time as the Award Stock shall become deliverable, the Escrow
Agent shall deliver the Award Stock to the Employee upon:
(a) payment to the Escrow Agent of the consideration for the
Award Stock as determined by the Committee and indicated on page 1
and,
<PAGE>
(b) Payment of all federal, state or local withholding taxes due
and payable by the Employee as a result of the removal of the
restrictions on the Award Stock.
If the Employee fails to pay such consideration or taxes within
(30) days from the date the Award Stock has become deliverable by the
Company, the Company shall have the right to instruct the Escrow Agent to
sell the necessary amount of shares to obtain sufficient funds with which
to make such payments.
4. RESTRICTIONS ON DISPOSITION OF AWARD STOCK. The Employee may not
dispose of Award Stock until the Award Stock has been delivered out of
escrow in accordance with Section 3 and additional restrictions, if any,
on the disposition of the Award Stock reflected on page 1 of this
Agreement, have been fulfilled.
5. CAPITAL ADJUSTMENTS. The shares of Award Stock covered by this
Agreement shall be subject to any adjustment to reflect any stock dividend,
stock split, share combination, exchange of shares, recapitalization,
merger, consolidation, separation, reorganizatiobn, liquidation, or the
like, of or by the Company on the same basis of adjustment as other shares
of issued and outstanding stock of the same class as the Award Stock. No
such adjustments shall entitle the Employee to release of the adjusted
Award Stock from escrow until the conditions on delivery set forth herein
have been fulfilled.
6. TERMINATION. In the event the Employee terminates employment
with the Company (and except as otherwise provided in Section 3 herein),
the Employee's interest in the escrowed Award Stock shall be forfeited. In
such event, the Escrow Agent shall return the forfeited Award Stock shares
to the Company for transfer out of the Employee's name.
7. LAW GOVERNING. This Agreement is intended to be performed in the
State of Texas and shall be construed and enforced in accordance with and
governed by the laws of Texas.
8. COMPANY DEFINED. The "Company" as herein used shall mean
E-Systems, Inc. or any subsidiary thereof.
9. SUCCESSOR. This Agreement shall be binding upon any successor of
the Company.
10. EMPLOYMENT. Neither the granting of this Award Stock nor any
term or provision of this Agreement shall constitute or be evidence of any
understanding, expressed or implied, on the part of the Company, to employ
the Employee for any specified period.
11. ADMINISTRATION OF PLAN AND AGREEMENT. This Award is subject to
the terms and conditions of the Plan which is incorporated herein by
reference and made a part hereof and this Restricted Stock Award Agreement.
However, the terms of the Plan shall not be considered an enlargement of
any benefits under this Agreement. The Committee's interpretation and
resolution of any conflict between the Plan and the Agreement shall be
final. The Committee may exercise all discretionary powers granted to it
under the Plan. In addition, performance of this Agreement is subject to
any rules and regulations promulgated by the Committee pursuant to the
Plan, now or hereafter in effect.
<PAGE>
E-SYSTEMS, INC. EXECUTIVE
SUPPLEMENTAL RETIREMENT PLAN
This restatement as of 1/15/87 incorporates:
Amendment No. 1 - June 1, 1982;
Amendment No. 2 - August 27, 1986;
Amendment No. 3 - December 17, 1986
<PAGE>
ARTICLE I
Purpose
The Purpose of this Plan is to retain key executives by
providing retirement income as a supplement to compensation
and employee benefits otherwise payable to selected
executive employees of E-Systems, Inc. who are expected to
contribute materially to the success of the Company's
business by their ability, ingenuity, and industry.
ARTICLE II
Definitions and Construction
2.1 Definitions: Where the following words and
phrases appear in this Plan, they shall have the respective
meanings set forth below, unless their context clearly
indicates to the contrary:
(a) Average Monthly Compensation: The sum of (1) plus
(2) as follows:
(1) The result obtained by dividing the total
Basic Compensation paid to a Participant during a considered
period by the number of months in the considered period by
the number of months in the considered period. The
considered period shall be thirty-six (36) consecutive
calendar months, within the one hundred twenty (120)
consecutive calendar month period ending with the month
including the Participant's date of termination or
disability, which yield the highest Average Monthly
Compensation, or in the event of the Participant was
employed for fewer than thirty-six (36) calendar months, the
considered period shall be all calendar months in which
Basic Compensation was paid.
(2) The result obtained by dividing the total
Incentive Compensation paid to a Participant during a
considered period by the number of months in the considered
period. The considered period shall be the thirty-six (36)
consecutive calendar months, within the one hundred twenty
(120) consecutive calendar month period ending with the
month including the Participant's date of termination or
disability, which yield the highest Average Monthly
Incentive Compensation, or in the event the Participant was
employed for fewer than thirty-six (36) calendar months, the
considered period shall be all calendar months in which
Incentive Compensation was paid.
(b) Basic Compensation: The base salary, paid sick
days, paid vacation days taken for a calendar year, and
payment for unused vacation time made to an Employee upon
his termination of employment, but excluding moving
expenses, severance pay, payments under long-term disability
insurance, income resulting from the exercise of Stock
Appreciation Rights, Employee Stock Options and Restricted
Stock Awards, and the value of any fringe benefits such as
life, medical, disability, or hospitalization insurance
premiums and Employer contributions allocated to a
Participant under any defined benefit or defined
contribution plan of the Employer which qualifies under
Section 401(a) of the Internal Revenue Code.
(c) Board of Directors: The duly elected and serving
Board of Directors of the Corporation or any duly authorized
committee of that Board.
<PAGE>
(d) Committee: The persons appointed to administer
the Plan in accordance with Article VII.
(e) Company: E-Systems, Inc., a corporation organized
and existing under the laws of the State of Delaware, or its
successor or successors.
(f) Compensation Committee: The Compensation
Committee appointed by the Board of Directors of the
Company.
(g) Disability: A physical or mental condition which
in the judgment of the Committee totally and presumably
permanently prevents the Participant from performing the
duties required of his position.
(h) Effective Date: June 1, 1982.
(I) Employer: E-Systems, Inc. and any of its majority
owned subsidiaries.
(j) Incentive Compensation: Payments to a Participant
under the Incentive Compensation Plan.
(k) Normal Retirement Benefit: The benefit described
in Section 6.1.
(l) Normal Retirement Date: The earlier of:
(1) the sixty-fifth (65th) birthday of a
Participant;
(2) the sixtieth (60th) birthday of a Participant
and the completion of ten (10) years of service since the
Participant's last date of hire.
Provided, however, at the discretion of the
Compensation Committee, if the Participant is requested by
the Company to retire at age sixty (60), or later, without
ten (10) years service, Normal Retirement Date shall be his
date of termination.
(m) Participant: An eligible executive employee of
the Employer who has been selected to participate in the
Plan in accordance with the provisions of Article III
hereof, evidenced by written agreement signed by Employer.
(n) E-Systems, Inc. Supplemental Retirement Plan, as
amended from time to time.
(o) Plan Year: The twelve (12) month period beginning
on January 1st and ending on December 31st.
(p) Primary Social Security Benefit: The monthly
amount available to the Participant at age sixty-two (62),
or his commencement date, if later, under the provisions of
Title II of the Social Security Act at the time of his
termination of employment (or age sixty-two (62) if
earlier), without regard to any increases in the wage base
or benefit levels that take effect after the date of
termination of employment; provided that (1) if a
Participant terminates employment prior to age sixty-two
(6), his Primary Social Security Benefit shall be estimated
by assuming the Employee will receive no further pay after
his termination of employment, or (2) if a Participant
terminates employment because of
<PAGE>
Disability and qualifies for a Disability Insurance Benefit
under the Social Security Act, his Primary Social Security
Benefit shall be the monthly amount payable as a Disability
Insurance Benefit.
(q) Qualified Plan: E-Systems, Inc. Salaried
Retirement Plan, (a defined benefit Plan), amended from time
to time, which plan is qualified within the meaning of
Section 401(a) of the Internal Revenue Code of 1954, as
amended from time to time.
(r) Qualified Plan Benefit: The monthly benefit, if
any, payable under the defined benefit Qualified Plan.
(s) Service: A Participant's employment with the
Employer, as determined by the Committee.
2.2 Construction: The masculine gender, where
appearing in the Plan, shall be deemed to include the
feminine gender; the singular may include the plural; and
vice versa, unless the context clearly indicates to the
contrary.
2.3 Governing Law: The Plan shall be construed in
accordance with and governed by the laws of the State of
Texas.
<PAGE>
ARTICLE III
Eligibility and Participation
3.1 Employees Eligible to Participate: Only officers
and other executive employees of the Employer who are
engaged in performing executive or other important
managerial functions shall be eligible to participate in the
Plan. A director of the Employer shall be eligible to be a
Participant if he is also an officer or other executive
employee of the Employer.
The Board of Directors shall be the sole judge in
determining who shall be eligible to be a Participant, but
shall select only those employee who have been recommended
by the Chairman of the Board of Directors and by the
Compensation Committee. Participation shall be evidenced by
either a written employment contract with Participant or
other instrument in writing signed on behalf of the
Employer.
3.2 Adoption of Guidelines: The Board of Directors
from time to time may adopt, amend, or revoke such
definitions and guidelines as it may deem advisable for its
own purposes to guide it in determining which of the
officers and other executive employees it shall deem
eligible to be Participants.
<PAGE>
ARTICLE IV
Provisions for Benefits
4.1 Amounts Provided by the Employer: Benefits under
the Plan shall constitute general obligations of the Company
in accordance with the terms of the Plan. No amounts in
respect of such benefits shall be set aside or held in
trust, and no recipient of any benefit shall have any right
to have the benefit paid out of any particular assets of the
Employer, (except that the Board of Directors of the Company
may establish a Trust or Trusts out of which benefits
hereunder may be paid provided that the principal and income
of such Trust or Trusts are subject to the claims of the
creditors of the Company in the event of insolvency as
provided for under the terms of such Trust(s)). Although
the Board of Directors of the Company reserves the right to
amend this Plan from time to time or to discontinue it, any
such amendment or discontinuance shall not adversely affect
the rights of, or shall not reduce the benefits payable to,
a Participant (or beneficiary) under this Plan who has been
selected for participation in the Plan prior to the
effective date of any such amendment or discontinuation.
ARTICLE V
Requirements for Retirement Benefits
5.1 Normal Retirement: A Participant shall be
eligible to receive a Normal Retirement Benefit on or after
his Normal Retirement Date if his employment with the
Employer is terminated (whether voluntarily or
involuntarily) on or after such date. Upon vesting of
benefits as set forth in Section 5.3, a Participant shall
receive his Normal Retirement Benefit if his employment with
the Employer is terminated (whether voluntarily or
involuntarily) prior to such date. Payment of a Normal
Retirement Benefit shall commence as of the first day of the
month coinciding with or next following the Participant's
date of retirement. The last payment shall be made as of
the first day of the month in which the death of the retired
Participant occurs.
5.2 Disability Retirement: A Participant shall be
eligible to receive a Disability Benefit if his employment
with the Employer is terminated on account of Disability.
Payment of a Disability Benefit shall commence as of the
first day of the month coinciding with or next following the
cessation of his sick leave, vacation time and accident and
sickness benefit. The last payment shall be made as of the
first day of the month in which the death of the retired
Participant occurs prior to Normal Retirement Date.
If Disability ceases prior to the Participant's Normal
Retirement Date, the Disability Benefit shall cease. The
Disability Benefit shall cease and the Normal Retirement
Benefit in accordance with Section 5.1 shall commence in the
month in which a disabled Participant reaches his Normal
Retirement Date. The period when Participant is paid a
Disability Benefit shall be counted as Service for purposes
of computing the Normal Retirement Benefit.
5.3 Vesting: If a Participant terminates his
employment with the Employer prior to becoming eligible for
a benefit under Section 5.1 or 5.2 hereof, no benefit will
be payable to or for him under this Plan except as set forth
in this section. In the event of the liquidation,
bankruptcy, insolvency, sale, consolidation or merger of the
Company with or control of the Company by another
organization, the rights of each affected Participant to
benefits hereunder shall be nonforfeitable.
<PAGE>
Payment of benefits under Section 5.1 shall commence as of the
first day of this month coinciding with or next following the
Participant's attainment of age sixty (60) or, upon his retirement,
if later, based upon his Average Monthly Compensation at the date of
his termination of employment and the number of years of Service he
would have earned if his employment had continued until his Normal
Retirement Date. Payment of benefits under Section 5.2 shall
commence as set forth in the second sentence of Section 5.2.
ARTICLE VI
Amount of Benefits
6.1 Normal Retirement Benefit: A Participant who
meets the requirements for a Normal Retirement Benefit shall
receive a monthly amount determined as follows:
(a) a percentage, determined by the Compensation
Committee not to exceed sixty-five percent (65%), of his
Average Monthly Compensation, provided, however, that as to
any Participant who has not completed ten (10) years of
Service, such percentage shall be reduced by multiplying
said percentage by a fraction, the numerator of which is the
Participant's actual number of years of Service (including
any fractional part of a year) and the denominator of which
is ten (10), minus
(b) the sum of his Qualified Plan Benefits, and
his Primary Social Security Benefit.
6.2 Disability Benefit: A Participant who meets the
requirements for a Disability Benefit shall receive a
monthly amount equal to two-thirds (2/3) of the amount
determined as for a Normal Retirement Benefit under Section
6.1(a) hereof, considering his Average Monthly Compensation
as of his date of Disability and the number of years of
Service he would have earned if his employment had continued
until his Normal Retirement Date, reduced by the amount in
Section 6.1(b) hereof and by any amount or amounts payable
under the E-Systems, Inc. Long Term Disability Income and
Death Benefit Plan (or that would have been payable
thereunder if the Participant had elected to participate in
such plan).
6.3 Death Benefit:
A. Spouse's Pension:
1. Death Prior to Retirement or While
Permanently Disabled Prior to Normal Retirement Date: The
surviving spouse of a Participant who dies prior to
retirement or while permanently disabled prior to his Normal
Retirement Date shall be eligible for a Death Benefit in the
form of a monthly pension.
The amount of such pension shall be equal to
(a) minus (b) as follows:
(a) One-half (1/2) of the amount determined
as for a Normal Retirement Benefit under Section 6.1(a)
hereof, considering his Average Monthly Compensation as of
his date of death and the number of years of service he
would have earned if his employment had continued until his
Normal Retirement Date, minus
<PAGE>
(b) The sum of: (I) the amount of death
benefit payable to the spouse under the defined benefit
Qualified Plan, and (ii) the Survivor's benefit (which is
based on the amount of the Participant's Primary Social
Security Benefit) payable to the spouse under the Social
Security Act.
Payment of such Pension shall commence on the
first day of the month coinciding with or next following the
Participant's date of death. The last payment shall be made
as of the first day of the month coinciding with or next
preceding the date of death of the spouse.
2. Death After Retirement or After Normal
Retirement Date As to Permanently Disabled Participants:
The surviving spouse of a Participant who dies after
retirement (for reasons other than disability) or after
attaining Normal Retirement Date as of a Participant who
terminated on account of permanent disability and remained
permanently disabled on his Normal Retirement Date, shall be
eligible for a Death Benefit in the form of a monthly
pension. The amount of such pension shall be equal to (a)
minus (b) as follows:
(a) One-half (1/2) of the amount that was
determined under Section 6.1(a) hereof, at the Participant's
retirement, or at his Normal Retirement Date in the case of
a permanently disabled Participant who reached Normal
Retirement Date while permanently disabled, minus
(b) The sum of: (I) the amount of Pension,
if any, that would be payable to the Participant's
beneficiary under the defined benefit Qualified Plan, and
(ii) the survivor's benefit (which is based on the amount of
the Participant's Primary Social Security Benefit) payable
to the spouse under the Social Security Act.
Payment of such Pension shall commence on the
first day of the month coinciding with or next following the
Participant's date of death. The last payment shall be made
as of the first day of the month coinciding with or next
preceding the date of death of the spouse.
B. Children's Pension: If a Participant dies prior
to retirement, while disabled or retired and leaves no
surviving spouse who is entitled to receive a Spouse's
Pension under A above, but leaves a surviving child or
children (born or legally adopted) under the age of twenty
two_(22), (including for this purpose children born within
ten (10) months after the date of his death) each such
surviving child or children shall receive a Children's
Pension. The amount of such Children's Pension (payable in
equal parts if more than one (1) such child under age twenty-
two (22) is surviving), shall be equal to the Spouse's
Pension that would have been payable under A above. Payment
of such Children's Pension shall be made until there is no
longer any such child under age twenty-two (22).
Upon he death of a surviving spouse who is receiving a
Spouse's Pension under A above, any such surviving child or
children, as defined in the first paragraph of this
Subsection B, shall receive a Children's Pension in the same
manner and amount as described in said first paragraph.
ARTICLE VII
Administration
<PAGE>
7.1 Appointment of Committee: The Plan shall be
administered by a Committee, which, unless otherwise
determined by the Board of Directors, shall be the
Compensation Committee. The membership of the Committee may
be reduced, changed, or increased from time to time in the
absolute discretion of the Board of Directors.
7.2 Committee Powers and Duties: The duties of the
Committee will be determined by the Board of Directors. The
Committee shall have such powers as may be necessary to
discharge its duties hereunder.
ARTICLE VIII
Miscellaneous Provisions
8.1 Amendment, Termination, Etc.: The Board of
Directors may, by resolution, in its absolute discretion,
from time to time, amend, suspend, or terminate in whole or
in part, and if terminated reinstates, any or all of the
provisions of the Plan, except that no amendment,
suspension, or termination may apply so as to adversely
affect the rights of, or to decrease the payment or benefit
to any Participant (or beneficiary) under the Plan who has
been selected for participation in the Plan prior to the
effective date of such amendment, suspension, or
termination. Any such amendment, suspension, or termination
shall become effective on such date s shall be specified in
such resolution and, except as expressly limited in this
Section 8.1, include such provisions and have such effect as
the Board of Directors, in its absolute discretion, deems
desirable.
8.2 Nonguarantee of Employment: Nothing contained in
this Plan shall be construed as a contract of employment
between the Employer and any employee, or as a right of any
employee to be continued in the employment of the Employer,
or as a limitation of the right of the Employer to discharge
any of its employees, with or without cause.
8.3 Nonalienation of Benefits: To the extent
permitted by law, benefits payable under the Plan shall not
be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, charge,
garnishment, execution, or levy of any kind, either
voluntary or involuntary. Any attempt to anticipate,
alienate, sell, transfer, assign, pledge, encumber, charge
or otherwise dispose of any right to benefits payable
hereunder shall be void. No part of the assets of the
Employer shall be subject to seizure by legal process
resulting from any attempt by creditors of or claimants
against any Participant (or beneficiary), or any person
claiming under or through the foregoing, to attach his
interest under the Plan.
8.4 Liability: No member of the Board of Directors,
the Compensation Committee, or of the Committee shall be
liable for any act or action, whether of commission or
omission, taken by any other member, or by any officer,
agent, or employee of the Employer or of any such body, nor,
except in circumstances involving his bad faith, for
anything done or omitted to be done by himself.
8.5 Adoption: This Plan has been duly authorized and
adopted effective June 1, 1982, by the Board of Directors of
the Company at the meeting held May 26, 1982.
<PAGE>
TRUST AGREEMENT
This Trust Agreement ("Agreement") made this 23rd day of June, 1987 by and
between E-Systems, Inc., a Delaware corporation ("the Corporation"), and
AmeriTrust Company National Association, a national banking association
(the "Trustee");
WITNESSETH:
WHEREAS, in addition to benefits payable under the E-Systems, Inc. Salaried
Retirement Plan, as the same has been or may hereafter be amended or
restated, or any successor thereto, to the executives and retired executives
listed on Exhibit A hereto ("Executives") or to the beneficiaries of such
Executives (Executives and where the context requires, Executives'
beneficiaries are referred to herein as "Trust Beneficiaries"), as the case
may be, the Trust Beneficiaries are entitled to certain other retirement and
related benefits under the provisions of certain employment agreements
entered into with respect to each Executive (the "Employment Agreements")
and/or the E-Systems, Inc. Executive Supplemental Retirement Plan, as the
same has been or may hereafter be amended or restated, or any successor
thereto (the "SERP");
WHEREAS, the Employment Agreements and/or the SERP provide for certain
retirement income, death, disability and survivor benefits, and the
Corporation wishes specifically to assure the payment to the Trust
Beneficiaries of amounts due thereunder (the amounts so payable being
collectively referred to herein as the "Supplemental Benefits");
WHEREAS, subject to Section 9 hereof, the amounts and timing of Supplemental
Benefits to which each Trust Beneficiary is presently or may become entitled
are specified in Exhibit B attached hereto and incorporated herein by this
reference;
WHEREAS, the Corporation wishes to establish a trust (the "Trust") and to
transfer to the Trust assets and rights which shall be held therein subject
to the claims of the creditors of the Corporation to the extent set forth in
Section 3 hereof until paid in full to all Trust Beneficiaries as
Supplemental Benefits in such manner and at such times as specified herein
unless the Corporation is Insolvent (as defined herein) at the time that such
Supplemental Benefits become payable; and
WHEREAS, the Corporation shall be considered "Insolvent" for purposes of this
Agreement at such time as the Corporation (i) is subject to a pending
voluntary or involuntary proceeding as a debtor under the United States
Bankruptcy Code, as heretofore or hereafter amended, or (ii) is unable to pay
its debts as they mature.
NOW, THEREFORE, the parties do hereby establish the Trust and agree that the
Trust shall be comprised, held and disposed of as follows:
1. TRUST FUND: (a) Subject to the claims of its creditors to the extent set
forth in Section 3 hereof, the Corporation hereby deposits with the Trustee
in trust Twenty six million, two hundred fifty one thousand and forty five
Dollars ($26,251,045) and/or other property which shall become the principal
of this Trust, to be held, administered and disposed of by the Trustee as
herein provided.
(b) The Trust hereby established shall be revocable by the Corporation at any
time prior to the earlier of (i) the date that is 30 days following the
issuance by the Internal Revenue Service of tax rulings
<PAGE>
requested by the Corporation in conjunction with the establishment of this
Trust, or (ii) the date on which occurs a "Change in Control," as that term
is defined in Exhibit C hereto; on or after such date (the "Irrevocability
Date"), this Trust shall be irrevocable. In the event that the
Irrevocability Date has occurred, the Corporation shall so notify the Trustee
promptly.
(c) The principal of the Trust, and any earnings thereon, shall be held in
trust separate and apart from other funds of the Corporation exclusively for
the uses and purposes herein set forth. No Trust Beneficiary shall have any
preferred claim on, or any beneficial ownership interest in, any assets of
the Trust prior to the time that such assets are paid to a Trust Beneficiary
as Supplemental Benefits as provided herein.
(d) The Corporation may at any time or from time to time make additional
deposits of cash or other property in the Trust to augment the principal to
be held, administered and disposed of by the Trustee as herein provided, but
no payments of all or any portion of the principal of the Trust or earnings
thereon shall be made to the Corporation or any other person or entity on
behalf of the Corporation except as herein expressly provided.
(e) The Trust is intended to be a grantor trust, within the
meaning of section 671 of the Internal Revenue Code of 1986, as amended (the
"Code"), or any successor provision thereto, and shall be construed
accordingly.
2. PAYMENTS TO TRUST BENEFICIARIES. (a) Provided that the Corporation is
not Insolvent and commencing with the earlier to occur of (i) appropriate
notice to the Trustee by the Corporation, or (ii) the Irrevocability Date,
the Trustee shall make payments of Supplemental Benefits to each Trust
Beneficiary from the assets of the Trust in compliance and conformity with
the SERP and/or the Employment Agreements and in accordance with Exhibit B
hereto, and subject to Section 9 hereof. The Trustee shall make provision
for withholding of any federal, state or local taxes that may be required to
be withheld by the Trustee in connection with the payment of any Supplemental
Benefits hereunder.
(b) If the balance of an Executive's separate account maintained pursuant to
Section 7(b) hereof is not sufficient to provide for full payment of
Supplemental Benefits to which such Executive's Trust Beneficiaries are
entitled as provided herein, the Corporation shall make the balance of each
such payment as it falls due as provided in the applicable provision of the
Employment Agreement or the SERP, as the case may be. No payment from the
Trust assets to a Trust Beneficiary shall exceed the balance of such separate
account.
3. THE TRUSTEE'S RESPONSIBILITY REGARDING PAYMENTS TO A TRUST BENEFICIARY
WHEN THE CORPORATION IS INSOLVENT: (a) At all times during the continuance
of this Trust, the principal and income of the Trust shall be subject to
claims of creditors of the Corporation. The Board of Directors of the
Corporation and its Chief Executive Officer ("CEO") shall have the duty to
inform the Trustee if either the Board or the CEO believes that the
Corporation is Insolvent. If the Trustee receives a notice from the Board,
the CEO, or a creditor of the Corporation alleging that the Corporation is
Insolvent, then unless the Trustee independently determines that the
Corporation is not Insolvent, the Trustee shall (i) discontinue payments to
any Trust Beneficiary, (ii)
<PAGE>
hold the Trust assets for the benefit of the general creditors of the
Corporation, and (iii) promptly seek the determination of a court of
competent jurisdiction regarding the Insolvency of the Corporation. The
Trustee shall deliver any undistributed principal and income in the Trust to
the extent necessary to satisfy the claims of the creditors of the
Corporation as a court of competent jurisdiction may direct. Such payments
of principal and income shall be borne by the Executives in proportion to the
balances on the date of such court order of their respective accounts
maintained pursuant to Section 7(b) hereof; provided, however, that all
Account Excesses shall first be determined and allocated in accordance with
Sections 4 and 7(b) hereof; and provided further that for this purpose, the
Threshold Percentage shall be equal to 100%. If payments to any Trust
Beneficiary have been discontinued pursuant to this Section 3(a), the Trustee
shall resume payments to such Trust Beneficiary only after receipt of an
order of a court of competent jurisdiction. The Trustee shall have no duty
to inquire as to whether the Corporation is Insolvent and may rely on
information concerning the Insolvency of the Corporation which has been
furnished to the Trustee by any creditor of the Corporation and by any person
(other than an employee or director of the Corporation) acting with actual or
apparent authority with respect to the Corporation. Nothing in this
Agreement shall in any way diminish any rights of any Trust Beneficiary to
pursue his rights as a general creditor of the Corporation with respect to
Supplemental Benefits or otherwise, and the rights of each Trust Beneficiary
under the respective Employment Agreement and/or the SERP shall in no way be
affected or diminished by any provision of this Agreement or action taken
pursuant to this Agreement except that any payment actually received by any
Trust Beneficiary hereunder shall reduce dollar-per-dollar amounts otherwise
due to such Trust Beneficiary pursuant to the respective Employment Agreement
and/or the SERP, as the case may be.
(b) If the Trustee discontinues payments of Supplemental Benefits from the
Trust pursuant to Section 3(a) hereof and subsequently resumes such payments,
the first payment following such discontinuance shall include the aggregate
amount of all payments which would have been made to the Trust Beneficiaries
in accordance with this Agreement during the period of such discontinuance,
less the aggregate amount of payments of Supplemental Benefits made to any
Trust Beneficiary directly by the Corporation during any such period of
discontinuance of such payments from the Trust, together with interest on the
net amount delayed determined at a rate equal to the rate actually earned
during such period with respect to the assets of the Trust corresponding to
such net amount delayed; provided, however, that no such payment shall exceed
the balance of the respective Executive's account as provided in Section 7(b)
hereof.
4. PAYMENTS TO THE CORPORATION: Except to the extent expressly contemplated
by Section 1(b) and this Section 4, the Corporation shall have no right or
power to direct the Trustee to return any of the Trust assets to the
Corporation before all payments of Supplemental Benefits have been made to
all Trust Beneficiaries as herein provided. From time to time, but in no
event before the fifth anniversary of the date of this Agreement, if and when
requested by the Corporation to do so, the Trustee shall engage the services
of Mercer-Meidinger-Hansen, or such other independent actuary as may be
mutually satisfactory to the Corporation and to the Trustee to determine the
maximum actuarial present values of the future Supplemental Benefits that
could become payable under the SERP and the Employment Agreements with
respect to the Trust Beneficiaries of each Executive. The Trustee shall
determine the
<PAGE>
fair market values of the Trust assets allocated to the account
of each Executive pursuant to Section 7(b) hereof. The Corporation shall pay
the fees of such independent actuary and of any appraiser engaged by the
Trustee to value any property held in the Trust. The independent actuary
shall make its calculations based upon the assumption that all Executives
will have salary increases from the date of calculation through the
termination of their employment by the Corporation of 8% per year and that no
Executive will leave the employ of the Corporation for any reason other than
(a) death prior to retirement or (b) retirement on or before the Normal
Retirement Date (as that term is defined in the SERP) or corresponding date
specified in the Employment Agreement at the age that would result in the
maximum present value of Supplemental Benefits payable to him or his Trust
Beneficiaries that is possible under the SERP and/or the Employment
Agreements. In addition, the independent actuary shall use the 1975 group
annuity mortality table, an interest rate of 7-1/2%, cost-of-living
increases of 3%, or such other assumptions as are recommended by such actuary
and approved by the Corporation and, after the Irrevocability Date, a
majority of the Executives (subject to the provisions of Sections 11(b)(i)
and (b)(ii) hereof). For purposes of this Agreement, (A) the "Fully Funded"
amount with respect to the account of an Executive maintained pursuant to
Section 7(b) hereof shall be equal to the "Threshold Percentage," as defined
below, multiplied by the maximum actuarial present value of the future
Supplemental Benefits that could become payable under the SERP and/or the
Employment Agreement with respect to the Trust Beneficiaries of such
Executive, and (B) the "Account Excess" with respect to such account shall be
equal to the excess, if any, of the fair market value of the assets held in
the Trust allocated to an Executive's account over the respective Fully
Funded amount. Unless otherwise provided, the Threshold Percentage shall be
equal to 140%. The Trustee shall allocate any Account Excess in accordance
with Section 7(b) hereof. Thereafter, upon the request of the Corporation,
the Trustee shall pay to the Corporation the excess, if any, of the aggregate
account balances over the aggregate Fully Funded amounts; provided, however,
that if such payment would leave the Trustee with insufficient liquid assets
to pay all premiums due and to become due on any life insurance policies held
in the Trust, the Trustee shall retain sufficient liquid as sets to pay such
premiums.
5. INVESTMENT OF TRUST FUND: The Trustees shall have sole power to invest
the assets of the Trust. The Trustees shall act at all times, however, with
the care, skill, prudence, and diligence under the circumstances then
prevailing that a prudent man, acting in a like capacity and familiar with
such matters, would use in the conduct of an enterprise of a like character
and with like aims. The investment objective of the Trustee shall be to
preserve the principal of the Trust while obtaining a reasonable total rate
of return, measurement of which shall include market appreciation or
depreciation plus receipt of interest and dividends. The Trustee shall be
mindful, in the course of its management of the Trust, of the liquidity
demands on the Trust and any actuarial assumptions that may be communicated
to it from time to time in accordance with the provisions of this Agreement.
6. INCOME OF THE TRUST: Except as provided in Section 3 hereof, during the
continuance of this Trust all net income of the Trust shall be allocated
annually among the Executives' separate accounts maintained in accordance
with Section 7(b) hereof.
7. ACCOUNTING BY TRUSTEE: (a) The Trustee shall keep records in reasonable
detail of all investments, receipts, disbursements and all
<PAGE>
other transactions required to be done, including such specific records as
shall be agreed upon in writing by the Corporation and the Trustee. All such
accounts, books and records shall be open to inspection and audit at all
reasonable times by the Corporation, by any Trust Beneficiary or by any agent
or representative of any of the foregoing. Within five business days
following the end of each fiscal month of the Corporation, the Trustee shall
furnish to the Corporation such information as the Corporation may require in
order to account accurately for all Trust transactions during such fiscal
month and for the fiscal year to date. Within 30 calendar days following the
end of each calendar year and within 30 calendar days after the removal or
resignation of the Trustee, the Trustee shall deliver to the Corporation and
to each Trust Beneficiary a written account of its administration of the
Trust during such year or during the period from the end of the last
preceding year to the date of such removal or resignation, setting forth all
investments, receipts, disbursements and other transactions effected by it,
including a description of all securities and investments purchased and sold
with the cost or net proceeds of such purchases or sales (accrued interest
paid or receivable being shown separately), and showing all cash, securities,
rights and other property held in the Trust at the end of such year or as of
the date of such removal or resignation, as the case may be. Such written
accounts shall reflect the aggregate of the Trust accounts and the status of
each separate account maintained for each Executive.
b. The Trustee shall maintain a separate account for each Executive. The
Trustee shall credit or debit each Executive's account as appropriate to
reflect such Executive's allocable portion of the Trust assets, as such Trust
assets may be adjusted from time to time pursuant to the terms of this
Agreement. Except as provided in this Section 7(b), all allocations shall be
made in proportion to the balances of the separate accounts of the
Executives. Prior to the Irrevocability Date, all deposits of principal
pursuant to Sections 1(a) and 1(d) shall be allocated as directed by the
Corporation; on or after such date, deposits of principal may not be
reallocated by the Corporation. If any deposit of principal is not allocated
by the Corporation, such amount shall be allocated as an Account Excess in
accordance with this Section 7(b). The Trustee shall determine annually the
amount of all Account Excesses, as defined in Section 4 hereof. The Trustee
shall allocate the aggregate amount of the Account Excesses to any accounts
that are not Fully Funded, as defined in Section 4 hereof, in proportion to
the differences between the respective Fully Funded amount and account
balance, insofar as possible until all accounts are Fully Funded. Any
remaining aggregate Account Excess shall be allocated to all the accounts in
proportion to the respective Fully Funded amounts.
(c) Nothing in this Section 7 shall preclude the commingling of Trust assets
for investment.
8. RESPONSIBILITY OF TRUSTEE: (a) The Trustee shall incur no liability to
any person for any action taken pursuant to a direction, request or approval
which is contemplated by and in conformity with the terms of the Employment
Agreements and/or the SERP, and is given in writing by the Corporation or by
a Trust Beneficiary applicable to his or her beneficial interest herein.
(b) The Trustee shall not be required to undertake or to defend any
litigation arising in connection with this Agreement unless it is first
indemnified against its prospective costs, expenses and liabilities
(including without limitation attorneys' fees and expenses) relating
<PAGE>
thereto, and the Corporation hereby agrees to indemnify the Trustee and be
primarily liable for such costs, expenses and liabilities.
(c) The Trustee may consult with legal counsel (who may be counsel for the
Corporation) with respect to any of its duties or obligations hereunder, and
shall be fully protected in acting or refraining from acting in accordance
with the advice of such counsel.
(d) The Trustee may rely and shall be protected in acting or refraining from
acting within the authority granted by the terms of this Agreement upon any
written notice, instruction or request furnished to it hereunder and believed
by it to be genuine and to have been signed or presented by the proper party
or parties, including, without limiting the scope of this Section 8(d), the
notice of the Irrevocability Date required by Section 1(b) hereof.
(e) The Trustee may hire agents, accountants, actuaries, and financial
consultants, who may be agent, accountant, actuary, or financial consultant,
as the case may be, for the Corporation, for the SERP, or for any Employment
Agreement.
(f) The Trustee is empowered to take all actions necessary or advisable in
order to collect any life insurance, annuity, or other benefits or payments
of which the Trustee is the designated beneficiary. The Trustee shall
maintain in force all life insurance policies held in the Trust (i) by
requesting that the Corporation pay directly all premiums and other charges
due thereon in a timely manner, and (ii) by paying all such premiums and
charges that are not so paid by the Corporation. To the extent the Trustee
has cash or its equivalent readily available for such purpose or policy loans
and/or dividends are available, the Trustee shall pay premiums due with such
cash or its equivalent or policy loans and/or dividends, as the Trustee may
deem best. If the Trustee does not have sufficient cash or its equivalent
readily available and policy loans and dividends are not available, then the
Trustee shall liquidate other assets held by it in the Trust to generate the
necessary cash. The Trustee shall be named sole owner and beneficiary of
each life insurance and annuity policy held in the Trust and shall have full
authority and power to exercise all rights of ownership relating to the
policy, except that the Trustee shall have no power, other than in accordance
with Sections 1(b), 4, and 12 hereof, to name a beneficiary of the policy
other than the Trust, to assign the policy (as distinct from conversion of
the policy to a different form) other than to a successor trustee, or to loan
to any person the proceeds of any borrowing against such policy or, except as
provided in the immediately preceding sentence, to surrender any policy or
allow any policy to lapse at any time when there are other assets in the
Trust that can be disposed of or otherwise used to generate any cash
necessary to maintain the policy. The Trustee shall have the power, with the
consent of the Corporation, to exchange that portion, if any, of the life
insurance coverage on any Executive that is in excess of the amount of such
coverage necessary to provide sufficient proceeds to pay the corresponding
amount of Supplemental Benefits, for additional life insurance coverage on
other Executives. The Trustee shall also have the power to acquire
additional life insurance on Executives through application for new life
insurance.
(g) The Trustee is empowered with respect to the assets of the Trust:
(i) To invest and reinvest all or any part of the Trust assets, in each and
every kind of property, whether real, personal or mixed, tangible or
<PAGE>
intangible, whether income or non-income producing, whether secured or
unsecured, and wherever situated, including, but not limited to, real estate,
shares of common and preferred stock, mortgages and bonds, leases (with or
without option to purchase), notes, debentures, equipment or collateral trust
certificates, and other corporate, individual or government securities or
obligations, time deposits (including savings deposit and certificates of
deposit in the Trustee or its affiliates if such deposits bear a reasonable
rate of interest) annuity and insurance contracts (including, but not limited
to retirement income contract(s) or contract(s) with an insurance company or
companies of the deposit administration type);
(ii) At such time or times, and upon such terms and conditions as the Trustee
shall deem advisable, to sell convert, redeem, exchange, grant options for
the purchase or exchange of, or otherwise dispose of, any property held
hereunder, at public or private sale, for cash or upon credit, with or
without security, without obligation on the part of any person dealing with
the Trustee to see to the application of the proceeds of or to inquire into
the validity, expediency, or propriety of any such disposal;
(iii) To manage, operate, repair, partition, and improve and mortgage or
lease (with or without an option to purchase) for any length of time any
property held in the Trust; to renew or extend any mortgage or lease, upon
such terms as the Trustee may deem expedient; to agree to reduction of the
rate of interest on any mortgage; to agree to any modification in the terms
of any lease or mortgage or of any guarantee pertaining to either of them; to
exercise and enforce any right of foreclosure; to bid on property in
foreclosure; to take a deed in lieu of foreclosure with or without paying
consideration therefor and in connection therewith to release the obligation
on the bond secured by the mortgage; and to exercise and enforce in any
action, suit, or proceeding at law or in equity any rights, covenants,
conditions or remedies with respect to any lease or mortgage or to any
guarantee pertaining to either of them or to waive any default in the
performance thereof;
(iv) To exercise, personally or by general or limited proxy, the right to
vote any shares of stock or other securities held in the Trust; to delegate
discretionary voting power to trustees of a voting trust for any period of
time; and to exercise or sell, personally or by power of attorney, any
conversion or subscription or other rights appurtenant to any securities or
other property held in the Trust;
(v) To join in or oppose any reorganization, recapitalization, consolidation,
merger or liquidation, or any plan therefor, or any lease (with or without an
option to purchase), mortgage or sale of the property of any organization the
securities of which are held in the Trust; to pay from the Trust any
assessments, charges or compensation specified in any plan of reorganization,
recapitalization, consolidation, merger or liquidation; to deposit any
property with any committee or depository; and to retain any property
allotted to the Trust in any reorganization, recapitalization, consolidation,
merger or liquidation;
(vi) To compromise, settle, or arbitrate any claim, dept or obligation of or
against the Trust; to enforce or abstain from enforcing any right, claim,
debt, or obligation; and to abandon any property determined by it to be
worthless;
<PAGE>
(vii) To reserve from investment and keep unproductive of income, without
liability for interest, such cash as it deems advisable and, consistent with
its obligations as Trustee hereunder, to hold such cash in a demand deposit
in the Trustee;
(viii) To hold property of the Trust in bulk, in bearer form, in its own name
or in the name of a nominee, without disclosure of this trust, and to deposit
property with any depository, but no such holding or depositing shall relieve
the Trustee of its responsibility for the safe custody and disposition of the
Trust in accordance with the provisions of this Agreement, and the Trustee's
records shall at all times show that such property is part of the Trust;
(ix) To make, execute and deliver, as Trustee, any deeds, conveyances, leases
(with or without option to purchase), mortgages, options, contracts, waivers
or other instruments that the Trustee shall deem necessary or desirable in
the exercise of its powers under this Agreement; and
(x) To pay out of the assets of the Trust all taxes imposed or levied with
respect to the Trust and in its discretion may contest the validity or amount
of any tax, assessment, penalty, claim, or demand respecting the Trust and
may institute, maintain, or defend against any related action or proceeding
either at law or in equity (and in such regard, the Trustee shall be
indemnified in accordance with Section 8(b) hereof).
(h) The Trustee shall have without exclusion, all powers conferred on
Trustees by applicable law unless expressly provided otherwise herein.
9. AMENDMENTS, ETC. TO EMPLOYMENT AGREEMENTS OR SERP: (a) Prior to the
Irrevocability Date, the Corporation shall furnish the Trustee with any
amendments, restatements, or other changes in the SERP or any Employment
Agreement, and the Corporation may prescribe or amend, as the case may be,
Exhibit B hereto to reflect any such amendment, restatement, or other change,
or any changes in the compensation of the Executives, or otherwise.
(b) On or after the Irrevocability Date, the provisions of this Section 9(b)
shall apply.
(i) Not later than 45 calendar days after the end of each calendar year and
at such other time as may in the judgment of the Corporation be appropriate
in view of a change in circumstances, the Corporation and each Executive (or
his personal representative (including his guardian, executor or
administrator) (hereafter, his "Successor")) shall agree upon any amendment
to Exhibit B hereto as shall be required to reflect any required change in the
amounts of Supplemental Benefits as a result of any change in such
Executive's compensation during the prior calendar year, or any amendment,
restatement or other change in or to an Employment Agreement or to the SERP,
which agreements to amendments to such Exhibit B shall be furnished to the
Trustee by the Corporation or the Executives (or their Successors) and
thereafter be deemed to be a part of, and to amend to the extent thereof,
this Agreement; provided, however, that in the event of the failure of the
Corporation and any Executive (or Successor) to reach such agreement, the
provisions of Section 9(b)(ii) hereof shall control.
(ii) The Corporation has previously furnished the Trustee complete and
correct copies of the Employment Agreements and the SERP, and the Corporation
shall, and any Trust Beneficiary may, promptly furnish the
<PAGE>
Trustee true and correct copies of any amendment, restatement or successor
thereto. The Corporation shall also furnish the Trustee, upon the Trustee's
request, such evidence of changes in compensation of the Executives as the
Trustee shall deem necessary for its determination under this Section
9(b)(ii). Upon written notification to the Trustee by the Corporation or any
Executive (or Successor) of the failure of the Corporation and such Executive
(or Successor) to agree as provided in Section 9(b)(i), the Trustee shall, to
the extent necessary in the sole judgment of the Trustee, (A) recompute the
amount payable hereunder as set forth in Exhibit B hereto to any Trust
Beneficiary; and (B) notify the Corporation and the Executive (or Successor)
in writing of its computations. Thereafter, this Agreement and all Exhibits
thereto shall be amended to the extent of such Trustee determinations without
further action; provided, however, that the failure of the Corporation to
furnish any such amendment, restatement or successor or compensation
information shall in no way diminish the rights of any Trust Beneficiary
hereunder or thereunder.
(iii) Not later than 45 days after the end of each calendar year and at such
other time as may in the judgment of the Corporation be appropriate, the
Corporation shall furnish to the Trustee any amendment to Exhibit A and any
corresponding amendment to Exhibit B required as a result of such amendment
to Exhibit A. On or after the Irrevocability Date, any such amendment to
Exhibit A must be (A) agreed to by a majority of the Executives, subject to
the provisions of Sections 11(b)(i) and (b)(ii) hereof, and (B) in the case
of an amendment that adds a new Executive as a Trust Beneficiary, accompanied
by the deposit into the Trust by the Corporation on or before the effective
date on which the new Executive would become a Trust Beneficiary, an amount
certified by Mercer-Meidinger-Hansen, or such other actuary acceptable to
the Corporation and a majority of the Executives (as determined prior to the
effective date of the amendment and subject to Sections 11(b)(i) and (b)(ii)
hereof) as sufficient to pay such new Executive's Supplemental Benefits
hereunder (with such sufficiency determined on the same actuarial basis as
that used to determine sufficiency with respect to the Supplemental Benefits
as in effect hereunder immediately prior to the addition of such new
Executive).
10. COMPENSATION AND EXPENSES OF TRUSTEE: The Trustee shall be entitled to
receive such reasonable compensation for its services as shall be agreed upon
by the Corporation and the Trustee. The Trustee shall also be entitled to
reimbursement of its reasonable expenses incurred with respect to the
administration of the Trust including fees and expenses incurred pursuant to
Sections 8(c) and 8(e). Such compensation and expenses shall in all events
be payable either directly by the Corporation or, in the event that the
Corporation shall refuse, from the assets of the Trust. The Trust shall have
a claim against the Corporation for any such compensation or expenses so paid.
11. REPLACEMENT OF THE TRUSTEE: (a) The Trustee may resign after providing
not less that 90 days' notice to the Corporation and the Executives. Prior
to the Irrevocability Date, the Trustee may be removed at any time by the
Corporation. On or after such date, such removal shall also require the
agreement of a majority of the Executives. Prior to the Irrevocability Date,
a replacement or successor trustee shall be appointed by the Corporation. On
or after such date, such appointment shall also require the agreement of a
majority of the Executives. No such removal or resignation shall become
effective until the acceptance of the trust by a successor trustee designated
in accordance with this Section 11. If the Trustee should
<PAGE>
resign, and within 45 days of the notice of such resignation the Corporation
and, if required, a majority of the Executives shall not have notified the
Trustee of an agreement as to a replacement trustee, the Trustee shall appoint
a successor trustee. The successor trustee shall be a bank or trust company
(i) that the Trustee in its discretion considers an appropriate trustee for the
Trust, having due regard for the objectives, magnitude and expected duration of
the Trust; (ii) whose trust assets under investment would place it among the
100 largest trust companies in the United States; and (iii) that is independent
and not subject to the control of either the Corporation or the Executives.
The preceding determinations shall be made as of the time of appointment of
the successor trustee. Upon the acceptance of the trust by a successor
trustee, the Trustee shall release all of the moneys and other property in
the Trust to its successor, who shall thereafter for all purposes of this
Agreement be considered to be the "Trustee."
(b) For purposes of the removal or appointment of a Trustee under this
Section 11, (i) if any Executive shall be deceased or adjudged incompetent,
such Executive's Successor (or if no Successor, his Trust Beneficiaries)
shall participate in such Executive's stead, and (ii) no Successor or Trust
Beneficiary shall participate if all payments of Supplemental Benefits have
been made with respect to such Executive (including his Trust Beneficiaries).
12. AMENDMENT OR TERMINATION: (a) This Agreement may be amended at any time
and to any extent by a written instrument executed by the Trustee, the
Corporation and, on or after the Irrevocability Date, a majority of the
Executives, except to make the Trust revocable after it has become
irrevocable in accordance with Section 1(b) hereof, or to alter Section 8(f)
or 12(b) hereof, except that amendments contemplated by Section 9 hereof
shall be made as therein provided.
(b) From and after the Irrevocability Date, the Trust shall not terminate
until the date on which the Trust no longer contains any assets, or, if
earlier, the date on which each Trust Beneficiary is entitled to no further
payments hereunder.
(c) Upon termination of the Trust as provided in Section 12(b) hereof, any
assets remaining in the Trust shall be returned to the Corporation.
13. SPECIAL DISTRIBUTION: (a) It is intended that (i) the creation of, and
transfer of assets to, the Trust will not cause any of the Employment
Agreements or the SERP to be other than "unfunded" for purposes of title I of
the Employee Retirement Income Security Act of 1974 ("ERISA"); (ii) transfers
of assets to the Trust will not be transfers of property for purposes of
section 83 of the Code, or any successor provision thereto, nor will such
transfers cause a currently taxable benefit to be realized by a Trust
Beneficiary pursuant to the "economic benefit" doctrine; and (iii) pursuant
to section 451 of the Code, or any successor provision thereto, amounts will
be includable as compensation in the gross income of a Trust Beneficiary in
the taxable year or years in which such amounts are actually distributed or
made available to such Trust Beneficiary by the Trustee.
(b) Notwithstanding anything to the contrary contained in this Agreement, in
the event it is determined by a court of competent jurisdiction that (i) by
reason of the creation of, and a transfer of assets to, the Trust, the Trust
is considered "funded" for purposes of title I or ERISA; or (ii) a transfer
of assets to the Trust is considered a transfer of property for purposes of
section 83 of the
<PAGE>
Code; or (iii) a transfer of assets to the Trust causes a
Trust Beneficiary to realize income pursuant to the "economic benefit"
doctrine; or (iv) pursuant to section 451 of the Code, amounts are includable
as compensation in the gross income of a Trust Beneficiary in a taxable year
that is prior to the taxable year or years in which such amounts would, but
for this Section 13, otherwise actually be distributed or made available to
such Trust Beneficiary by the Trustee, then (A) the assets held in trust
shall be allocated in accordance with Section 7(b) hereof, and (B) subject to
Section 2(b) hereof, the Trustee shall promptly make distributions to the
affected Trust Beneficiaries equal to the amounts that are includable in the
respective incomes of the Trust Beneficiaries by reason of clause (i), (ii),
(iii) or (iv) of this Section 13(b).
14. SEVERABILITY, ALIENATION, ETC.: (a) Any provision of this Agreement
prohibited by law shall be ineffective to the extent of any such prohibition
without invalidating the remaining provisions hereof.
(b) To the extent permitted by law, benefits to Trust Beneficiaries under
this Agreement may not be anticipated (except as herein expressly provided),
assigned (either at law or in equity), alienated or subject to attachment,
garnishment, levy, execution or other legal or equitable process and no
benefit actually paid to any Trust Beneficiary by the Trustee shall be
subject to any claim for repayment by the Corporation or Trustee.
(c) This Agreement shall be governed by and construed in accordance with the
laws of the State of Ohio, without giving effect to the principles of
conflict of laws thereof.
15. NOTICES: All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly given
when received:
IF TO THE TRUSTEE, TO:
Ameritrust Company National Association
900 Euclid Avenue
Cleveland, Ohio 44101
ATTENTION: Trust Department
Employee Benefit Administration
If to the Corporation, to:
E-Systems, Inc.
6250 LBJ Freeway
Dallas, Texas 75240
ATTENTION: General Counsel
If to the Executives, to
the addresses listed on Exhibit A hereto.
<PAGE>
provided, however, that if any party or his or its successors shall have
designated a different address by written notice to the other parties, then
to the last address so designated.
IN WITNESS WHEREOF, each of the Corporation and the Trustee caused this
Agreement to be executed on its behalf as of the date first above written.
E-SYSTEMS, INC.
By: John A. Farrington
Its: Treasurer
AMERITRUST COMPANY NATIONAL ASSOCIATION
By:
Its: Executive Vice President
<PAGE>
EXHIBIT A
EXECUTIVE ADDRESS
J.W. Dixon
5065 Lakehill Court
Dallas, TX 75220
K.M. Smith
P.O. Box 520
Creede, CO 81130
R.H. Mitchell
Rt. 4, Box 999J
Greenville, TX 75401
V.B. Pettigrew
10748 St. Lazare
Dallas, TX 75229
E. Adams
c/o E-Systems, Inc.
P.O. Box 660248
Dallas, TX 75266
J.W. Crowley
c/o E-Systems, Inc.
P.O. Box 660248
Dallas, TX 75266
C.R. Farmer
c/o E-Systems, Inc.
P.O. Box 660248
Dallas, TX 75266
T.S. Huff
c/o E-Systems, Inc.
P.O. Box 660248
Dallas, TX 75266
E.G. Keiffer
c/o E-Systems, Inc.
P.O. Box 660248
Dallas, TX 75266
T.D. Kelly
c/o E-Systems, Inc.
P.O. Box 660248
Dallas, TX 75266
A.L. Lawson
c/o E-Systems, Inc.
P.O. Box 660248
Dallas, TX 75266
J.W. Pope
c/o E-Systems, Inc.
P.O. Box 660248
Dallas, TX 75266
<PAGE>
J.W. Russell
c/o E-Systems, Inc.
P.O. Box 660248
Dallas, TX 75266
D.R. Tacke
c/o E-Systems, Inc.
P.O. Box 660248
Dallas, TX 75266
H.L. Thurmon
c/o E-Systems, Inc.
P.O. Box 660248
Dallas, TX 75266
NOTE: The above addresses are for identification purposes. Details
concerning where checks are to be mailed will be supplied at a
subsequent date.
<PAGE>
EXHIBIT B
The purpose of this Exhibit B is to list the benefits to which retired
employees are entitled, pursuant to Employment Agreements and/or the SERP.
EXECUTIVE MONTHLY BENEFIT AMOUNT (Gross)
J.W. Dixon $64,096.46
K.M. Smith 12,376.82
R.H. Mitchell 5,446.00
V.B. Pettigrew 4,903.00
The above amounts do not reflect any deductions for income tax.
<PAGE>
Exhibit C
The term "Change in Control" shall mean the occurrence of any of the
following events:
(i) The Corporation is merged, or consolidated or reorganized into or with
another corporation or other legal person and as a result of such merger,
consolidation or reorganization less than a majority of the combined voting
power of the then-outstanding securities of such corporation or person
immediately after such transaction are held in the aggregate by the holders
of voting securities of the Corporation immediately prior to such transaction;
(ii) The Corporation sells all or substantially all of its assets to any
other corporation or other legal person, less than a majority of the combined
voting power of the then-outstanding voting securities of which are held in
the aggregate by the holders of voting securities of the Corporation
immediately prior to such sale;
(iii) There is a report filed on Schedule 13D or Schedule 14D-1 (or any
successor schedule, form or report), each as promulgated pursuant to the
Securities Exchange Act of 1934 (the "Exchange Ace"), disclosing that any
person (as the term "person" is used in Section 13(d)(3) or Section 14(d)(2)
of the Exchange Act) has become the beneficial owner (as the term "beneficial
owner" is defined under Rule 13d-3 or any successor rule or regulation
promulgated under the Exchange Act) of securities representing 10% or more of
the combined voting power of the then-outstanding voting securities of the
Corporation;
(iv) The Corporation files a report or proxy statement with the Securities
and Exchange Commission pursuant to the Exchange Act disclosing in response
to Form 8-K or Schedule 14A (or any successor schedule, form or report or
item therein) that a change in control of the Corporation has or may have
occurred or will or may occur in the future pursuant to any then-existing
contract or transaction; or (v) If during any period of two consecutive years
individuals who at the beginning of any such period constitute the Directors
of the Corporation cease for any reason to constitute at least a majority
thereof unless the election, or the nomination for election by the
Corporation's stockholders, of each Director of the Corporation first elected
during such period was approved by a vote of at least two-thirds of the
Directors of the Corporation then still in office who were Directors of the
Corporation at the beginning of any such period. Notwithstanding the
foregoing provisions of clause (iii) or (iv) hereof, a "Change in Control"
shall not be deemed to have occurred for purposes of this Agreement solely
because the Corporation, an entity in which the Corporation directly or
indirectly beneficially owns 50% or more of the voting securities of such
entity, any Corporation-sponsored employee stock ownership plan or any other
employee benefit plan of the Corporation either files or becomes obligated to
file a report or a proxy statement under or in response to Schedule 13D,
Schedule 14D-1, Form 8-K or Schedule 14A (or any successor schedule, form or
report or item therein) under the Exchange Act, disclosing beneficial
ownership by it of shares of voting securities of the Corporation, whether in
excess of 10% or otherwise, or because the Corporation reports that a change
in control of the Corporation has or may have occurred or will or may occur
in the future by reason of such beneficial ownership.
<PAGE>
FIRST AMENDMENT TO TRUST AGREEMENT
This First Amendment to Trust Agreement (the "First Amendment") is made this
23rd day of September, 1987, by and between E-Systems, Inc., Delaware
corporation (the "Corporation"), and AmeriTrust Company National Association,
a national banking association (the "Trustee");
WITNESSETH:
WHEREAS, the Corporation and the Trustee have established a trust
(the "Trust") pursuant to an agreement dated June 23, 1987 (the
"Agreement");
WHEREAS, the Corporation has transferred assets to the Trust which are being
held in trust by the Trustee, all pursuant to the terms of the Agreement;
WHEREAS, as of the date first above written, the Irrevocability Date, as
defined in Section 1(b) of the Agreement, has not occurred;
WHEREAS, in accordance with Section 12(a) of the Agreement, the Corporation
and the Trustee desire to amend the Agreement in certain respects, as set
forth in this First Amendment,
NOW, THEREFORE, the parties do hereby agree that the Agreement
shall be amended as follows:
1. Section 6 of the Agreement is amended by substituting the word "quarterly"
for the word "annually."
2. Section 13(b) of the Agreement is amended by deleting the balance of such
Section after "(B)", and substituting therefor the following:
"subject to the last sentence of Section 2(b) hereof, the Trustee shall
promptly make a distribution to each affected Trust Beneficiary which, after
taking into account the federal, state and local income tax consequences of
the special distribution itself, is equal to the sum of any federal, state
and local income taxes, interest due thereon, and penalties assessed with
respect thereto which are attributable to amounts that are includable in the
income of such Trust Beneficiary for any of the reasons described in clause
(i), (ii), (iii) or (iv) of this Section 13(b)."
3. Subject to applicable federal law, this First Amendment shall be governed
by and construed in accordance with the laws of the State of Ohio, without
regard to the principles of conflicts of laws thereof.
4. This First Amendment may be executed in two or more counterparts, each of
which shall be considered an original agreement, but all of which together
shall constitute one agreement.
<PAGE>
5. This First Amendment shall be effective as of June 23, 1987.
IN WITNESS WHEREOF, each of the Corporation and the Trustee caused this First
Amendment to be executed on its behalf as of the date first above written.
E-SYSTEMS, INC.
By:
Its: Assistant Treasurer
AMERITRUST COMPANY NATIONAL ASSOCIATION
By:
Its: John R. Wert, Senior Trust Officer
<PAGE>
SECOND AMENDMENT TO TRUST AGREEMENT
This Second Amendment to Trust Agreement (the "Second Amendment") is made
this 4th day of February, 1988, by and between E-Systems, Inc., a Delaware
corporation (the "Corporation"), and AmeriTrust Company National Association,
a national banking association (the "Trustee");
WITNESSETH:
WHEREAS, the Corporation and the Trustee have established a trust (the
"Trust") pursuant to an agreement dated June 23, 1987, as amended by an
agreement dated September 23, 1987 (the "Agreement");
WHEREAS, the Corporation has transferred assets to the Trust which are being
held in trust by the Trustee, all pursuant to the terms of the Agreement;
WHEREAS, as of the date first above written, the Irrevocability Date, as
defined in Section 1(b) of the Agreement, has not occurred;
WHEREAS, in accordance with Section 12(a) of the Agreement, the Corporation
and the Trustee desire to amend the Agreement in certain respects, as set
forth in this Second Amendment,
NOW, THEREFORE, the parties do hereby agree that the Agreement shall be
amended as follows:
1. Section 1(b)(i) of the Agreement is amended by substituting the number
"100" for the number "30".
2. Subject to applicable federal law, this Second Amendment shall be governed
by and construed in accordance with the laws of the State of Ohio, without
regard to the principles of conflicts of laws thereof.
3. This Second Amendment may be executed in two or more counterparts, each of
which shall be considered an original agreement, but all of which together
shall constitute one agreement.
4. This Second Amendment shall be effective as of the date first above
written.
IN WITNESS WHEREOF, each of the Corporation and the Trustee caused this
Second Amendment to be executed on its behalf as of the date first above
written.
E-SYSTEMS, INC.
By:
Its: Vice President
AMERITRUST COMPANY
NATIONAL ASSOCIATION
By:
Its: Trust Officer
<PAGE>
TRUST AGREEMENT
This Trust Agreement ("Agreement") made this 19th day of
May, 1994, by and between E-Systems, Inc., a Delaware Corporation
("the Corporation"), and Society National Bank, a national
banking association (the "Trustee");
WITNESSETH
WHEREAS, in addition to benefits payable under the E-
Systems, Inc. Salaried Retirement Plan, as the same has been or
may hereafter be amended or restated, or any successor thereto,
to the executives and retired executives listed on Exhibit A
hereto ("Executives") or to the beneficiaries of such Executives
(Executives and, where the context requires, Executives'
beneficiaries are referred to herein as "Trust Beneficiaries"),
as the case may be, the Trust Beneficiaries are entitled to
certain other retirement and related benefits under the
provisions of certain employment agreements entered into with
respect to each Executive (the "Employment Agreements") and/or
the E-Systems, Inc. Executive Supplemental Retirement Plan, as
the same has been or may hereafter be amended or restated, or any
successor thereto (the "SERP");
WHEREAS, the Employment Agreements and/or the SERP provide
for certain retirement income, death, disability and survivor
benefits, and the Corporation wishes specifically to assure the
payment to the Trust Beneficiaries of amounts due thereunder (the
amounts so payable being collectively referred to herein as the
"Supplemental Benefits");
WHEREAS, subject to Section 9 hereof, the amounts and timing
of Supplemental Benefits to which each Trust Beneficiary is
presently or may become entitled are specified in Exhibit B
attached hereto and incorporated herein by this reference;
WHEREAS, the Corporation in 1987 established a Trust for the
benefit of other executives of the Corporation (the "1987
Trust");
WHEREAS, the Corporation wishes to establish a trust (the
"Trust") and to transfer to the Trust assets and rights which
shall be held therein subject to the claims of the creditors of
the Corporation to the extent set forth in Section 3 hereof until
paid in full to all Trust Beneficiaries as Supplemental Benefits
in such manner and at such times as specified herein unless the
Corporation is Insolvent (as defined herein) at the time that
such Supplemental Benefits become payable; and
WHEREAS, the Corporation shall be considered "Insolvent" for
purposes of this Agreement at such time as the Corporation (i) is
subject to a pending voluntary or involuntary proceeding as a
debtor under the United States Bankruptcy Code, as heretofore or
hereafter amended, or (ii) is unable to pay its debts as they
mature.
NOW THEREFORE, the parties do hereby establish the Trust and
agree that the Trust shall be comprised, held and disposed of as
follows:
<PAGE>
1. TRUST FUND
(a) Subject to the claims of its creditors to the
extent set forth in Section 3 hereof, the Corporation hereby
deposits with the Trustee in trust Eight million five hundred
ninety six thousand, nine hundred twenty one dollars
($8,596,921), which shall become the principal of this Trust, to
be held, administered and disposed of by the Trustee as herein
provided.
(b) The Trust hereby established shall be revocable by
the Corporation at any time prior to the earlier of (i) the date
that is 100 days following the issuance by the Internal Revenue
Service of tax rulings requested by the Corporation in
conjunction with the establishment of this Trust, or (ii) the
date on which occurs a "Change in Control", as that term is
defined in Exhibit C hereto; on or after such date (the
"Irrevocability Date"), this Trust shall be irrevocable. In the
event that the Irrevocability Date has occurred, the Corporation
shall so notify the Trustee promptly.
(c) The principal of the Trust, and any earnings
thereon, shall be held in trust separate and apart from other
funds of the Corporation exclusively for the uses and purposes
herein set forth. No Trust Beneficiary shall have any preferred
claim on, or any beneficial ownership interest in, any assets of
the Trust prior to the time that such assets are paid to a Trust
Beneficiary as Supplemental Benefits as provided herein. Each
Trust Beneficiary shall have the status of a general unsecured
creditor with respect to the assets of the Trust. The obligation
of the Trustee to pay Supplemental Benefits pursuant to the
Agreement constitutes merely an unsecured promise to pay such
Benefits.
(d) The Corporation may at any time or from time to
time make additional deposits of cash or other property in the
Trust to augment the principal to be held, administered and
disposed of by the Trustee as herein provided, but no payments of
all or any portion of the principal of the Trust or earnings
thereon shall be made to the Corporation or any other person or
entity on behalf of the Corporation except as herein expressly
provided.
(e) The Trust is intended to be a grantor trust,
within the meaning of Section 671 of the Internal Revenue Code of
1986, as amended (the "Code"), or any successor provision
thereto, and shall be construed accordingly.
2. PAYMENTS TO TRUST BENEFICIARIES.
(a) Provided that the Corporation is not Insolvent and
commencing with the earlier to occur of (i) appropriate notice to
the Trustee by the Corporation, or (ii) the Irrevocability Date,
the Trustee shall make payments of Supplemental Benefits to each
Trust Beneficiary from the assets of the Trust in compliance and
conformity with the SERP and/or the Employment Agreements and in
accordance with Exhibit B hereto, and subject to Section 9
hereof. The Trustee shall make provision for withholding of any
federal, state or local taxes that may be required to be withheld
by the Trustee in connection with the payment of any Supplemental
Benefits hereunder.
(b) If the balance of an Executive's separate account
maintained pursuant to Section 7(b) hereof is not sufficient to
provide for full payment of Supplemental Benefits to which such
Executive's Trust Beneficiaries are entitled as provided herein,
the Corporation shall make the balance of each such payment as it
falls due as provided in the applicable provision of the
Employment Agreement or the SERP, as the case may be. No payment
from the Trust assets to a Trust Beneficiary shall exceed the
balance of such separate account.
3. THE TRUSTEE'S RESPONSIBILITY REGARDING PAYMENTS TO A TRUST
BENEFICIARY WHEN THE CORPORATION IS INSOLVENT:
(a) At all times during the continuance of this Trust,
the principal and income of the Trust shall be subject to claims
of creditors of the Corporation. The Board of Directors of the
Corporation and its Chief Executive Officer ("CEO") shall have
the duty to inform the Trustee if either the Board or the CEO
believes that the Corporation is Insolvent. If the Trustee
receives a notice from the Board, the CEO, or a creditor of the
Corporation alleging that the Corporation is Insolvent, then
unless the
<PAGE>
Trustee independently determines that the Corporation
is not Insolvent, the Trustee shall (i) discontinue payments to
any Trust Beneficiary, (ii) hold the Trust assets for the benefit
of the general creditors of the Corporation, and (iii) promptly
seek the determination of a court of competent jurisdiction
regarding the Insolvency of the Corporation. The Trustee shall
deliver any undistributed principal and income in the Trust to
the extent necessary to satisfy the claims of the creditors of
the Corporation as a court of competent jurisdiction may direct.
Such payments of principal and income shall be borne by the
Executives in proportion to the balances on the date of such
court order of their respective accounts maintained pursuant to
Section 7(b) hereof; provided, however, that all Account Excesses
shall first be determined and allocated in accordance with
Sections 4 and 7(b) hereof; and provided further that for this
purpose, the Threshold Percentage shall be equal to 100 percent.
If payments to any Trust Beneficiary have been discontinued
pursuant to this Section 3(a), the Trustee shall resume payments
to such Trust Beneficiary only after receipt of an order of a
court of competent jurisdiction. The Trustee shall have no duty
to inquire as to whether the Corporation is Insolvent and may
rely on information concerning the Insolvency of the Corporation
which has been furnished to the Trustee by any creditor of the
Corporation and by any person (other than an employee or director
of the Corporation) acting with actual or apparent authority with
respect to the Corporation. Nothing in this Agreement shall in
any way diminish any rights of any Trust Beneficiary to pursue
his rights as a general creditor of the Corporation with respect
to Supplemental Benefits or otherwise, and the rights of each
Trust Beneficiary under the respective Employment Agreement
and/or the SERP shall in no way be affected or diminished by any
provision of this Agreement or action taken pursuant to this
Agreement except that any payment actually received by any Trust
Beneficiary hereunder shall reduce dollar-per-dollar amounts
otherwise due to such Trust Beneficiary pursuant to the
respective Employment Agreement and/or the SERP, as the case may
be.
(b) If the Trustee discontinues payments of
Supplemental Benefits from the Trust pursuant to Section 3(a)
hereof and subsequently resumes such payments, the first payment
following such discontinuance shall include the aggregate amount
of all payments which would have been made to the Trust
Beneficiaries in accordance with this Agreement during the period
of such discontinuance, less the aggregate amount of payments of
Supplemental Benefits made to any Trust Beneficiary directly by
the Corporation during any such period of discontinuance of such
payments from the Trust, together with interest on the net amount
delayed determined at a rate equal to the rate actually earned
during such period with respect to the assets of the Trust
corresponding to such net amount delayed; provided, however, that
no such payment shall exceed the balance of the respective
Executive's account as provided in Section 7(b) hereof.
4. PAYMENTS TO THE CORPORATION: Except to the extent expressly
contemplated by Section l(b) and this Section 4, the Corporation
shall have no right or power to direct the Trustee to return any
of the Trust assets to the Corporation before all payments of
Supplemental Benefits have been made to all Trust Beneficiaries
as herein provided. From time to time, but in no event before
the fifth anniversary of the date of this Agreement, if and when
requested by the Corporation to do so, the Trustee shall engage
the services of William M. Mercer, Inc., or such other
independent actuary as may be mutually satisfactory to the
Corporation and to the Trustee to determine the maximum actuarial
present values of the future Supplemental Benefits that could
become payable under the SERP and the Employment Agreements with
respect to the Trust Beneficiaries of each Executive. The
Trustee shall determine the fair market values of the Trust
assets allocated to the account of each Executive pursuant to
Section 7(b) hereof. The Corporation shall pay the fees of such
independent actuary and of any appraiser engaged by the Trustee
to value any property held in the Trust. The independent actuary
shall make its calculations based upon the assumption that all
Executives will have salary increases from the date of
calculation through the termination of their employment by the
Corporation of 8 percent per year and that no Executive will
<PAGE>
leave the employ of the Corporation for any reason other than
(a) death prior to retirement or (b) retirement on or before the
Normal Retirement Date (as that term is defined in the SERP) or
corresponding date specified in the Employment Agreement at the
age that would result in the maximum present value of
Supplemental Benefits payable to him or his Trust Beneficiaries
that is possible under the SERP and/or the Employment Agreements.
In addition, the independent actuary shall use the 1975 group
annuity mortality table, an interest rate of 7 1/2 percent, cost
of living increases of 3 percent, or such other assumptions as
are recommended by such actuary and approved by the Corporation
and, after the Irrevocability Date, a majority of the Executives
(subject to the provisions of Sections 11(b)(i) and (b)(ii)
hereof). For purposes of this Agreement, (A) the "Fully Funded"
amount with respect to the account of an Executive maintained
pursuant to Section 7(b) hereof shall be equal to the "Threshold
Percentage", as defined below, multiplied by the maximum
actuarial present value of the future Supplemental Benefits that
could become payable under the SERP and/or the Employment
Agreement with respect to the Trust Beneficiaries of such
Executive, and (B) the "Account Excess" with respect to such
account shall be equal to the excess, if any, of the fair market
value of the assets held in the Trust allocated to an Executive's
account over the respective Fully Funded amount. Unless
otherwise provided, the Threshold Percentage shall be equal to
140 percent. The Trustee shall allocate any Account Excess in
accordance with Section 7(b) hereof. Thereafter, upon the
request of the Corporation, the Trustee shall pay to the
Corporation the excess, if any, of the aggregate account balances
over the aggregate Fully Funded amounts. In no event may any
assets be returned to the Corporation so long as any account in
the Trust or the 1987 Trust is not Fully Funded. If all Trust
accounts are Fully Funded, then the Corporation may directly
shift excess funds to the 1987 Trust so long as such shift does
not fund accounts in the 1987 Trust to any extent greater than
the funding of accounts in the Trust following the shift of
assets.
5. INVESTMENT OF TRUST FUND: The Trustee shall have sole power
to invest the assets of the Trust. The Trustee shall act at all
times, however, with the care, skill, prudence, and diligence
under the circumstances then prevailing that a prudent man,
acting in a like capacity and familiar with such matters, would
use in the conduct of an enterprise of a like character and with
like aims. The investment objective of the Trustee shall be to
preserve the principal of the Trust while obtaining a reasonable
total rate of return, measurement of which shall include market
appreciation or depreciation plus receipt of interest and
dividends. The Trustee shall be mindful, in the course of its
management of the Trust, of the liquidity demands on the Trust
and any actuarial assumptions that may be communicated to it from
time to time in accordance with the provisions of the Agreement.
6. INCOME OF THE TRUST: Except as provided in Section 3
hereof, during the continuance of this Trust all net income (or
loss) of the Trust shall be allocated quarterly among the
Executives' separate accounts maintained in accordance with
Section 7(b) hereof. Net income (or loss) of the Trust shall be
determined by taking into account (i) receipt of interest and
dividends, and (ii) any increase or decrease in the value of the
Trust assets attributable to market appreciation or depreciation.
7. ACCOUNTING BY TRUSTEE:
(a) The Trustee shall keep records in reasonable
detail of all investments, receipts, disbursements and all other
transactions required to be done, including such specific records
as shall be agreed upon in writing by the Corporation and the
Trustee. All such accounts, books and records shall be open to
inspection and audit at all reasonable times by the Corporation,
by any Trust Beneficiary or by any agent or representative of any
of the foregoing. Within five business days following the end of
each fiscal month of the Corporation, the Trustee shall furnish
to the Corporation such information as the Corporation may
require in order to account accurately for all Trust transactions
during such fiscal month and for the fiscal year to
<PAGE>
date. Within 30 calendar days following the end of each calendar year
and within 30 calendar days after the removal or resignation of the
Trustee, the Trustee shall deliver to the Corporation (with
notice thereof to each Trust Beneficiary) a written account of
its administration of the Trust during such year or during the
period from the end of the last preceding year to date of such
removal or resignation, setting forth all investments, receipts,
disbursements and other transactions affected by it, including a
description of all securities and investments purchased and sold
with the cost or net proceeds of such purchases or sales (accrued
interest paid or receivable being shown separately), and showing
all cash, securities, rights and other property held in the Trust
at the end of such year or as of the date of such removal or
resignation, as the case may be. Such written accounts shall
reflect the aggregate of the Trust accounts and the status of
each separate account maintained for each Executive. The Trustee
shall deliver its written account of the administration of the
Trust during the preceding calendar year (or during the period
from the end of the last preceding year to the date of removal or
resignation of the Trustee) directly to any Trust Beneficiary who
makes written request therefor to the Trustee within the 30-day
period following the end of such year (or following such removal
or resignation).
(b) (i) SEPARATE ACCOUNTS. The Trustee shall
maintain a separate account for each Executive. The Trustee
shall credit or debit each Executive's account as appropriate to
reflect such Executive's allocable portion of the Trust Assets,
as such Trust assets may be adjusted from time to time pursuant
to the terms of this Agreement. Except as provided in this
Section 7(b), all allocations shall be made in proportion to the
balances of the separate accounts of the Executives;
(ii) ALLOCATIONS OF NET INCOME. Except as
otherwise provided in this Section 7(b)(ii), the Trustee shall
allocate the net income (or loss ) of the Trust in proportion to
the balances of the separate accounts of the Executives.
(iii) ALLOCATIONS OF PRINCIPAL. Prior to the
Irrevocability Date, all deposits of principal pursuant to
Sections 1(a) and 1(d) shall be allocated as directed by the
Corporation; on or after such date, deposits of principal may be
allocated, but not reallocated, by the Corporation. If any
deposit of principal is not allocated by the Corporation, such
amount shall be allocated as an Account Excess in accordance with
this Section 7(b)(iii). The Trustee shall determine annually the
amount of all Account Excesses, as defined in Section 4 hereof.
The Trustee shall allocate the aggregate amount of the Account
Excesses to any accounts that are not Fully Funded, as defined in
Section 4 hereof, in proportion to the differences between the
respective Fully Funded amount and account balance, insofar as
possible until all accounts are Fully Funded. Any remaining
aggregate Account Excess shall be allocated to all the accounts
in proportion to the respective Fully Funded amounts.
(c) Nothing in this Section 7 shall preclude the
commingling of Trust assets for investment.
8. RESPONSIBILITY OF TRUSTEE:
(a) The Trustee shall incur no liability to any person
for any action taken pursuant to a direction, request or approval
which is contemplated by and in conformity with the terms of the
Employment Agreements and/or the SERP, and is given in writing by
the Corporation or by a Trust Beneficiary applicable to his or
her beneficial interest herein.
(b) The Trustee shall not be required to undertake or
to defend any litigation arising in connection with this
Agreement unless it is first indemnified against its prospective
costs, expenses and liabilities (including without limitation
attorneys' fees and expenses) relating thereto, and the
Corporation hereby agrees to indemnify the Trustee and be
primarily liable for such costs, expenses and liabilities.
(c) The Trustee may consult with legal counsel (who
may be counsel for the Corporation) with respect to any of its
duties or obligations
<PAGE>
hereunder, and shall be fully protected in acting or refraining
from acting in accordance with the advice of such counsel.
(d) The Trustee may rely and shall be protected in
acting and refraining from acting within the authority granted by
the terms of this Agreement upon any written notice, instruction
or request furnished to it hereunder and believed by it to be
genuine and to have been signed or presented by the proper party
or parties, including, without limiting the scope of this Section
8(d), the notice of the Irrevocability Date required by Section
1(b) hereof.
(e) The Trustee may hire agents, accountants,
actuaries, and financial consultants, who may be agent,
accountant, actuary, or financial consultant, as the case may be,
for the Corporation, for the SERP, or for any Employment
Agreement.
(f) The Trustee is empowered to take all actions
necessary or advisable in order to collect any life insurance,
annuity, or other benefits or payments of which the Trustee is
the designated beneficiary. The Trustee shall have the power to
acquire life insurance coverage on Executives through application
for new life insurance. The Trustee shall not take out any
policy loan on any life insurance policy held in the Trust for
the purpose of paying Supplemental Benefits to any Trust
Beneficiary so long as cash or assets that are readily
convertible into cash are available for the payment of such
Supplemental Benefits. Notwithstanding anything in this Section
8(f) to the contrary, the Trustee shall neither surrender nor
allow to lapse that certain policy of insurance covering the life
of such Executives if there are any available funds, liquid or
not, with which the premiums due on such policy might be paid,
including funds that would otherwise be used to pay Supplemental
Benefits to any Trust Beneficiary, nor shall the Trustee exchange
all or any portion of the coverage provided by such policy for
additional coverage on the life of any other Executive, convert
all or any portion of such policy into a different form, or
exercise any option available under such policy to change the
schedule of insurance thereunder without the written consent of
the Corporation and a majority of the Executives.
(g) The Trustee is empowered with respect to the
assets of the Trust;
(i) To invest or reinvest all or any part of the
Trust assets, in each and every kind of property, whether real,
personal or mixed, tangible or intangible, whether income or
non-income producing, whether secured or unsecured, and wherever
situated, including, but not limited to, real estate, shares of
common and preferred stock, mortgages and bonds, leases (with or
without option to purchase), notes, debentures, equipment or
collateral trust certificates, and other corporate, individual or
government securities or obligations, time deposits (including
savings deposit and certificates of deposit in the Trustee or its
affiliates if such deposits bear a reasonable rate of interest)
annuity and insurance contracts (including, but not limited to
retirement income contract(s) or contract(s) with an insurance
company or companies of the deposit administration type);
(ii) At such time or times, and upon such terms
and conditions as the Trustee shall deem advisable, to sell,
convert, redeem, exchange, grant options for the purchase or
exchange of, or otherwise dispose of, any property held
hereunder, at public or private sale, for cash or upon credit,
with or without security, without obligation on the part of any
person dealing with the Trustee to see to the application of the
proceeds of or to inquire into the validity, expediency, or
propriety of any such disposal;
(iii) To manage, operate, repair, partition, and
improve and mortgage or lease (with or without an option to
purchase) for any length of time any property held in the Trust;
to renew or extend any mortgage or lease, upon such terms as the
Trustee may deem expedient; to agree to reduction of the rate of
interest on any mortgage; to agree to any modification in the
terms of any lease or mortgage or of any guarantee pertaining to
either of them; to exercise and enforce any right of foreclosure;
to bid on property in foreclosure; to take a deed in lieu of
foreclosure with or without paying consideration therefor and in
connection therewith to release the obligation on the bond
secured by the mortgage; and to exercise and enforce in any
<PAGE>
action, suit, or proceeding at law or in equity any rights,
covenants, conditions or remedies with respect to any lease or
mortgage or to any guarantee pertaining to either of them or to
waive any default in the performance thereof;
(iv) To exercise, personally or by general or
limited proxy, the right to vote any shares of stock or other
securities held in the Trust; to delegate discretionary voting
power to trustees of a voting trust for any period of time; and
to exercise or sell, personally or by power of attorney, any
conversion or subscription or other rights appurtenant to any
securities or other property held in the Trust;
(v) To join in or oppose any reorganization,
recapitalization, consolidation, merger or liquidation, or any
plan therefor, or any lease (with or without an option to
purchase), mortgage or sale of the property of any organization
the securities of which are held in the Trust; to pay from the
Trust any assessments, charges or compensation specified in any
plan of reorganization, recapitalization, consolidation, merger
or liquidation; to deposit any property with any committee or
depository; and to retain any property allotted to the Trust in
any reorganization, recapitalization, consolidation, merger or
liquidation;
(vi) To compromise, settle, or arbitrate any
claim, debt or obligation of or against the Trust; to enforce or
abstain from enforcing any right, claim, debt, or obligation; and
to abandon any property determined by it to be worthless;
(vii) To reserve from investment and keep
unproductive of income, without liability for interest, such cash
as it deems advisable and, consistent with its obligations as
Trustee hereunder, to hold such cash in a demand deposit in the
Trustee;
(viii) To hold property of the Trust in bulk, in
bearer form, in its own name or in the name of a nominee, without
disclosure of this trust, and to deposit property with any
depository, but no such holding or depositing shall relieve the
Trustee of its responsibility for the safe custody and
disposition of the Trust in accordance with the provisions of
this Agreement, and the Trustee's records shall at all times show
that such property is part of the Trust;
(ix) To make, execute and deliver, as Trustee,
any deeds, conveyances, leases (with or without option to
purchase), mortgages, options, contracts, waivers or other
instruments that the Trustee shall deem necessary or desirable in
the exercise of its powers under this Agreement; and
(x) To pay out of the assets of the Trust all
taxes imposed or levied with respect to the Trust and in its
discretion may contest the validity or amount of any tax,
assessment, penalty, claim, or demand respecting the Trust and
may institute, maintain, or defend against any related action or
proceeding either at law or in equity (and in such regard, the
Trustee shall be indemnified in accordance with Section 8(b)
hereof).
(h) The Trustee shall have, without exclusion, all
powers conferred on Trustees by applicable law unless expressly
provided otherwise herein.
9. AMENDMENTS, ETC. TO EMPLOYMENT AGREEMENTS OR SERP:
(a) Prior to the Irrevocability Date, the Corporation
shall furnish the Trustee with any amendments, restatements, or
other changes in the SERP or any Employment Agreement, and the
Corporation may prescribe or amend, as the case may be, Exhibit B
hereto to reflect any such amendment, restatement, or other
change, or any changes in the compensation of the Executives, or
otherwise.
(b) On or after the Irrevocability Date, the
provisions of this Section 9(b) shall apply.
(i) Not later than 45 calendar days after the end
of each calendar year and at such other time as may in the
judgement of the Corporation be appropriate in view of a change
in circumstances, the Corporation and each Executive (or his
personal representative, including his guardian, executor or
administrator [hereafter his "Successor"]) shall agree upon any
amendment to Exhibit B hereto as shall be required to reflect any
<PAGE>
required change in the amounts of Supplemental Benefits as a
result of any change in such Executive's compensation during the
prior calendar year, or any amendment, restatement or other
change in or to an Employment Agreement or to the SERP, which
agreements to amendments to such Exhibit B shall be furnished to
the Trustee by the Corporation or the Executives (or their
Successors) and thereafter be deemed to be a part of, and to
amend to the extent thereof, this Agreement, provided, however,
that in the event of the failure of the Corporation and any
Executive (or Successor) to reach such agreement, the provisions
of section 9(b)(ii) hereof shall control; and provided further,
that the consent of an Executive shall not be required for any
purpose of this Agreement with respect to an amendment to his
Employment Agreement, which amendment is required solely as a
condition to obtaining a favorable ruling from the Internal
Revenue Service in regard to any of the matters described in
Section 13(a) hereof.
(ii) The Corporation has previously furnished the
Trustee complete and correct copies of the Employment Agreements
and the SERP, and the Corporation shall, and any Trust
Beneficiary may, promptly furnish the Trustee true and correct
copies of any amendment, restatement or successor thereto. The
Corporation shall also furnish the Trustee, upon the Trustee's
request, such evidence of changes in compensation of the
Executives as the Trustee shall deem necessary for its
determination under this Section 9(b)(ii). Upon written
notification to the Trustee by the Corporation or any Executive
(or Successor) of the failure of the Corporation and such
Executive (or Successor) to agree as provided in Section 9(b)(i),
the Trustee shall, to the extent necessary in the sole judgement
of the Trustee, (A) recompute the amount payable hereunder as set
forth in Exhibit B hereto to any Trust Beneficiary; and (B)
notify the Corporation and the Executive (or Successor) in
writing of its computations. Thereafter, this Agreement and all
Exhibits thereto shall be amended to the extent of such Trustee
determinations without further action; provided, however, that
the failure of the Corporation to furnish any such amendment,
restatement or successor or compensation information shall in no
way diminish the rights of any Trust Beneficiary hereunder or
thereunder.
(iii) Not later than 45 days after the end of
each calendar year and at such other time as may in the judgement
of the Corporation be appropriate, the Corporation shall furnish
to the Trustee any amendment to Exhibit A and any corresponding
amendment to Exhibit B required as a result of such amendment to
Exhibit A. On or after the Irrevocability Date, any such
amendment to Exhibit A must, in the case of an amendment that
adds a new Executive as a Trust Beneficiary, be accompanied by
the deposit into the Trust by the Corporation on or before the
effective date on which the new Executive would become a Trust
Beneficiary, an amount certified by William M. Mercer, Inc., or
such other actuary acceptable to the Corporation and a majority
of the Executives (as determined prior to the effective date of
the amendment and subject to Sections 11(b)(i) and (b)(ii)
hereof) as sufficient to pay such new Executive's Supplemental
Benefits hereunder (with such sufficiency determined on the same
actuarial basis as that used to determine sufficiency with
respect to the Supplemental Benefits as in effect hereunder
immediately prior to the addition of such new Executive).
10. COMPENSATION AND EXPENSES OF TRUSTEE: The Trustee
shall be entitled to receive such reasonable compensation for its
services as shall be agreed upon by the Corporation and the
Trustee. The Trustee shall also be entitled to reimbursement of
its reasonable expenses incurred with respect to the
administration of the Trust including fees and expenses incurred
pursuant to Sections 8(c) and 8(e). Such compensation and
expenses shall in all events be payable either directly by the
Corporation or, in the event that the Corporation shall refuse,
from the assets of the Trust. The Trust shall have a claim
against the Corporation for any such compensation or expenses so
paid.
11. REPLACEMENT OF THE TRUSTEE:
(a) The Trustee may resign after providing not less
than 90 days' notice to the Corporation and the Executives.
Prior to the Irrevocability Date, the Trustee may be removed at
any time by the Corporation. On or after
<PAGE>
such date, such removal shall also require the agreement of a majority
of the Executives. Prior to the Irrevocability Date, a replacement or
successor trustee shall be appointed by the Corporation. On or after
such date, such appointment shall also require the agreement of a
majority of the Executives. No such removal or resignation shall become
effective until the acceptance of the trust by a successor trustee designated
in accordance with this Section 11. If the Trustee should resign, and
within 45 days of the notice of such resignation the Corporation and,
if required, a majority of the Executives shall not have notified the
Trustee of an agreement as to a replacement trustee, the Trustee shall
appoint a successor trustee. The successor trustee shall be a bank or
trust company (i) that the Trustee in its discretion considers an
appropriate trustee for the Trust, having due regard for the objectives,
magnitude and expected duration of the Trust; (ii) whose trust assets
under investment would place it among the 100 largest trust companies in
the United States; and (iii) that is independent and not subject to the
control of either the Corporation or the Executives. The preceding
determinations shall be made as of the time of appointment of the
successor trustee. Upon the acceptance of the trust by a successor
trustee, the Trustee shall release all of the moneys and other property
in the Trust to its successor, who shall thereafter for all purposes of
this Agreement be considered to be the "Trustee."
(b) For purposes of the removal or appointment of a
trustee under this Section 11, (i) if any Executive shall be
deceased or adjudged incompetent, such Executive's Successor (or
if no Successor, his Trust Beneficiaries) shall participate in
such Executive's stead, and (ii) no Successor or Trust
Beneficiary shall participate if all payments of Supplemental
Benefits have been made with respect to such Executive (including
his Trust Beneficiaries).
12. AMENDMENT OR TERMINATION:
(a) This Agreement may be amended at any time and to
any extent by a written instrument executed by the Trustee, the
Corporation and, on or after the Irrevocability Date, a majority
of the Executives, except to make the trust revocable after it
has become irrevocable in accordance with Section l(b) hereof, or
to alter Section 8(f) or 12(b) hereof, except that amendments
contemplated by Section 9 hereof shall be made as therein
provided.
(b) From and after the Irrevocability Date, the Trust
shall not terminate until the date on which the Trust no longer
contains any assets, or, if earlier, the date on which each Trust
Beneficiary is entitled to no further payments hereunder.
(c) Upon termination of the Trust as provided in
Section 12(b) hereof, any assets remaining in the Trust shall be
returned to the Corporation.
13. SPECIAL DISTRIBUTION:
(a) It is intended that (i) the creation of, and
transfer of assets to, the Trust will not cause any of the
Employment Agreements or the SERP to be other than "unfunded" for
purposes of Title I of the Employee Retirement Income Security
Act of 1974 ("ERISA"); (ii) transfers of assets to the Trust will
not be transfers of property for purposes of section 83 of the
Code, or any successor provision thereto, nor will such transfers
cause a currently taxable benefit to be realized by a Trust
Beneficiary pursuant to the "economic benefit" doctrine; and
(iii) pursuant to section 451 of the Code, or any successor
provision thereto, amounts will be includable as compensation in
the gross income of a Trust Beneficiary in the taxable year or
years in which such amounts are actually distributed or made
available to such Trust Beneficiary by the Trustee.
(b) Notwithstanding anything to the contrary contained
in this Agreement, in the event it is determined by a court of
competent jurisdiction that (i) by reason of the creation of, and
a transfer of assets to the Trust, the Trust is considered
"funded" for purposes of Title I of ERISA; or (ii) a transfer of
assets to the Trust is considered a transfer of property for
<PAGE>
purposes of Section 83 of the Code; or (iii) a transfer of assets
to the Trust causes a Trust Beneficiary to realize income
pursuant to the "economic benefit" doctrine; or (iv) pursuant to
Section 451 of the Code, amounts are includable as compensation
in the gross income of a Trust Beneficiary in a taxable year that
is prior to the taxable year or years in which such amounts
would, but for this Section 13, otherwise actually be distributed
or made available to such Trust Beneficiary by the Trustee, then
(A) the assets held in trust shall be allocated in accordance
with Section 7(b) hereof and subject to the last sentence of
Section 2(b) hereof, the Trustee shall promptly make a
distribution to each affected Trust Beneficiary which, after
taking into account the federal, state and local income tax
consequences of the special distribution itself, is equal to the
sum of any federal, state and local income taxes, interest due
thereon, and penalties assessed with respect thereto which are
attributable to amounts that are includable in the income of such
Trust Beneficiary for any of the reasons described in clause (i),
(ii), (iii), or (iv) of this Section 13(b).
14. SEVERABILITY, ALIENATION, ETC.:
(a) Any provision of this Agreement prohibited by law
shall be ineffective to the extent of any such prohibition
without invalidating the remaining provisions hereof.
(b) To the extend permitted by law, benefits to Trust
Beneficiaries under this Agreement may not be anticipated (except
as herein expressly provided), assigned (either at law or in
equity), alienated or subject to attachment, garnishment, levy,
execution or other legal or equitable process and no benefit
actually paid to any Trust Beneficiary by the Trustee shall be
subject to any claim for repayment by the Corporation or Trustee.
(c) This Agreement shall be governed by and construed
in accordance with the laws of the State of Ohio, without giving
effect to the principles of conflict of laws thereof.
15. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed
to have been duly given when received:
IF TO THE TRUSTEE, TO:
Society National Bank
127 Public Square
Cleveland, OH 44114
Attention: Trust Department
Employee Benefit Administration
IF TO THE CORPORATION, TO:
E-Systems, Inc.
6250 LBJ Freeway
Dallas, TX 75240
Attention: General Counsel
IF TO THE EXECUTIVES,TO:
The addresses listed
on Exhibit A hereto.
<PAGE>
Provided, however, that if any party or his or its
successors shall have designated a different address by written
notice to the other parties, then to the last address so
designated.
IN WITNESS WHEREOF, each of the Corporation and the Trustee
caused this Agreement to be executed on its behalf as of the date
first above written.
E-SYSTEMS, INC.
By:________________________________
James W. Crowley
Title: VICE PRESIDENT, SECRETARY
____________________________
AND GENERAL COUNSEL
____________________________
SOCIETY NATIONAL BANK
By:________________________________
Title:_____________________________
<PAGE>
EXHIBIT A
EXECUTIVE ADDRESS
--------- -------
Terry W. Heil
Dallas, TX 75220
Peter A. Marino
Frisco, TX 75034
Brian D. Cullen
Quinlan, TX 75474
Art Hobbs
Dallas, TX 75243
<PAGE>
EXHIBIT B
This Exhibit will be prepared by the independent actuary and
submitted to the Corporation and the Trustee as soon as feasible.
<PAGE>
EXHIBIT C
The term "Change in Control" shall mean the occurrence of
any of the following events:
(i) The Corporation is merged, or consolidated or
reorganized into or with another corporation or other legal
person and as a result of such merger, consolidation or
reorganization less than a majority of the combined voting power
of the then outstanding securities of such corporation or person
immediately after such transaction are held in the aggregate by
the holders of voting securities of the Corporation immediately
prior to such transaction;
(ii) The Corporation sells all or substantially all of
its assets to any other corporation or other legal person, less
than a majority of the combined voting power of the then
outstanding voting securities of which are held in the aggregate
by the holders of voting securities of the Corporation
immediately prior to such sale;
(iii) There is a report filed on Schedule 13D or
Schedule 14D-l (or any successor schedule, form or report), each
as promulgated pursuant to the Securities Exchange Act of 1934
(the "Exchange Act"), disclosing that any person (as the term
"person" is used in Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act) has become the beneficial owner (as the term
"beneficial owner" is defined under Rule 13d-3 or any successor
rule or regulation promulgated under the Exchange Act) of
securities representing 10 percent or more of the combined voting
power of the then outstanding voting securities of the
Corporation;
(iv) The Corporation files a report or proxy statement
with the Securities and Exchange Commission pursuant to the
Exchange Act disclosing in response to Form 8-K or Schedule 14A
(or any successor schedule, form or report or item therein) that
a change in control of the Corporation has or may have occurred
or will or may occur in the future pursuant to any then existing
contract or transaction; or
(v) If during any period of two consecutive years
individuals who at the beginning of any such period constitute
the Directors of the Corporation cease for any reason to
constitute at least a majority thereof unless the election, or
the nomination for election by the Corporation's stockholders, of
each Director of the Corporation first elected during such period
was approved by a vote of at least two-thirds of the Directors of
the Corporation then still in office who were Directors of the
Corporation at the beginning of any such period. Notwithstanding
the foregoing provisions of clause (iii) or (iv) hereof, a
"Change in Control" shall not be deemed to have occurred for
purposes of this Agreement solely because the Corporation, an
entity in which the Corporation directly or indirectly
beneficially owns 50 percent or more of the voting securities of
such entity, any Corporation sponsored employee stock ownership
plan or any other employee benefit plan of the Corporation either
files or becomes obligated to file a report or a proxy statement
under or in response to Schedule 13D, Schedule 14D-l, Form 8-K or
Schedule 14A (or any successor schedule, form or report or item
therein) under the Exchange Act, disclosing beneficial ownership
by it of shares of voting securities of the Corporation, whether
in excess of 10 percent or otherwise, or because the Corporation
reports that a change in control of the Corporation has or may
have occurred or will or may occur in the future by reason of
such beneficial ownership.
<PAGE>
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
PRIMARY
Average shares outstanding................................................. 33,995 33,476 32,538
Net effect of dilutive stock options based on the treasury stock method
using average market price................................................ 340 565 403
-------- -------- --------
Total................................................................ 34,335 34,041 32,941
Net Income (Loss).......................................................... $ 95,640 $121,866 $(69,491)
-------- -------- --------
-------- -------- --------
Per Share Amount........................................................... $ 2.79 $ 3.58 $ (2.11)
-------- -------- --------
-------- -------- --------
FULLY DILUTED
Average shares outstanding................................................. 33,995 33,476 32,538
Net effect of dilutive stock options based on the treasury stock method
using the year end price, if higher than average market price............. 354 595 799
-------- -------- --------
Total................................................................ 34,349 34,071 33,337
Net Income (Loss).......................................................... $ 95,640 $121,866 $(69,491)
-------- -------- --------
-------- -------- --------
Per Share Amount........................................................... $ 2.78 $ 3.58 $ (2.08)
-------- -------- --------
-------- -------- --------
</TABLE>
43
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
JURISDICTION OF NAMES UNDER
NAME ORGANIZATION WHICH DOES BUSINESS
---- --------------- -------------------
<S> <C> <C>
Auto-Trac, Inc. Texas Auto-Trac
Advanced Video Products, Massachusetts "AVP"
Inc.
EMASS, Inc. Delaware "EMASS"
Advanced Archival Colorado "AAP"
Products, Inc.
ESY Export Company, Delaware E-Systems
Inc.
Serv-Air, Inc. Delaware Serv-Air, "Maintenance
Aircraft Company, Inc." and
"Air-Serv, Inc."
Engineering Research Maryland "ERA"
Associates, Inc.
HRB Systems, Inc. Delaware "HRB"
E-Systems Medical Delaware "E-MED"
Electronics, Inc.
</TABLE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 2-77230, Post Effective Amendment Number 1 to Form S-8
No. 2-77230; Form S-8 No. 2-98894; Form S-8 No. 33-23740 and Form No. 33-42745)
pertaining to Employee Stock Option Plans of E-Systems, Inc. and the related
Prospectuses and the Registration Statements (Form S-8 No. 2-88384; and Form
S-8 No. 33-28356) pertaining to the E-Systems Tax Advantaged Capital
Accumulation Plan of E-Systems, Inc. and Subsidiaries and the related
Prospectuses and Form 8A12B pertaining to the Stockholder Rights Plan of our
report dated January 29, 1995, with respect to the consolidated financial
statements of E-Systems, Inc. and Subsidiaries included in the Annual Report
(Form 10-K) for the year ended December 31, 1994.
ERNST & YOUNG LLP
Dallas, Texas
March 22, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENT OF
CONSOLIDATED INCOME, CONSOLIDATED BALANCE SHEET AND STATEMENT OF CONSOLIDATED
CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 24,401
<SECURITIES> 0
<RECEIVABLES> 625,060
<ALLOWANCES> 0
<INVENTORY> 112,373
<CURRENT-ASSETS> 780,711
<PP&E> 531,570
<DEPRECIATION> 215,743
<TOTAL-ASSETS> 1,374,167
<CURRENT-LIABILITIES> 196,898
<BONDS> 0
<COMMON> 34,071
0
0
<OTHER-SE> 802,558
<TOTAL-LIABILITY-AND-EQUITY> 1,374,167
<SALES> 2,028,300
<TOTAL-REVENUES> 2,033,353
<CGS> 1,691,677
<TOTAL-COSTS> 1,889,252
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,412
<INCOME-PRETAX> 141,689
<INCOME-TAX> 46,049
<INCOME-CONTINUING> 95,640
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 95,640
<EPS-PRIMARY> 2.79
<EPS-DILUTED> 0
</TABLE>
