==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
SCHEDULE 14D-9
(AMENDMENT NO. 1)
Solicitation/Recommendation Statement
Pursuant to Section 14(d)(4)
of the Securities Exchange Act of 1934
ECHLIN INC.
(Name of Subject Company)
ECHLIN INC.
(Name of Person(s) Filing Statement)
Common Stock, par value $1.00 per share
(including the associated Series A Participating Cumulative Preferred Stock
purchase rights)
(Title of Class of Securities)
278749106
(CUSIP Number of Class of Securities)
Jon P. Leckerling, Esq.
Senior Vice President,
General Counsel and Corporate Secretary
Echlin Inc.
100 Double Beach Road
Branford, Connecticut 06405
(203) 481-5751
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications
on Behalf of the Person(s) Filing Statement)
With a copy to:
John J. McCarthy, Jr., Esq.
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
==============================================================================
Introduction
The Solicitation/Recommendation Statement on Schedule 14D-9
(the "Schedule 14D-9") originally filed on May 4, 1998 by Echlin Inc.
("Echlin" or the "Company"), a corporation organized under the laws of
Connecticut, relates to the proposed exchange offer by SPX Corporation
("SPX"), a Delaware corporation, disclosed in a Tender Offer Statement on
Schedule 14D-1 (the "Schedule 14D-1") dated April 30, 1998 to exchange each
outstanding share of Common Stock, par value $1.00 per share of Echlin,
including the associated Series A Participating Cumulative Preferred Stock
purchase rights (the "Rights") issued pursuant to the Rights Agreement dated
as of June 21, 1989, as amended (the "Rights Agreement"), between Echlin and
The First National Bank of Boston, as Rights Agent, for an amount equal to
$12.00 net in cash and 0.4796 shares of common stock, par value $10.00 per
share, of SPX (the "Consideration"), upon the terms and subject to the
conditions set forth in the Offer to Purchase dated April 30, 1998 (the "Offer
to Purchase") and the related Letter of Transmittal (which, together with the
Offer to Purchase, constitutes the "SPX Exchange Offer"). All capitalized
terms used herein and without definition have the respective meanings set
forth in the Schedule 14D-9.
Item 7. Certain Negotiations and Transactions by the Subject Company.
The response to Item 7 is hereby amended by adding the following
after the fourth full paragraph:
The summary of the Merger Agreement and the Stock Option
Agreement contained herein does not purport to be complete and is
qualified in its entirety by reference to the Merger Agreement
attached hereto as Exhibit 11 and the Stock Option Agreement
attached hereto as Exhibit 12, which are incorporated herein by
reference.
General
The Merger Agreement contemplates the Merger of Echo
Acquisition Corp. ("Merger Subsidiary"), a Connecticut
corporation and a wholly owned direct subsidiary of Dana, with
and into Echlin, with Echlin surviving the Merger as a wholly
owned subsidiary of Dana. Dana may change the method of
effecting the combination with Echlin in a manner that does not
(i) alter or change the amount or kind of consideration to be
issued to Echlin stockholders, (ii) adversely affect the tax
treatment of Echlin or Echlin stockholders, (iii) materially
impede or delay consummation of the transactions contemplated by
the Merger Agreement, or (iv) otherwise adversely affect Echlin
or its stockholders. The Merger will become effective at the
time of filing a certificate of merger with the Secretary of
State of the State of Connecticut (or such later time as is
agreed in writing by the parties and specified in the certificate
of merger). The parties shall cause the effective date
("Effective Date") of the Merger to occur on the third business
day to occur after the last condition precedent to the Merger set
forth in the Merger Agreement has been satisfied or waived. The
time on the Effective Date when the Merger shall become effective
is referred to as the "Effective Time".
Merger Consideration
The Merger Agreement provides that each share of Echlin
Common Stock outstanding immediately prior to the Effective Time
(except as described in the following sentence) will, by virtue
of the Merger, at the Effective Time, be converted into the right
to receive 0.9293 of a share (the "Exchange Ratio") of common
stock ("Dana Common Stock"), par value $1.00 per share, including
attached rights issued pursuant to the Rights Agreement, dated as
of April 25, 1996, between Dana and the Rights Agent named
therein. All shares of Echlin Common Stock that are owned by
Echlin or any subsidiary of Echlin as treasury stock and any
shares of Echlin Common Stock owned by Dana or any subsidiary of
Dana will, at the Effective Time, be canceled and no payment will
be made for such shares.
Employee Stock Options
At the Effective Time, all employee and director stock
options to purchase shares of Echlin Common Stock ("Echlin Stock
Option"), which are then outstanding and unexercised, shall be
converted into options to purchase shares of Dana Common Stock.
From and after the Effective Time, the number of shares of Dana
Common Stock purchasable upon exercise of an Echlin Stock Option
shall be equal to the number of shares of Echlin Common Stock
that were purchasable under such Echlin Stock Option immediately
prior to the Effective Time multiplied by the Exchange Ratio, and
rounding to the nearest whole share and (ii) the per share
exercise price under each such Echlin Stock Option shall be
adjusted by dividing the per share exercise price of each such
Echlin Stock Option by the Exchange Ratio, and rounding down to
the nearest cent.
Conversion of Shares
At or prior to the Effective Time, Dana will deposit with an
exchange agent (the "Exchange Agent") certificates representing
shares of Dana Common Stock to be exchanged for certificates
representing shares of Echlin Common Stock, and an estimated
amount of cash to be paid in lieu of fractional shares. Promptly
after the Effective Date, Dana will send or cause to be sent to
each holder of Echlin Common Stock transmittal materials for use
in the exchange and instructions explaining how to surrender
certificates to the Exchange Agent. Dana shall cause
certificates representing the shares of Dana Common Stock into
which shares of a stockholder's Echlin Common Stock are converted
on the Effective Date (and cash in lieu of fractional shares) to
be delivered to such stockholder upon delivery to the Exchange
Agent of certificates representing the shares of Echlin Common
Stock owned by such stockholder. Holders of unexchanged shares
of Echlin Common Stock will not be entitled to receive any
dividends or other distributions payable with respect to Dana
Common Stock after the Effective Time until their certificates
are surrendered. Upon surrender, however, such holders will
receive accumulated dividends and distributions, without any
interest, which had become payable with respect to the shares of
Dana Common Stock.
Certain Covenants
Best Efforts. Each party has agreed to use its reasonable
best efforts in good faith to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary,
proper or desirable, or advisable under applicable laws, so as to
permit consummation of the Merger as promptly as practicable and
otherwise to enable consummation of the transactions contemplated
by the Merger Agreement.
Stockholder Approvals. Each party has agreed to take all
action necessary to convene, respectively, an appropriate meeting
of stockholders of Dana ("Dana Meeting") to consider and vote
upon the approval of the issuance of shares of Dana Common Stock
pursuant to the Merger Agreement and any other matters required
to be approved by Dana stockholders for consummation of the
Merger, and an appropriate meeting of stockholders of Echlin
("Echlin Meeting") to consider and vote upon the approval of the
Merger Agreement, the Merger and any other matters required to be
approved by Echlin stockholders, as promptly as practicable.
Acquisition Proposals. Echlin has covenanted in the Merger
Agreement that without the prior written consent of Dana, Echlin
shall not, shall cause its subsidiaries not to, and shall use
best efforts to cause Echlin's and its subsidiaries' officers,
directors, agents, advisors and affiliates not to, facilitate,
solicit or encourage any inquiries or proposals, with respect to,
or engage in negotiations concerning, or provide any information
to, or have any discussions with, any person relating to, any
Competing Transaction (as defined below); provided, however, that
Echlin's Board of Directors may, and may authorize and permit its
officers, directors, employees or agents to, furnish information
and participate in such discussions and negotiations if the
Board, after consultation with outside counsel, reasonably
determines that a failure to take such action in response to a
proposed Competing Transaction which may be a Superior Proposal
(defined below) would constitute a breach of their fiduciary
duties under applicable laws. Echlin shall notify Dana within 8
hours of receipt of any proposal or inquiry which may be or may
result in a Superior Proposal, or of taking any action described
in the previous sentence. "Competing Transaction" means a merger
or consolidation involving Echlin or any significant subsidiary
of Echlin; a purchase, lease or acquisition of all or a
significant portion of the assets of Echlin or any significant
subsidiary of Echlin; a purchase or other acquisition of
securities representing 20% or more of the voting power of Echlin
or any significant subsidiary of Echlin; or any substantially
similar transaction.
Board of Directors' Recommendation. The Board of Directors
of each of Dana and Echlin have agreed to recommend the approval
of the Merger Agreement to their respective stockholders;
provided, however, that the Board of Directors of Dana or Echlin
may withdraw or modify their approval or recommendation of the
Merger Agreement, if such Board, after having consulted with
outside counsel, determines that refusal to do so would
constitute a breach of their fiduciary duties under applicable
laws. In addition, the Board of Directors of Echlin may approve
or recommend a Competing Transaction (and in connection
therewith, withdraw or modify its approval or recommendation of
the Merger Agreement) only after having offered Dana the right to
propose alterations to the Merger Agreement (unless to do so
would constitute a breach of the Board's fiduciary duties under
applicable laws) and only if (i) the Board determines the
Competing Transaction is a Superior Proposal, and (ii) the Board,
after having consulted with outside counsel, determines that
refusal to do so would constitute a breach of their fiduciary
duties under applicable laws. "Superior Proposal" means a bona
fide written proposal for a Competing Transaction which (x)
Echlin's financial advisor determines to be reasonably capable of
being financed, and (y) the Board reasonably determines to be
more favorable than the Merger having regard to the interests of
Echlin's stockholders and other interests required to be
considered under Connecticut law, following receipt of an opinion
of Echlin's financial advisor that the proposed consideration for
the Competing Transaction is more favorable to the Echlin
stockholders from a financial point of view than the Merger.
Benefits Plans. At and following the Effective Time, Dana
agrees that it shall honor all obligations of Echlin or its
subsidiaries under the severance plans, policies or agreements,
and indemnification agreements. Dana further agrees to employ
all key management employees of the Company through October 31,
1998 and to employ certain employees of the Company until January
31, 1999.
Dana has also agreed, during the period commencing at the
Effective Time and ending on the first anniversary thereof, to
provide or cause Echlin or its subsidiaries to provide the
employees of Echlin and its subsidiaries with benefits under
employee benefit plans (other than plans involving the issuance
of stock-based awards) that are no less favorable in the
aggregate than either those benefits currently provided by Echlin
and its subsidiaries to such employees or provided by Dana and
its subsidiaries to similarly situated employees of Dana and its
subsidiaries.
Indemnification and Insurance of Echlin Directors and
Officers. Dana has agreed that from and after the Effective
Time, it shall indemnify, defend and hold harmless the present
and former directors and officers of Echlin, in respect of acts
or omissions occurring on or prior to the Effective Time to the
fullest extent permitted by applicable law. Dana has further
agreed to use best efforts to cause Echlin or Dana to obtain and
maintain in effect for a period of six years after the Effective
Time policies of directors' and officers' liability insurance for
Echlin directors and officers, subject to certain limitations.
Certain Other Covenants. The Merger Agreement contains
certain mutual covenants of the parties, including covenants
relating to: press releases; notification of certain matters;
access to information; cooperation in connection with certain
governmental filings and in obtaining consents and approvals;
cooperation in preparation and filing of a Registration Statement
by Dana; and takeover laws.
Certain Representations and Warranties
The Merger Agreement contains substantially reciprocal
representations and warranties made by Echlin and Dana as to,
among other things: due organization and good standing; corporate
authorization to enter into the contemplated transactions;
capitalization; approval by the Board of Directors of both Echlin
and Dana; absence of any breach of organizational documents and
certain material agreements as a result of the contemplated
transactions; filings with the SEC; financial statements; absence
of certain material changes (including changes which would have a
Material Adverse Effect (as defined below)) since December 31,
1997, in the case of Dana, and since August 31, 1997, in the case
of Echlin; absence of undisclosed material liabilities; non-
applicability of any applicable anti-takeover laws; compliance
with laws and court orders; litigation; brokers; tax matters;
employee benefits matters; labor matters; environmental matters;
tax and accounting treatment of the Merger; and information
included in certain disclosure documents. "Material Adverse
Effect" means any effect that is material and adverse to the
financial position, results of operations or business of Dana and
its subsidiaries, taken as a whole, or Echlin and its
subsidiaries, taken as a whole, as the case may be, but excluding
the impact of changes in laws or accounting principles; actions
taken with the consent of the other parties to the Merger
Agreement; circumstances affecting the automotive or automotive
parts industry generally; and the effects of the Merger and the
Merger Agreement.
The representations and warranties in the Merger Agreement
do not survive the Effective Time.
Actions Pending Merger
Each party has agreed that they will not (and will cause
their subsidiaries not to) until the Effective Time, without the
prior written consent of the other parties and subject to certain
exceptions: conduct its business other than in ordinary course;
increase its capital stock; increase its dividend rate (in the
case of Dana, other than in the ordinary course consistent with
past practice); in the case of Echlin, enter into or amend
employment agreements or increase employee compensation; in the
case of Echlin, enter into or amend any benefit plans; in the
case of Echlin, dispose of or discontinue any portion of its
assets, business or properties, which is material to it and its
subsidiaries taken as a whole; in the case of Dana, make any
acquisition or take any other step which would materially
adversely affect its ability to consummate the Merger; adopt any
change in accounting principles; amend its constituent documents
and, in the case of Echlin, its Rights Agreement; or take any
action that would, or would be reasonably likely to, prevent or
impede the Merger from qualifying as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986 or
for "pooling of interests" accounting treatment under generally
accepted accounting principles.
Conditions to the Merger
Conditions to Each Party's Obligations to Effect the Merger.
The obligations of Dana, Echlin and Merger Subsidiary to
consummate the Merger are subject to the satisfaction of the
following conditions:
(i) receipt of the approval of the Merger Agreement by
requisite votes of the stockholders of Echlin and of
Dana, respectively;
(ii) the applicable waiting period under the Hart-Scott-
Rodino Antitrust Improvements Act having expired or
been terminated and any other material regulatory
approvals having been obtained;
(iii) no applicable law, statute, regulation, injunction,
order or decree prohibiting or enjoining the
consummation of the Merger;
(iv) the registration statement relating to the shares of
Dana Common Stock to be issued in the Merger having
become effective under the 1933 Act and not being
subject to any stop order or related proceedings by the
SEC;
(v) the shares of Dana Common Stock to be issued in the
Merger having been approved for listing on the NYSE,
subject to official notice of issuance;
(vi) Dana and Echlin having received from Price Waterhouse
LLP, independent public accountants for Dana and
Echlin, a letter, dated as of or shortly before the
Effective Date, stating its opinion that the Merger
shall qualify for "pooling of interests" accounting
treatment;
(vii) in the case of Dana, Dana having received a legal
opinion from Wachtell, Lipton, Rosen & Katz and in the
case of Echlin, Echlin having received a legal opinion
from Davis Polk & Wardwell to the effect that the
Merger will be treated for federal income tax purposes
as a reorganization qualifying under the provisions of
Section 368(a) of the Internal Revenue Code of 1986;
(viii) in the case of Echlin, the representations and
warranties of Dana contained in the Merger Agreement
being true in all material respects as of the Effective
Date as if made on such date, and Echlin having
received a certificate signed by an executive officer
of Dana to that effect;
(ix) in the case of Dana and Merger Subsidiary, the
representations and warranties of Echlin contained in
the Merger Agreement being true in all material
respects as of the Effective Date as if made on such
date, and Echlin having received a certificate signed
by an executive officer of Echlin to that effect; and
(x) in the case of Dana and Merger Subsidiary, the
representations and warranties of Echlin contained in
Section 5.3(o) of the Merger Agreement (concerning
takeover laws and Echlin's Rights Agreement) being true
and correct in all respects as of the Effective Date as
if made on such date, without giving regard to the
effect of materiality.
Termination of the Merger Agreement
Right to Terminate. The Merger Agreement may be terminated at
any time prior to the Effective Time as follows:
(i) by mutual written consent of Echlin and Dana;
(ii) by either Echlin or Dana: (a) if a material breach has
been committed by the other party of any
representation, warranty, covenant or other agreement
contained in the Merger Agreement, which breach cannot
be or has not been cured within 30 days after the
giving of written notice to the breaching party of such
breach, and the party seeking to terminate is not
itself in material breach of the Merger Agreement; (b)
if the Merger has not been consummated by December 31,
1998 (but neither Echlin nor Dana may terminate if that
party's breach is the reason that the Merger has not
been consummated); (c) if any governmental entity has
issued a final nonappealable order enjoining or
otherwise prohibiting the consummation of the
transactions contemplated by the Merger Agreement; or,
(d) if any required stockholder approval is not
obtained at (x) Echlin Meeting or (y) Dana Meeting.
(iii) by Dana if the Echlin Board has withdrawn or modified
in a manner adverse to Dana its approval or
recommendation of the Merger or has not disapproved a
Competing Transaction;
(iv) by Echlin: if (a) the Dana Board has withdrawn or
modified in a manner adverse to Echlin its approval or
recommendation of the Merger; or (b) the Echlin Board
has approved or recommended any Superior Proposal.
If the Merger Agreement is validly terminated, such
termination shall be without any liability on the part of any
party, unless such party is in willful breach of any provision of
the Merger Agreement.
Termination Fees and Break-up Expenses. Provided that
neither of Dana or Merger Subsidiary is in material breach of
their representations, warranties and agreements under the Merger
Agreement, Echlin has agreed to pay Dana $87,500,000 (the
"Termination Fee"): if the Merger Agreement is terminated in the
circumstances described in paragraph (iv)(b) above; if the Merger
Agreement is terminated in the circumstances described in
paragraph (iii) above if any Competing Transaction has been
proposed or announced; if the Merger Agreement is terminated by
Dana pursuant to paragraph (ii)(d)(x) above if any Competing
Transaction has been proposed or announced; or if within 12
months of the termination of the Merger Agreement by Dana,
pursuant to paragraph (ii)(a), (ii)(b) or (ii)(d)(x) above, any
Competing Transaction is entered into, agreed to or consummated
by Echlin.
If the Merger Agreement is terminated pursuant to paragraph
(ii)(a), (iii) or (iv)(a) above, the non-terminating party shall
pay $5,000,000 to the terminating party representing the cash
amount to compensate the terminating party in compensation for
its expenses.
Amendments; Waivers
Any provision of the Merger Agreement may be amended or
waived prior to the Effective Time if, but only if, the amendment
or waiver is in writing and signed, in the case of an amendment,
by Echlin, Dana and Merger Subsidiary, or, in the case of a
waiver, by the party against whom the waiver is to be effective;
provided that after the adoption of the Merger Agreement by the
stockholders of Echlin, no amendment or waiver shall, without the
further approval of Echlin stockholders, reduce the amount or
change the kind of consideration to be received by Echlin
stockholders in the Merger.
Stock Option Agreement
Simultaneously with the execution and delivery of the Merger
Agreement, Echlin and Dana entered into the Stock Option
Agreement pursuant to which Echlin granted Dana an option
("Option") to purchase up to 12,655,345 shares of Echlin Common
Stock (representing 19.9% of Echlin's then outstanding shares of
Echlin Common Stock) at a price per share of $55 in certain
circumstances.
Exercise of the Stock Option. The Option is exercisable at
any time after the occurrence of any event (a "Trigger Event")
entitling Dana to receive the Termination Fee pursuant to the
Merger Agreement. The Option expires upon the earliest to occur
of (i) the Effective Time or (ii) 12 months after the termination
of the Merger Agreement. Any purchase of Echlin Common Stock
upon exercise of the Option is subject to obtaining requisite
regulatory approvals.
Adjustments Upon Changes in Capitalization or Merger. The
number and type of securities subject to the Option and the
purchase price therefor will be appropriately adjusted for any
stock dividend, stock split, recapitalization or similar
transaction affecting Echlin's capital structure.
Registration Rights and Listing. Dana has a right
to require registration by Echlin of any shares purchased
pursuant to the Option under applicable securities laws.
Cash Payment in Respect of the Option. In lieu of
purchasing shares of Echlin Common Stock pursuant to the Option,
Dana may exercise its right to have Echlin pay to Dana an amount
per share of Echlin Common Stock equal to the number of shares of
Echlin Common Stock subject to the Option multiplied by the
difference between (i) the higher of (x) highest closing price
Echlin Common Stock for the six-month period prior to the
exercise of such right and (y) the highest per share price of
Echlin Common Stock to be paid or received in connection with a
Triggering Event and (ii) the exercise price of the Option.
Limit on Total Profit. In no event may Dana's total profit
with respect to the Option exceed $35 million.
Assignability. The Stock Option Agreement may not be
assigned by Echlin, or by Dana other than to a wholly owned
subsidiary of Dana.
Item 9. Material to be Filed as Exhibits.
The response to Item 9 is hereby amended by adding the
following new exhibits:
Exhibit 13 Form of Severance and Indemnification Agreement for
Messrs. McCurdy, Leckerling, Onorato, Makoski
and Tobey
Exhibit 14 Form of Severance and Indemnification Agreement
for Messrs. Flynn, Marchese, Shalagan and Toole
Exhibit 15 Form of Severance and Indemnification Agreement
for Messrs. Cameron, Collins, Daley and Pavey
Exhibit 16 Form of Indemnification Agreement
Exhibit 17 Form of First Amendment to Unfunded, Non-Qualified
Deferred Compensation Agreement
Exhibit 18 Amended and Restated Performance Unit Plan
Exhibit 19 Change in Control Severance Policy
Exhibit 20 Amended and Restated Supplemental Executive
Retirement Plan
Exhibit 21 Resolutions of the Echlin Board
Exhibit 22 Echlin's Motion to Dismiss dated May 4, 1998
Exhibit 23 Echlin's Memorandum of Law dated May 4, 1998
Exhibit 24 Echlin's Reply to Counterclaim dated May 4, 1998
Exhibit 25 SPX's Responsive Brief dated May 4, 1998
SIGNATURE
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is true,
complete and correct.
ECHLIN INC.
By: /s/ Jon P. Leckerling
------------------------------
Name: Jon P. Leckerling
Title: Senior Vice President,
General Counsel and
Corporate Secretary
Dated: May 5, 1998
SEVERANCE AND INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made as of April 23, 1998, by and between
ECHLIN INC., a Connecticut corporation (the "Company"), and _______________
("Executive").
WHEREAS, the Executive has been covered under the terms of the
Company's Change In Control Severance Policy (as restated and amended to date,
the "Severance Policy");
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that appropriate steps should be taken to reinforce and encourage
the continued attention and dedication of key management personnel, including
the Executive, to their assigned duties without distraction in the face of
potentially disturbing circumstances arising from any possible change in
control of the Company and to prevent the protection which the Company intends
to provide the Executive under the Severance Policy from being defeated;
WHEREAS, in recognition of the Executive's reliance on his being
indemnified by the Company the Company desires to provide the Executive with
specific contractual assurance that the Executive is indemnified by the
Company to the full extent permitted by applicable law; and
WHEREAS, the Company and the Executive desire to amend and
restate the terms and conditions of the Severance Policy, as applied to the
Executive, as hereinafter set forth;
NOW THEREFORE, the parties hereto agree as follows:
Section 1. Term of Agreement. This Agreement shall be
effective as of the date hereof and shall continue in effect through December
31, 1999; provided that on January 1, 2000 and each January 1 thereafter, the
term of this Agreement shall automatically be extended for an additional year
unless the Company or the Executive shall have given at least ninety (90)
days' prior notice not to extend this Agreement or a Change In Control shall
have occurred prior to such January 1; provided further that if a Change In
Control (as hereinafter defined) shall have occurred during the term of this
Agreement, this Agreement shall continue in effect for a period of not less
than twenty-four (24) months beyond the month in which such Change In Control
occurred.
Section 2. Change In Control. For purposes of this Agreement,
an event constituting a "Change In Control" shall occur when (and only when)
the Company obtains actual knowledge that: (1) any person or group within the
meaning of Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), other than the Company or any of its subsidiaries,
has become the beneficial owner, within the meaning of Rule 13d-3 under the
1934 Act, of thirty percent (30%) or more of the combined voting power of the
Company's then outstanding voting securities; or (2) a tender offer or
exchange offer, other than an offer by the Company, has expired, pursuant to
which twenty percent (20%) or more of the combined voting power of the
Company's then outstanding shares of common stock have been purchased; or (3)
the stockholders of the Company have approved an agreement to merge or
consolidate with or into another corporation and the Company is not the
surviving corporation or an agreement to sell or otherwise dispose of all or
substantially all of the Company's assets (including a plan of liquidation);
or (4) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board cease for any reason to
constitute at least a majority thereof, unless the election or the nomination
for the election by the Company's stockholders of each new director was
approved by a vote of at least two-thirds (2/3) of the directors then still in
office who were directors at the beginning of the period, but excluding for
this purpose any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the 1934 Act) or other
actual or threatened solicitation of proxies or consents by or on behalf of an
individual, corporation, partnership, group, associate or other entity or
"person" other than the Board.
Section 3. Termination Following Change In Control. For the
purposes of this Agreement, a "Qualifying Termination," entitling the
Executive to receive the benefits provided in Section 5 hereof, is defined to
mean: layoff or involuntary termination of the Executive's employment other
than for Cause (as hereinafter defined) or termination of employment by the
Executive for Good Reason (as hereinafter defined), all occurring within two
years after the date a Change In Control occurs.
Termination of employment shall be considered to be for "Cause,"
whether it occurred by resignation or discharge, if the reason for the
termination of employment was the Executive's proven in a court of law or
admitted embezzlement, dishonesty, fraud, conviction on a felonious or other
charge involving moral turpitude, all in connection with the Company's
affairs. The Board or, following a Change In Control, the Trust Administration
Committee, shall make the determination as to whether the termination is for
cause and such determination shall be binding, final and conclusive on all
concerned.
Termination of employment shall be considered to be for "Good
Reason" if (1) without the express written consent of the Executive, the
Executive is assigned material duties substantially inconsistent with the
Executive's positions, duties, responsibilities or status with the Company as
in effect before the Change In Control, or the Executive's titles or offices
as in effect immediately prior to the Change In Control are substantially
diminished or the Executive is removed from or not reelected to any of such
positions, or any other action is taken by the Company or any of its
affiliates which results in a diminution in the Executive's position,
authority, or principal duties or responsibilities other than an insubstantial
and inadvertent act that is remedied by the Company promptly after receipt of
notice given thereof by the Executive, except any such assignment, action or
change resulting from the Executive's termination of employment for Cause, or
from the Executive's Disability (as hereinafter defined) or death; provided,
however, that notwithstanding the foregoing, in no event shall a termination
of employment be considered to be for "Good Reason" if, at the time of the
termination, the Executive shall have had a position with a title, level of
duties and responsibilities substantially similar to the Executive's title,
duties and responsibilities immediately prior to the Change In Control (but
disregarding, except for (i) the Company's Chairman, President and Chief
Executive Officer or (ii) the Corporate Senior Vice Presidents -- General
Counsel, Human Resources, Chief Financial Officer and Corporate Development,
any changes as a result of the Company no longer being publicly traded or
becoming a subsidiary, and any changes to conform titles to those of
equivalent positions in an affiliate of the Company); (2) either the
compensation or benefit entitlement of the Executive as in effect immediately
prior to the Change In Control or as increased following the Change In Control
is substantially reduced; (3) the Company requires the Executive without the
Executive's express written consent to be based anywhere other than the
Company's location where the Executive is principally employed or another
location that is not more than fifty (50) miles from the location where the
Executive is principally employed immediately prior to the Change In Control,
except for required travel on the Company's business to an extent
substantially consistent with the Executive's business travel obligations in
effect immediately prior to the Change In Control; (4) any failure by the
Company to obtain an express written assumption of this Agreement from any
successor to or assign of the Company; or (5) if the Executive is, on the date
the Change In Control occurs, (i) the Company's Chairman, President and Chief
Executive Officer or (ii) a Corporate Senior Vice President, the Executive
elects for any reason to terminate his employment during the thirty-day period
commencing one year after the date of the Change In Control. In the case of
events described in (1) through (4), the Executive shall not be deemed to have
waived a claim of Good Reason as a result of the passage of no more than 180
days between the occurrence of the event and the assertion of such claim.
"Disability" shall have the same meaning as under the Company's
long term disability program immediately prior to the occurrence of the Change
In Control or at the time of the occurrence of the Executive's termination of
employment due to such Disability.
If the Executive incurs a Qualifying Termination, he will be
entitled to a notice period of at least thirty (30) days and will remain
employed and continue to be compensated through such notice period at a rate,
in the case of base salary, equal to the higher of the annual base salary in
effect on the date that the Change In Control occurs or on the date the notice
period begins.
Section 4. Vesting of SERP Benefits Upon Change In Control.
Upon the occurrence of a Change In Control under this Agreement, the
Executive's benefits under the Company's Supplemental Executive Retirement
Plan (the "SERP") shall become vested, without regard to whether a "Change In
Control" has occurred under the definition of that term under the SERP.
Section 5. Compensation Upon a Qualifying Termination.
Following a Change In Control, upon the occurrence of a Qualifying
Termination, in addition to the lump sum payment contemplated by Section 5(b),
the Executive shall be entitled to:
(a) Separation Payment. A separation payment equal to three times
the sum of the Executive's annual base salary (based on the higher of the
annual base salary in effect as of the date that the Change In Control occurs
or the date of the Executive's Qualified Termination) plus annual bonus (based
on the higher of the Executive's (i) most recent annual incentive bonus paid
prior to the Change In Control or (ii) targeted annual bonus, based on the
Executive's grade and the annual incentive plan in effect as of the date that
the Change In Control occurs or, if higher, as of the date of the Executive's
Qualified Termination), to be paid in a lump sum within thirty (30) days of the
Executive's Qualifying Termination.
(b) Additional Pension Credit. For purposes of calculating the
Executive's benefits under the qualified and nonqualified defined benefit plans
in which the Executive participates, (i) the Executive shall be entitled to
three additional years of service credit for all purposes under such plans,
including without limitation vesting, eligibility (for participation and for
any early retirement subsidy or other benefit) and benefit accrual purposes,
(ii) the Executive will be eligible for pension, unreduced for early
commencement, (iii) all compensation paid under Section 5(a) of the Agreement
shall be treated as pensionable earnings (as if the Executive had received
such amounts ratably over the three additional credited years) for purposes of
computing his benefits under the plan and (iv) all years of employment with
the Company shall be counted as valid years of service for all purposes, as
described above, under the plans, regardless of when served. In addition, the
incremental benefit provided in this paragraph shall be paid in lump sum
immediately upon the Executive's Qualifying Termination. Calculation of the
lump sum payment provided for in this paragraph shall be based on the
immediate commencement of the Executive's monthly retirement benefit with no
reduction for early commencement of benefits, using the Applicable Interest
Rate (as defined in the SERP) as of the second month preceding such Qualifying
Termination and the other actuarial assumptions applicable to the SERP.
Benefits described in this paragraph, to the extent not provided under the
qualified and nonqualified defined benefit plans in which the Executive
participates, and consistent with the provisions of Section 8, shall be
obligations of the Company arising under this Agreement and may be satisfied
from the general assets of the Company or as provided in Section 9.
(c) Benefits. The following Company-paid benefits, provided for 36
months to the Executive, except when substantially similar coverage is
available to the Executive through other employment. These benefits shall
either be provided to the Executive on a non-taxable basis or the Executive
shall be entitled to an additional payment to offset any income tax obligations
incurred with respect to such benefits according to the procedures set forth in
Section 5(d):
(i) Medical Insurance Plans (including, if applicable for the
Executive, the Executive Medical Plan)
(ii) Prescription Drug Plan
(iii) Dental Insurance Plan
(iv) Basic Life Insurance coverage in the amount in effect at the
time of separation rounded to nearest $1,000 multiple, and
without Accidental Death and Dismemberment coverage.
(v) If eligible at the time of the Change In Control or Qualified
Termination, continuation of the Company provided automobile
benefits.
(vi) In addition, but in lieu of any other Company sponsored
benefit for third party, professional out-placement
services, the sum equal to 15% of the higher of the
Executive's annual base salary in effect on the date of the
Change In Control or on the date of the Qualifying
Termination, payable upon the occurrence of Qualifying
Termination.
(vii) Employee Assistance Program
These provisions are not meant to supersede COBRA rights, which
shall commence from the date that benefits under this Section 5(c) terminate.
(d) Certain Additional Payments by the Company.
(i) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of
the Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or
otherwise (a "Payment"), would be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code") or similar section or any interest or
penalties with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the
Executive shall be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including any Excise Tax,
imposed upon the Gross-Up Payment the Executive retains an
amount of the Gross-Up Payment equal to all such taxes imposed
upon the Payments.
(ii) Subject to the provisions of subsection
5(d)(iii) hereof, all determinations required to be made under
this subsection 5(d), including whether a Gross-Up Payment is
required and the amount of such Gross-Up Payment, shall be made
by Price Waterhouse LLP, or its successor firm (the "Accounting
Firm") which shall provide detailed supporting calculations both
to the Company and the Executive within 15 business days of
termination of employment under this Agreement, if applicable,
or such earlier time as is requested by the Executive or the
Company. When calculating the amount of the Gross-Up Payment,
the Executive shall be deemed to pay:
(A) Federal income taxes at the
highest applicable marginal rate of Federal
income taxation for the calendar year in which
the Gross-Up Payment is to be made, and
(B) any applicable state and local
income taxes at the highest applicable marginal
rate of taxation for the calendar year in which
the Gross-up Payment is to be made, net of the
maximum reduction in Federal income taxes which
could be obtained from deduction of such state
and local taxes if paid in such year.
If the Accounting Firm has performed services
for the person, entity or group who caused the
Change In Control, or affiliate thereof, the
Executive may select an alternative accounting
firm from any nationally recognized firm of
certified public accountants. If the Accounting
Firm determines that no Excise Tax is payable by
the Executive, it shall furnish the Executive
with an opinion that he or she has substantial
authority not to report any Excise Tax on his or
her federal income tax return. Any determination
by the Accounting Firm shall be binding upon the
Company and the Executive. As a result of the
uncertainty in the application of Section 4999
of the Code at the time of the initial
determination by the Accounting Firm hereunder,
it is possible that Gross-Up Payments which will
not have been made by the Company should have
been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In
the event that the Company exhausts its remedies
pursuant to subsection 5(d)(iii) hereof, and the
Executive thereafter is required to make a
payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment
that has occurred and any such Underpayment
shall be promptly paid by the Company to or for
the benefit of the Executive.
(iii) The Executive shall notify the Company in
writing of any claim by the Internal Revenue Service that, if
successful, would require the payment by the Company of the
Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the
Executive knows of such claim and shall apprise the Company of
the nature of such claim and the date on which such claim is
requested to be paid. The Executive shall not pay such claim
prior to the expiration of the thirty day period following the
date on which it gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies the
Executive in writing prior to the expiration of such period that
it desires to contest such claim, the Executive shall:
(A) give the Company any
information reasonably requested by the Company
relating to such claim,
(B) take such action in connection
with contesting such claim as the Company shall
reasonably request in writing from time to time
including, without limitation, accepting legal
representation with respect to such claim by an
attorney reasonably selected by the Company,
(C) cooperate with the Company in
good faith in order effectively to contest such
claim, and
(D) permit the Company to
participate in any proceedings relating to such
claim;
provided, however, that the Company shall bear
and pay directly all costs and expenses
(including additional interest and penalties)
incurred in connection with such contest and
shall indemnify and hold the Executive harmless,
on an after-tax basis, for any Excise Tax or
income tax, including interest and penalties
with respect thereto, imposed as a result of
such representation and payment of costs and
expenses. Without limitation on the foregoing
provisions of this subsection 5(d)(iii), the
Company shall control all proceedings taken in
connection with such contest and, at its sole
option, may pursue or forego any and all
administrative appeals, proceedings, hearings
and conferences with the taxing authority in
respect of such claim and may, at its sole
option, either direct the Executive to pay the
tax claimed and sue for a refund or contest the
claim in any permissible manner, and the
Executive agrees to prosecute such contest to a
determination before any administrative
tribunal, in a court of initial jurisdiction and
in one or more appellate courts, as the Company
shall determine; provided, however, that if the
Company directs the Executive to pay such claim
and sue for a refund, the Company shall advance
the amount of such payment to the Executive, on
an interest-free basis and shall indemnify and
hold the Executive harmless, on an after-tax
basis, from any Excise Tax or income tax,
including interest or penalties with respect
thereto, imposed with respect to such advance or
with respect to any imputed income with respect
to such advance; and further provided that any
extension of the statue of limitations relating
to payment of taxes for the taxable year of the
Executive with respect to which such contested
amount is claimed to be due is limited solely to
such contested amount. Furthermore, the
Company's control of the contest shall be
limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or
contest, as the case may be, any other issue
raised by the Internal Revenue Service or any
other taxing authority.
(iv) If after the receipt by the Executive of
an amount advanced by the Company pursuant to subsection
5(d)(iii), the Executive becomes entitled to receive any refund
with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of subsection
5(d)(iii)) promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon by the
taxing authority after deducting any taxes applicable thereto).
If, after the receipt by the Executive of an amount advanced by
the Company pursuant to subsection 5(d)(iii), a determination is
made that the Executive shall not be entitled to any refund with
respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of
refund prior to the expiration of thirty days after such
determination, then such advance shall be forgiven and shall not
be required to be repaid and the amount of such advance shall
offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid under subsection 5(d)(iii). The forgiveness
of such advance shall be considered part of the Gross-Up Payment
and subject to gross-up for any taxes (including interest or
penalties) associated therewith.
Section 6. Mitigation. Except as specifically provided in
Section 5, the Executive shall not be required to mitigate the amount of any
payment provided for in Section 5 by seeking other employment or otherwise,
nor shall the amount of any payment or benefit provided for in Section 5 be
reduced by any compensation earned by the Executive as the result of
employment by another employer or by retirement benefits after a Qualifying
Termination, or otherwise.
Section 7. Indemnification. (a) Right to Indemnification.
(i) The Company shall pay all costs, losses and expenses (including without
limitation, attorneys' and other fees and expenses, judgments, fines,
penalties and amounts paid in settlement) (collectively, "Expenses") which the
Executive may incur or become liable for in connection with any threatened,
pending or completed action, suit, proceeding or inquiry (whether civil,
criminal, administrative, arbitrative or investigative and whether formal or
informal) (collectively, "Proceedings") by reason of the fact that the
Executive is or was serving or had agreed to serve at the request of the
Company as a director, officer, employee or agent of the Company or another
corporation, partnership, joint venture, trust or other enterprise, including
without limitation any subsidiary of the Company.
(ii) If the Executive is entitled under this
Agreement to indemnification by the Company for some, but not
the total amount, of any Expenses, the Company shall
nevertheless indemnify the Executive for the portion of such
Expenses to which the Executive is entitled to indemnification.
(b) Advancement of Expenses. (i) The Company shall pay all
Expenses incurred by the Executive in participating in or preparing to
participate in any Proceeding in advance of the final disposition of such
Proceeding upon request by the Executive that the Company pay such Expenses,
subject only to delivery to the Company of: (A) a written affirmation that,
with respect to the subject of such Proceeding, (1) the Executive conducted
himself in good faith, (2) the Executive reasonably believed (a) in the case
of conduct in his official capacity, that his conduct was in the best
interests of the Company, and (b) in all other cases, that his conduct was at
least not opposed to the best interests of the Company and (3) in the case of
any criminal proceeding, the Executive had no reasonable cause to believe his
conduct was unlawful; and (B) the Executive's unsecured written undertaking to
repay any funds advanced if and to the extent that it is ultimately determined
that the Executive is not entitled under applicable law to be indemnified as
provided hereby.
(ii) The written undertaking referred to in
Section 7(b)(i)(B) shall be accepted without reference to the
ability of the Executive to make repayment.
(c) Procedures. (i) The Executive shall promptly notify the
Company in writing of any Proceeding brought, threatened, commenced or asserted
against the Executive in respect of which indemnification may or could be
sought under this Agreement.
(ii) The Company shall have the right to assume
the defense of any such Proceeding, including the employment of
counsel reasonably satisfactory to the Executive and the payment
of all Expenses. The Executive shall have the right to employ
separate counsel in any such Proceeding and to participate in
the defense thereof, but the fees and expenses of such counsel
shall be at the expense of the Executive unless (A) the Company
agrees to pay such fees and expenses, (B) the Company shall have
failed promptly to assume the defense of such Proceeding or (C)
the Executive shall have reasonably concluded, upon the advice
of counsel, that there is a conflict of interest between the
Executive and the Company. If the Executive has made the
conclusion referred to in clause (C), the Company shall not have
the right to assume the defense of such Proceeding on behalf of
the Executive.
(iii) Neither the Company nor the Executive may
settle or compromise any Proceeding covered by the
indemnification set forth herein without the prior written
consent of the other, which such consent shall not to be
unreasonably withheld or delayed.
(iv) The Company shall make payment of any
amount due by it under this Agreement against delivery to the
Company of appropriate invoices or receipts or such other
evidence of Expenses as the Company reasonably requires.
(d) Insurance. (i) The Company hereby agrees to obtain and
maintain in effect for the benefit of the Executive a policy or policies of
insurance with reputable insurance companies providing for customary directors
and officers liability insurance in appropriate amounts.
(ii) Nothing herein is intended to replace,
preempt or otherwise affect the obligation of any insurer to
make any payment under any policy of insurance, whether or not
existing on the date hereof.
(e) Non-Exclusivity; No Duplication. The rights of the Executive to
indemnification under this Agreement shall not be exclusive of any other rights
the Executive may have under the Company's Certificate of Incorporation or
By-laws, the Connecticut Business Corporation Act (as amended from time to
time, the "Act"), any insurance or otherwise; provided that the Company shall
not be liable under this Agreement to make any payment in connection with any
claim to the extent the Executive has otherwise received payment (under the
Certificate of Incorporation or By-laws, the Act, any insurance policy or
otherwise) of Expenses otherwise indemnifiable hereunder; and provided further
that the Executive shall reimburse the Company for amounts paid to the
Executive pursuant to such other rights to the extent such payments duplicate
any payments received pursuant to this Agreement.
(f) Subrogation. In the event of payment of any Expenses, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of the Executive, who shall execute all papers required and shall
do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable the Company effectively to
bring suit to enforce such rights.
Section 8. No Duplication of Payments or Benefits. To the
extent that payments or benefits contemplated by this Agreement are also
contemplated by other plans or arrangements of the Company, such payments or
benefits shall first be provided under such other plans or arrangements, with
only the excess provided under this Agreement. This Agreement shall also
provide any payments or benefits contemplated to be provided under such other
plans or arrangements, which for any reason are not or cannot be provided
under such other plans or arrangements.
Section 9. Trust and Obligation Funding. The Company may
establish a trust, which is intended to be treated as and interpreted as a
"grantor trust" under the Code, and which, to the extent funded in respect of
this Agreement, shall not be intended to cause the Executive to realize income
on amounts contributed thereto (the "Trust"), with a trustee (the "Trustee"),
pursuant to such terms and conditions as may be set forth in a Trust Agreement
to be entered into between the Company and the Trustee. At the discretion of
the Company prior to a Change In Control, and in all cases following a Change
In Control, any amounts that become payable to any person under this
Agreement, shall first be paid from the Trust and then, to the extent not paid
from the Trust, shall be paid out of the general assets of the Company. To
the extent that any payments are made from the Trust, the Company shall be
relieved of its obligation to pay such amounts.
Section 10. Notices. All notices or other communications that
are required or permitted hereunder shall be in writing and sufficient if
delivered personally or sent by certified or registered mail, overnight
delivery or by facsimile transmission. Notice to the Company shall be given
at its then-existing corporate headquarters and shall be directed to the
Secretary (or such other location or person as the Company subsequently shall
designate in writing to the Executive). Notice to the Executive shall be
given at the address set forth on the signature page hereof (or such other
address as the Executive subsequently shall designate in writing to the
Company).
Section 11. Waiver. Failure to insist upon strict compliance
with any of the terms, covenants, or conditions hereof shall not be deemed a
waiver of such term, covenant, or condition, nor shall any waiver or
relinquishment of any right or power hereunder at any one or more times be
deemed a waiver or relinquishment of such right or power at any other time or
times.
Section 12. Severability. The invalidity or unenforceability
of any provision hereof shall in no way affect the validity or enforceability
of any other provision. In the event that any part of a covenant contained
herein is determined by a court of law to be invalid, a judicially enforceable
provision shall be substituted in its place. Any covenant so modified shall
be binding upon the parties and shall have the same force and effect as if
originally set forth in this Agreement.
Section 13. Modification. This Agreement may be amended only
in writing, signed by both parties hereto.
Section 14. Headings. The headings in this Agreement are
inserted for convenience only and are not to be considered a construction of
the provisions thereof.
Section 15. Successors; Binding Agreement. (a) The Company
will require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company to expressly assume and agree to perform this Agreement
in the same manner and to the same extent that the Company would be required
to perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as herein before defined and any
successor to its business and/or assets as aforesaid which assumes and agrees
to perform this Agreement by operation of law, or otherwise. Prior to a
Change In Control, the term "Company" shall also mean any affiliate of the
Company to which the Executive may be transferred and the Company shall cause
such successor employer to be considered the "Company" bound by the terms of
this Agreement and this Agreement shall be amended to so provide. Following a
Change In Control the term "Company" shall not mean any affiliate of the
Company to which the Executive may be transferred unless the Executive shall
have previously approved of such transfer in writing, in which case the
Company shall cause such successor employer to be considered the "Company"
bound by the terms of this Agreement and this Agreement shall be amended to so
provide.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
the Executive should die while any amount would still be payable to the
Executive hereunder if the Executive had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms
of this Agreement to the Executive's devisee, legatee or other designee or, if
there is no such designee, to the Executive's estate.
Section 16. Resolution of Disputes; Choice of Forum. The
parties agree that any dispute, controversy or claim arising out of or
relating to this Agreement shall, at the election of the Executive, be
resolved by final and binding arbitration, enforceable under the Federal
Arbitration Act, administered by the American Arbitration Association under
its Commercial Arbitration Rules, and judgment on the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof. All such
disputes, controversies or claims shall be determined by a panel of three
arbitrators selected in accordance with the rules of the American Arbitration
Association and the arbitration shall be conducted in the City of New Haven,
State of Connecticut. In the event that within 60 days after the Company
commences litigation in connection with this Agreement the Executive commences
an arbitration proceeding concerning the same issue or issues, the Company
shall promptly terminate such litigation and submit to the jurisdiction of the
arbitration proceeding to the extent that it involves such issue or issues.
This Section shall survive the termination of this Agreement for any reason.
Section 17. Payment of Expenses. In the event that any
Proceeding is instituted by the Executive to enforce or interpret the
Executive's rights hereunder, the Executive shall be entitled to be paid all
Expenses incurred by the Executive with respect to such Proceeding, unless as
a part of such Proceeding, the arbitration panel or court of competent
jurisdiction determines that the material assertions made by the Executive as
a basis for such Proceeding were not made in good faith or were frivolous, in
which case each party to the Proceeding shall bear its own costs. The
Executive may claim payment for such Expenses from the Trust described in
Section 9 of this Agreement, and shall be paid from the general assets of the
Company to the extent not paid from the Trust.
Section 18. Governing Law. This Agreement shall be construed
and enforced in accordance with the laws of the State of Connecticut.
Section 19. Counterparts. This Agreement may be signed in any
number of counterparts, each of which shall be deemed an original, with the
same effect as if the signatures thereto and hereto were upon a single
instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement the day and year first above written.
ECHLIN INC.
By: ______________________________________
Name:
Title:
______________________________________
Name:
Address:
SEVERANCE AND INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made as of April 23, 1998, by and between
ECHLIN INC., a Connecticut corporation (the "Company"), and _______________
("Executive").
WHEREAS, the Executive has been covered under the terms of the
Company's Change In Control Severance Policy (as restated and amended to date,
the "Severance Policy");
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that appropriate steps should be taken to reinforce and encourage
the continued attention and dedication of key management personnel, including
the Executive, to their assigned duties without distraction in the face of
potentially disturbing circumstances arising from any possible change in
control of the Company and to prevent the protection which the Company intends
to provide the Executive under the Severance Policy from being defeated;
WHEREAS, in recognition of the Executive's reliance on his being
indemnified by the Company the Company desires to provide the Executive with
specific contractual assurance that the Executive is indemnified by the
Company to the full extent permitted by applicable law; and
WHEREAS, the Company and the Executive desire to amend and
restate the terms and conditions of the Severance Policy, as applied to the
Executive, as hereinafter set forth;
NOW THEREFORE, the parties hereto agree as follows:
Section 1. Term of Agreement. This Agreement shall be
effective as of the date hereof and shall continue in effect through December
31, 1999; provided that on January 1, 2000 and each January 1 thereafter, the
term of this Agreement shall automatically be extended for an additional year
unless the Company or the Executive shall have given at least ninety (90)
days' prior notice not to extend this Agreement or a Change In Control shall
have occurred prior to such January 1; provided further that if a Change In
Control (as hereinafter defined) shall have occurred during the term of this
Agreement, this Agreement shall continue in effect for a period of not less
than twenty-four (24) months beyond the month in which such Change In Control
occurred.
Section 2. Change In Control. For purposes of this Agreement,
an event constituting a "Change In Control" shall occur when (and only when)
the Company obtains actual knowledge that: (1) any person or group within the
meaning of Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), other than the Company or any of its subsidiaries,
has become the beneficial owner, within the meaning of Rule 13d-3 under the
1934 Act, of thirty percent (30%) or more of the combined voting power of the
Company's then outstanding voting securities; or (2) a tender offer or
exchange offer, other than an offer by the Company, has expired, pursuant to
which twenty percent (20%) or more of the combined voting power of the
Company's then outstanding shares of common stock have been purchased; or (3)
the stockholders of the Company have approved an agreement to merge or
consolidate with or into another corporation and the Company is not the
surviving corporation or an agreement to sell or otherwise dispose of all or
substantially all of the Company's assets (including a plan of liquidation);
or (4) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board cease for any reason to
constitute at least a majority thereof, unless the election or the nomination
for the election by the Company's stockholders of each new director was
approved by a vote of at least two-thirds (2/3) of the directors then still in
office who were directors at the beginning of the period, but excluding for
this purpose any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the 1934 Act) or other
actual or threatened solicitation of proxies or consents by or on behalf of an
individual, corporation, partnership, group, associate or other entity or
"person" other than the Board; provided that, with respect to an event
described in clauses (1), (2) or (3), above, such event shall only constitute a
Change In Control if, and at such time as, the Board declares, in its sole
discretion, that the event qualifies or will qualify as a Change In Control.
Section 3. Termination Following Change In Control. For the
purposes of this Agreement, a "Qualifying Termination," entitling the
Executive to receive the benefits provided in Section 5 hereof, is defined to
mean: layoff or involuntary termination of the Executive's employment other
than for Cause (as hereinafter defined) or termination of employment by the
Executive for Good Reason (as hereinafter defined), all occurring within two
years after the date a Change In Control occurs.
Termination of employment shall be considered to be for "Cause,"
whether it occurred by resignation or discharge, if the reason for the
termination of employment was the Executive's proven in a court of law or
admitted embezzlement, dishonesty, fraud, conviction on a felonious or other
charge involving moral turpitude, all in connection with the Company's
affairs. The Board or, following a Change In Control, the Trust Administration
Committee, shall make the determination as to whether the termination is for
cause and such determination shall be binding, final and conclusive on all
concerned.
Termination of employment shall be considered to be for "Good
Reason" if (1) without the express written consent of the Executive, the
Executive is assigned material duties substantially inconsistent with the
Executive's positions, duties, responsibilities or status with the Company as
in effect before the Change In Control, or the Executive's titles or offices
as in effect immediately prior to the Change In Control are substantially
diminished or the Executive is removed from or not reelected to any of such
positions, or any other action is taken by the Company or any of its
affiliates which results in a diminution in the Executive's position,
authority, or principal duties or responsibilities other than an insubstantial
and inadvertent act that is remedied by the Company promptly after receipt of
notice given thereof by the Executive, except any such assignment, action or
change resulting from the Executive's termination of employment for Cause, or
from the Executive's Disability (as hereinafter defined) or death; provided,
however, that notwithstanding the foregoing, in no event shall a termination
of employment be considered to be for "Good Reason" if, at the time of the
termination, the Executive shall have had a position with a title, level of
duties and responsibilities substantially similar to the Executive's title,
duties and responsibilities immediately prior to the Change In Control (but
disregarding, except for (i) the Company's Chairman, President and Chief
Executive Officer or (ii) the Corporate Senior Vice Presidents -- General
Counsel, Human Resources, Chief Financial Officer and Corporate Development,
any changes as a result of the Company no longer being publicly traded or
becoming a subsidiary, and any changes to conform titles to those of
equivalent positions in an affiliate of the Company); (2) either the
compensation or benefit entitlement of the Executive as in effect immediately
prior to the Change In Control or as increased following the Change In Control
is substantially reduced; (3) the Company requires the Executive without the
Executive's express written consent to be based anywhere other than the
Company's location where the Executive is principally employed or another
location that is not more than fifty (50) miles from the location where the
Executive is principally employed immediately prior to the Change In Control,
except for required travel on the Company's business to an extent
substantially consistent with the Executive's business travel obligations in
effect immediately prior to the Change In Control; (4) any failure by the
Company to obtain an express written assumption of this Agreement from any
successor to or assign of the Company; or (5) if the Executive is, on the date
the Change In Control occurs, (i) the Company's Chairman, President and Chief
Executive Officer or (ii) a Corporate Senior Vice President, the Executive
elects for any reason to terminate his employment during the thirty-day period
commencing one year after the date of the Change In Control. In the case of
events described in (1) through (4), the Executive shall not be deemed to have
waived a claim of Good Reason as a result of the passage of no more than 180
days between the occurrence of the event and the assertion of such claim.
"Disability" shall have the same meaning as under the Company's
long term disability program immediately prior to the occurrence of the Change
In Control or at the time of the occurrence of the Executive's termination of
employment due to such Disability.
If the Executive incurs a Qualifying Termination, he will be
entitled to a notice period of at least thirty (30) days and will remain
employed and continue to be compensated through such notice period at a rate,
in the case of base salary, equal to the higher of the annual base salary in
effect on the date that the Change In Control occurs or on the date the notice
period begins.
Section 4. Vesting of SERP Benefits Upon Change In Control.
Upon the occurrence of a Change In Control under this Agreement, the
Executive's benefits under the Company's Supplemental Executive Retirement
Plan (the "SERP") shall become vested, without regard to whether a "Change In
Control" has occurred under the definition of that term under the SERP.
Section 5. Compensation Upon a Qualifying Termination.
Following a Change In Control, upon the occurrence of a Qualifying
Termination, in addition to the lump sum payment contemplated by Section 5(b),
the Executive shall be entitled to:
(a) Separation Payment. A separation payment equal to two
times the sum of the Executive's annual base salary (based on the higher of
the annual base salary in effect as of the date that the Change In Control
occurs or the date of the Executive's Qualified Termination) plus annual
bonus (based on the higher of the Executive's (i) most recent annual
incentive bonus paid prior to the Change In Control or (ii) targeted annual
bonus, based on the Executive's grade and the annual incentive plan in
effect as of the date that the Change In Control occurs or, if higher, as
of the date of the Executive's Qualified Termination), to be paid in a lump
sum within thirty (30) days of the Executive's Qualifying Termination.
(b) Additional Pension Credit. For purposes of calculating
the Executive's benefits under the qualified and nonqualified defined
benefit plans in which the Executive participates, (i) the Executive shall
be entitled to two additional years of service credit for all purposes
under such plans, including without limitation vesting, eligibility (for
participation and for any early retirement subsidy or other benefit) and
benefit accrual purposes, (ii) all compensation paid under Section 5(a) of
the Agreement shall be treated as pensionable earnings (as if the Executive
had received such amounts ratably over the two additional credited years)
for purposes of computing his benefits under the plan and (iii) all years
of employment with the Company shall be counted as valid years of service
for all purposes, as described above, under the plans, regardless of when
served. Benefits described in this paragraph, to the extent not provided
under the qualified and nonqualified defined benefit plans in which the
Executive participates, and consistent with the provisions of Section 8,
shall be obligations of the Company arising under this Agreement and may be
satisfied from the general assets of the Company or as provided in Section
9.
(c) Benefits. The following Company-paid benefits,
provided for 36 months to the Executive, except when substantially similar
coverage is available to the Executive through other employment. These
benefits shall either be provided to the Executive on a non-taxable basis
or the Executive shall be entitled to an additional payment to offset any
income tax obligations incurred with respect to such benefits according to
the procedures set forth in Section 5(d):
(i) Medical Insurance Plans (including, if applicable for the
Executive, the Executive Medical Plan)
(ii) Prescription Drug Plan
(iii) Dental Insurance Plan
(iv) Basic Life Insurance coverage in the amount in effect at the
time of separation rounded to nearest $1,000 multiple, and
without Accidental Death and Dismemberment coverage.
(v) If eligible at the time of the Change In Control or
Qualified Termination, continuation of the Company provided
automobile benefits.
(vi) In addition, but in lieu of any other Company sponsored
benefit for third party, professional out-placement
services, the sum equal to 15% of the higher of the
Executive's annual base salary in effect on the date of the
Change In Control or on the date of the Qualifying
Termination, payable upon the occurrence of Qualifying
Termination.
(vii) Employee Assistance Program
These provisions are not meant to supersede COBRA rights, which
shall commence from the date that benefits under this Section 5(c) terminate.
(d) Certain Additional Payments by the Company.
(i) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment
or distribution by the Company to or for the benefit of the Executive,
whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise (a "Payment"), would be
subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code") or similar section or
any interest or penalties with respect to such excise tax (such excise
tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Executive
shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all
taxes (including any interest or penalties imposed with respect to
such taxes), including any Excise Tax, imposed upon the Gross-Up
Payment the Executive retains an amount of the Gross-Up Payment equal
to all such taxes imposed upon the Payments.
(ii) Subject to the provisions of subsection 5(d)(iii)
hereof, all determinations required to be made under this subsection
5(d), including whether a Gross-Up Payment is required and the amount
of such Gross-Up Payment, shall be made by Price Waterhouse LLP, or
its successor firm (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and the Executive
within 15 business days of termination of employment under this
Agreement, if applicable, or such earlier time as is requested by the
Executive or the Company. When calculating the amount of the Gross-Up
Payment, the Executive shall be deemed to pay:
(A) Federal income taxes at the highest
applicable marginal rate of Federal income taxation for the
calendar year in which the Gross-Up Payment is to be made, and
(B) any applicable state and local income taxes at
the highest applicable marginal rate of taxation for the calendar
year in which the Gross-up Payment is to be made, net of the
maximum reduction in Federal income taxes which could be obtained
from deduction of such state and local taxes if paid in such
year.
If the Accounting Firm has performed services for the person,
entity or group who caused the Change In Control, or affiliate
thereof, the Executive may select an alternative accounting firm
from any nationally recognized firm of certified public
accountants. If the Accounting Firm determines that no Excise
Tax is payable by the Executive, it shall furnish the Executive
with an opinion that he or she has substantial authority not to
report any Excise Tax on his or her federal income tax return.
Any determination by the Accounting Firm shall be binding upon
the Company and the Executive. As a result of the uncertainty in
the application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by
the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the
event that the Company exhausts its remedies pursuant to
subsection 5(d)(iii) hereof, and the Executive thereafter is
required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company
to or for the benefit of the Executive.
(iii) The Executive shall notify the Company in writing
of any claim by the Internal Revenue Service that, if successful,
would require the payment by the Company of the Gross-Up Payment.
Such notification shall be given as soon as practicable but no later
than ten business days after the Executive knows of such claim and
shall apprise the Company of the nature of such claim and the date on
which such claim is requested to be paid. The Executive shall not pay
such claim prior to the expiration of the thirty day period following
the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies the Executive in writing
prior to the expiration of such period that it desires to contest such
claim, the Executive shall:
(A) give the Company any information reasonably
requested by the Company relating to such claim,
(B) take such action in connection with contesting
such claim as the Company shall reasonably request in writing
from time to time including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by the Company,
(C) cooperate with the Company in good faith in
order effectively to contest such claim, and
(D) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly
all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall
indemnify and hold the Executive harmless, on an after-tax basis,
for any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such
representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this subsection
5(d)(iii), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue
or forego any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in respect of
such claim and may, at its sole option, either direct the
Executive to pay the tax claimed and sue for a refund or contest
the claim in any permissible manner, and the Executive agrees to
prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and
in one or more appellate courts, as the Company shall determine;
provided, however, that if the Company directs the Executive to
pay such claim and sue for a refund, the Company shall advance
the amount of such payment to the Executive, on an interest-free
basis and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income tax, including
interest or penalties with respect thereto, imposed with respect
to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension
of the statue of limitations relating to payment of taxes for the
taxable year of the Executive with respect to which such
contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a Gross-
Up Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing
authority.
(iv) If after the receipt by the Executive of an amount
advanced by the Company pursuant to subsection 5(d)(iii), the
Executive becomes entitled to receive any refund with respect to such
claim, the Executive shall (subject to the Company's complying with
the requirements of subsection 5(d)(iii)) promptly pay to the Company
the amount of such refund (together with any interest paid or credited
thereon by the taxing authority after deducting any taxes applicable
thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to subsection 5(d)(iii), a
determination is made that the Executive shall not be entitled to any
refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund
prior to the expiration of thirty days after such determination, then
such advance shall be forgiven and shall not be required to be repaid
and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid under subsection
5(d)(iii). The forgiveness of such advance shall be considered part
of the Gross-Up Payment and subject to gross-up for any taxes
(including interest or penalties) associated therewith.
Section 6. Mitigation. Except as specifically provided in
Section 5, the Executive shall not be required to mitigate the amount of any
payment provided for in Section 5 by seeking other employment or otherwise,
nor shall the amount of any payment or benefit provided for in Section 5 be
reduced by any compensation earned by the Executive as the result of
employment by another employer or by retirement benefits after a Qualifying
Termination, or otherwise.
Section 7. Indemnification. (a) Right to Indemnification.
(i) The Company shall pay all costs, losses and expenses (including without
limitation, attorneys' and other fees and expenses, judgments, fines,
penalties and amounts paid in settlement) (collectively, "Expenses") which the
Executive may incur or become liable for in connection with any threatened,
pending or completed action, suit, proceeding or inquiry (whether civil,
criminal, administrative, arbitrative or investigative and whether formal or
informal) (collectively, "Proceedings") by reason of the fact that the
Executive is or was serving or had agreed to serve at the request of the
Company as a director, officer, employee or agent of the Company or another
corporation, partnership, joint venture, trust or other enterprise, including
without limitation any subsidiary of the Company.
(ii) If the Executive is entitled under this Agreement
to indemnification by the Company for some, but not the total amount,
of any Expenses, the Company shall nevertheless indemnify the
Executive for the portion of such Expenses to which the Executive is
entitled to indemnification.
(b) Advancement of Expenses. (i) The Company shall pay all
Expenses incurred by the Executive in participating in or preparing to
participate in any Proceeding in advance of the final disposition of such
Proceeding upon request by the Executive that the Company pay such Expenses,
subject only to delivery to the Company of: (A) a written affirmation that,
with respect to the subject of such Proceeding, (1) the Executive conducted
himself in good faith, (2) the Executive reasonably believed (a) in the case
of conduct in his official capacity, that his conduct was in the best
interests of the Company, and (b) in all other cases, that his conduct was at
least not opposed to the best interests of the Company and (3) in the case of
any criminal proceeding, the Executive had no reasonable cause to believe his
conduct was unlawful; and (B) the Executive's unsecured written undertaking to
repay any funds advanced if and to the extent that it is ultimately determined
that the Executive is not entitled under applicable law to be indemnified as
provided hereby.
(ii) The written undertaking referred to in Section
7(b)(i)(B) shall be accepted without reference to the ability of the
Executive to make repayment.
(c) Procedures. (i) The Executive shall promptly notify
the Company in writing of any Proceeding brought, threatened, commenced or
asserted against the Executive in respect of which indemnification may or
could be sought under this Agreement.
(ii) The Company shall have the right to assume the
defense of any such Proceeding, including the employment of counsel
reasonably satisfactory to the Executive and the payment of all
Expenses. The Executive shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the
expense of the Executive unless (A) the Company agrees to pay such
fees and expenses, (B) the Company shall have failed promptly to
assume the defense of such Proceeding or (C) the Executive shall have
reasonably concluded, upon the advice of counsel, that there is a
conflict of interest between the Executive and the Company. If the
Executive has made the conclusion referred to in clause (C), the
Company shall not have the right to assume the defense of such
Proceeding on behalf of the Executive.
(iii) Neither the Company nor the Executive may settle
or compromise any Proceeding covered by the indemnification set forth
herein without the prior written consent of the other, which such
consent shall not to be unreasonably withheld or delayed.
(iv) The Company shall make payment of any amount due
by it under this Agreement against delivery to the Company of
appropriate invoices or receipts or such other evidence of Expenses as
the Company reasonably requires.
(d) Insurance. (i) The Company hereby agrees to obtain and
maintain in effect for the benefit of the Executive a policy or policies of
insurance with reputable insurance companies providing for customary directors
and officers liability insurance in appropriate amounts.
(ii) Nothing herein is intended to replace, preempt or
otherwise affect the obligation of any insurer to make any payment
under any policy of insurance, whether or not existing on the date
hereof.
(e) Non-Exclusivity; No Duplication. The rights of the
Executive to indemnification under this Agreement shall not be exclusive of
any other rights the Executive may have under the Company's Certificate of
Incorporation or By-laws, the Connecticut Business Corporation Act (as
amended from time to time, the "Act"), any insurance or otherwise; provided
that the Company shall not be liable under this Agreement to make any
payment in connection with any claim to the extent the Executive has
otherwise received payment (under the Certificate of Incorporation or By-
laws, the Act, any insurance policy or otherwise) of Expenses otherwise
indemnifiable hereunder; and provided further that the Executive shall
reimburse the Company for amounts paid to the Executive pursuant to such
other rights to the extent such payments duplicate any payments received
pursuant to this Agreement.
(f) Subrogation. In the event of payment of any Expenses,
the Company shall be subrogated to the extent of such payment to all of the
rights of recovery of the Executive, who shall execute all papers required
and shall do everything that may be necessary to secure such rights,
including the execution of such documents necessary to enable the Company
effectively to bring suit to enforce such rights.
Section 8. No Duplication of Payments or Benefits. To the
extent that payments or benefits contemplated by this Agreement are also
contemplated by other plans or arrangements of the Company, such payments or
benefits shall first be provided under such other plans or arrangements, with
only the excess provided under this Agreement. This Agreement shall also
provide any payments or benefits contemplated to be provided under such other
plans or arrangements, which for any reason are not or cannot be provided
under such other plans or arrangements.
Section 9. Trust and Obligation Funding. The Company may
establish a trust, which is intended to be treated as and interpreted as a
"grantor trust" under the Code, and which, to the extent funded in respect of
this Agreement, shall not be intended to cause the Executive to realize income
on amounts contributed thereto (the "Trust"), with a trustee (the "Trustee"),
pursuant to such terms and conditions as may be set forth in a Trust Agreement
to be entered into between the Company and the Trustee. At the discretion of
the Company prior to a Change In Control, and in all cases following a Change
In Control, any amounts that become payable to any person under this
Agreement, shall first be paid from the Trust and then, to the extent not paid
from the Trust, shall be paid out of the general assets of the Company. To
the extent that any payments are made from the Trust, the Company shall be
relieved of its obligation to pay such amounts.
Section 10. Notices. All notices or other communications that
are required or permitted hereunder shall be in writing and sufficient if
delivered personally or sent by certified or registered mail, overnight
delivery or by facsimile transmission. Notice to the Company shall be given
at its then-existing corporate headquarters and shall be directed to the
Secretary (or such other location or person as the Company subsequently shall
designate in writing to the Executive). Notice to the Executive shall be
given at the address set forth on the signature page hereof (or such other
address as the Executive subsequently shall designate in writing to the
Company).
Section 11. Waiver. Failure to insist upon strict compliance
with any of the terms, covenants, or conditions hereof shall not be deemed a
waiver of such term, covenant, or condition, nor shall any waiver or
relinquishment of any right or power hereunder at any one or more times be
deemed a waiver or relinquishment of such right or power at any other time or
times.
Section 12. Severability. The invalidity or unenforceability
of any provision hereof shall in no way affect the validity or enforceability
of any other provision. In the event that any part of a covenant contained
herein is determined by a court of law to be invalid, a judicially enforceable
provision shall be substituted in its place. Any covenant so modified shall
be binding upon the parties and shall have the same force and effect as if
originally set forth in this Agreement.
Section 13. Modification. This Agreement may be amended only
in writing, signed by both parties hereto.
Section 14. Headings. The headings in this Agreement are
inserted for convenience only and are not to be considered a construction of
the provisions thereof.
Section 15. Successors; Binding Agreement. (a) The Company
will require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company to expressly assume and agree to perform this Agreement
in the same manner and to the same extent that the Company would be required
to perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as herein before defined and any
successor to its business and/or assets as aforesaid which assumes and agrees
to perform this Agreement by operation of law, or otherwise. Prior to a
Change In Control, the term "Company" shall also mean any affiliate of the
Company to which the Executive may be transferred and the Company shall cause
such successor employer to be considered the "Company" bound by the terms of
this Agreement and this Agreement shall be amended to so provide. Following a
Change In Control the term "Company" shall not mean any affiliate of the
Company to which the Executive may be transferred unless the Executive shall
have previously approved of such transfer in writing, in which case the
Company shall cause such successor employer to be considered the "Company"
bound by the terms of this Agreement and this Agreement shall be amended to so
provide.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
the Executive should die while any amount would still be payable to the
Executive hereunder if the Executive had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms
of this Agreement to the Executive's devisee, legatee or other designee or, if
there is no such designee, to the Executive's estate.
Section 16. Resolution of Disputes; Choice of Forum. The
parties agree that any dispute, controversy or claim arising out of or
relating to this Agreement shall, at the election of the Executive, be
resolved by final and binding arbitration, enforceable under the Federal
Arbitration Act, administered by the American Arbitration Association under
its Commercial Arbitration Rules, and judgment on the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof. All such
disputes, controversies or claims shall be determined by a panel of three
arbitrators selected in accordance with the rules of the American Arbitration
Association and the arbitration shall be conducted in the City of New Haven,
State of Connecticut. In the event that within 60 days after the Company
commences litigation in connection with this Agreement the Executive commences
an arbitration proceeding concerning the same issue or issues, the Company
shall promptly terminate such litigation and submit to the jurisdiction of the
arbitration proceeding to the extent that it involves such issue or issues.
This Section shall survive the termination of this Agreement for any reason.
Section 17. Payment of Expenses. In the event that any
Proceeding is instituted by the Executive to enforce or interpret the
Executive's rights hereunder, the Executive shall be entitled to be paid all
Expenses incurred by the Executive with respect to such Proceeding, unless as
a part of such Proceeding, the arbitration panel or court of competent
jurisdiction determines that the material assertions made by the Executive as
a basis for such Proceeding were not made in good faith or were frivolous, in
which case each party to the Proceeding shall bear its own costs. The
Executive may claim payment for such Expenses from the Trust described in
Section 9 of this Agreement, and shall be paid from the general assets of the
Company to the extent not paid from the Trust.
Section 18. Governing Law. This Agreement shall be construed
and enforced in accordance with the laws of the State of Connecticut.
Section 19. Counterparts. This Agreement may be signed in any
number of counterparts, each of which shall be deemed an original, with the
same effect as if the signatures thereto and hereto were upon a single
instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement the day and year first above written.
ECHLIN INC.
By:
-------------------------------------
Name:
Title:
-----------------------------------------
Name:
Address:
SEVERANCE AND INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made as of April 23, 1998, by and between
ECHLIN INC., a Connecticut corporation (the "Company"), and _______________
("Executive").
WHEREAS, the Executive has been covered under the terms of the
Company's Change In Control Severance Policy (as restated and amended to date,
the "Severance Policy");
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that appropriate steps should be taken to reinforce and encourage
the continued attention and dedication of key management personnel, including
the Executive, to their assigned duties without distraction in the face of
potentially disturbing circumstances arising from any possible change in
control of the Company and to prevent the protection which the Company intends
to provide the Executive under the Severance Policy from being defeated;
WHEREAS, in recognition of the Executive's reliance on his being
indemnified by the Company the Company desires to provide the Executive with
specific contractual assurance that the Executive is indemnified by the
Company to the full extent permitted by applicable law; and
WHEREAS, the Company and the Executive desire to amend and
restate the terms and conditions of the Severance Policy, as applied to the
Executive, as hereinafter set forth;
NOW THEREFORE, the parties hereto agree as follows:
Section 1. Term of Agreement. This Agreement shall be
effective as of the date hereof and shall continue in effect through December
31, 1999; provided that on January 1, 2000 and each January 1 thereafter, the
term of this Agreement shall automatically be extended for an additional year
unless the Company or the Executive shall have given at least ninety (90)
days' prior notice not to extend this Agreement or a Change In Control shall
have occurred prior to such January 1; provided further that if a Change In
Control (as hereinafter defined) shall have occurred during the term of this
Agreement, this Agreement shall continue in effect for a period of not less
than twenty-four (24) months beyond the month in which such Change In Control
occurred.
Section 2. Change In Control. For purposes of this Agreement,
an event constituting a "Change In Control" shall occur when (and only when)
the Company obtains actual knowledge that: (1) any person or group within the
meaning of Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), other than the Company or any of its subsidiaries,
has become the beneficial owner, within the meaning of Rule 13d-3 under the
1934 Act, of thirty percent (30%) or more of the combined voting power of the
Company's then outstanding voting securities; or (2) a tender offer or
exchange offer, other than an offer by the Company, has expired, pursuant to
which twenty percent (20%) or more of the combined voting power of the
Company's then outstanding shares of common stock have been purchased; or (3)
the stockholders of the Company have approved an agreement to merge or
consolidate with or into another corporation and the Company is not the
surviving corporation or an agreement to sell or otherwise dispose of all or
substantially all of the Company's assets (including a plan of liquidation);
or (4) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board cease for any reason to
constitute at least a majority thereof, unless the election or the nomination
for the election by the Company's stockholders of each new director was
approved by a vote of at least two-thirds (2/3) of the directors then still in
office who were directors at the beginning of the period, but excluding for
this purpose any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the 1934 Act) or other
actual or threatened solicitation of proxies or consents by or on behalf of an
individual, corporation, partnership, group, associate or other entity or
"person" other than the Board; provided that, with respect to an event
described in clauses (1), (2) or (3), above, such event shall only constitute a
Change In Control if, and at such time as, the Board declares, in its sole
discretion, that the event qualifies or will qualify as a Change In Control.
Section 3. Termination Following Change In Control. For the
purposes of this Agreement, a "Qualifying Termination," entitling the
Executive to receive the benefits provided in Section 5 hereof, is defined to
mean: layoff or involuntary termination of the Executive's employment other
than for Cause (as hereinafter defined) or termination of employment by the
Executive for Good Reason (as hereinafter defined), all occurring within two
years after the date a Change In Control occurs.
Termination of employment shall be considered to be for "Cause,"
whether it occurred by resignation or discharge, if the reason for the
termination of employment was the Executive's proven in a court of law or
admitted embezzlement, dishonesty, fraud, conviction on a felonious or other
charge involving moral turpitude, all in connection with the Company's
affairs. The Board or, following a Change In Control, the Trust Administration
Committee, shall make the determination as to whether the termination is for
cause and such determination shall be binding, final and conclusive on all
concerned.
Termination of employment shall be considered to be for "Good
Reason" if (1) without the express written consent of the Executive, the
Executive is assigned material duties substantially inconsistent with the
Executive's positions, duties, responsibilities or status with the Company as
in effect before the Change In Control, or the Executive's titles or offices
as in effect immediately prior to the Change In Control are substantially
diminished or the Executive is removed from or not reelected to any of such
positions, or any other action is taken by the Company or any of its
affiliates which results in a diminution in the Executive's position,
authority, or principal duties or responsibilities other than an insubstantial
and inadvertent act that is remedied by the Company promptly after receipt of
notice given thereof by the Executive, except any such assignment, action or
change resulting from the Executive's termination of employment for Cause, or
from the Executive's Disability (as hereinafter defined) or death; provided,
however, that notwithstanding the foregoing, in no event shall a termination
of employment be considered to be for "Good Reason" if, at the time of the
termination, the Executive shall have had a position with a title, level of
duties and responsibilities substantially similar to the Executive's title,
duties and responsibilities immediately prior to the Change In Control (but
disregarding, except for (i) the Company's Chairman, President and Chief
Executive Officer or (ii) the Corporate Senior Vice Presidents -- General
Counsel, Human Resources, Chief Financial Officer and Corporate Development,
any changes as a result of the Company no longer being publicly traded or
becoming a subsidiary, and any changes to conform titles to those of
equivalent positions in an affiliate of the Company); (2) either the
compensation or benefit entitlement of the Executive as in effect immediately
prior to the Change In Control or as increased following the Change In Control
is substantially reduced; (3) the Company requires the Executive without the
Executive's express written consent to be based anywhere other than the
Company's location where the Executive is principally employed or another
location that is not more than fifty (50) miles from the location where the
Executive is principally employed immediately prior to the Change In Control,
except for required travel on the Company's business to an extent
substantially consistent with the Executive's business travel obligations in
effect immediately prior to the Change In Control; (4) any failure by the
Company to obtain an express written assumption of this Agreement from any
successor to or assign of the Company; or (5) if the Executive is, on the date
the Change In Control occurs, (i) the Company's Chairman, President and Chief
Executive Officer or (ii) a Corporate Senior Vice President, the Executive
elects for any reason to terminate his employment during the thirty-day period
commencing one year after the date of the Change In Control. In the case of
events described in (1) through (4), the Executive shall not be deemed to have
waived a claim of Good Reason as a result of the passage of no more than 180
days between the occurrence of the event and the assertion of such claim.
"Disability" shall have the same meaning as under the Company's
long term disability program immediately prior to the occurrence of the Change
In Control or at the time of the occurrence of the Executive's termination of
employment due to such Disability.
If the Executive incurs a Qualifying Termination, he will be
entitled to a notice period of at least thirty (30) days and will remain
employed and continue to be compensated through such notice period at a rate,
in the case of base salary, equal to the higher of the annual base salary in
effect on the date that the Change In Control occurs or on the date the notice
period begins.
Section 4. Vesting of SERP Benefits Upon Change In Control.
Upon the occurrence of a Change In Control under this Agreement, the
Executive's benefits under the Company's Supplemental Executive Retirement
Plan (the "SERP") shall become vested, without regard to whether a "Change In
Control" has occurred under the definition of that term under the SERP.
Section 5. Compensation Upon a Qualifying Termination.
Following a Change In Control, upon the occurrence of a Qualifying
Termination, in addition to the lump sum payment contemplated by Section 5(b),
the Executive shall be entitled to:
(a) Separation Payment. A separation payment equal to
three times the sum of the Executive's annual base salary (based on the
higher of the annual base salary in effect as of the date that the Change
In Control occurs or the date of the Executive's Qualified Termination)
plus annual bonus (based on the higher of the Executive's (i) most recent
annual incentive bonus paid prior to the Change In Control or (ii) targeted
annual bonus, based on the Executive's grade and the annual incentive plan
in effect as of the date that the Change In Control occurs or, if higher,
as of the date of the Executive's Qualified Termination), to be paid in a
lump sum within thirty (30) days of the Executive's Qualifying Termination.
(b) Additional Pension Credit. For purposes of calculating
the Executive's benefits under the qualified and nonqualified defined
benefit plans in which the Executive participates, (i) the Executive shall
be entitled to three additional years of service credit for all purposes
under such plans, including without limitation vesting, eligibility (for
participation and for any early retirement subsidy or other benefit) and
benefit accrual purposes, (ii) all compensation paid under Section 5(a) of
the Agreement shall be treated as pensionable earnings (as if the Executive
had received such amounts ratably over the three additional credited years)
for purposes of computing his benefits under the plan and (iii) all years
of employment with the Company shall be counted as valid years of service
for all purposes, as described above, under the plans, regardless of when
served. Benefits described in this paragraph, to the extent not provided
under the qualified and nonqualified defined benefit plans in which the
Executive participates, and consistent with the provisions of Section 8,
shall be obligations of the Company arising under this Agreement and may be
satisfied from the general assets of the Company or as provided in Section
9.
(c) Benefits. The following Company-paid benefits,
provided for 36 months to the Executive, except when substantially similar
coverage is available to the Executive through other employment. These
benefits shall either be provided to the Executive on a non-taxable basis
or the Executive shall be entitled to an additional payment to offset any
income tax obligations incurred with respect to such benefits according to
the procedures set forth in Section 5(d):
(i) Medical Insurance Plans (including, if applicable for the
Executive, the Executive Medical Plan)
(ii) Prescription Drug Plan
(iii) Dental Insurance Plan
(iv) Basic Life Insurance coverage in the amount in effect at the
time of separation rounded to nearest $1,000 multiple, and
without Accidental Death and Dismemberment coverage.
(v) If eligible at the time of the Change In Control or
Qualified Termination, continuation of the Company provided
automobile benefits.
(vi) In addition, but in lieu of any other Company sponsored
benefit for third party, professional out-placement
services, the sum equal to 15% of the higher of the
Executive's annual base salary in effect on the date of the
Change In Control or on the date of the Qualifying
Termination, payable upon the occurrence of Qualifying
Termination.
(vii) Employee Assistance Program
These provisions are not meant to supersede COBRA rights, which
shall commence from the date that benefits under this Section 5(c) terminate.
(d) Certain Additional Payments by the Company.
(i) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment
or distribution by the Company to or for the benefit of the Executive,
whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise (a "Payment"), would be
subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code") or similar section or
any interest or penalties with respect to such excise tax (such excise
tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Executive
shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all
taxes (including any interest or penalties imposed with respect to
such taxes), including any Excise Tax, imposed upon the Gross-Up
Payment the Executive retains an amount of the Gross-Up Payment equal
to all such taxes imposed upon the Payments.
(ii) Subject to the provisions of subsection 5(d)(iii)
hereof, all determinations required to be made under this subsection
5(d), including whether a Gross-Up Payment is required and the amount
of such Gross-Up Payment, shall be made by Price Waterhouse LLP, or
its successor firm (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and the Executive
within 15 business days of termination of employment under this
Agreement, if applicable, or such earlier time as is requested by the
Executive or the Company. When calculating the amount of the Gross-Up
Payment, the Executive shall be deemed to pay:
(A) Federal income taxes at the highest applicable
marginal rate of Federal income taxation for the calendar year in
which the Gross-Up Payment is to be made, and
(B) any applicable state and local income taxes at
the highest applicable marginal rate of taxation for the calendar
year in which the Gross-up Payment is to be made, net of the
maximum reduction in Federal income taxes which could be obtained
from deduction of such state and local taxes if paid in such
year.
If the Accounting Firm has performed services for the person,
entity or group who caused the Change In Control, or affiliate
thereof, the Executive may select an alternative accounting firm
from any nationally recognized firm of certified public
accountants. If the Accounting Firm determines that no Excise
Tax is payable by the Executive, it shall furnish the Executive
with an opinion that he or she has substantial authority not to
report any Excise Tax on his or her federal income tax return.
Any determination by the Accounting Firm shall be binding upon
the Company and the Executive. As a result of the uncertainty in
the application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by
the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the
event that the Company exhausts its remedies pursuant to
subsection 5(d)(iii) hereof, and the Executive thereafter is
required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company
to or for the benefit of the Executive.
(iii) The Executive shall notify the Company in
writing of any claim by the Internal Revenue Service that, if
successful, would require the payment by the Company of the Gross-Up
Payment. Such notification shall be given as soon as practicable but
no later than ten business days after the Executive knows of such
claim and shall apprise the Company of the nature of such claim and
the date on which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of the thirty day
period following the date on which it gives such notice to the Company
(or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies the
Executive in writing prior to the expiration of such period that it
desires to contest such claim, the Executive shall:
(A) give the Company any information reasonably
requested by the Company relating to such claim,
(B) take such action in connection with contesting
such claim as the Company shall reasonably request in writing
from time to time including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by the Company,
(C) cooperate with the Company in good faith in
order effectively to contest such claim, and
(D) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly
all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall
indemnify and hold the Executive harmless, on an after-tax basis,
for any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such
representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this subsection
5(d)(iii), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue
or forego any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in respect of
such claim and may, at its sole option, either direct the
Executive to pay the tax claimed and sue for a refund or contest
the claim in any permissible manner, and the Executive agrees to
prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and
in one or more appellate courts, as the Company shall determine;
provided, however, that if the Company directs the Executive to
pay such claim and sue for a refund, the Company shall advance
the amount of such payment to the Executive, on an interest-free
basis and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income tax, including
interest or penalties with respect thereto, imposed with respect
to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension
of the statue of limitations relating to payment of taxes for the
taxable year of the Executive with respect to which such
contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a Gross-
Up Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing
authority.
(iv) If after the receipt by the Executive of an
amount advanced by the Company pursuant to subsection 5(d)(iii), the
Executive becomes entitled to receive any refund with respect to such
claim, the Executive shall (subject to the Company's complying with
the requirements of subsection 5(d)(iii)) promptly pay to the Company
the amount of such refund (together with any interest paid or credited
thereon by the taxing authority after deducting any taxes applicable
thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to subsection 5(d)(iii), a
determination is made that the Executive shall not be entitled to any
refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund
prior to the expiration of thirty days after such determination, then
such advance shall be forgiven and shall not be required to be repaid
and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid under subsection
5(d)(iii). The forgiveness of such advance shall be considered part
of the Gross-Up Payment and subject to gross-up for any taxes
(including interest or penalties) associated therewith.
Section 6. Mitigation. Except as specifically provided in
Section 5, the Executive shall not be required to mitigate the amount of any
payment provided for in Section 5 by seeking other employment or otherwise,
nor shall the amount of any payment or benefit provided for in Section 5 be
reduced by any compensation earned by the Executive as the result of
employment by another employer or by retirement benefits after a Qualifying
Termination, or otherwise.
Section 7. Indemnification. (a) Right to Indemnification.
(i) The Company shall pay all costs, losses and expenses (including
without limitation, attorneys' and other fees and expenses, judgments,
fines, penalties and amounts paid in settlement) (collectively,
"Expenses") which the Executive may incur or become liable for in
connection with any threatened, pending or completed action, suit,
proceeding or inquiry (whether civil, criminal, administrative, arbitrative
or investigative and whether formal or informal) (collectively,
"Proceedings") by reason of the fact that the Executive is or was serving
or had agreed to serve at the request of the Company as a director,
officer, employee or agent of the Company or another corporation,
partnership, joint venture, trust or other enterprise, including without
limitation any subsidiary of the Company.
(ii) If the Executive is entitled under this Agreement
to indemnification by the Company for some, but not the total amount,
of any Expenses, the Company shall nevertheless indemnify the
Executive for the portion of such Expenses to which the Executive is
entitled to indemnification.
(b) Advancement of Expenses. (i) The Company shall pay
all Expenses incurred by the Executive in participating in or preparing to
participate in any Proceeding in advance of the final disposition of such
Proceeding upon request by the Executive that the Company pay such
Expenses, subject only to delivery to the Company of: (A) a written
affirmation that, with respect to the subject of such Proceeding, (1) the
Executive conducted himself in good faith, (2) the Executive reasonably
believed (a) in the case of conduct in his official capacity, that his
conduct was in the best interests of the Company, and (b) in all other
cases, that his conduct was at least not opposed to the best interests of
the Company and (3) in the case of any criminal proceeding, the Executive
had no reasonable cause to believe his conduct was unlawful; and (B) the
Executive's unsecured written undertaking to repay any funds advanced if
and to the extent that it is ultimately determined that the Executive is
not entitled under applicable law to be indemnified as provided hereby.
(ii) The written undertaking referred to in Section
7(b)(i)(B) shall be accepted without reference to the ability of the
Executive to make repayment.
(c) Procedures. (i) The Executive shall promptly notify
the Company in writing of any Proceeding brought, threatened, commenced or
asserted against the Executive in respect of which indemnification may or
could be sought under this Agreement.
(ii) The Company shall have the right to assume the
defense of any such Proceeding, including the employment of counsel
reasonably satisfactory to the Executive and the payment of all
Expenses. The Executive shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the
expense of the Executive unless (A) the Company agrees to pay such
fees and expenses, (B) the Company shall have failed promptly to
assume the defense of such Proceeding or (C) the Executive shall have
reasonably concluded, upon the advice of counsel, that there is a
conflict of interest between the Executive and the Company. If the
Executive has made the conclusion referred to in clause (C), the
Company shall not have the right to assume the defense of such
Proceeding on behalf of the Executive.
(iii) Neither the Company nor the Executive may settle
or compromise any Proceeding covered by the indemnification set forth
herein without the prior written consent of the other, which such
consent shall not to be unreasonably withheld or delayed.
(iv) The Company shall make payment of any amount due
by it under this Agreement against delivery to the Company of
appropriate invoices or receipts or such other evidence of Expenses as
the Company reasonably requires.
(d) Insurance. (i) The Company hereby agrees to obtain
and maintain in effect for the benefit of the Executive a policy or
policies of insurance with reputable insurance companies providing for
customary directors and officers liability insurance in appropriate
amounts.
(ii) Nothing herein is intended to replace, preempt or
otherwise affect the obligation of any insurer to make any payment
under any policy of insurance, whether or not existing on the date
hereof.
(e) Non-Exclusivity; No Duplication. The rights of the
Executive to indemnification under this Agreement shall not be exclusive of
any other rights the Executive may have under the Company's Certificate of
Incorporation or By-laws, the Connecticut Business Corporation Act (as
amended from time to time, the "Act"), any insurance or otherwise; provided
that the Company shall not be liable under this Agreement to make any
payment in connection with any claim to the extent the Executive has
otherwise received payment (under the Certificate of Incorporation or By-
laws, the Act, any insurance policy or otherwise) of Expenses otherwise
indemnifiable hereunder; and provided further that the Executive shall
reimburse the Company for amounts paid to the Executive pursuant to such
other rights to the extent such payments duplicate any payments received
pursuant to this Agreement.
(f) Subrogation. In the event of payment of any Expenses,
the Company shall be subrogated to the extent of such payment to all of the
rights of recovery of the Executive, who shall execute all papers required
and shall do everything that may be necessary to secure such rights,
including the execution of such documents necessary to enable the Company
effectively to bring suit to enforce such rights.
Section 8. No Duplication of Payments or Benefits. To the
extent that payments or benefits contemplated by this Agreement are also
contemplated by other plans or arrangements of the Company, such payments or
benefits shall first be provided under such other plans or arrangements, with
only the excess provided under this Agreement. This Agreement shall also
provide any payments or benefits contemplated to be provided under such other
plans or arrangements, which for any reason are not or cannot be provided
under such other plans or arrangements.
Section 9. Trust and Obligation Funding. The Company may
establish a trust, which is intended to be treated as and interpreted as a
"grantor trust" under the Code, and which, to the extent funded in respect of
this Agreement, shall not be intended to cause the Executive to realize income
on amounts contributed thereto (the "Trust"), with a trustee (the "Trustee"),
pursuant to such terms and conditions as may be set forth in a Trust Agreement
to be entered into between the Company and the Trustee. At the discretion of
the Company prior to a Change In Control, and in all cases following a Change
In Control, any amounts that become payable to any person under this
Agreement, shall first be paid from the Trust and then, to the extent not paid
from the Trust, shall be paid out of the general assets of the Company. To
the extent that any payments are made from the Trust, the Company shall be
relieved of its obligation to pay such amounts.
Section 10. Notices. All notices or other communications that
are required or permitted hereunder shall be in writing and sufficient if
delivered personally or sent by certified or registered mail, overnight
delivery or by facsimile transmission. Notice to the Company shall be given
at its then-existing corporate headquarters and shall be directed to the
Secretary (or such other location or person as the Company subsequently shall
designate in writing to the Executive). Notice to the Executive shall be
given at the address set forth on the signature page hereof (or such other
address as the Executive subsequently shall designate in writing to the
Company).
Section 11. Waiver. Failure to insist upon strict compliance
with any of the terms, covenants, or conditions hereof shall not be deemed a
waiver of such term, covenant, or condition, nor shall any waiver or
relinquishment of any right or power hereunder at any one or more times be
deemed a waiver or relinquishment of such right or power at any other time or
times.
Section 12. Severability. The invalidity or unenforceability
of any provision hereof shall in no way affect the validity or enforceability
of any other provision. In the event that any part of a covenant contained
herein is determined by a court of law to be invalid, a judicially enforceable
provision shall be substituted in its place. Any covenant so modified shall
be binding upon the parties and shall have the same force and effect as if
originally set forth in this Agreement.
Section 13. Modification. This Agreement may be amended only
in writing, signed by both parties hereto.
Section 14. Headings. The headings in this Agreement are
inserted for convenience only and are not to be considered a construction of
the provisions thereof.
Section 15. Successors; Binding Agreement. (a) The Company
will require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company to expressly assume and agree to perform this Agreement
in the same manner and to the same extent that the Company would be required
to perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as herein before defined and any
successor to its business and/or assets as aforesaid which assumes and agrees
to perform this Agreement by operation of law, or otherwise. Prior to a
Change In Control, the term "Company" shall also mean any affiliate of the
Company to which the Executive may be transferred and the Company shall cause
such successor employer to be considered the "Company" bound by the terms of
this Agreement and this Agreement shall be amended to so provide. Following a
Change In Control the term "Company" shall not mean any affiliate of the
Company to which the Executive may be transferred unless the Executive shall
have previously approved of such transfer in writing, in which case the
Company shall cause such successor employer to be considered the "Company"
bound by the terms of this Agreement and this Agreement shall be amended to so
provide.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
the Executive should die while any amount would still be payable to the
Executive hereunder if the Executive had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms
of this Agreement to the Executive's devisee, legatee or other designee or, if
there is no such designee, to the Executive's estate.
Section 16. Resolution of Disputes; Choice of Forum. The
parties agree that any dispute, controversy or claim arising out of or
relating to this Agreement shall, at the election of the Executive, be
resolved by final and binding arbitration, enforceable under the Federal
Arbitration Act, administered by the American Arbitration Association under
its Commercial Arbitration Rules, and judgment on the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof. All such
disputes, controversies or claims shall be determined by a panel of three
arbitrators selected in accordance with the rules of the American Arbitration
Association and the arbitration shall be conducted in the City of New Haven,
State of Connecticut. In the event that within 60 days after the Company
commences litigation in connection with this Agreement the Executive commences
an arbitration proceeding concerning the same issue or issues, the Company
shall promptly terminate such litigation and submit to the jurisdiction of the
arbitration proceeding to the extent that it involves such issue or issues.
This Section shall survive the termination of this Agreement for any reason.
Section 17. Payment of Expenses. In the event that any
Proceeding is instituted by the Executive to enforce or interpret the
Executive's rights hereunder, the Executive shall be entitled to be paid all
Expenses incurred by the Executive with respect to such Proceeding, unless as
a part of such Proceeding, the arbitration panel or court of competent
jurisdiction determines that the material assertions made by the Executive as
a basis for such Proceeding were not made in good faith or were frivolous, in
which case each party to the Proceeding shall bear its own costs. The
Executive may claim payment for such Expenses from the Trust described in
Section 9 of this Agreement, and shall be paid from the general assets of the
Company to the extent not paid from the Trust.
Section 18. Governing Law. This Agreement shall be construed
and enforced in accordance with the laws of the State of Connecticut.
Section 19. Counterparts. This Agreement may be signed in any
number of counterparts, each of which shall be deemed an original, with the
same effect as if the signatures thereto and hereto were upon a single
instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement the day and year first above written.
ECHLIN INC.
By:
-------------------------------------
Name:
Title:
-----------------------------------------
Name:
Address:
INDEMNIFICATION AGREEMENT
Indemnification Agreement entered into on April 23, 1998
between Echlin Inc., a Connecticut corporation (the "Company"), and
(the "Indemnitee").
WITNESSETH:
WHEREAS, the Indemnitee is currently serving as a director of
the Company;
WHEREAS, Sections 33-770 to 33-778, inclusive, of the
Connecticut Business Corporation Act (as amended from time to time, the "Act")
permit the Company, in its Certificate of Incorporation, By-laws, a resolution
of its shareholders or Board of Directors, or in a contract or otherwise,
subject to certain limitations, to indemnify directors and officers of the
Company in respect of certain losses and liabilities incurred by such persons
in their official capacities, and Section 33-777 of the Act permits the
Company to purchase and maintain insurance for the benefit of directors and
officers of the Company in respect of such losses and liabilities;
WHEREAS, Section Seventh of the Company's Certificate of
Incorporation, as amended to date, provides that a director of the Company
shall have no personal liability to the Company or its shareholders for
monetary damages for any breach of duty in such capacity in excess of the
compensation received by the director for serving the corporation during the
year of violation, to the full extent permitted by applicable law, and the
Indemnitee has been serving and continues to serve as a director of the
Company in part in reliance on the foregoing exculpatory provision;
WHEREAS, Article II, Section 10 and Article III, Section 7 of
the Company's By-laws provide for indemnification by the Company in favor of
every director and other officer of the Company to the full extent permitted
by law, and the Indemnitee has been serving and continues to serve as a
director of the Company in part in reliance on his being indemnified by the
Company; and
WHEREAS, the Company has purchased and maintained insurance for
the benefit of directors and other officers of the Company in respect of
certain losses and liabilities incurred by such persons in their official
capacities;
WHEREAS, in recognition of the Indemnitee's reliance on his
being indemnified by the Company, the Company desires to provide the
Indemnitee with specific contractual assurance that the Indemnitee is
indemnified by the Company to the full extent permitted by applicable law.
NOW, THEREFORE, the parties hereto agree as follows:
1. Indemnification. (a) The Company shall pay all costs,
losses and expenses (including without limitation, attorneys' and other fees
and expenses, judgments, fines, penalties and amounts paid in settlement)
(collectively, "Expenses") which the Indemnitee may incur or become liable for
in connection with any threatened, pending or completed action, suit,
proceeding or inquiry (whether civil, criminal, administrative, arbitrative or
investigative and whether formal or informal) (collectively, "Proceedings") by
reason of the fact that the Indemnitee is or was a director of the Company, or
is or was serving or had agreed to serve at the request of the Company as a
director, officer, employee or agent of the Company or another corporation,
partnership, joint venture, trust or other enterprise, including without
limitation any subsidiary of the Company.
(b) If the Indemnitee is entitled under this Agreement to
indemnification by the Company for some, but not the total amount, of
any Expenses, the Company shall nevertheless indemnify the Indemnitee
for the portion of such Expenses to which the Indemnitee is entitled
to indemnification.
(c) In the event that any Proceeding is instituted by the
Indemnitee to enforce or interpret the Indemnitee's right to
indemnification hereunder, the Indemnitee shall be entitled to be paid
all Expenses incurred by the Indemnitee with respect to such
Proceeding, unless as a part of such Proceeding, the court of
competent jurisdiction determines that the material assertions made by
the Indemnitee as a basis for such Proceeding were not made in good
faith or were frivolous, in which case each party to the Proceeding
shall bear its own costs.
(d) The obligation of the Company to pay Expenses of the
Indemnitee in respect of a Proceeding pursuant to Section 1(a) hereof
shall be subject to a determination, made as provided in Section 1(e)
hereof, that, with respect to the subject of such Proceeding, (i) the
Indemnitee conducted himself in good faith, (ii) the Indemnitee
reasonably believed (A) in the case of conduct in his official
capacity, that his conduct was in the best interests of the Company,
and (B) in all other cases, that his conduct was at least not opposed
to the best interests of the Company and (iii) in the case of any
criminal proceeding, the Indemnitee had no reasonable cause to believe
his conduct was unlawful.
(e) The determination required in Section 1(d) hereof
shall be made by the Board of Directors of the Company if, at the time
of a specific Proceeding in respect of which such determination is
required, (i) a majority of the members of the Board of Directors of
the Company consists of persons who are members of the Board of
Directors on the date of this Agreement and (ii) such determination
can be made by the Board of Directors consistently with the provisions
of Section 33-775(b)(1) of the Act. In the event that such
determination cannot so be made by the Board of Directors, then the
determination required in Section 1(d) hereof shall be made by special
legal counsel appointed as provided in Section 33-775(b)(2)(B) of the
Act.
(f) The Company shall appoint special legal counsel for
the purpose indicated in Section 1(e) not later than 30 days following
the date of this Agreement and the Company shall (i) not revoke such
appointment without the consent of the Indemnitee, (ii) comply with
all of the terms and conditions of any agreement with such special
legal counsel entered into by the Company in connection with such
appointment and (iii) in the event of the resignation or other
termination of the appointment of such special legal counsel, promptly
appoint a successor special legal counsel.
(g) Any special legal counsel appointed pursuant to this
Agreement shall be (i) highly qualified in matters of Connecticut
corporate law and applicable standards of conduct of directors and
officers of Connecticut corporations and (ii) independent of any
professional or other relationship with the Indemnitee, any member of
the Board of Directors of the Company, or the Company itself.
2. Advancement of Expenses. (a) The Company shall pay all
Expenses incurred by the Indemnitee in participating in or preparing to
participate in any Proceeding in advance of the final disposition of such
Proceeding upon request by the Indemnitee that the Company pay such Expenses,
subject only to delivery to the Company of: (1) a written affirmation of the
Indemnitee's good faith belief that the Indemnitee has met the relevant
standard of conduct described in section 1(d) hereof; and (2) the Indemnitee's
unsecured written undertaking to repay any funds advanced if and to the extent
that it is ultimately determined that the Indemnitee is not entitled under
applicable law to be indemnified as provided hereby.
(b) The written undertaking referred to in Section 2(a)
(2) shall be accepted without reference to the ability of the
Indemnitee to make repayment.
3. Procedures. (a) The Indemnitee shall promptly notify
the Company in writing of any Proceeding brought, threatened, commenced or
asserted against the Indemnitee in respect of which indemnification may or
could be sought under this Agreement.
(b) The Company shall have the right to assume the defense
of any such Proceeding, including the employment of counsel reasonably
satisfactory to the Indemnitee and the payment of all Expenses. The
Indemnitee shall have the right to employ separate counsel in any such
Proceeding and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of the Indemnitee
unless (i) the Company agrees to pay such fees and expenses, (ii) the
Company shall have failed promptly to assume the defense of such
Proceeding or (iii) the Indemnitee shall have reasonably concluded,
upon the advice of counsel, that there is a conflict of interest
between the Indemnitee and the Company. If the Indemnitee has made
the conclusion referred to in clause (iii), the Company shall not have
the right to assume the defense of such Proceeding on behalf of the
Indemnitee.
(c) Neither the Company nor the Indemnitee may settle or
compromise any Proceeding covered by the indemnification set forth
herein without the prior written consent of the other, which such
consent shall not to be unreasonably withheld or delayed.
(d) The Company shall make payment of any amount due by it
under this Agreement against delivery to the Company of appropriate
invoices or receipts or such other evidence of Expenses as the Company
reasonably requires.
4. Insurance. (a) The Company hereby agrees to obtain and
maintain in effect for the benefit of the Indemnitee a policy or policies
of insurance with reputable insurance companies providing for customary
directors and officers liability insurance in appropriate amounts.
(b) Nothing herein is intended to replace, preempt or
otherwise affect the obligation of any insurer to make any payment
under any policy of insurance, whether or not existing on the date
hereof.
5. Non-Exclusivity; No Duplication. The rights of the
Indemnitee under this Agreement shall not be exclusive of any other rights
the Indemnitee may have under the Company's Certificate of Incorporation or
By-laws, the Act, any insurance or otherwise; provided that the Company
shall not be liable under this Agreement to make any payment in connection
with any claim to the extent the Indemnitee has otherwise received payment
(under the Certificate of Incorporation or By-laws, the Act, any insurance
policy or otherwise) of Expenses otherwise indemnifiable hereunder; and
provided further that the Indemnitee shall reimburse the Company for
amounts paid to the Indemnitee pursuant to such other rights to the extent
such payments duplicate any payments received pursuant to this Agreement.
6. Subrogation. In the event of payment of any Expenses,
the Company shall be subrogated to the extent of such payment to all of the
rights of recovery of the Indemnitee, who shall execute all papers required
and shall do everything that may be necessary to secure such rights,
including the execution of such documents necessary to enable the Company
effectively to bring suit to enforce such rights.
7. Notices. All notices or other communications that are
required or permitted hereunder shall be in writing and sufficient if
delivered personally or sent by certified or registered mail, overnight
delivery or by facsimile transmission. Notice to the Company shall be
given at its then-existing corporate headquarters and shall be directed to
the Secretary (or such other location or person as the Company subsequently
shall designate in writing to the Indemnitee). Notice to the Indemnitee
shall be given at the address set forth on the signature page hereof (or
such other address as the Indemnitee subsequently shall designate in
writing to the Company).
8. Binding Effect; Successors and Assigns. This Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
parties hereto and their respective successors (including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all
or substantially all of the business or assets of the Company), permitted
assigns, heirs and legal representatives; provided that this Agreement and
the rights and obligations hereunder may not be assigned (in whole or in
part) by any party hereto without the prior written consent of the other
party hereto.
9. Severability. If any provision of this Agreement or the
application of any provision hereof to any person or circumstances is held
invalid, unenforceable or otherwise illegal, the remainder of this
Agreement and the application of such provision to other persons or
circumstances shall not be affected, and the provision so held to be
invalid, unenforceable or otherwise illegal shall be modified to the extent
(but only to the extent) necessary to make it enforceable, valid and legal.
10. Amendment. No supplement, modification or amendment of
this Agreement shall be valid or binding unless executed in writing by both
of the parties hereto.
11. Applicable Law. (a) The provisions of this Agreement
shall apply subject to, but to the full extent permitted by, the Act and
any other applicable law.
(b) This Agreement shall be governed by the laws of Connecticut,
without regard to the principles of conflicts of laws thereof.
IN WITNESS WHEREOF, this Agreement has been executed on the
date first above written.
ECHLIN INC.
By:
-------------------------------------
Name:
Title:
Indemnitee
--------------------------------------
FIRST AMENDMENT TO
UNFUNDED, NON-QUALIFIED
DEFERRED COMPENSATION AGREEMENT
FIRST AMENDMENT dated as of April 23, 1998 ("this Amendment")
by and between Echlin Inc., a Connecticut corporation (the "Company" or
"Echlin") and __________ (the "Participant").
WITNESSETH:
WHEREAS, effective as of January 1, 1977, the Company established an Unfunded,
Non-Qualified Deferred Compensation Plan (the "Plan"); and
WHEREAS, the parties have entered into an agreement (the
"Agreement") pursuant to the Plan; and
WHEREAS, the parties wish to amend the Agreement in the manner
set forth below.
NOW, THEREFORE, the parties hereto agree as follows:
1. All capitalized terms used herein, unless otherwise defined
herein, shall have the meanings given them in the Agreement, and each
reference in the Agreement to "this Agreement", "hereof", "herein",
"hereunder" or "hereby" and each other similar reference shall be deemed to
refer to the Agreement as amended hereby. All references to the Agreement in
any other agreement between or among any of the parties hereto relating to the
transactions contemplated by the Agreement shall be deemed to refer to the
Agreement as amended hereby.
2. A new Section 4(b)(iii), entitled "Distribution Following
Change In Control" shall be added, which shall read, in its entirety, as
follows:
Notwithstanding the foregoing provisions of this subsection
(b), if there is an event that constitutes a Change In
Control (as hereinafter defined), the Participant shall
automatically receive the unpaid balance of the Deferred
Compensation Account, to be paid in a lump sum within thirty
(30) days of the occurrence of the Change In Control.
An event constituting a "Change In Control" shall occur when
(and only when) Echlin obtains actual knowledge that: (a) any
person within the meaning of Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"),
other than Echlin or any of its subsidiaries, has become the
beneficial owner, within the meaning of Rule 13d-3 under the
1934 Act, of thirty percent (30%) or more of the combined
voting power of Echlin's then outstanding voting securities;
or (b) a tender offer or exchange offer, other than an offer
by Echlin, has expired, pursuant to which twenty percent
(20%) or more of the combined voting power of Echlin's then
outstanding shares of common stock have been purchased; or
(c) the stockholders of Echlin have approved an agreement to
merge or consolidate with or into another corporation and
Echlin is not the surviving corporation or an agreement to
sell or otherwise dispose of all or substantially all of
Echlin's assets (including a plan of liquidation); or (d)
during any period of two consecutive years, individuals who
at the beginning of such period constitute the Board of
Directors of Echlin cease for any reason to constitute at
least a majority thereof, unless the election or the
nomination for the election by Echlin's stockholders of each
new director was approved by a vote of at least two-thirds
((2)/(3)) of the directors then still in office who were
directors at the beginning of the period, but excluding for
this purpose any such individual whose initial assumption of
office occurs as a result of either an actual or threatened
election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the 1934 Act) or other
actual or threatened solicitation of proxies or consents by
or on behalf of an individual, corporation, partnership,
group, association or other entity or "person" other than
the Board of Directors of Echlin; provided that, with
respect to an event described in clauses (a), (b) or (c),
above, such event shall only constitute a Change In Control
if, and at such time as, the Board of Directors of Echlin
declares, in its sole discretion, that the event qualifies
or will qualify as a Change In Control.
3. This Amendment shall be shall be governed by and construed
in accordance with the laws of Connecticut.
6. This Amendment may be signed in any number of counterparts,
each of which shall be deemed an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
7. Except as expressly amended hereby, the Agreement shall
remain in full force and effect.
IN WITNESS WHEREOF, this Amendment has been duly executed by
the parties hereto, in each case as of the date first above written.
ECHLIN INC.
By: ________________________________
Name:
Title:
Participant:
________________________________
Name:
THE ECHLIN INC. PERFORMANCE UNIT PLAN
AS AMENDED AND RESTATED APRIL 23, 1998
The following is the Performance Unit Plan of Echlin Inc. ("the
Company"), as originally adopted by the Board of Directors of the Company at a
regular meeting of the Board of Directors held on October 20, 1976 and as
subsequently amended through and April 23, 1998:
1. Name. The name of the Plan is The Echlin Inc. Performance Unit
Plan (hereinafter called the "Plan").
2. Purpose. The purpose of the Plan is to provide incentive to
certain key employees of the Company and of its subsidiary corporations
to improve the earnings and performance of the Company. In addition if
earning targets are met, it is also intended to provide a source of funds
for participants to use to exercise stock options granted under the
Company's Stock Option Plan.
3. Eligibility. Employees eligible to participate in the Plan
shall be those key employees of the Company or any subsidiary corporation
whose efforts may have an effect upon the growth and performance of the
Company and who shall be selected to participate in the Plan by the
Compensation and Management Development Committee or any successor
thereto (hereinafter called the "Committee") of the Board of Directors of
the Company.
4. Administration. The Plan shall be administered by the
Committee. No member of the Committee shall be eligible to participate in
the Plan. The Committee shall consist of two or more directors of the
Board of Directors. It is intended that the directors designated to serve
on the Committee shall be "disinterested persons" (within the meaning of
Rule 16b-3 promulgated under the Securities Exchange Act of 1934 (the
"1934 Act")) and "outside directors" (within the meaning of Section
162(m) of the Internal Revenue Code of 1986, as amended); however, the
mere fact that a Committee member shall fail to qualify under either of
these requirements shall not invalidate any award made by the Committee
which award is otherwise validly made under the Plan. The Committee
shall have power to construe and interpret the Plan and to establish and
amend rules, regulations and forms for its administration and to certify
all payments made under the Plan. The determination of the Committee on
all matters relating to the Plan shall be conclusive. No member of the
Committee shall be liable for any action or determination made in good
faith with respect to the Plan or any award thereunder. Notwithstanding
anything to the contrary herein, the Board of Directors, other than
Directors who are participants under the Plan or who are otherwise not
"disinterested persons" or "outside directors", may, in its sole
discretion, at any time from time to time, administer the Plan, in which
case, the term Committee as used herein shall be deemed to mean the Board
of Directors.
5. Award of Performance Units. Annually, within 90 days after the
close of the Company's fiscal year, the Committee may award to eligible
employees Performance Units in such amounts so as to have a target value
at the conclusion of a three-year cycle equal to a pre-determined
percentage of salary grade midpoint compensation. Such percentage is
adjusted to reflect individual and business unit performance ratings for
the just completed fiscal year.
6. Value of Performance Units. In connection with each award, the
Committee shall establish a targeted three-year compound growth rate in
earnings per share for such three year cycle of the Plan. The value of a
Performance Unit shall be equal to (i) the actual earnings per share of
the Common Stock of the Company for the three full fiscal years beginning
with the fiscal year in which an award of a Performance Unit is made to
an employee, multiplied by (ii) a performance factor based on the annual
growth rate in earnings per share by comparing, upon a compounded basis,
the earnings per share for the final year of the period with the earnings
per share of the Company during the fiscal year immediately preceding the
award of a Performance Unit, interpolated with reference to the following
table:
Three-Year Compound
Growth Rate Achieved Performance Factor
-------------------- ------------------
Equal to or Greater than 150%
of the Targeted Growth Rate 200%
Equal to the Targeted Growth Rate 100%
Equal to 50% of the Targeted Growth Rate 25%
Less than 50% of the Targeted Growth Rate 0%
Earnings per share for any fiscal year will be determined by reference
to the published financial reports of the Company by dividing reported
consolidated net income for the year by the reported average number of common
shares outstanding, during such year.
7. Vesting of Performance Units.
(a) General. The value of Performance Units will vest fully in
the employee to whom awarded at the close of business on the last day
of the fiscal year with reference to which the value of a Performance
Unit is finally determined.
(b) Vesting Upon Change in Control. If there is an event
constituting a Change In Control (as hereinafter defined) of the
Company, the value of all outstanding Performance Units shall
immediately vest in the employee to whom awarded as of the date on
which such Change In Control occurs. The value shall be equal to (a)
one hundred percent (100%) of the targeted value of each unit at the
time of issuance as recorded in the office of the Vice President-Human
Resources multiplied by (b) a fraction, the numerator of which is the
number of full and partial months since the beginning of the fiscal
year in which the Performance Unit was awarded until the date on which
the Change In Control occurs, and the denominator of which is
thirty-six (36).
(c) Definition of Change In Control. An event constituting a
"Change In Control" shall occur when (and only when) the Company
obtains actual knowledge that: (a) any person within the meaning of
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), other than the Company or any of its
subsidiaries, has become the beneficial owner, within the meaning of
Rule 13d-3 under the 1934 Act, of thirty percent (30%) or more of the
combined voting power of the Company's then outstanding voting
securities; or (b) a tender offer or exchange offer, other than an
offer the Company, has expired, pursuant to which twenty percent (20%)
or more of the combined voting power of the Company's then outstanding
shares of common stock have been purchased; or (c) the stockholders of
the Company have approved an agreement to merge or consolidate with or
into another corporation and the Company is not the surviving
corporation or an agreement to sell or otherwise dispose of all or
substantially all of the Company's assets (including a plan of
liquidation); or (d) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board
of Directors of the Company cease for any reason to constitute at
least a majority thereof, unless the election or the nomination for
the election by the Company's stockholders of each new director was
approved by a vote of at least two-thirds (2/3) of the directors then
still in office who were directors at the beginning of the period, but
excluding for this purpose any such individual whose initial
assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the 1934 Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of an
individual, corporation, partnership, group, associate or other entity
or "person" other than the Board of Directors of the Company; provided
that, with respect to an event described in clauses (a), (b) or (c),
above, such event shall only constitute a Change In Control if, and at
such time as, the Board of Directors of the Company declares, in its
sole discretion, that the event qualifies or will qualify as a Change
In Control. A Change In Control shall also occur with respect to a
participant under the Plan who is an employee of an employer that is a
wholly owned subsidiary of the Company, but only one of the events
described in (a), (b) or (c) of the preceding sentence occurs with
respect to that employer.
8. Payments on Account of Performance Units and Maximum Payments.
Payments on account of Performance Units which have fully vested shall be
made to the employees in whom such Units have vested, seventy percent
(70%) in cash within 90 days of the date upon which such units become
vested and thirty percent (30%) in Common Stock of the Company purchased
at market after the end of the three-year performance cycle in conformity
with applicable federal and state securities laws and allocated to
participants in accordance with the rules and regulations established by
the Committee. Payments on account of Performance Units awarded prior to
Fiscal Year 1995 and on account of Performance Units vesting upon a
Change In Control shall be one hundred percent (100%) in cash. Subject
to adjustments made consistent with paragraph 9(i) hereof, (i) the
aggregate number of shares of Common Stock to be purchased and delivered
under the Plan shall not exceed 1,000,000 shares; (ii) no participant may
receive more than 50,000 shares in payment on account of Performance
Units which have become fully vested in any calendar year; and (iii) the
maximum payment on account of Performance Units for each three-year cycle
to any one participant shall be $5,000,000 including the value of shares
received. Performance Units payable in shares but in excess of the
limitation provided in subparagraph (ii) above, shall be payable in cash.
9. Adjustments. The Committee may make adjustments from time to
time in the number of Performance Units credited to any employee's
account or in the earnings per share, in such reasonable manner as the
Committee may determine to reflect (i) any increase or decrease in the
number of issued shares of common stock of the Company resulting from a
subdivision or consolidation of shares or any other capital adjustment,
the payment of stock dividends or other increases or decreases in such
shares effected without receipt of consideration by the Company; or (ii)
material changes in the Company's accounting practices or principles; or
(iii) material acquisitions or dispositions, the effect of which would be
to distort earnings per share of the Performance Factor described above.
Provided, however, that no such adjustment shall be made to the extent
that the Committee determines that adjustment would cause payment under
the award to fail to be fully deductible by the Company under Section
162(m) of the Code.
10. Disability, Death, Retirement or Termination. If before the
vesting of Performance Units, an employee holding such Units ceases to be
employed by the Company or any of its subsidiaries for any reason other
than death, disability or retirement, unvested Performance Units will be
forfeited.
In the event of an employee's death, disability or retirement
before the vesting of any Performance Units which he or she may hold, the
Committee may provide in its sole discretion for the vesting and payment
of any such unvested Performance Units upon an equitable basis reflecting
the performance of the Company during the period beginning on the date
when such employee was awarded Performance Units and ending upon the date
of disability, death or retirement.
No Performance Unit shall be regarded as in any way vested unless
the employee is in the employ of the Company or any of its subsidiaries
at the conclusion of the period in which the value of any Performance
Unit is finally determined, and the decision of the Committee with
respect to any such determinate shall be final.
11. Amendment or Termination of Plan. The Board of Directors,
other than Directors who are participants under the Plan or who are
otherwise not "disinterested persons" or "outside directors", may amend,
suspend or terminate this Plan at any time or from time to time,
provided, however, that no amendment, suspension or termination may
affect the terms of any then outstanding Performance Units except with
the written consent of the holder thereof and that no amendment may be
made which shall (i) increase the aggregate number of shares purchased
for distribution under the Plan (except for adjustments pursuant to
paragraph 9(i) above), (ii) materially modify the requirements for
eligibility to participate in the Plan, or (iii) materially increase the
benefits accruing to participants under the Plan, without the approval of
the Company's shareholders.
12. Continuance of Employment. The Plan shall not impose any
obligation on the Company or its subsidiary corporations to continue the
employment of any person.
13. Trust and Plan Funding. The Company may establish a trust,
which is intended to be treated as and interpreted as a "grantor trust"
under the Code, and which, to the extent funded in respect of this Plan,
shall not be intended to cause a participant in the Plan to realize
income on amounts contributed thereto (the "Trust"), with a trustee (the
"Trustee"), pursuant to such terms and conditions as may be set forth in
a Trust Agreement to be entered into between the Company and the Trustee.
At the discretion of the Company prior to a Change In Control, and in all
cases following a Change In Control, any amounts that become payable to
any person under the Plan, shall first be paid from the Trust and then,
to the extent not paid from the Trust, shall be paid out of the general
assets of the Company. To the extent that any payments are made from the
Trust, the Company shall be relieved of its obligation to pay such
amounts.
ECHLIN INC.
By ___________________
Larry W. McCurdy
Chairman of the Board,
President and Chief
ATTEST: Executive Officer
____________________
Jon P. Leckerling
Senior Vice President
and Corporate Secretary
APPROVED BY:
____________________
Trevor O. Jones
Chairman, Compensation
and Management Development
Committee of the Board
of Directors
ECHLIN INC. CHANGE IN CONTROL SEVERANCE POLICY
CHANGE IN CONTROL PROVISION APPLICABLE TO SALARIED EMPLOYEES OF ECHLIN INC.'S
CORPORATE STAFF AND OTHER DESIGNATED EMPLOYEES OF SUBSIDIARIES OF ECHLIN INC.
It is the intent of ECHLIN INC. (Company) to provide Change In Control (as
hereinafter defined) protection through salary continuation and benefits for
certain designated employees (as hereinafter defined) who (a) are active
employees of the Company on the date immediately preceding the date on which a
Change In Control occurs and (b)(1) separate from service with the Company for
Good Reason (as defined below) on or after the date on which a Change In
Control occurs and within the time limits specified below, or (2) whose
employment with the Company involuntarily terminated (other than for cause,
disability, or death) on or after the date on which a Change In Control occurs
and within the time limits specified below. Designated Employees (each a
"Designated Employee") shall be those salaried employees of Echlin Inc. or any
wholly owned U.S. or Canadian based subsidiary or division of Echlin Inc. who
are identified on a list, which may be amended from time to time prior to an
event constituting a Change In Control (as hereinafter defined), maintained by
the Senior Vice President, General Counsel and Corporate Secretary of the
Company (the "Designated Employee List"). Designated Employee who incurs a
Qualifying Termination (as defined below) will be entitled to a notice period
of at least thirty (30) days and will be paid through such notice period an
amount based on the higher of the annual base salary in effect on the date
that the Change In Control occurs or on the date the notice period begins. A
Designated Employee will also be entitled to be paid a severance benefit
determined under item d. below in a lump sum within thirty (30) days of the
effective date of his or her Qualifying Termination and to the benefits set
forth in item e. below.
PERSONNEL POLICY DIRECTIVE
SUBJECT: SEVERANCE COMPENSATION PLAN FOR SALARIED EMPLOYEES
OF ECHLIN INC.'s CORPORATE STAFF AND OTHER DESIGNATED
EMPLOYEES
a) If there is an event constituting a Change In Control (as hereinafter
defined) of Echlin Inc., and the Board of Directors declares, in its
sole discretion, that such event qualifies or will qualify as a Change
In Control for purposes of this Echlin Inc. Change In Control Severance
Policy, except for purposes of such provisions as the Board of
Directors may explicitly designate, each Designated Employee will have
a contractual right against the Company to the benefits provided within
this Policy under the conditions and according to the exceptions
specified. These contractual rights, if the conditions specified below
are met, will accrue on the date which the Change In Control occurs.
For purposes of the Policy, the term Company would be deemed to include
any successor of the Company.
b) An event constituting a "Change In Control" shall occur when (and only
when) the Company obtains actual knowledge that: (a) any person within
the meaning of Sections 13(d) and 14(d) of the Securities Exchange Act
of 1934, as amended (the "1934 Act"), other than the Company or any of
its subsidiaries, has become the beneficial owner, within the meaning
of Rule 13d-3 under the 1934 Act, of thirty percent (30%) or more of
the combined voting power of the Company's then outstanding voting
securities; or (b) a tender offer or exchange offer, other than an
offer by the Company, has expired, pursuant to which twenty percent
(20%) or more of the combined voting power of the Company's then
outstanding shares of common stock have been purchased; or (c) the
stockholders of the Company have approved an agreement to merge or
consolidate with or into another corporation and the Company is not the
surviving corporation or an agreement to sell or otherwise dispose of
all or substantially all of the Company's assets (including a plan of
liquidation); or (d) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board of
Directors of the Company cease for any reason to constitute at least a
majority thereof, unless the election or the nomination for the
election by the Company's stockholders of each new director was
approved by a vote of at least two-thirds (2/3) of the directors then
still in office who were directors at the beginning of the period, but
excluding for this purpose any such individual whose initial assumption
of office occurs as a result of either an actual or threatened election
contest (as such terms are used in Rule l4a- 11 of Regulation 14A
promulgated under the 1934 Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of an individual,
corporation, partnership, group, associate or other entity or "person"
other than the Board of Directors of the Company.
c) A "Qualifying Termination" of a Designated Employee is defined to
mean: layoff or involuntary termination of the Designated Employee's
employment (other than for Cause, death or Disability) or termination
of employment by the Designated Employee for Good Reason, all occurring
within two years after the date a Change In Control occurs.
Termination of employment shall be considered to be for "Cause,"
whether it occurred by resignation or discharge, if the reason for the
termination of employment was the Designated Employee's proven in a
court of law or admitted embezzlement, dishonesty, fraud, conviction on
a felonious or other charge involving moral turpitude, all in
connection with the Company's affairs. The Board of Directors or,
following a Change In Control, the Trust Administration Committee,
shall make the determination as to whether the termination is for Cause
and such determination shall be binding, final and conclusive on all
concerned.
"Disability" shall have the same meaning as under the Company's long
term disability program immediately prior to the occurrence of the
Change In Control or at the time of the occurrence of the Designated
Employee's termination of employment due to such Disability.
Termination of employment shall be considered to be for "Good Reason"
if (1) without the express written consent of the Designated Employee,
the Designated Employee is assigned material duties substantially
inconsistent with the Designated Employee's positions, duties,
responsibilities or status with the Company as in effect before the
Change In Control, or the Designated Employee's titles or offices as in
effect immediately prior to the Change In Control are substantially
diminished or the Designated Employee is removed from or not reelected
to any of such positions, or any other action is taken by the Company
or any of its affiliates which results in a diminution in the
Designated Employee's position, authority, or principal duties or
responsibilities other than an insubstantial and inadvertent act that
is remedied by the Company promptly after receipt of notice given
thereof by the Designated Employee, except any such assignment, action
or change resulting from the Designated Employee's termination of
employment for Cause, or from the Designated Employee's Disability (as
hereinafter defined) or death; provided, however, that notwithstanding
the foregoing, in no event shall a termination of employment be
considered to be for "Good Reason" if, at the time of the termination,
the Designated Employee shall have had a position with a title, level
of duties and responsibilities substantially similar to the Designated
Employee's title, duties and responsibilities immediately prior to the
Change In Control (but disregarding, except for (i) the Company's
Chairman, President and Chief Executive Officer or (ii) the Corporate
Senior Vice Presidents--General Counsel, Human Resources, Chief
Financial Officer and Corporate Development, any changes as a result of
the Company no longer being publicly traded or becoming a subsidiary,
and any changes to conform titles to those of equivalent positions in
an affiliate of the Company); (2) either the compensation or benefit
entitlements of the Designated Employee as in effect immediately prior
to the Change In Control or as increased following the Change In
Control is substantially reduced; (3) the Company requires the
Designated Employee without the Designated Employee's express written
consent to be based anywhere other than the Company's location where
the Designated Employee is principally employed or another location
that is not more than fifty (50) miles from the location where the
Designated Employee is principally employed immediately prior to the
Change In Control, except for required travel on the Company's business
to an extent substantially consistent with the Designated Employee's
business travel obligations in effect immediately prior to the Change
In Control; (4) any failure by the Company to obtain an express written
assumption of this Policy from any successor to or assign of the
Company or (5) for any Designated Employee who is, on the date the
Change In Control occurs, (i) the Company's Chairman, President and
Chief Executive Officer or (ii) a Corporate Senior Vice President, such
Designated Employee elects for any reason to terminate his or her
employment during the thirty-day period commencing one year after the
date of the Change In Control. In the case of events described in (1)
through (4), the Designated Employee shall not be deemed to have waived
a claim of Good Reason as a result of the passage of no more than 180
days between the occurrence of the event and the assertion of such
claim.
d) The entitled separation payment to a Designated Employee who
incurs a Qualifying Termination will be equal to one week of annual
base salary (based on the higher of the annual base salary in effect as
of the date that the Change In Control occurs or the date of the
Designated Employee's Qualified Termination) plus one week of annual
executive bonus (based on the higher of the most recently paid annual
executive bonus as of the date that the Change In Control occurs or the
date of the Designated Employee's Qualified Termination) for each Year
of Service (as hereinafter defined); provided that such separation
payment shall be calculated using a minimum period, indicated on
following chart, based on a Designated Employee's "Salaried Employee
Category:"
A Separation Payment Based on
the Sum of the Higher of Annual Base
Salary in Effect and the Higher of the
Annual Executive Bonus Most Recently
Paid as of the Date of Change In
Control or the Date of Termination of
Employment for the Period Shown Below
Salaried Employee Categories
A. Chairman, President and Chief Executive
Officer of Echlin Inc., Group Presidents
reporting to the President of Echlin Inc. and all
Senior Vice Presidents of Echlin Inc. who are
identified on the Designated Employee List 36 months
B. Senior Group Staff reporting to the Group
Presidents and all Corporate Officers (not
included in A, above), Assistant Corporate
Officers, and Staff Vice Presidents of Echlin
Inc. who are identified on the Designated
Employee List 24 months
C. Group Staff reporting to the Senior Group
Staff, Division Managers, Corporate Managers
and Exempt Staff of Echlin Inc. who are
identified on the Designated Employee List 18 months
D. The additional subsidiary and divisional staff
employees in salary grade 22 and above who
are identified on the Designated Employee List l2 months
E. All other Corporate Staff Employees of Echlin
Inc. who are identified on the Designated
Employee List 7.5 months
For the purposes of this Policy, "Years of Service" is defined to mean a
Designated Employee's full years and partial months of employment measured
from the Designated Employee's original employment with the Company or any
current or former wholly owned subsidiary or division of the Company through
such Designated Employee's last day worked. Years of Service shall include
periods of employment with a company acquired by the Company, provided that
the Designated Employee was an employee of the acquired company at the time of
the acquisition. Notwithstanding the foregoing, Years of Service shall
include only those months in which the Designated Employee (i) is paid for the
performance of duties; (ii) is paid during a period of time during which
duties are not performed due to vacation, holiday, short illness (compensated
under a sick pay plan), layoff, jury duty, military duty or an approved leave
of absence; or (iii) is paid (directly by the Company or indirectly through a
third party) for periods of incapacity to a maximum of six (6) months,
provided that the period of incapacity is not expected to be permanent in
nature.
e) Provisions under Benefit Plans for Designated Employees who incur a
Qualifying Termination will be provided the benefits as shown below.
These company paid benefits are provided for the length of time equal
to the number of weeks or months of Separation Payment a Designated
Employee receives from the date of termination or employment, except
when similar coverage is available to the Designated Employee through
other employment:
1. Medical Insurance Plans (including, if applicable for such
Designated Employee, the Executive Medical Plan).
2. Prescription Drug Plan
3. Dental Insurance Plan
4. Basic Life Insurance coverage in the amount in effect at the time of
separation rounded to nearest $1,000 multiple, and without
Accidental Death and Dismemberment coverage.
5. If eligible at the time of the Change In Control or Qualified
Termination, continuation of the Company provided automobile
benefits.
6. In addition, but in lieu of any other Company sponsored benefit for
third party, professional out-placement services, the sum equal to
the indicated percentage of annual base salary in effect on the date
of the Change In Control payable upon the occurrence of Qualified
Termination for each of the Salaried Employee Categories establish
in paragraph (d) above:
Percentage of
Salaried Employee Categories Annual Base Salary
---------------------------- ------------------
A 15%
B 10%
C 7.5%
D 7.5%
E 5%
7. Employee Assistance Program
f) Certain Additional Payments by the Company
1. Anything in this Policy to the contrary notwithstanding, in
the event it shall be determined that any payment or
distribution by the Company to or for the benefit of the
Designated Employee, whether paid or payable or distributed or
distributable pursuant to the terms of this Policy or otherwise
(a "Payment"), would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended
or similar section (the "Code") or any interest or penalties
with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Designated Employee
shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the
Designated Employee of all taxes (including any interest or
penalties imposed with respect to such taxes), including any
Excise Tax, imposed upon the Gross-Up Payment the Designated
Employee retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Payments.
2. Subject to the provisions of subsection 3 hereof, all determinations
required to be made under this Section f, including whether a
Gross-Up Payment is required and the amount of such Gross-Up
Payment, shall be made by Price Waterhouse (the "Accounting Firm")
which shall provide detailed supporting calculations both to the
Company and the Designated Employee within 15 business days of
termination of employment under this Agreement, if applicable, or
such earlier time as is requested by the Designated Employee or the
Company. When calculating the amount of the Gross-Up Payment, the
Designated Employee shall be deemed to pay:
(i) Federal income taxes at the highest applicable marginal
rate of Federal income taxation for the calendar year in
which the Gross-Up Payment is to be side, and
(ii) any applicable state and local income taxes at the highest
applicable marginal rate of taxation for the calendar year
in which the Gross-Up Payment is to be made, net of the
maximum reduction in Federal income taxes which could be
obtained from deduction of such state and local taxes if
paid in such year.
If the Accounting Firm has performed services for the person,
entity or group who caused the change of control, as described
in Section b, or affiliate thereof, the Designated Employee may
select an alternative accounting firm from any nationally
recognized firm of certified public accountants. If the
Accounting Firm determines that no Excise Tax is payable by the
Designated Employee, it shall furnish the Designated Employee
with an opinion that he or she has substantial authority not to
report any Excise Tax on his or her federal income tax return.
Any determination by the Accounting Firm shall be binding upon
the Company and the Designated Employee. As a result of the
uncertainty in the application of Section 4999 of the Code at
the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to
be made hereunder. In the event that the Company exhausts its
remedies pursuant to subsection 3 hereof, and the Designated
Employee thereafter is required to make a payment of any Excise
Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall
be promptly paid by the Company to or for the benefit of the
Designated Employee.
3. The Designated Employee shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would
require the payment by the Company of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no later than
ten business days after the Designated Employee knows of such claim
and shall apprise the Company of the nature of such claim and the
date on which such claim is requested to be paid. The Designated
Employee shall not pay such claim prior to the expiration of the
thirty day period following the date on which it gives such notice
to the Company (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If the Company
notifies the Designated Employee in writing prior to the expiration
of such period that it desires to contest such claim, the Designated
Employee shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time
including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by
the Company,
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and
hold the Designated Employee harmless, on an after-tax basis, for
any Excise Tax or income tax, including interest and penalties with
respect thereto, imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing
provisions of this subsection 3, the Company shall control all
proceedings taken in connection with such contest and, at its sole
option, may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in
respect of such claim and may, at its sole option, either direct the
Designated Employee to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and the Designated
Employee agrees to prosecute such contest to a determination before
any administrative tribunal, in a court of initial jurisdiction and
in one or more appellate courts, as the Company shall determine;
provided, however, that if the Company directs the Designated
Employee to pay such claim and sue for a refund, the Company shall
advance the amount of such payment to the Designated Employee, on an
interest-free basis and shall indemnify and hold the Designated
Employee harmless, on an after-tax basis, from any Excise Tax or
income tax, including interest or penalties with respect thereto,
imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and further provided that any
extension of the statue of limitations relating to payment of taxes
for the taxable year of the Designated Employee with respect to
which such contested amount is claimed to be due is limited solely
to such contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Designated Employee shall
be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing
authority.
4. If, after the receipt by the Designated Employee of an amount
advanced by the Company pursuant to subsection 3, the Designated
Employee becomes entitled to receive any refund with respect to such
claim, the Designated Employee shall (subject to the Company's
complying with the requirements of subsection 3) promptly pay to the
Company the amount of such refund (together with any interest paid
or credited thereon by the taxing authority after deducting any
taxes applicable thereto). If, after the receipt by the Designated
Employee of an amount advanced by the Company pursuant to subsection
3, a determination is made that the Designated Employee shall not be
entitled to any refund with respect to such claim and the Company
does not notify the Designated Employee in writing of its intent to
contest such denial of refund prior to the expiration of thirty days
after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be pain under subsection 3. The forgiveness of such
advance shall be considered part of the Gross-Up Payment and subject
to gross-up for any taxes (including interest or penalties)
associated therewith.
g) The Company shall pay all reasonable legal fees and disbursements
(if any) incurred by or on behalf of any Designated Employee in
successfully enforcing his or her rights under this Change in
Control Severance Policy.
h) Trust and Plan Funding. The Company may establish a trust, which is
intended to be treated as and interpreted as a "grantor trust" under
the Code, and which, to the extent funded in respect of this Policy,
shall not be intended to cause a Designated Employee to realize
income on amounts contributed thereto (the "Trust"), with a trustee
(the "Trustee"), pursuant to such terms and conditions as may be set
forth in a Trust Agreement to be entered into between the Company
and the Trustee. Any amounts that become payable to any person under
this Policy, shall first be paid from the Trust and then, to the
extent not paid from the Trust, shall be paid out of the general
assets of the Company. To the extent that any payments are made from
the Trust, the Company shall be relieved of its obligation to pay
such amounts.
i) Resolution of Disputes; Choice of Forum. The parties agree that any
dispute, controversy or claim arising out of or relating to this
Policy shall, at the election of the Designated Employee, be
resolved by final and binding arbitration, enforceable under the
Federal Arbitration Act, administered by the American Arbitration
Association under its Commercial Arbitration Rules, and judgment on
the award rendered by the arbitrators may be entered in any court
having jurisdiction thereof. All such disputes, controversies or
claims shall be determined by a panel of three arbitrators selected
in accordance with the rules of the American Arbitration Association
and the arbitration shall be conducted in the City of New Haven,
State of Connecticut. In the event that within 60 days after the
Company commences litigation in connection with this Agreement the
Designated Employee commences an arbitration proceeding concerning
the same issue or issues, the Company shall promptly terminate such
litigation and submit to the jurisdiction of the arbitration
proceeding to the extent that it involves such issue or issues. The
provisions of Section (g) shall apply to disputes submitted to
arbitration. This Section (i) shall, along with Sections (g) and,
(h) survive the termination of this Policy for any reason.
These provisions are not meant to supersede COBRA rights.
Issued as of: April 23, 1998
Issued By: _____________________
Senior Vice President
Approved By: __________________
Chairman of the Board
Echlin Inc. Supplemental Executive Retirement Plan
Amended and Restated as of April 23, 1998
ARTICLE I - Purpose
1.1 There is hereby established the Echlin Inc. Supplemental
Executive Retirement Plan to provide unfunded retirement benefits, to a
selected group of management and highly compensated employees of the Company
whose benefits from the Pension Plan are limited by various limitations
imposed by the Code and applicable regulations.
ARTICLE II - Definitions
Unless the context otherwise indicates, all terms used herein (other than
the Plan) shall have the same meaning as set forth in Article I of the
Pension Plan.
2.1 Applicable Interest Rate shall mean for any month of reference, an annual
interest rate determined from the average of the yields on 10 year U.S.
Treasury notes during such month, adjusted for constant maturity, and as
reported by the Federal Reserve Board in the Wall Street Journal.
2.2 Board of Directors - shall mean the Board of Directors of
the Company.
2.3 Company - shall mean Echlin Inc.
2.4 Effective Date - shall mean September 1, 1996 for this amended and restated
Plan.
2.5 Member - shall mean any active executive employee of the Company on the
Effective Date who was a Member of the Plan prior to the Effective Date and
any active executive employee of the Company who works an Hour of Service on
or after the Effective Date and whose benefit from the Pension Plan is
limited by any of the requirements of the Sections 401(a)(17) or 415 of the
Code included in the Pension Plan for purposes of complying with the
applicable requirements of the Code.
2.6 Pension Plan - shall mean the Pension Plan for Echlin Inc. Employees as now
in effect or hereafter amended.
2.7 Qualified Spouse - shall mean the legal spouse of a Member, who has been
married to the Member for at least a one year period ending on the Member's
date of death or Termination, if later.
2.8 SERP Earnings - shall have the meaning of Earnings as defined in the Pension
Plan but shall also include any amounts of base salary or annual bonus
deferred by the employee under the Echlin Inc. Unfunded Non-qualified
Deferred Compensation Plan or any similar plan established by the Company.
2.9 Termination - shall mean the later of the date the employment relationship
of the Member with the Company is terminated or the date the Member stops
earning additional Credited Service under the Pension Plan.
2.10 Trust - shall mean the trust fund established pursuant to the Plan.
2.11 Trustee - shall mean the trustee named in the agreement establishing the
Trust and such successor and/or additional trustees as may be named
pursuant to the terms of the agreement establishing the Trust.
ARTICLE III - Benefits
3.1 Plan Benefit - The Plan Benefit shall be an amount equal to the excess of
(a) over (b) where both (a) and (b) are determined as monthly amounts
payable at the later of the Member's Normal Retirement Date, Termination or
death prior to Termination as a life annuity and where
(a) is equal to the monthly benefit a Member would have received from the
Pension Plan if (1) the limitations imposed by Sections 401(a)(17) or
415 or both of the Code and regulations thereunder had not been included
therein and (2) in calculating a Member's benefit under the Pension
Plan, SERP Earnings are used instead of Earnings; and
(b) is equal to the monthly amount of the Member's Pension Plan benefit.
Benefit payments shall commence on the first day of the month following
the date of a Member's Termination, and, if the benefit commencement date
precedes the Member's Normal Retirement Date, the Plan Benefit shall be
adjusted for early commencement as follows: (i) for each of the first 120
months by which such payment commencement date precedes such Member's Normal
Retirement Date, by 1/2 of 1% for each month by which the commencement date
precedes such Member's Normal Retirement Date; and (ii) for each month in
excess of 120 by which such payment commencement date precedes the Member's
Normal Retirement Date an additional amount that is the "Actuarial
Equivalent" of the amount payable after the adjustment of (i) above. For
this purpose "Actuarial Equivalent" shall mean an equivalent benefit using
accepted actuarial principles and using the 1983 GAM Mortality Tables and
the Applicable Interest Rate determined using the second month preceding the
date of a Member's Termination.
3.2 Method of Payment - Commencing on the first day of the month following the
date of a Member's Termination, the Member's Plan Benefit shall be paid to
the Member or her or his Surviving Spouse or beneficiary in the event of
such Member's death prior to such payment, for twelve (12) months on the
first day of each month.
On the first day of the month following twelve months after the Member's
Termination, a final single sum payment shall be paid to the Member or
Surviving Spouse or beneficiary in the event of the death of the Member
prior to such payment. Such single sum payment shall be present value of the
Plan Benefit assuming the Plan Benefit is paid to the Member as a single
life annuity which commences on the date of the single sum payment. The
value of the single life annuity shall be calculated using the 1983 GAM
Mortality Table and the Applicable Interest Rate during the 11th month after
such Member's Termination.
3.3 Vesting - A Member shall be vested in his Plan Benefit as the date on which
he becomes vested under the Pension Plan. In the event of a Member's
Termination prior to his being vested, all benefits under this Plan shall be
forfeited; provided that, in the event of his rehire and subsequently
becoming vested, his Plan Benefits shall be reinstated.
3.4 Death Benefits - In the event of the death of a Member after Termination and
prior to payment of such Member's full benefit in accordance with the
provisions of Section 3.2, such unpaid amount shall be paid to the Member's
beneficiary designated in a form provided by, and filed with, the Board of
Directors or its designate. If no such form has been filed, such unpaid
benefits shall be paid to the Member's Qualified Spouse and if there is no
such Qualified Spouse, to the legal representative of the Member's estate.
In the event of the death of a Member prior to Termination who is survived
by a Qualified Spouse, such Qualified Spouse shall be entitled to 50% of the
Member's accrued Plan Benefit Payable according to section 3.2.
Except as provided in this Section 3.4, no benefits shall be payable under
this Plan as a result of a Member's death.
ARTICLE IV - Change In Control
4.1 Upon a Change In Control (as hereinafter defined) of the Company, each
Member shall become fully vested in his or her Plan Benefit. Moreover, if a
Member's employment is terminated without Cause (as hereinafter defined) or
the Member voluntarily terminates employment for Good Reason (as hereinafter
defined) within two (2) years after the Change In Control event has
occurred, the Company will immediately pay such Member his or her Plan
Benefit in a lump sum, and otherwise in accordance with the terms of Article
III hereof; this lump sum to be determined using the Applicable Interest
Rate in the second month immediately preceding the termination of the
Member's employment without Cause or for Good Reason.
Also, if there is an event that constitutes a Change In Control of the
Company, the Company will contribute to the Trust, as soon as practicable
after the Change In Control has occurred, an amount determined by the Plan's
actuary, in his sole discretion, that, together with the existing assets of
the Trust, is sufficient to ensure that all vested Plan Benefits for all
Members as of the date that is 12 months after the date of the Change In
Control can be paid from the Trust.
An event constituting a "Change In Control" shall occur when (and only when)
the Company obtains actual knowledge that: (a) any person within the
meaning of Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended (the "1934 Act"), other than Echlin Inc. or any of its
subsidiaries, has become the beneficial owner, within the meaning of Rule
13d-3 under the 1934 Act, of thirty percent (30%) or more of the combined
voting power of Echlin Inc.'s then outstanding voting securities; or (b) a
tender offer or exchange offer, other than an offer by the Company, has
expired, pursuant to which twenty percent (20%) or more of the combined
voting power of the Company's then outstanding shares of common stock have
been purchased; or (c) the stockholders of the Company have approved an
agreement to merge or consolidate with or into another corporation and the
Company is not the surviving corporation or an agreement to sell or
otherwise dispose of all or substantially all of the Company's assets
(including a plan of liquidation); or (d) during any period of two
consecutive years, individuals who at the beginning of such period
constitute the Board of Directors of the Company cease for any reason to
constitute at least a majority thereof, unless the election or the
nomination for the election by the Company's stockholders of each new
director was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who were directors at the beginning of the
period, but excluding for this purpose any such individual whose initial
assumption of office occurs as a result of either an actual or threatened
election contest (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the 1934 Act) or other actual or threatened solicitation
of proxies or consents by or on behalf of an individual, corporation,
partnership, group, associate or other entity or "person" other than the
Board of Directors of the Company; provided that, with respect to an event
described in clauses (a), (b) or (c), above, such event shall only
constitute a Change In Control if, and at such time as, the Board of
Directors of the Company declares, in its sole discretion, that the event
qualifies or will qualify as a Change In Control.
For purposes of this Plan, the termination of a Member shall be
considered to be for "Cause," whether it occurred by resignation or
discharge, if the reason for the termination of employment was the Member's
proven in a court of law or admitted embezzlement, dishonesty, fraud,
conviction on a felonious or other charge involving moral turpitude, all in
connection with the Company's affairs. The Board of Directors or, following
a Change In Control, the Trust Administration Committee, shall make the
determination as to whether the termination is for Cause and such
determination shall be binding, final and conclusive on all concerned.
For purposes of this Plan, a Member's voluntary termination shall be
considered to be for "Good Reason" if (a) without the express written
consent of the Member, he is assigned material duties substantially
inconsistent with his positions, duties, responsibilities or status with the
Company as in effect before the Change In Control, or his titles or offices
as in effect immediately prior to the Change In Control are substantially
diminished or he is removed from or not reelected to any of such positions,
or any other action is taken by the Company or any of its affiliates which
results in a diminution in the Member's position, authority, or principal
duties or responsibilities other than an insubstantial and inadvertent act
that is remedied by the Company promptly after receipt of notice given
thereof by the Member, except any such assignment, action or change
resulting from his termination of employment for Cause, or from his
Disability (as hereinafter defined) or death; provided, however, that
notwithstanding the foregoing, in no event shall a termination of employment
be considered to be for "Good Reason" if, at the time of the termination,
the Member shall have had a position with a title, level of duties and
responsibilities substantially similar to his title, duties and
responsibilities immediately prior to the Change In Control (but
disregarding, except for (i) the Company's Chairman, President and Chief
Executive Officer or (ii) the Corporate Senior Vice Presidents--General
Counsel, Human Resources, Chief Financial Officer and Corporate Development,
any changes as a result of the Company no longer being publicly traded or
becoming a subsidiary, and any changes to conform titles to those of
equivalent positions in an affiliate of the Company); (b) either the
compensation or benefit entitlement of the employee as in effect immediately
prior to the Change In Control or as increased following the Change In
Control is substantially reduced; (c) the Company requires the Member
without his agreement to be based anywhere other than the Company's location
where the Member is principally employed or another location that is more
than fifty (50) miles from the location where he is principally employed
immediately prior to the Change In Control, except for required travel on
the Company's business to an extent substantially consistent with his
business travel obligations in effect immediately prior to the Change In
Control; or (d) any failure by the Company to obtain an express written
assumption of this Plan from any successor to or assign of the Company. In
the case of events described in (a) through (d), the Member shall not be
deemed to have waived a claim of Good Reason as a result of the passage of
no more than 180 days between the occurrence of the event and the assertion
of such claim.
For purposes of this Plan, "Disability" shall have the same meaning as
under the Company's long term disability program immediately prior to the
occurrence of the Change In Control or at the time of the occurrence of the
Member's termination of employment due to such Disability.
ARTICLE V - Trust and Plan Funding
5.1 The Company will establish a Trust with the Trustee,
pursuant to such terms and conditions as are set forth in the Trust
agreement to be entered into between the Company and the Trustee. The Trust
is intended to be treated as a "grantor" trust under the Code, and the
establishment of the Trust is not intended to cause a Member to realize
income on amounts contributed thereto, and the Trust shall be so
interpreted.
5.2 At the discretion of the Company prior to a Change In
Control, and in all cases following a Change In Control, Plan Benefits that
become payable to any Member, or to any Member's beneficiary or Qualified
Spouse, shall first be paid from the Trust and then, to the extent not paid
from the Trust, shall be paid out of the general assets of the Company. To
the extent that payments of Plan Benefits, or any portion thereof, are made
from the Trust, the Company shall be relieved of its obligation to pay such
amounts.
ARTICLE VI - Forfeiture of Benefit Entitlement
6.1 Notwithstanding any other provision of this Plan, in the
event a Member's termination is due to his confession to or conviction of
theft or embezzlement from; or any misdemeanor (except a traffic offense) or
felony against the Company; or to dishonesty in connection with matters as
determined to exist by the Company; or except as authorized by the Company,
or as may be required by applicable law or a duly constituted administrative
agency, such Member directly or indirectly during his service with the
Company, or thereafter uses or permits the use of any trade secrets,
customers lists, or other information of, or relating to, the Company, or
divulges such trade secrets, customers lists and other information to any
person, firm or corporation, then any benefit entitlement otherwise provided
under this Plan to such Member shall be terminated and void.
ARTICLE VII - Miscellaneous
7.1 Nothing contained herein shall confer any right on any
Member to be continued in the employ of the Company or any other company or
shall affect the right of the Member to participate in and receive benefits
under and in accordance with any pension, profit sharing, incentive
compensation or other benefit plan or program of the Company.
7.2 This Plan shall continue in force with respect to the Member until the
termination of the right of such Member or his beneficiary to receive
benefits under this Plan and shall be binding upon any successor to
substantially all the assets of the Company. The Board of Directors shall,
however, have the right, at any time to modify, amend or terminate the Plan
in whole or in part provided no such amendment shall deprive a Member of any
vested Plan Benefit accrued hereunder prior to the date of the amendment.
Notwithstanding the above, the Board may at any time amend this Plan
retroactively or otherwise if and to the extent that such action is deemed
necessary in light of government regulations or other legal requirements or
to ensure that the Plan continues to be characterized as "top-hat" plan of
deferred compensation maintained for a select group of management or highly
compensated employees as described under ERISA Section 201(2), 301(a)(3),
and 401(a)(l).
7.3 No right or interest of the Member and beneficiary under this Plan shall be
subject to voluntary or involuntary alienation, assignment or transfer of
any kind.
7.4 The administration of this Plan shall be the responsibility
of the Board of Directors or such other person or entity as the Board of
Directors shall designate. Decisions of the Board of Directors shall be
final and binding upon the Company which shall have adopted this Plan, the
Member and the Member's beneficiaries.
7.5 This Plan shall be construed, regulated and administered for all purposes
according to the laws of the State of Connecticut and the United States of
America.
7.6 Any provision of the Plan deemed in violation of any law or regulation shall
be null and void and of no effect and shall not affect the validity of any
other provision thereof.
Issued as of April 23, 1998
ECHLIN INC.
By ___________________
Larry W. McCurdy
Chairman of the Board,
President and Chief
ATTEST: Executive Officer
___________________
Jon P. Leckerling
Senior Vice President
and Corporate Secretary
APPROVED BY:
___________________
Trevor O. Jones
Chairman, Compensation
and Management Development
Committee of the Board
of Directors
RESOLUTIONS
COMPENSATION AND MANAGEMENT
DEVELOPMENT COMMITTEE OF THE
BOARD OF DIRECTORS
ECHLIN INC.
...
H. Pension Plan for Echlin Inc. Employees
RESOLVED, that the Pension Plan for Echlin Inc. Employees be, and the same is,
hereby amended effective April 17, 1998, in the following respects:
1. Section 1.20(d), is amended to read, in its entirety, as
follows:
d) Hours of Service shall include an equivalent number of hours
for which a severance payment is made under a severance
agreement or severance pay plan sponsored by the Company or any
member of the Controlled Group. Hours of Service shall be
credited for each period such severance payment is made; except
that, if such severance payment is expressed as a lump sum, the
period credited for Hours of Service shall be that period from
which such lump sum payment was calculated if, and only if,
such period is ascertainable and is two years or less. 190
Hours of Service shall be credited for each full or partial
month of severance as if such Employee's termination occurred
upon the completion of the period of severance.
2. Section 6.5, is amended to read, in its entirety, as follows:
Section 6.5 Vesting Upon a Change In Control
If there is an event constituting a Change In Control (as hereinafter
defined) of the Company, Participants in the Plan on the date of such
Change In Control shall, as of such date, satisfy the Vesting
Requirements.
For purposes of this Section 6.5, an event constituting a "Change In
Control" shall occur when (and only when) the Company obtains actual
knowledge that: (a) any person within the meaning of Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended (the
"1934 Act"), other than the Company or any of its subsidiaries, has
become the beneficial owner, within the meaning of Rule 13d-3 under
the 1934 Act, of thirty percent (30%) or more of the combined voting
power of the Company's then outstanding voting securities; or (b) a
tender offer or exchange offer, other than an offer the Company, has
expired, pursuant to which twenty percent (20%) or more of the
combined voting power of the Company's then outstanding shares of
common stock have been purchased; or (c) the stockholders of the
Company have approved an agreement to merge or consolidate with or
into another corporation and the Company is not the surviving
corporation or an agreement to sell or otherwise dispose of all or
substantially all of the Company's assets (including a plan of
liquidation); or (d) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board
of Directors of the Company cease for any reason to constitute at
least a majority thereof, unless the election or the nomination for
the election by the Company's stockholders of each new director was
approved by a vote of at least two-thirds ((2)/(3)) of the directors
then still in office who were directors at the beginning of the
period, but excluding for this purpose any such individual whose
initial assumption of office occurs as a result of either an actual
or threatened election contest (as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the 1934 Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of an
individual, corporation, partnership, group, associate or other
entity or "person" other than the Board of Directors of the Company;
provided that, with respect to an event described in clauses (a), (b)
or (c), above, such event shall only constitute a Change In Control
if, and at such time as, the Board of Directors of the Company
declares, in its sole discretion, that the event qualifies or will
qualify as a Change In Control.
3. Any provision of the aforesaid Plan inconsistent with the
foregoing changes is hereby amended to be consistent with such
changes;
G. Incentive and Savings Investment Plan
RESOLVED, that the Incentive and Savings Investment Plan of the Company be,
and the same is, hereby amended effective April 17, 1998, in the following
respects:
1. Section 6.5, is amended to read, in its entirety, as follows:
Section 6.5 Vesting Upon a Change In Control.
If there is an event constituting a Change In Control (as
hereinafter defined) of the Company, Participants in this Plan
on the date of such Change In Control shall, as of such date,
be fully Vested in the Participants' Accounts.
An event constituting a "Change In Control" shall occur when
(and only when) the Company obtains actual knowledge that: (a)
any person within the meaning of Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "1934
Act"), other than the Company or any of its subsidiaries, has
become the beneficial owner, within the meaning of Rule 13d-3
under the 1934 Act, of thirty percent (30%) or more of the
combined voting power of the Company's then outstanding voting
securities; or (b) a tender offer or exchange offer, other than
an offer by the Company, has expired, pursuant to which twenty
percent (20%) or more of the combined voting power of the
Company's then outstanding shares of common stock have been
purchased; or (c) the stockholders of the Company have approved
an agreement to merge or consolidate with or into another
corporation and the Company is not the surviving corporation
or an agreement to sell or otherwise dispose of all or
substantially all of the Company's assets (including a plan of
liquidation); or (d) during any period of two consecutive
years, individuals who at the beginning of such period
constitute the Board of Directors of the Company cease for any
reason to constitute at least a majority thereof, unless the
election or the nomination for the election by the Company's
stockholders of each new director was approved by a vote of at
least two-thirds ((2)/(3)) of the directors then still in
office who were directors at the beginning of the period, but
excluding for this purpose any such individual whose initial
assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the 1934 Act) or
other actual or threatened solicitation of proxies or consents
by or on behalf of an individual, corporation, partnership,
group, associate or other entity or "person" other than the
Board of Directors of the Company; provided that, with respect
to an event described in clauses (a), (b) or (c), above, such
event shall only constitute a Change In Control if, and at such
time as, the Board of Directors of the Company declares, in its
sole discretion, that the event qualifies or will qualify as a
Change In Control.
2. Any provision of the aforesaid Plan inconsistent with the
foregoing change is hereby amended to be consistent with such
change; and
...
UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
- - - - - - - - - - - - - - - - - - - - - - - - - - - - x
:
ECHLIN INC., Civil Action No.:
:
Plaintiff and 98-CV-0635 (GLG)
Counterclaim Defendant. :
- against - :
SPX CORPORATION, :
Defendant and :
Counterclaim Plaintiff.
:
- - - - - - - - - - - - - - - - - - - - - - - - - - - - x
MOTION TO DISMISS COUNTS I, II AND IV OF COUNTERCLAIMS
Plaintiff Echlin Inc. ("Echlin"), by its undersigned attorneys, hereby
moves this Court, pursuant to Federal Rules of Civil Procedure 12(b)(1) and
12(c), to dismiss Counts I, II and IV of the counterclaims set forth in SPX's
Answer, Affirmative Defenses and Counterclaim for Declaratory and Injunctive
Relief dated April 13, 1998 (the "Counterclaims"), upon the allegations set
forth in the Counterclaims and all other matters in this action of which the
Court may take cognizance on such a motion, as follows:
(a) dismissing Count II of the Counterclaims, for "breach of the
fiduciary duties of Echlin's management and board," pursuant to Federal Rule
of Civil Procedure 12(c), for failure to state a claim upon which relief can
be granted;
(b) dismissing Counts I and IV of the Counterclaims, seeking the
calling of a special meeting of Echlin shareholders, pursuant to Federal Rules
of Civil Procedure 12(b)(1) and 12(c) for lack of jurisdiction over the
subject matter or, in the alternative, dismissing those claims under the
abstention doctrine set forth in Brford v. Sun Oil Co., 319 U.S. 315 (1943);
(c) awarding Echlin its costs and expenses incurred, including
attorneys' fees, in responding to these Counterclaims; and
(d) granting Echlin such other and further relief as the court may deem
just and proper.
Dated: New York, New York
May 4, 1998
DAVIS POLK & WARDWELL
By: ______________________________
Dennis E. Glazer
Federal Bar No. CT 02919
450 Lexington Avenue
New York, New York 10017
(212) 450-4000
-and-
TYLER COOPER & ALCORN, LLP
Ronald J. Cohen
Federal Bar No. CT 04158
205 Church Street
New Haven, Connecticut 06510
(203) 784-8200
Attorneys for Plaintiff and
Counterclaim Defendant
Echlin Inc.
CERTIFICATE OF SERVICE
The undersigned, one of the attorneys for plaintiff and counterclaim
defendant Echlin Inc. in this action, certifies that on May 4, 1998, he caused
to be served a copy of the foregoing Motion to Dismiss Counterclaims, together
with the accompanying Memorandum in Opposition to SPX's Motion for Preliminary
Injunction and in Support of Echlin's Motion to Dismiss Counts I, II and IV of
SPX's Counterclaims and the Declaration of Dennis E. Glazer dated May 4, 1998
in support of that motion, by first-class mail, postage prepaid, upon
Alexander R. Sussman, Esq., Fried, Frank, Harris, Shriver & Jacobson, One New
York Plaza, New York, New York 10004, and Stefan R. Underhill, Esq., Day,
Berry & Howard, One Canterbury Green, Stamford, Connecticut 06901-2047. A
courtesy copy will be provided to Mr. Sussman pursuant to the parties
arrangement to exchange papers this afternoon.
________________________________
One of the Attorneys for
Echlin Inc.
UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
- - - - - - - - - - - - - - - - - - - - - - - - - - - - x
ECHLIN INC., :
Plaintiff and :
Counterclaim Defendant, Civil Action No.:
:
- against - 98-CV-0635 (GLG)
:
SPX CORPORATION, :
Defendant and :
Counterclaim Plaintiff.
:
- - - - - - - - - - - - - - - - - - - - - - - - - - - - x
ECHLIN INC.'S MEMORANDUM OF LAW IN OPPOSITION TO
SPX'S MOTION FOR PRELIMINARY INJUNCTION AND
IN SUPPORT OF ECHLIN'S MOTION TO DISMISS
COUNTS I, II AND IV OF SPX'S COUNTERCLAIMS
TYLER COOPER & ALCORN, LLP
205 Church Street
New Haven, Connecticut 06510
(203) 784-8200
-and -
DAVIS POLK & WARDWELL
450 Lexington Avenue
New York, New York 10017
(212) 450-4000
Attorneys for
Plaintiff and Counterclaim Defendant
Echlin Inc.
TABLE OF CONTENTS
Page
----
Table of Authorities................................................... ii
Preliminary Statement.................................................. 1
Counter-Statement of Facts.............................................. 6
ARGUMENT -- SPX'S MOTION FOR A PRELIMINARY
INJUNCTION SHOULD BE DENIED AND
COUNTS I, II AND IV OF SPX'S
COUNTERCLAIMS SHOULD BE
DISMISSED................................................. 24
I. NO LIKELIHOOD OF SUCCESS
ON THE MERITS................................................ 25
A. The "Client Proxies" Submitted by
ADP Proxy Services Were Invalid
on Their Face.............................................. 25
B. Count II of SPX's Counterclaims --
For Breach of Fiduciary Duties --
Must Be Dismissed.......................................... 33
II. LACK OF SUBJECT MATTER
JURISDICTION.................................................... 34
III. NO IRREPARABLE HARM........................................... 37
IV. BALANCE OF HARDSHIPS.......................................... 39
CONCLUSION............................................................. 40
Table of Authorities
Cases
Page
----
Alkire v. Interstate Theatres Corp.,
379 F. Supp. 1210 (D. Mass. 1974).................................... 35
American Hardware Corp. v. Savage Arms Corp.,
136 A.2d 690 (1957)................................................. 28
Aprahamian v. HBO & Co.,
531 A.2d 1204 (Del. Ch. 1987)........................................ 32
Arnold v. Society for Savings Bancorp, Inc.,
678 A.2d 533 (Del. 1996)........................................... 4, 33
Blasius Indus., Inc. v. Atlas Corp.,
564 A.2d 651 (Del. Ch. 1988)............................... 21, 26, 27, 31
Burford v. Sun Oil Co.,
319 U.S. 315 (1943).............................................. 4, 35-36
Codos v. National Diagnostic Corp.,
711 F. Supp. 75 (E.D.N.Y. 1989)...................................... 35
Concord Fin. Group Inc. v. Tri-State Motor Transit Co.,
567 A.2d 1 (Del. Ch. 1989)........................................... 27
CRTF Corp. v. Federated Dept. Stores, Inc.,
683 F. Supp. 422 (S.D.N.Y. 1988).................................. 33-34
Emerald Partners v. Berlin,
C.A. No. 9700, 1995 WL 600881 (Del. Ch. Sept. 22, 1995)............. 33
ER Holdings, Inc. v. Norton Co.,
735 F. Supp. 1094 (D. Mass. 1990)................................... 32
Erie R. Co. v. Tomkins,
304 U.S. 64 (1938).................................................. 35
First African Trust Bank Ltd. v. Bankers Trust Co.,
No. 92 Civ. 4900 (RPP), 1992 WL 276833 (S.D.N.Y. Sept. 28, 1992).... 5, 38
Friedman v. Revenue Management of New York, Inc.,
38 F.3d 668 (2d Cir. 1994)....................................... 4, 35-36
Friedman v. Revenue Mgmt. of New York, Inc.,
839 F. Supp. 203 (S.D.N.Y. 1993), aff'd on other grounds,
38 F.3d 668 (2d Cir. 1994)........................................ 34-35
Hilton Hotels Corp. v. ITT Corp.,
978 F. Supp. 1342 (D. Nev. 1997), aff'd mem.,
116 F.3d 1485 (9th Cir. 1997)........................................ 32
ICN Pharmaceuticals, Inc. v. Khan,
2 F.3d 484 (2d Cir. 1993)............................................. 25
In re English Seafood (USA) Inc.,
743 F. Supp. 281 (D. Del. 1990)....................................... 35
International Banknote Co., Inc. v. Muller,
713 F. Supp. 612 (S.D.N.Y. 1989).................................... 31
Itar-Tass Russian News Agency v. Russian Kurier, Inc.,
___ F.3d ___, 1998 WL 153011 (2d Cir. Apr. 3, 1998)................. 36
Jackson Dairy, Inc. v. Hood,
596 F.2d 70 (2d Cir. 1979)........................................... 25
Kresel v. Goldberg,
111 Conn. 475, 150 A. 693 (1930)................................. 3, 28
Langner v. Brown,
913 F. Supp. 260 (S.D.N.Y. 1996)..................................... 36
Mainiero v. Microbyx Corp.,
699 A.2d 320 (Del. Ch. 1997)..................................... 3, 21
Norlin Corp. v. Rooney, Pace Inc.,
744 F.2d 255 (2d Cir. 1984).......................................... 32
Pennsylvania v. Williams,
294 U.S. 176 (1935)................................................. 35
Preston v. Allison,
650 A.2d 646 (Del. 1994)....................................... 4, 27, 28
Radol v. Thomas,
772 F.2d 244 (6th Cir. 1985)......................................... 33
Romanella v. Hayward,
933 F. Supp. 163, 165 (D. Conn. 1996),
aff'd, 114 F.3d 15 (2d Cir. 1997).................................... 33
Schnell v. Chris-Craft Indus. Inc.,
285 A.2d 437 (Del. 1971)............................................. 32
Sheppard v. Beerman,
18 F.3d 147 (2d Cir. 1994)........................................... 33
Shoen v. Amerco,
885 F. Supp. 1332 (D. Nev. 1994)..................................... 32
Unitrin, Inc. v. American General Corp.,
651 A.2d 1361 (Del. 1995)............................................ 32
Von Seldeneck v. Great Country Bank,
No. CV89029886S, 1990 WL 283729 (Conn. Super. Oct. 5, 1990)..... passim
Williams v. Sterling Oil of Oklahoma, Inc.,
273 A.2d 264 (Del. 1971)........................................... 27
Statutes, Rules and Regulations
C.G.S.A. Section 33-696........................................... passim
C.G.S.A. Section 33-697(a)........................................ 4, 34-35
C.G.S.A. Section 33-708........................................... 25-28
28 U.S.C. Section 1332............................................ 35
28 U.S.C. Section 1367............................................ 36
Fed. R. Civ. P. 12(b)(6)........................................... 33
Fed. R. Civ. P. 12(c).............................................. 1, 33
Fed. R. Civ. P. 12(h)(3)........................................... 34
Other Authorities
11A Charles A. Wright, et al., Federal Practice and Procedure,
Section 2946 (1995)................................................. 6, 39
C.G.S.A. Section 33-697, M.B.C.A. Official Comment No. 1.............. 34
C.G.S.A. Section 33-708. M.B.C.A. Official Comment No. 3......... 3, 27-28
ECHLIN INC.'S MEMORANDUM OF LAW IN OPPOSITION TO
SPX'S MOTION FOR PRELIMINARY INJUNCTION AND
IN SUPPORT OF ECHLIN'S MOTION TO DISMISS
COUNTS I, II AND IV OF SPX'S COUNTERCLAIMS
Plaintiff and counterclaim defendant Echlin Inc. ("Echlin"), by its
undersigned attorneys, respectfully submits this memorandum of law in
opposition to the motion of defendant and counterclaim plaintiff SPX
Corporation ("SPX") for a preliminary injunction, and in support of Echlin's
motion to dismiss Counts I, II and IV of SPX's counterclaims.(1)
- --------------------
(1) Documents and excerpts from deposition testimony in this action that are
referred to in this memorandum are attached to the accompanying Declaration of
Dennis E. Glazer dated May 4, 1998 ("Glazer Decl."). In addition to these
materials, Echlin incorporates by reference the complaint in this action,
the Declaration of Jon P. Leckerling dated April 13, 1998 ("Leckerling
Decl."), the Declaration of Joseph J. Morrow dated April 13, 1998 ("Morrow
Decl.") and the memorandum that accompanies those declarations in support
of Echlin's motion for a preliminary injunction in this action. Echlin's
motion to dismiss Count II of SPX's Answer and Counterclaims is based upon
the allegations of the pleadings themselves. See Fed. R. Civ. P. 12(c).
PRELIMINARY STATEMENT
SPX's motion for a preliminary injunction is truly one of the most
extraordinary displays of corporate hubris in the history of proxy contest
litigation. SPX has blundered its way into submitting clearly invalid demands
from people who were, by SPX's own admission, beneficial owners of shares on a
date other than the undisputed record date of February 17, 1998, a record date
that SPX itself established.
The numerous errors in SPX's solicitation effort -- which are discussed
in detail below -- include poor advice from SPX's outside counsel (prohibiting
SPX's proxy solicitors from making a simple telephone call to prepare for the
planned solicitation), miscommunications to crucial third parties by SPX's
proxy solicitors (instructing ADP Proxy Services to use an erroneous February
18th record date and confusing The Depository Trust Company regarding the
issuance of an omnibus proxy), inexcusable neglect (including not returning
telephone calls to DTC and not correcting its incorrect instructions to ADP
Proxy Services), and misplaced pride and arrogance (refusing to correct the
glaring errors made -- to this day, SPX has not asked ADP Proxy Services to
correct the mistake resulting from SPX's faulty instructions).
Having caused this comedy of errors, SPX now attempts to invoke this
Court's equity powers to save it from the results of its own flawed
solicitation effort, in the process ignoring controlling principles of
Connecticut law, see Von Seldeneck v. Great Country Bank, No. CV 89-29886S,
1990 WL 283729 (Conn. Super. Oct. 5, 1990), and the most basic rule of
corporate governance -- that only persons who own shares as of a record date
are entitled to participate in corporate actions as of that date, see C.G.S.A.
Section 33-696(b). Indeed, SPX's own proxy solicitor concedes that the
record date is the "Bible" for determining the shareholders that are entitled
to vote. See Cornwell Dep. at 135-36. .
SPX's contention that Echlin has somehow disenfranchised its
shareholders by not accepting these facially invalid demands is entirely
misplaced. To the contrary, acceptance by Echlin of the purported demands
submitted by SPX -- which show on their face that they are from beneficial
owners as of the wrong date -- would have resulted in disenfranchisement of
those Echlin shareholders who held shares on February 17th, the correct record
date. As one witness in this case observed, SPX is arguing for a result which
would be the equivalent of permitting New York citizens to vote in a
Connecticut state election. See Morrow Dep. at 213. The voters who would be
disenfranchised in that situation are the citizens of Connecticut, since New
York citizens have no entitlement to vote in such a contest even if they move
to Connecticut the day after the election. Here, Echlin could only accept
demands submitted by Echlin shareholders who held on the record date of
February 17th, and the purported demands submitted by those whose demands
indicate that the held their shares on any other date must be rejected. SPX's
motion for a preliminary injunction should be denied.
First, SPX turns a blind eye to Echlin's responsibility to ensure that
only those purported demands submitted by Echlin shareholders who are entitled
to vote -- those as of the "record date" -- are counted, see C.G.S.A. Section
33-696(b), and that under Connecticut law demands giving rise to a reasonable
doubt about their validity cannot be counted. See C.G.S.A. Section 33-
708(c). Connecticut law unquestionably holds that the validity of purported
shareholder demands or proxies is to be determined from the face of the
instruments themselves and from the regularly maintained books and records of
the corporation. See Von Seldeneck v. Great Country Bank, No. CV 89-29886S,
1990 WL 283729 (Conn. Super. Oct. 5, 1990); see also Kresel v. Goldberg, 111
Conn. 475, 478, 150 A. 693, 695 (1930). This "face of the proxy" rule is
accorded special deference in contests for corporate control, as the official
commentary to Section 33-708(c) of the Connecticut Business Corporation Act
explains: "In a proxy fight or other contested issue, the possibility of
illegal or unauthorized execution is greatly increased, and a more cautious
attitude should therefore be adopted." See C.G.S.A. Section 33-708, M.B.C.A.
Official Comment No. 3; see also Mainiero v. Microbyx Corp., 699 A.2d 320, 325
(Del. Ch. 1997) (same).
It is undisputed that the face of the demands submitted by ADP Proxy
Services indicate that a record date of February 18, 1998 was used, a date
that is obviously different from the undisputed record date of February 17th.
See Glazer Decl., Exhs. 10, 12; see also SPX Mem. at 3; Kearney Dep. at 93-94;
Cornwell Dep. at 82; Giommetti Dep. at 26, 43 (ADP representative). Discovery
has demonstrated that this error is attributable to SPX -- and only to SPX --
because it resulted from a poor decision by SPX and an erroneous instruction
given by SPX's proxy solicitor, D.F. King & Co., Inc., that the record date
that ADP Proxy Services should use in obtaining demands from beneficial owners
of Echlin shares was February 18th. See Giommetti Dep. at 26, 77. SPX has
never attempted to correct this faulty instruction. See Cornwell Dep. at
83-84.
Under Great Country, and the cases upon which the Great Country court
relied, those facially invalid demands were properly rejected as a matter of
Connecticut law. Indeed, even if it were possible to look behind these
invalid demands as SPX urges (which it is not), under Connecticut law both
Echlin and the courts are prohibited from doing so to determine whether this
error by SPX and its advisors had a material effect on the submission of
demands. See Great Country, 1990 WL 283729 at *6; Preston v. Allison, 650
A.2d 646, 649 n.3 (Del. 1994) (court barred from considering extrinsic
evidence). Because as both a legal and factual matter SPX has not shown --
and cannot show -- a likelihood of success on the merits on this issue, its
motion for a preliminary injunction must be denied.(2)
- --------------------
(2) In addition, to the extent that SPX seeks this Court's
intervention to direct a special meeting of Echlin shareholders, SPX's
motion must be denied because SPX has not alleged any actionable claim in
its Answer and Counterclaims upon which such a motion can be grounded.
Count II of SPX's counterclaims, purportedly for "breach of the fiduciary
duties of Echlin's board and management," names only the corporate entity
itself, "Echlin Inc.," as a defendant, and therefore must be dismissed as a
matter of law. See, e.g., Arnold v. Society for Savings Bancorp, Inc.,
678 A.2d 533, 539-40 & n.16 (Del. 1996) (corporation cannot be liable for
director's alleged breach of fiduciary duty). Further, because Connecticut
law vests jurisdiction over disputes concerning the calling of a special
meeting of shareholders in the Connecticut state courts, see C.G.S.A.
Section 33-697(a), Counts I and IV of SPX's counterclaims should be
dismissed for lack of subject matter jurisdiction or, in the alternative,
this Court should abstain from exercising subject matter jurisdiction over
those claims under Burford v. Sun Oil Co., 319 U.S. 315 (1943). See
Friedman v. Revenue Management of New York, Inc., 38 F.3d 668, 671 (2d
Cir. 1994).
Second, SPX's assertions of irreparable injury are without merit,
particularly given that SPX's current predicament is entirely of its own
making. Michael Giommetti of ADP Proxy Services testified at his deposition
that on February 17th he was called by D.F. King & Co., SPX's proxy
solicitors, and was instructed "To establish a record date on [February]
18th." See Giommetti Dep. at 26; see also id. at 77. Neither in that
conversation nor at any time thereafter did D.F. King & Co. notify ADP that,
in fact, the actual record date for submission of demands was February 17th,
not February 18th as D.F. King & Co. had mistakenly instructed. See id. at
48-52; see also Cornwell Dep. at 82-84. One witness in this case testified
that this "major screw up" was the most "bizarre" mistake he had seen in his
thirty-six years as a professional proxy solicitor. See Morrow Dep. at 98,
183. Moreover, even today there is no impediment hindering SPX from taking
steps to cure the mistakes of its advisors. No by-law change or charter
amendment is at issue in this case. To the contrary, any delay occasioned by
the delivery to Echlin of invalid demands arises solely from SPX's own flawed
actions, not from any conduct of Echlin, its directors or its officers. In
such circumstances, judicial intervention is entirely unwarranted. See, e.g,
First African Trust Bank Ltd. v. Bankers Trust Co., No. 92 Civ. 4900 (RPP),
1992 WL 276833 (S.D.N.Y. Sept. 28, 1992).
Finally, contrary to SPX's contentions, the balance of hardships tips
decidedly in favor of Echlin and its shareholders, requiring that SPX's motion
be denied. If SPX's request that this Court call a special meeting of Echlin
shareholders is granted, Echlin will be forced to give effect to demands
submitted by the wrong population of beneficial owners. Such a result would
truly disenfranchise the population entitled to vote, since the actual
beneficial owners on the record date would not be the group that had its
opinion on the issue given effect. In comparison, SPX faces little harm if
its motion is denied. At worst, SPX would need to cure -- or attempt to cure
- -- the glaring errors in its previous solicitation effort by correcting its
false and misleading public statements and seeking demands from the Echlin
beneficial owners who are truly entitled to vote. Contrary to SPX's
intimations on this motion, Echlin has erected no barrier to prevent that from
occurring. Indeed, the conditions to the exercise of the shareholder
franchise are unchanged from what they were on February 17, 1998, when SPX
first announced its intentions. Thus, the only hardship that SPX will face if
its motion is denied is that SPX will have to cure its mistakes and undertake
an effort to attempt to detemine if Echlin's shareholders as of February 17th
are willing to submit demands for a special meeting. SPX's argument about the
delay occasioned by SPX's own blunders are of no moment, and the time that has
passed is attributable solely to SPX's actions and its conscious decision not
to attempt to fix its mistakes. A party seeking equity must do equity. See
11A Charles A. Wright, et al., Federal Practice and Procedure, Section 2946
(1995). This Court's equity powers should not be invoked merely to assist a
party that refuses to admit it has made mistakes.
In sum, upon consideration of the actual facts -- as opposed to the
skewed and unsupported view of the world propounded in SPX's motion papers --
SPX's charges of "entrenchment" and "disenfranchisement of shareholders" are
revealed for what they are: a smokescreen to deflect the Court's attention
from SPX's own shortcomings in conducting its flawed demand solicitation.
SPX's motion for a preliminary injunction should be denied.
COUNTER-STATEMENT OF FACTS
Now that expedited discovery has been taken in this action, a summary
of the relevant facts can be gleaned from the testimonial and documentary
record -- as opposed to the erroneous and discredited assertions made in the
Affidavit of John W. Cornwell of D.F. King upon which SPX premised its motion.
A. SPX Prepares for Its Announcement
and Discusses its Plans with Others
In December 1997, SPX management decided to pursue an unsolicited
proposal for the combination of SPX and Echlin. See Cornwell Dep. at 12-14.
On February 6, 1998, at a regular meeting of the SPX board of directors, SPX
management obtained the approval of the SPX board "to take all actions
necessary or desirable to facilitate consummation of the Proposed Business
Combination, including, without limitation, making a demand on Echlin, and
soliciting such demands from other shareholders of Echlin . . . ." See Glazer
Decl., Exh 1 at D 0049. The stated reason for such a special meeting would be
"for the purposes of removing the current members of the Echlin Board and
electing [SPX's] nominees in their place . . . ." Id.
By the time that the SPX board adopted this resolution, SPX and its
advisors already had begun drafting a proposed merger agreement and other
materials, see Kearney Dep. at 43, and the work on those and other documents
continued up to February 17th. A host of outside advisors were involved in
the work in the weeks leading up to the public announcement of SPX's
intentions and the execution of the first Echlin shareholder demand on
February 17, 1998. Id. at 37-44.
During that period, SPX's financial advisors CIBC Oppenheimer made
calls to a number of other financial institutions to describe the transaction
that SPX wanted to pursue and to determine if those financial institutions
desired to participate in its financing. See Kearney Dep. at 70. On or
before February 13, 1998, SPX also contacted Merrill, Lynch, Pierce, Fenner
& Smith Incorporated, the largest retail brokerage firm in the United States,
and informed Merrill Lynch that SPX would soon be seeking to call a special
meeting of Echlin shareholders. See Kearney Dep. at 53; see also Glazer
Decl., Exh. 5 at 2-3.
B. SPX Fails to Contact ADP Proxy Services
Despite all of this activity during the week ending on Friday, February
13th, however, one important call that SPX and its advisors failed to make was
to ADP Proxy Services. See Kearney Dep. at 53. SPX's failure to contact ADP
Proxy Services before it submitted its demand to call a special meeting of
Echlin shareholders, on February 17th, contributed to the SPX blunder that
ultimately resulted in the invalidity of a large number of the purported
demands it would submit to Echlin on March 25th.
ADP Proxy Services, a division of Automatic Data Processing Inc.,
serves as "a mailing agent hired by bank and broker organizations to mail
proxy and related material to shareholders," see Giommetti Dep. at 11, to
compile the returns submitted by such beneficial owners to their brokers and
then to deliver that compilation to an issuer or another person that is
soliciting proxies or demands, see Morrow Dep. at 56. Most brokerage houses
and similar institutions retain ADP Proxy Services to perform these "back
office" functions, see Morrow Dep. at 56, because those firms and the
customers of those firms are "street name" holders and are not listed on the
books and records of the corporations in which they beneficially own shares,
see Urist Dep. at 11, and therefore they will not otherwise be provided an
opportunity to respond to solicitations seeking their vote or action.(3)
- --------------------
(3) Many of the financial institutions that are clients of ADP Proxy
Services are "participants" in the "book entry" securities system maintained
and administered by The Depository Trust Company ("DTC"). See Cornwell Dep.
at 97; Morrow Dep. at 57. The shares of an issuing corporation that are
beneficially owned by those participants (whether held for the firms'
customers or for the firms' own account), appear on the books and records of
the issuing corporation only under the name of Cede & Co. ("Cede"), DTC's
nominee. As is also true of Echlin and SPX, DTC has no way to know the
ultimate beneficial owners of the shares that DTC, through Cede, holds of
record. See Urist Dep. at 11, 23.
Because of its arrangements with a large number of firms that are DTC
"participants," ADP Proxy Services can assemble, confidentially, a list of the
beneficial owners of a given stock as of a given record date by making an
electronic request to all of its financial institution clients to provide the
names and addresses of their customers who are the ultimate beneficial owners
of those shares on that record date. See Giommetti Dep. at 16-17, 35, 63. In
proxy solicitations, therefore, proxy solicitors regularly use ADP Proxy
Services to solicit and internally tabulate the proxies, consents or demands
submitted from these beneficial owners. See Morrow Dep. at 56.
In order to gather the information necessary to assemble a list of
beneficial owners, ADP Proxy Services must be provided with a record date for
creating its list, and ADP obtains that record date from the proxy solicitor
of the person seeking shareholder action. See Giommetti Dep. at 24; Morrow
Dep. at 65-66. Generally, ADP Proxy Services requires that it be notified of
a desired record date by 4 p.m. the preceding business day -- which in this
case would have been Friday, February 13th -- although ADP has the ability to
assemble a list of beneficial owners for a record date that has already passed
without any extra delay, see Giommetti Dep. at 18; see also Cornwell Dep. at
70.
This initial call to ADP Proxy Services does not require a party to
disclose purportedly confidential information relating to the reasons for its
call. To the contrary, the only information that must be conveyed is a
request to ADP Proxy Services to establish in its computer system a record
date for an identified corporation's registered stock. See Giommetti Dep. at
79-80. D.F. King & Co. knew of this ADP requirement, see Cornwell Dep. at 70,
and advised SPX's outside counsel that, to permit solicitation from beneficial
owners as of the true record date, SPX should either provide ADP advance
notice to establish a record date in its system, see Cornwell Dep. at 71-72,
or, in the alternative, should delay submitting its demand for a special
meeting of Echlin shareholders (which, under Connecticut law, set the record
date) until after SPX had publicly announced its proposal, id. at 20-21.
Aviva Diamant, a corporate partner, and other lawyers at SPX's outside counsel
Fried, Frank, Harris, Shriver & Jacobson summarily vetoed both of these
suggestions.(4) See Cornwell Dep. at 20-21, 71-72. As a result, D.F. King &
Co. did not place its initial call to ADP Proxy Services until after SPX had
publicly announced its intentions, and after SPX had arranged for the first
demand for a special meeting to be signed, on Monday, February 17th.
- --------------------
(4) The ostensible reason for Fried Frank's instruction not to contact
ADP Proxy Services in advance, purportedly to preserve the confidentiality of
SPX's plans, is difficult to reconcile with the many other communications
about those plans that SPX and its advisors had with Merrill Lynch and a
variety of other financial institutions in the weeks prior to February 17,
1998. Indeed, if anything, one would think that permitting CIBC Oppenheimer
to speak with other financial institutions about the details of financing for
the SPX proposal, or permitting SPX representatives to contact Merrill Lynch,
the largest retail brokerage firm in the United States, would be more likely
to jeopardize the confidentiality of a "proposed business combination" than
would contacting the "back office" representatives at ADP Proxy Services on a
"no names" basis at 4 p.m., after markets have closed.
C. SPX Directs ADP Proxy Services
to Use the Wrong Record Date
On Monday, February 17, 1998, SPX delivered to Echlin a package of
materials including a letter to the Echlin board of directors from SPX's
chairman and chief executive officer, John B. Blystone, setting forth SPX's
proposal for a business combination of SPX and Echlin. See Glazer Decl.,
Exhs. 2; 3. SPX simultaneously issued a press release describing Mr.
Blystone's letter and stating that on that date SPX was submitting a demand to
Echlin to call a special meeting of Echlin shareholders for the purpose of
ousting the incumbent Echlin directors and replacing them with five SPX
designees. See Glazer Decl., Exh. 4.
On the same date, Cede & Co., the nominee of DTC, acting at the
instructions of its participant Merrill Lynch, on behalf of SPX, executed a
written demand to call a special meeting of Echlin shareholders on behalf of
714,100 shares of Echlin common stock held of record by Cede & Co. and
beneficially owned by SPX. See Glazer Decl., Exh. 7. There is no dispute
that this demand letter was validly executed by a holder of Echlin shares as
of the record date. In fact, the care and attention SPX devoted to obtaining
the issuance of its demand stands in stark contrast to other glaring failures
to comply with the same requirements with respect to demands from other Echlin
shareholders.
Under Connecticut law, the execution of this Cede & Co. demand letter on
February 17, 1998 established that date as the record date for determining the
shareholders of Echlin who were entitled to submit demands in support of the
special meeting. See C.G.S.A. Section 33-696(b). The parties agree that
February 17, 1998 is the record date in this case. See Kearney Dep. at 85;
SPX Answer and Counterclaims, Paragraph 72.
That day, after SPX had made its announcement, Tom Long, one of SPX's
proxy solicitors, contacted Michael Giommetti at ADP Proxy Services for the
purpose of establishing a record date in ADP Proxy Service's computer system.
See Giommetti Dep. at 23-25. Mr. Giommetti was D.F. King & Co.'s principal
point of contact at ADP Proxy Services at the time. See Cornwell Dep. at 69.
During his deposition in this action, Mr. Giommetti recounted the conversation
in the following questions and answers:
Q. So Mr. Long informed you that the record date was the 17th.
What did you say?
A. No, that's not correct.
Q. What's not correct?
A. That Mr. Long notified me that the record date was the 17th.
Q. What did Mr. Long tell you?
A. To establish a record date on the 18th.
Q. Did he mention at all the date February 17?
A. No.
* * *
Q. Again, just to be clear, there was no mention of the 17th?
MR. TROPP: Objection.
A. We may have talked about the 17th in regards to the weather
or something, so I wouldn't want to say to you absolutely we
did not discuss the 17th.
But if you're asking me did he tell me the record date was
the 17th, no.
Giommetti Dep. at 26, 34.
As a result of the faulty instructions he received from Mr. Long, Mr.
Giommetti programmed the ADP system to obtain from ADP's brokerage firm and
bank clients the names and addresses of their customers who were beneficial
owners of Echlin shares as of February 18th. See Giommetti Dep. at 26-27, 49.
According to Mr. Giommetti's testimony, no one from SPX or its advisors ever
called Mr. Giommetti to correct this error or to ask ADP to obtain and use a
list of such beneficial owners as of February 17th, the true record date. Id.
at 52. Instead, Mr. Giommetti next heard from Mr. Long on the subject around
the time of the filing of this action, during which conversation Mr. Long
admitted that "the record date was actually the 17th and he [Mr. Long] had set
up the record date of the 18th with me," see Giommetti Dep. at 51, but Mr.
Long still made no request that ADP take steps to correct the error that had
resulted from those faulty instructions. See Giommetti Dep. at 48-51.
Although he was not personally involved in any of these conversations,
Mr. Cornwell of D.F. King & Co. asserted his belief that on February 17th,
another one of his colleagues told someone at ADP Proxy Services that the true
record date was February 17th. See Cornwell Dep. at 75. Not only is this
second-hand testimony directly contradicted by the unambiguous testimony of
Mr. Giommetti, D.F. King & Co's principal contact person at ADP, but it also
cannot be squared with Mr. Giommetti's testimony that Mr. Long called him
after this action had been filed and conceded that D.F. King & Co. had
provided ADP Proxy Services with the wrong record date. See Giommetti Dep. at
51.
While again conceding that he had no personal knowledge on the subject,
Mr. Cornwell asserted that ADP Proxy Services input a record date of February
18th into its system because D.F. King & Co. had not contacted ADP earlier to
pre-establish a record date of February 17th. See Cornwell Dep. at 75. Mr.
Giommetti, the ADP witness who does have personal knowledge of the facts,
testified that even when a request to establish a record date is made to ADP
Proxy Services on the record date itself, ADP Proxy Services is able to obtain
from its brokerage and bank clients a list of the beneficial owners of the
identified stock as of the correct date, without any additional delay. See
Giommetti Dep. at 18-19, 28. Subsequent to his erroneous affidavit in this
case, Mr. Cornwell acknowledged that such a procedure is available, see
Cornwell Dep. at 86, and also conceded that no representative of D.F. King &
Co. or SPX ever sought to correct the February 18th record date that ADP was
using to the correct record date of February 17th. See Cornwell Dep. at
81-84.
Mr. Cornwell's excuse for this glaring oversight, that the record date
used by ADP Proxy Services is somehow "extraneous," see Cornwell Dep. at 161,
is not only wrong as a matter of law but is also directly and forcefully
contradicted by Mr. Cornwell's own sworn testimony in a similar situation.
During a hearing in 1995 before the U.S. District Court for the Southern
District of Ohio, Mr. Cornwell testified as follows:
Q. What significance generally does a record date have in your
business?
A. A great deal of significance. It's the date for determining
the stockholders entitled to notice of and to vote at
meetings of shareholders. It's the date pursuant to which
proxy materials are mailed. It's also the date that lists
are compiled which are used by inspectors of election in
determining votes at meetings of shareholders.
Q. And what function does a record date have as a corporate
meeting occurs?
A. What function does it have? It serves to provide -- well,
it's a cutoff date. It's -- it determines stockholders
entitled to notice of and to vote at a meeting. It
determines beneficial owners who will be receiving proxy
mailings and, as I said before, it determines the list, the
inspectors' Bible, so to speak, to determine whether votes
are entitled to be cast, and [are] in fact cast."
See Cornwell Dep. at 135-36 (emphasis added). Given his firm's obvious and
crippling blunders in this instance, it is perhaps not surprising that Mr.
Cornwell now attempts to downplay the importance of the record date. In light
of his prior, contradictory testimony when his own conduct was not at issue,
however, Mr. Cornwell's current assertion that the record date is "extraneous"
is neither supportable as a matter of law nor credible.
D. Echlin Offers to Mail SPX's Solicitation
Materials to Echlin Shareholders
On February 17th, along with Mr. Blystone's letter to the Echlin board
of directors, SPX's General Counsel Christopher J. Kearney delivered to Jon P.
Leckerling, the General Counsel and Secretary of Echlin, a letter requesting
that, pursuant to SEC Rule 14a-7, Echlin elect to either provide SPX with a
list of all of the record holders of Echlin shares or to mail SPX's
solicitation materials (including proxy statements, forms of proxy and other
soliciting materials to be furnished by SPX) to the record holders of Shares.
Glazer Decl., Exh. 6. By letter dated February 23, 1998, Mr. Leckerling
informed SPX that Echlin had "elected, pursuant to Rule 14a-7(b)(2) under the
Exchange Act, to mail the solicitation materials to the Company's stockholders
on your behalf and at your request . . . ." See Glazer Decl., Exh. 8.
At his deposition in this action, Mr. Kearney testified that although
he received Mr. Leckerling's response, which had extended Echlin's offer to
mail the SPX solicitation materials to Echlin's shareholders on SPX's behalf,
SPX ultimately decided to use ADP Proxy Services for that purpose instead.
See Kearney Dep. at 79-81. Mr. Cornwell of D.F. King & Co. testified during
his deposition that the decision not to permit Echlin to mail SPX's materials
was made by SPX's outside counsel. See Cornwell Dep. at 172-73.
E. SPX Compounds its Errors By Providing Confusing
Instructions to Cede & Co. About Issuing an Omnibus Proxy
During discovery, Carl H. Urist, Vice President and Deputy General
Counsel of DTC, provided testimony regarding the procedures DTC follows in
issuing an omnibus proxy in connection with demand or proxy solicitations.
Mr. Urist has been a DTC lawyer for nearly 23 years and, among other
functions, he oversees the DTC proxy department. See Urist Dep. at 7.
In his deposition, Mr. Urist testified that -- contrary to SPX's
contentions in this action -- Cede & Co. (DTC's nominee) will provide an
omnibus proxy to the issuer at either the issuer's request or the request of
any other interested party, including a shareholder involved in a proxy
contest. Id. at 28-29. DTC will do this whenever it "becomes aware that
voting rights are available with respect to a record date," which can occur
"when we are contacted by the issuer, who has initiated a proceeding, or a
procedure that gives rise to voting rights, or a shareholder of the issuer,
who has initiated a proceeding that gives rise to voting rights." Id. As
Mr. Urist explained, DTC ordinarily becomes aware of the existence of voting
rights (and the need to file an omnibus proxy with the issuer) "by receiving
soliciting materials from the issuer or the shareholder," at which time DTC
"will file the omnibus proxy with the issuer."(5) Id. at 29.
- --------------------
(5) Mr. Urist further explained that "the reason we file [the
omnibus proxy] with the issuer, even though a shareholder may have
initiated the proceeding is because the security position listing is
attached to the omnibus proxy, and that is only available to the issuer."
Id. at 29. This is no surprise to SPX and its advisors. Indeed, in a
March 25, 1998 letter from John W. Cornwell of D.F. King & Co., Mr.
Cornwell wrote to DTC that "While we understand Cede's policy of not
issuing omnibus proxies or participant listings to anyone other than
issuers, we request only that Cede, consistent with its fiduciary
obligations to its customers, issue an omnibus proxy to the issuer (Echlin)
in order to enable Echlin to conduct its review of the Demands . . . ." See
Glazer Decl., Exh. 11.
The parties agree that the normal DTC procedure for issuing an omnibus
proxy upon receipt of solicitation materials did not occur in this case. Mr.
Urist of DTC explained that this was due to confusing instructions that were
provided to DTC by John W. Cornwell and other representatives of D.F. King &
Co., SPX's proxy solicitors. See Urist Dep. at 38-41. On March 25, 1998,
acting on behalf of SPX, see Kearney Dep. at 91, Mr. Cornwell wrote to a
supervisor in DTC's proxy unit to request that an omnibus proxy be issued to
Echlin in connection with SPX's demand solicitation. See Glazer Decl., Exh.
11. However, as Mr. Urist explained, that letter confused the DTC employee to
whom it was addressed by referring to both a "record date" and "a date on
which the stockholder action is effective, ordinarily a meeting date." See
id. at 1 (third paragraph).
When Mr. Cornwell's confusing letter was brought to Mr. Urist's
attention, he directed the DTC employee who received the letter "to call the
man who wrote the letter to point out to him that we don't have a procedure
for filing an omnibus proxy as of an effective date, and to find out what he
had in mind about the effective date." Urist Dep. at 41. Such a call was
made, and Mr. Urist later learned that D.F. King & Co. had promised to clear
up the confusion in a follow-up call. Id. The promised follow-up call never
came, however. See Urist Dep. at 41. As a direct result of the confusion
caused by SPX's own proxy solicitors, and their failure to respond to an
explicit request for clarification, DTC did not issue an omnibus proxy. Id.
Mr. Cornwell of D.F. King & Co., whose firm was responsible for many of
the blunders at issue in this case, again offered a slightly different
recollection of D.F. King & Co.'s contacts with DTC than was provided in the
testimony of Mr. Urist, a disinterested third-party witness. According to Mr.
Cornwell -- again, he was not a party to the conversation -- one of his
colleagues received a call from Kathy Caziarc, a clerk in DTC's proxy unit, in
response to Mr. Cornwell's letter of March 25, 1998. According to Mr.
Cornwell, the DTC clerk told a D.F. King & Co. employee that an omnibus proxy
was not necessary. See Cornwell Dep. at 144. Based upon his twenty years of
experience as a proxy solicitor, Mr. Cornwell knew that this advice was
incorrect. See Cornwell Dep. at 147. Indeed, in his March 25th letter to DTC
he had written that "Since most of Echlin's shares are owned of record by Cede
& Co. ("Cede"), verification of the number of Demands executed will be
facilitated by an omnibus proxy and participant listing for Echlin issued by
Cede as of the Record Date [February 17, 1998]." See Glazer Decl., Exh. 11.
Mr. Cornwell testified that after he learned of the DTC clerk's
response to his letter, he attempted unsuccessfully to contact her once or
twice, but subsequently abandoned that effort. See Cornwell Dep. at 152-55.
Mr. Cornwell also testified that, although Ms. Caziarc's telephone call had
caused him to question whether an omnibus proxy ever had been issued by Cede &
Co., see Cornwell Dep. at 152, neither he nor anyone else from D.F. King & Co.
ever tried to contact Echlin or its agents to determine whether one had been
sent by Cede & Co. or received by Echlin. See Cornwell Dep. at 160-61.
F. SPX's Delivery of Invalid Demands
On March 24, 1998, SPX publicly announced that it had "received demands
from holders of more than 27 million Echlin shares, representing over 43% of
Echlin's outstanding shares, and will deliver those demands tomorrow to
Echlin." See Complaint, Exh. C. On March 25, 1998, SPX delivered a package
to Echlin that contained purported demands and revocations, together with a
document from ADP Proxy Services entitled "ADP Client Proxy" that was dated
March 24, 1998. See Glazer Decl., Exh. 10.
Although both parties had solicited demands and revocations,
respectively, from record holders appearing on Echlin's certified stockholder
list as of February 17th, see Morrow Dep. at 72, 205; Cornwell Dep. at 171;
Glazer Decl., Exh. 9, unrevoked demands from these record holders, including
the demand submitted by Cede & Co. with respect to 714,100 shares beneficially
owned by SPX on that date, constituted only a small percentage of the total of
the demands submitted. See Glazer Decl., Exhs. 13, 16 [Coopers & Lybrand
reports].
The large majority of purported demands submitted by SPX on March 25,
1998 -- relating to over 26 million shares -- were submitted in the form of an
"ADP Client Proxy" dated March 24, 1998. See Glazer Decl., Exh. 10. The ADP
Client Proxy reflected the results of the internal tabulation that ADP Proxy
Services had performed of demands and revocations by beneficial owners who
held their shares through "brokers and banks" -- using a list with the
(incorrect) record date of February 18th. See Giommetti Dep. at 38, 49,
71-72; see also Cornwell Dep. at 131-32. Moreover, while purporting to
reflect demands from beneficial owners, the ADP Client Proxy only lists the
brokerage firms and banks in whose accounts such beneficial owners hold
shares. See Glazer Decl., Exh. 10. As a result, it is impossible for either
Echlin or SPX to identify from the ADP Client Proxy the beneficial owners on
whose behalf those brokers and banks were submitting demands. See Cornwell
Dep. at 163-64.
From the face of the ADP Client Proxy submitted to Echlin on March
25th, it was apparent that the demands reflected therein were from beneficial
owners as of the wrong record date. Indeed, each and every page of the ADP
Client Proxy clearly states that it is as of a "Record Date" of "2/18/98."
See Glazer Decl., Exh. 10 (all pages). Mr. Giommetti has confirmed in his
deposition testimony that the reason this document reflected a record date of
February 18th was that he had been asked by a representative of D.F. King &
Co. to use that record date -- and not the correct date of February 17th -- as
the record date for purposes of assembling a list of beneficial owners,
mailing solicitation materials and, most significantly, internally tabulating
the demands that were returned. See Giommetti Dep. at 26; see also id. at
77.(6)
- --------------------
(6) On March 31, 1998, ADP Proxy Services supplemented its initial "ADP Client
Proxy" to reflect its internal tabulation of demands that had been received
since the first ADP Client Proxy had been issued. See Glazer Decl., Exh. 12;
Giommetti Dep. at 43. Like the ADP Client Proxy that was dated March 24,
1998, this "Supplemental" ADP Client Proxy also clearly reflected on its face
that the incorrect record date of February 18, 1998 had been used. See id.
(every page).
An additional shortcoming in the SPX submission on March 25th was that
no omnibus proxy had been delivered to Echlin with respect to the almost 95%
of shares held of record by Cede & Co. See Leckerling Decl. Paragraph 11.
The record evidence now establishes unambiguously that SPX's proxy solicitor
D.F. King & Co. was responsible for this error, first by providing, and
failing to clarify, confusing instructions to DTC, see Urist Dep. at 41-42;
Glazer Decl., Exh. 11 [Cornwell 3/25/98 letter]; see also Cornwell Dep. at
143-44, and then by not contacting either Cede & Co. or Echlin to ensure that
an omnibus proxy had been issued, Cornwell Dep. at 138-39.
G. The Coopers & Lybrand Report
As Corporate Secretary of Echlin, Jon P. Leckerling was responsible
under Connecticut law for tabulating the demands and revocations that had been
submitted in response to the competing solicitations by SPX and Echlin. See
Leckerling Dep. at 159. In order to assist him in this function, Mr.
Leckerling retained the independent accounting firm of Coopers & Lybrand
L.L.P. to serve as a "counter" of the materials submitted. Id. at 157, 159.
Mr. Leckerling testified during his deposition that Coopers & Lybrand's
role was to "count the demands and match those up according to the procedures
with the revocations received." Id. at 159. As Secretary, Mr. Leckerling
retained responsibility for the tabulation that was performed at his
direction. Id. Mr. Leckerling decided upon Coopers & Lybrand because he
wanted to use a national accounting firm for this tabulation function and
Coopers & Lybrand was independent of both Echlin and SPX, an attribute that
was not true of other Big 6 accounting firms, which were either currently
advising Echlin or SPX or, in one case, affiliated with a member of the Echlin
board of directors. See Leckerling Dep. at 139-41; 158-60.
Through its Hartford office, Coopers & Lybrand accepted the engagement
on "agreed upon procedures," see Leckerling Dep. at 151, a typical condition
imposed by accounting firms in non-audit engagements. To satisfy the Coopers
& Lybrand requirement that procedures be agreed upon, Mr. Leckerling consulted
with outside counsel and Morrow & Co., the proxy solicitors that had been
retained to assist Echlin in the solicitation effort, to develop the "agreed
upon procedures" for the tabulation of demands and revocations. See
Leckerling Dep. at 160-61.
The procedures that ultimately were agreed upon by Mr. Leckerling and
Coopers & Lybrand, labeled "Rules for the Tabulation by Coopers & Lybrand
L.L.P. of Proxies for Demands and Revocations," were set forth in Attachment A
to the "Independent Accountant's Report on Agreed Upon Procedures" dated April
3, 1998 that was issued by Coopers & Lybrand at the conclusion of its work.
See Glazer Decl., Exh. 13. Among other things, and consistent with
well-settled law, the rules of tabulation provided that only demands submitted
by record holders or beneficial owners as of the record date were to be
counted as valid. See C.G.S.A. Section 33-696(b) (shareholders "entitled to
demand a special meeting" are determined as of the "record date," which is
fixed by the signing of the first shareholder demand); see also Blasius
Indus., Inc. v. Atlas Corp., 564 A.2d 651, 664 (Del. Ch. 1988) ("Voting, or
the granting of consent to stockholder action, is, of course, the legal right
of record holders of stock only."); Cornwell Dep. at 135-36; Morrow Dep. at
179.
On Friday, April 3, 1998, Coopers & Lybrand issued its report. See
Glazer Decl., Exh. 13. In it, Coopers & Lybrand reported that, while a number
of demands that had been submitted by SPX on March 25, 1998 were valid and
unrevoked (1,189,040 shares, including the 714,100 shares reflected in the
February 17, 1998 letter submitted for SPX by Cede & Co.), the large majority
of demands were invalid either due to the failure of SPX to deliver a Cede &
Co. omnibus proxy (2,436,398 shares), or due to the fact that they were
submitted from beneficial owners as of the wrong record date (as reflected in
the ADP Client Proxy dated March 24, 1998), or suffered from both infirimities
(30,436,591 shares). See Glazer Decl., Exh. 13 at 2-3. Based upon the
Coopers & Lybrand report, Mr. Leckerling determined that, contrary to the
announcement made by SPX on March 24, 1998, valid and unrevoked demands had
been received with respect to less than 2% of all outstanding Echlin shares.
See Leckerling Decl., Paragraph 8.
On Monday, April 6, 1998, Echlin issued a press release reporting the
results of the tabulation that had been performed by Coopers & Lybrand and Mr.
Leckerling's determination. On the same day, Echlin commenced this action
seeking relief based upon SPX's false and misleading statements in its March
24, 1998 press release.
H. Events After April 6, 1998
On April 6, 1998, in response to the filing of this action, SPX quickly
issued a press release labelling the action "frivolous" and asserting its
belief that a special meeting of Echlin shareholders would still have to be
held by June 23, 1998. See Leckerling Decl., Exh. E. At the same time, SPX's
attorneys flew into a frenzied effort to attempt to cure some of the glaring
deficiencies in SPX's demand solicitation effort that were detailed in the
same complaint.
On April 7, 1998, Alex Sussman of Fried Frank, SPX's outside counsel,
called Mr. Urist of DTC to find out why an omnibus proxy had not been issued
to Echlin in response to SPX's request. Mr. Urist explained to Mr. Sussman
the confusion that had been wrought within DTC by the March 25, 1998 letter
from Mr. Cornwell of D.F. King & Co., SPX's proxy solicitors. Although SPX
has taken the unsupportable position in this action that only Echlin could ask
for an omnibus proxy to be issued, Mr. Sussman demanded, on behalf of SPX, that
Cede & Co. issue an omnibus proxy to Echlin as of the record date of February
17th. Mr. Urist agreed to cause such an omnibus proxy to be issued. See
Urist Dep. at 37-39.
Although Mr. Urist agreed to forward an omnibus proxy to Echlin, the
package from DTC that arrived at Mr. Leckerling's office on April 9, 1998 did
not include such a document and was limited to a security position listing of
the holdings of Cede & Co. participants as of the February 17, 1998 record
date. See Glazer Decl., Exh. 15; see Lecklerling Decl. Paragraph 11. On or
before April 13, 1998, Mr. Leckerling made arrangements for Coopers & Lybrand
to return to Echlin's offices for the purpose of reviewing the materials then
available, which by that time included the "Supplemental" ADP Client Proxy
dated March 31, 1998, additional demands and revocations, and the Cede & Co.
security position listing. See Leckerling Decl., Paragraph 11. On April 15,
1998, Coopers & Lybrand issued its second report, reporting that the results
of its tabulation had not significantly changed as a result of the new
materials. See Glazer Decl., Exh. 16.
DTC was not the only third party that received an excited telephone
call from SPX's advisors that week, however. Around the same time as the call
to Mr. Urist, Mr. Giommetti of ADP Proxy Services received a conference call
from Tom Long of D.F. King & Co., together with SPX attorneys. Mr. Giommetti
was not available for that call, but was informed by Tom Long in a subsequent
conversation that the subject of the conference call was to have been a
"discrepancy with the record date." See Giommetti Dep. at 48-50. Despite this
conversation, in which Mr. Long admitted that he had given a faulty
instruction, no one from SPX has ever asked Mr. Giommetti to take any steps to
correct this admitted "discrepancy." See id. at 50-51; see also Cornwell Dep.
at 83-84.
On April 14, 1998, Mr. Sussman of Fried Frank again called Mr. Urist of
DTC to report that Echlin still had not received an omnibus proxy. See Urist
Dep. at 46-47. At Mr. Sussman's urging, Mr. Urist agreed to arrange for Cede
& Co. to issue to Echlin a "duplicate" omnibus proxy and security position
listing as of the record date of February 17, 1998. Id. Although stamped
"duplicate," this was the first omnibus proxy that Mr. Leckerling received
from Cede & Co., and it arrived on April 16, 1998, see Leckerling Dep. at 230;
Glazer Decl., Exh. 15. While the delivery of the omnibus proxy on April 16th
makes it possible for Echlin to determine that demands with respect to up to
2,586,947 shares are valid as of April 16, 1998, see Glazer Decl., Exh. 16 at
3 [Coopers & Lybrand 4/15/98 report], even with the receipt of the omnibus
proxy Echlin has received demands from less than 6% of Echlin's outstanding
shares, far below the 35% required to call a special meeting of shareholders
under Connecticut law. Most significantly, the invalidity of the purported
demands reflected in the two ADP Client Proxies, which both clearly show that
a record date of February 18th was used instead of the correct record date of
February 17th that is reflected in the Cede & Co. omnibus proxy, is wholly
unaffected by the belated delivery of the omnibus proxy. See id.
ARGUMENT
SPX'S MOTION FOR A PRELIMINARY INJUNCTION
SHOULD BE DENIED AND COUNTS I, II AND IV OF
SPX'S COUNTERCLAIMS SHOULD BE DISMISSED
As a matter of fact and of law, SPX has failed to carry its burden to
establish grounds for the issuance of a preliminary injunction, and that
motion therefore should be denied. In addition, Counts I, II and IV of SPX's
counterclaims should be dismissed for failure to state a claim upon which
relief can be granted and for lack of subject matter jurisdiction.
In the Second Circuit, a party seeking a preliminary injunction must
establish "(1) irreparable harm and (2) either (a) a likelihood of success on
the merits, or (b) sufficiently serious questions going to the merits of its
claims to make them fair ground for litigation, plus a balance of the
hardships tipping decidedly in favor of the moving party." ICN
Pharmaceuticals, Inc. v. Khan, 2 F.3d 484, 490 (2d Cir. 1993); Jackson Dairy,
Inc. v. Hood, 596 F.2d 70, 72 (2d Cir. 1979). SPX has not met this burden on
several grounds.
I.
NO LIKELIHOOD OF SUCCESS ON THE MERITS
SPX has not -- as it cannot -- established a likelihood of success on
the merits of its claims. To the contrary, the record evidence clearly
establishes that the large majority of purported demands that were submitted
to Echlin in response to SPX's demand solicitation reflected, on their face,
an incorrect record date, and those demands properly were not counted as a
matter of Connecticut law. See C.G.S.A. Section Section 33-696(b),
33-708(c); Von Seldeneck v. Great Country Bank, No. CV89029886S, 1990 WL
283729 (Conn. Super. Oct. 5, 1990). Not only does SPX entirely ignore this
body of law in its motion, it instead relies upon wholly inapposite decisions
involving alleged breaches of individual directors' fiduciaries duties, which
have no bearing in this case.
A. The "Client Proxies" Submitted By ADP Proxy Services
Were Invalid on Their Face
Section 33-696 of the Connecticut Business Corporation Act governs the
procedure for calling a special meeting of shareholders of a Connecticut
corporation. That section expressly directs that the "shareholders entitled
to demand a special meeting" are to be determined as of a "record date," which
is the date on which "the first shareholder signs the demand." C.G.S.A.
Section 33-696(b). In this case, both parties agree that the record date is
February 17, 1998, the date that Cede & Co. signed a demand on behalf of
714,100 Echlin shares beneficially owned by SPX. See Glazer Decl., Exh. 7
[Cede & Co. demand]; see also Kearney Dep. at 85.
In addition to the express stautory requirement of Section 33-696(b)
that demands for a special meeting be counted only from shareholders as of the
"record date," the central importance of the record date was recognized in
Blasius Indus., Inc. v. Atlas Corp., 564 A.2d 651 (Del. 1988), a case cited by
SPX. In Blasius, the Delaware Chancery Court held that "[v]oting, or the
granting of consent to stockholder action, is, of course, the legal right of
record holders of stock only." Id. at 654 (emphasis added).
Under Section 33-708(c) of the Connecticut Business Corporation Act, a
Connecticut corporation "is entitled to reject a vote, waiver or proxy
appointment if the secretary or other officer or agent authorized to tabulate
votes, acting in good faith, has reasonable basis for doubt about . . . the
signatory's authority to sign for the shareholder." C.G.S.A. Section
33-708(c). In this case, Echlin's Secretary Jon P. Leckerling had far more
than a "reasonable basis for doubt" about the validity of the purported
demands reflected in the two ADP Client Proxies. Indeed, those documents
showed, on their face, that the purported demands they reflected were from
beneficial owners of Echlin shares as of an incorrect record date, February
18th, see Glazer Decl., Exhs. 10, 12, and under Section 33-696(b), those
demands could not be counted in determining whether sufficient demands had
been delivered to call a special meeting of shareholders, see C.G.S.A. Section
33-696(b).(7)
- --------------------
(7) Although John W. Cornwell, SPX's principal proxy solicitor at
D.F. King & Co., now contends that the record date on ADP Client Proxies
is "extraneous" material that should be disregarded in tabulating demands,
that contention is belied by his prior sworn testimony in a similar
situation, in which he stated that the record date has "A great deal of
significance. It's the date for determining the stockholders entitled to
notice of and to vote at meetings of shareholders. . . . it determines the
list, the Inspectors' Bible, so to speak, to determine whether votes are
entitled to be cast, and [are] in fact cast." See Cornwell Dep. at 135-36.
Under Connecticut law, the permissible inquiry into the validity of the
purported demands reflected in the two ADP Client Proxies ended there. See
Von Seldeneck v. Great Country Bank, No. CV89029886S, 1990 WL 283729 (Conn.
Super. Oct. 5, 1990). Great Country directs that the validity of purported
demands or proxies is to be determined from the face of the instruments
themselves and from the regularly maintained books and records of the
corporation, and that when confronted by a proxy that appears to be invalid on
its face, "the inspectors cannot seek extrinsic evidence to determine the
intent of the beneficial owners or correct mistakes." Id., 1990 WL 283728 at
*5. To the contrary, the Great Country court concluded,
[t]he policy favoring correction of mistake must be limited to
corrections that can be made from the face of the proxy itself or
from the regular books and records of the corporation. The
acceptance and consideration of extrinsic evidence for this
purpose, especially when questioned and controverted . . . ,
improperly take the inspectors over the line from the realm of the
ministerial to that of the quasi-judicial.
Id., 1990 WL 283729 at *6 (quoting and adopting similar holding in Blasius
Indus., Inc. v. Atlas Corp., 564 A.2d 651 (Del. Ch. 1988)).(8)
- --------------------
(8) As indicated by the Great Country court's citation of Blasius, the
courts of Delaware have long recognized the same rule. See, e.g., Preston v.
Allison, 650 A.2d 646, 648-49 (Del. 1994); Williams v. Sterling Oil of
Oklahoma, Inc., 273 A.2d 264, 265-66 (Del. 1971); Mainiero v. Microbyx Corp.,
699 A.2d 320, 323 (Del. Ch. 1997); Concord Fin. Group Inc. v. Tri-State Motor
Transit Co., 567 A.2d 1, 12-13 (Del. Ch. 1989).
Adherence to this bright-line standard is especially important in a
contest for corporate control. See Microbyx Corp., 699 A.2d at 325 ("in the
context of a highly acrimonious and contentious contest for control, it is all
the more important to ensure the game is played by the rules."). In such
circumstances, "the possibility of illegal or unauthorized execution is
greatly increased, and a more cautious attitude should therefore be adopted."
See C.G.S.A. Section 33-708, M.B.C.A. Official Comment No. 3. Indeed, an
express purpose for the rule applied in the Great Country decision is to avoid
converting "every close proxy fight into protracted and costly litigation."
Great Country, 1990 WL 283729 at *6.
SPX's charges of shareholder disenfranchisement are fundamentally
flawed for many reasons, including that, as recognized by the courts of both
Delaware and Connecticut, "the beneficial stockholder who 'chooses to register
his shares in the name of a nominee, . . . takes the risk attendant upon such
an arrangement.'" Preston v. Allison, 650 A.2d 646, 649 (Del. 1994) (quoting
American Hardware Corp. v. Savage Arms Corp., 136 A.2d 690, 692 (Del. 1957)).
Courts place the burden of such risks upon beneficial owners, among other
reasons, because "[b]eneficial owners could have avoided th[e] mistake by
obtaining legal proxies to vote their own shares." Great Country, 1990 WL
283729 at *8; see Kresel v. Goldberg, 111 Conn. 475, 150 A. 693 (1930).
In its motion papers, SPX does not mention, much less attempt to
distinguish, these controlling principles of Connecticut law, an omission that
reflects an appalling lack of candor to this Court. To the contrary, SPX
contends that Echlin, and this Court, should look behind these facially
invalid demands to determine whether SPX's own flagrant error in instructing
ADP Proxy Services to use the wrong record date -- February 18th rather than
February 17th, see Giommetti Dep. at 26, 77 -- resulted in voting by the wrong
beneficial owners. Such an inquiry is prohibited as a matter of law. See
Great Country, 1990 WL 283729 at *5-6; Preston v. Allison, 650 A.2d 646, 649
n.3 (Del. 1994) (court, like corporation, is barred from considering extrinsic
evidence to determine validity of proxies).
In any event, beyond the admitted fact that ADP Proxy Services used the
wrong record date of February 18th, see Giommetti Dep. at 26, 77, such a
determination is impossible given that, as SPX admits, the ADP Proxy Services
list of beneficial owners was "gathered confidentially from its member firms,"
SPX Mem. at 15, and that "both Echlin and SPX do not know the identity of
these shareholders," SPX Mem. at 13. SPX's attempt to reconcile the ADP Proxy
Services list of demands and revocations from financial institutions as of
February 18th to the Cede & Co. participant list as of February 17th
completely ignores this essential problem. The number of demands submitted by
DTC participants and the number of shares reflected for those institutions in
the reports issued by ADP Proxy Services and DTC shed absolutely no light on
the question of which beneficial owners -- i.e. the customers of DTC
participants for whom those institutions were submitting demands and
revocations -- submitted demands or on the question of whether the identities
or voting rights of those ultimate beneficial owners changed between February
17th and February 18th.(9) Indeed, SPX, Echlin and this Court have no way of
making that determination. See Urist Dep. at 11 (names of beneficial owners
of shares held of record by Cede & Co. do not appear on books and records of
issuing company), id. at 23 (DTC itself does not know identity of beneficial
owners); Cornwell Dep. at 163-64 (ADP and Cede participant listings do not
identify beneficial owners).
- --------------------
(9) Moreover, the demands reflected in the ADP Client Proxy with a
record date of February 18th suffer an additional infirmity -- no omnibus
proxy has been issued from Cede & Co. as of that date, and none will be
because the undisputed record date is February 17th. See Urist Dep. at 26
(Cede & Co. omnibus proxy issued "when there is a record date to determine
which shareholders have the right to vote").
Recognizing this fact, SPX desperately advances its view that there is
"virtually no difference" between the population and holdings of beneficial
owners of Echlin shares on February 17th and on February 18th, contending
(based upon purported records of trading on the New York Stock Exchange) that
"Demands from fewer than 200,000 street name shares, constituting little more
than 0.3% of Echlin's stock, might have been of record on February 18, but not
the day before." SPX Mem. at 15 (emphasis added). The tentative language in
this assertion is appropriate, considering that the facts now in the record
establish this figure to be little more than a wild guess that cannot be
substantiated. To begin with, Mr. Cornwell, who signed the affidavit drafted
by SPX's lawyers upon which this baseless assertion was made, see Cornwell
Dep. at 35, testified during his deposition that he was "not an expert on, you
know, trading records of the New York Stock Exchange," see Cornwell Dep. at
102. He also admitted that those trading records he was purportedly relying
upon would shed no light whatsoever on changes in beneficial ownership of, or
voting arrangements affecting, Echlin shares occurring between February 17th
and February 18th as the result of:
(1) trading in Echlin shares on the London Stock Exchange, on
which Echlin shares are listed, id. at 116; see Morrow Dep.
at 116-17
(2) direct trading between non-broker-dealer entities, such as a
trade between IBM and Sears, Cornwell Dep. at 116;
(3) trading among funds within a mutual fund family or between
mutual fund families, Cornwell Dep. at 116-17; Morrow Dep.
at 117;
(4) borrowing of Echlin shares, such as occurs when shares are
sold short, Cornwell Dep. at 119; Morrow Dep. at 117; or
(5) changes in voting arrangements between brokerage firms and
their customers, Cornwell Dep. at 121-23.
During Mr. Morrow's deposition, SPX's attorneys identified a sixth way
that changes could occur without being reflected in those records -- by a
beneficial owner changing accounts between broker-dealers. See Morrow Dep. at
120. There is only one way to be sure that all such changes in the ownership
and voting rights of a corporation's stock are taken into account -- to limit
the vote to the record holders and beneficial owners of that stock as of the
record date, as Section 33-696(b) mandates.
In sum, SPX is asking this Court to compel a meeting of Echlin
shareholders -- despite the fact that substantially fewer than the requisite
35% of Echlin shareholders have submitted valid demands -- based purely on
SPX's say-so which, in turn, is wholly without foundation and is, as
demonstrated by the facts adduced during discovery, simply wrong. Even if the
Court were permitted to entertain such an argument as a matter of law (which,
as discussed, is not the case), SPX's motion would have to be denied on this
ground alone.
Instead of discussing the case law regarding validity of proxies that
is implicated by SPX's errors in this case, SPX attempts to rely on decisions
involving the adoption by boards of directors of various takeover defenses,
all of which are entirely inapposite to the facts at issue in this action. In
Blasius Industries, Inc. v. Atlas Corporation, the decision upon which SPX
principally bases its flawed legal argument, the Delaware Chancery Court found
that the adoption of an emergency amendment to a corporation's by-laws to add
two new directors, in the face of a threat by an insurgent shareholder, was an
invalid use of the corporate machinery for the purpose of "foreclosing
effective shareholder action."(10) Blasius, 564 A.2d 651, 663 (Del Ch. 1988);
see also International Banknote Co., Inc. v. Muller, 713 F. Supp. 612, 622-26
(S.D.N.Y. 1989) (enjoining recently enacted by-law requiring 45 days notice of
insurgent slate of nominees).
- --------------------
(10) Ironically, in the second half of the Blasius decision,
involving the counting of votes in a subsequent consent solicitation, the
Delaware Chancery Court strictly applied the "face of the proxy" rule in a
discussion that was expressly adopted as Connecticut law by the Great
Country court. For some reason, SPX fails to mention this second, relevant
part of the Blasius decision.
Unlike the facts at issue in the first half of Blasius and in the other
decisions relied upon by SPX, there has been no by-law or charter amendment in
this case, nor has the Echlin board of directors adopted any other corporate
defensive measure, such as advancing or postponing the date of an annual
meeting, see Shoen v. Amerco, 885 F. Supp. 1332 (D. Nev. 1994); ER Holdings,
Inc. v. Norton Co., 735 F. Supp. 1094 (D. Mass. 1990); Schnell v. Chris-
Craft Indus. Inc., 285 A.2d 437 (Del. 1971); Aprahamian v. HBO & Co., 531 A.2d
1204, 1208 (Del. Ch. 1987), issuing stock to a newly created subsidiary and
employee benefit plan, see Norlin Corp. v. Rooney, Pace Inc., 744 F.2d 255 (2d
Cir. 1984), announcing a restructuring into three corporations with staggered
boards of directors, see Hilton Hotels Corp. v. ITT Corp., 978 F. Supp. 1342
(D. Nev. 1997), aff'd mem., 116 F.3d 1485 (9th Cir. 1997), or commencing a
share repurchase program, Unitrin, Inc. v. American General Corp., 651 A.2d
1361 (Del. 1995).
Indeed, there has been absolutely no change to the Echlin "corporate
machinery," much less any change that would "foreclos[e] effective shareholder
action." To the contrary, if valid demands of 35% of Echlin shareholders are
ever delivered, a special meeting will be held within the timeframe
contemplated under Connecticut law. As discussed above, however, that has not
happened in this case, a fact that is solely the result of the flawed
solicitation effort conducted by SPX and the mistakes of its advisors and is
not attributable to any conduct of Echlin or its officers or directors.
For all of these reasons, it is abundantly clear that SPX cannot
prevail on its contention -- much less establish a likelihood of success on
the merits -- that valid demands of more than 35% of Echlin shareholders were
delivered. As a result, SPX's motion for a preliminary injunction directing a
special meeting to be called and requiring Echlin to correct public statements
that are in fact true must be denied.
B. Count II of SPX's Counterclaims -- For Breach
of Fiduciary Duties -- Must Be Dismissed
SPX's reliance on the foregoing decisions involving alleged breaches of
a board of directors' fiduciary duties is further misplaced because SPX has
failed to state a claim for "breach of the fiduciary duties of Echlin's
managment and board" upon which relief can be granted, and that count should
be dismissed pursuant to Federal Rule of Civil Procedure 12(c). See SPX
Answer and Counterclaims, Paragraph Paragraph 102-107.(11)
- --------------------
(11) Pursuant to Federal Rule 12(c), "[a] court may enter a
judgment on the pleadings where the material facts are undisputed and a
judgment on the merits is possible merely by considering the pleadings'
contents." Romanella v. Hayward, 933 F. Supp. 163, 165 (D. Conn. 1996),
aff'd, 114 F.3d 15 (2d Cir. 1997). A court considering a motion to dismiss
under Federal Rule 12(c) applies the same standard as that applicable to a
motion to dismiss under Federal Rule 12(b)(6) -- that is, it "accept[s] the
allegations contained in the complaint as true, and draw[s] all reasonable
inferences in favor of the non-movant." Sheppard v. Beerman, 18 F.3d 147,
150 (2d Cir. 1994).
Although Count II of the Counterclaims is ostensibly based upon an
alleged breach of fiduciary duty by Echlin's "board" and "management," SPX has
chosen not to name a single Echlin director or officer as a defendant on this
claim, naming instead only Echlin. It is clear as a matter of law, however,
that "[t]he corporation itself owes no fiduciary duties to shareholders
independently from its agents, and the corporation itself is not liable for a
breach of fiduciary duties by its directors." Emerald Partners v. Berlin,
C.A. No. 9700, 1995 WL 600881 at *8 (Del. Ch. Sept. 22, 1995). Moreover, a
corporation cannot be held vicariously liable for its directors' alleged
breach of fiduciary duty. Such a rule "'would be flatly inconsistent with the
rationale for vicarious liability since it would shift the cost of the
directors' breach from the directors to the corporation and hence to the
shareholders." Arnold v. Society for Savings Bancorp, Inc., 678 A.2d 533, 540
& n.16 (Del. 1996) (quoting Radol v. Thomas, 772 F.2d 244, 258-59 (6th Cir.
1985)) (collecting cases); see also CRTF Corp. v. Federated Dept. Stores, Inc.,
683 F. Supp. 422, 426-27 (S.D.N.Y. 1988) (derivative suit must name at least
one director as defendant).
In addition to this legal defect, SPX's Answer and Counterclaims are
devoid of any allegation of individual wrongdoing by any identified officer or
director. Even under the liberal pleading requirements of the Federal Rules,
therefore, Count II of SPX's Counterclaims for breach of fiduciary duty should
be dismissed.(12)
- --------------------
(12) Moreover, under the Connecticut Business Corporation Act, SPX
would not prevail on such a claim even if it had been properly asserted.
Section 33-708(d) provides that "[t]he corporation and its officer or agent
who accepts or rejects a vote, consent, waiver or proxy appointment in good
faith and in accordance with the standards of this section are not liable
in damages to the shareholder for the consequences of the acceptance or
rejection. C.G.S.A. Section 33-708(d).
II.
LACK OF SUBJECT MATTER JURISDICTION
To the extent that SPX seeks this Court's intervention to direct that a
special meeting of Echlin shareholders be called, the motion should be denied
and Counts I and IV of SPX's counterclaims should be dismissed, for lack of
subject matter jurisdiction. See Fed. R. Civ. P. 12(h)(3) ("[w]henever it
appears by suggestion of the parties or otherwise that the court lacks
jurisdiction of the subject matter, the court shall dismiss the action").
Section 3-697 of the Connecticut Business Corporation Act vests
jurisdiction over disputes concerning the calling of a special meeting of
shareholders of a Connecticut domestic corporation exclusively in the state
courts of Connecticut. That section expressly provides that such proceedings
are to be brought in the "superior court for the judicial district where a
corporation's principal office . . . is located." C.G.S.A. Section
33-697(a); see also C.G.S.A. Section 33-697, M.B.C.A. Official Comment No. 1.
Several courts have held that federal courts do not have subject matter
jurisdiction in such circumstances. See Friedman v. Revenue Mgmt. of New
York, Inc., 839 F. Supp. 203, 205 (S.D.N.Y. 1993), aff'd on other grounds, 38
F.3d 668 (2d Cir. 1994); Codos v. National Diagnostic Corp., 711 F. Supp. 75,
78 (E.D.N.Y. 1989); Alkire v. Interstate Theatres Corp., 379 F. Supp. 1210,
1214 (D. Mass. 1974); but see In re English Seafood (USA) Inc., 743 F. Supp.
281, 287-88 (D. Del. 1990) (where state law creates substantive right, federal
court in diversity case has the general equitable power to protect and enforce
such a right).(13) In Friedman v. Revenue Management of New York, Inc., the
Second Circuit declined to resolve this split of authority but affirmed the
district court's decision dismissing a state law claim for dissolution of a
corporation under the abstention doctrine articulated in Burford v. Sun Oil
Co., 319 U.S. 315, 332 (1943). See 38 F.3d 668, 670 (2d Cir. 1994).
- --------------------
(13)Even the reasoning of English Seafood extends only to actions in
which the federal court's original jurisdiction is premised upon diversity of
citizenship under 28 U.S.C. Section 1332. See English Seafood, 743 F. Supp.
at 287-88 (discussing Erie R. Co. v. Tomkins, 304 U.S. 64 (1938)). In this
case, SPX attempts to invoke this Court's diversity jurisdiction (in addition
to federal question and supplemental jurisdiction) but makes no allegation
satisfying the requisite amount in controversy, $75,000. See Answer and
Counterclaims Paragraph 60.
"It has long been accepted practice for the federal courts to
relinquish their jurisdiction in favor of the state courts, where its exercise
would involve control or interference with the internal affairs of a domestic
corporation of the state." Pennsylvania v. Williams, 294 U.S. 176, 185
(1935). The Second Circuit reaffirmed this principal in Friedman. In that
case, the district court dismissed a dissolution proceeding under New York law
for lack of subject matter jurisdiction or, in the alternative, abstained from
exercising jurisdiction under Burford. On appeal, the Second Circuit observed
that a "federal court may abstain from hearing a case or claim over which it
has jurisdiction to avoid needless disruption of state efforts to establish
coherent policy in an area of comprehensive state regulation." Friedman, 38
F.3d at 671 (citing Burford). Recognizing that New York had a "strong
interest" in the "uniform development and interpretation of the statutory
scheme regarding corporations," the Second Circuit held that Burford
abstention was warranted to avoid "needless interference with New York's
regulatory scheme governing its corporations." Id..
The Second Circuit's reasoning in Friedman applies with equal force in
this case, and, even if subject matter jurisdiction were found to exist, this
Court should nevertheless abstain from exercising subject matter jurisdiction
over SPX's motion and its counterclaims to the extent that SPX seeks this
Court to direct that a special meeting of shareholders be called.(14) As in
Friedman, the claims at issue here implicate issues of internal corporate
governance traditionally left for decision by the state courts, meriting
Burford abstention. SPX seeks this Court's intervention in a dispute about
whether a special meeting of Echlin shareholders should be held under the
Connecticut Business Corporation Act. In specifying the state courts of
Connecticut as the forum for such disputes, the Connecticut legislature has
demonstrated its strong preference that its state courts develop and apply a
uniform "interpretation of the statutory scheme regarding corporations."
Friedman, 38 F.3d at 671. Moreover, such abstention is warranted here even if
this Court retains jurisdiction over SPX's single (meritless) federal claim,
for allegedly false statements under the proxy rules. See Langner v. Brown,
913 F. Supp. 260, 270-71 (S.D.N.Y. 1996) (applying Friedman to dismiss one
count of a multi-count complaint). Counts I and IV of SPX's counterclaims
should be dismissed for lack of subject matter jurisdiction, or this Court
should abstain from exercising such jurisdiction.
- --------------------
(14) An alternative framework for such an analysis is provided
under 28 U.S.C. Section 1367, the section of the Judicial Code governing
the supplemental jurisdiction of the federal courts. Under Section
1367(c), this Court may decline supplemental jurisdiction over a claim if
"(1) the claim raises a novel or complex issue of State law," or "(2) the
claim substantially predominates over the claim or claims over which the
district court has original jurisdiction." 28 U.S.C. Section 1367(c)
(1998); see Itar-Tass Russian News Agency v. Russian Kurier, Inc., ___
F.3d ___, 1998 WL 153011 (2d Cir. Apr. 3, 1998) (discussing standards for
dismissal under Section 1367(c)).
III.
NO IRREPARABLE HARM
SPX's assertions of irreparable harm cannot be credited, and its motion
must also be denied on this ground. Echlin has erected no impediment to
prevent or hinder SPX or any other Echlin shareholder from soliciting and
submitting valid demands for the purpose of calling a special meeting of
Echlin shareholders in accordance with the clear requirements of Connecticut
law. As a result, the only possible harm -- far from irreparable -- that is
at issue in this case is mere delay to SPX. Such delay is the direct result
of the actions of SPX and its advisors in conducting a fundamentally flawed
demand solicitation effort, and is not attributable to any action of Echlin,
its directors or its officers. In this regard, the record demonstrates the
following facts:
o Despite receiving advice from D.F King & Co. that ADP Proxy
Services required prior notification of a record date, SPX
decided, at the advice of its outside counsel, not to give
such notice, Cornwell Dep. at 70-72;
o After SPX had established February 17, 1998 as the record
date for the submission of demands, D.F. King & Co. called
ADP Proxy Services and erroneously instructed that firm to
establish a record date in its system of February 18th, see
Giommetti Dep. at 26, 77;
o No one from D.F. King & Co. or any other SPX representative
ever called ADP Proxy Services to instruct ADP to correct
the list of beneficial owners it was using from February
18th to February 17th, see Cornwell Dep. at 81-84, even
though D.F. King & Co. was aware that a procedure for such a
correction was available, id. at 86;
o As a result of D.F. King & Co.'s erroneous and uncorrected
instructions, ADP Proxy Services obtained and compiled
demands from beneficial owners of Echlin shares as of the
wrong date -- February 18th, see Giommetti Dep. at 26-27,
49; see also Glazer Decl., Exhs. 10, 12 [ADP Client Proxies];
o Even after SPX became fully aware of this monumental error
resulting from its faulty instructions, no representative of
SPX made any effort to correct it, see Giommetti Dep. at
48-52, Cornwell Dep. at 81-84;
o In addition to the problems it caused with ADP Proxy
Services, the confusion sown at DTC regarding the issuance
of an omnibus proxy resulted solely from confusing
instructions provided to DTC by D.F. King & Co., SPX's proxy
solicitors, see Urist Dep. at 41;
o Although they were aware of the confusion at DTC and doubted
that an omnibus proxy had in fact been issued, SPX and D.F.
King & Co. failed to return phone calls and did not pursue
the issue with either DTC or Echlin until after this action
had been commenced, see Cornwell Dep. at 152-55, 160-61.
In short, the record unequivocally establishes that SPX's current
predicament is of its own making. As Judge Patterson held in similar
circumstances, to grant SPX's motion based on harm caused by its own actions
"would unduly reward [SPX] and eviscerate the requirement of irreparable
harm." First African Trust Bank Ltd. v. Bankers Trust Co., No. 92 Civ. 4900
(RPP), 1992 WL 276833 (S.D.N.Y. Sept. 28, 1992).
IV.
BALANCE OF HARDSHIPS
Finally, contrary to SPX's contentions, the balance of hardships
clearly weighs in favor of Echlin and its shareholders as of the February 17th
record date and decidedly tips against granting SPX's motion.
If SPX's request that this Court call a special meeting of Echlin
shareholders is granted, Echlin will be forced to call such a meeting -- a
special meeting that Echlin's board of directors has determined is not in the
best interests of the corporation or its shareholders at this time -- based
upon demands from the wrong population of purported beneficial owners of
Echlin shares. Such a result in circumstances such as those presented here --
in which valid demands from 35% of Echlin shareholders as of the record date
have not be submitted -- would be contrary to Connecticut law and would truly
disenfranchise the population of Echlin shareholders entitled to vote on the
question under Connecticut law. See C.G.S.A. Section 33-696(b).
In comparison, SPX faces little harm if its motion is denied. At
worst, SPX would need to cure -- or attempt to cure -- the glaring errors in
its previous solicitation effort by issuing corrective disclosure and seeking
demands from the correct set of Echlin beneficial owners who are truly
entitled to vote. As previously discussed, Echlin has erected no barrier to
prevent that from occurring. Thus, the only hardship that SPX will face if
its motion is denied is the delay occasioned by SPX's own blunders, a delay
that arises only because SPX has consciously chosen not to attempt to fix
those mistakes. A party seeking equity must do equity. See 11A Charles A.
Wright, et al., Federal Practice and Procedure, Section 2946 (1995). This
Court's equity powers should not be invoked merely to assist a party that
refuses to admit it has made mistakes.
CONCLUSION
For all of the foregoing reasons, SPX's motion for a preliminary
injunction should be denied and Counts I, II and IV of SPX's Counterclaims
should be dismissed.
Dated: New York, New York
May 4, 1998
DAVIS POLK & WARDWELL
By: ___________________________
Dennis E. Glazer
Federal Bar No. CT 02919
450 Lexington Avenue
New York, New York 10017
(212) 450-4000
Of Counsel:
Kenneth M. Bernstein - and -
John J. Clarke, Jr.
Rebecca L. Winters
TYLER COOPER & ALCORN, LLP
Ronald J. Cohen
Federal Bar No. CT 04158
David W. Schneider
Federal Bar No. CT 04159
205 Church Street
New Haven, Connecticut 06510
(203) 784-8200
Attorneys for Echlin Inc.
CERTIFICATE OF SERVICE
The undersigned, one of the attorneys for plaintiff and counterclaim
defendant Echlin Inc. in this action, certifies that on May 4, 1998, he caused
to be served a copy of the foregoing Memorandum in Opposition to SPX's Motion
for Preliminary Injunction and in Support of Echlin's Motion to Dismiss Counts
I, II and IV of SPX's Counterclaims, by first-class mail, postage prepaid,
upon Alexander R. Sussman, Esq., Fried, Frank, Harris, Shriver & Jacobson, One
New York Plaza, New York, New York 10004, and Stefan R. Underhill, Esq., Day,
Berry & Howard, One Canterbury Green, Stamford, Connecticut 06901-2047. A
courtesy copy will be provided to Mr. Sussman pursuant to the parties
arrangement to exchange papers this afternoon.
_______________________________
One of the Attorneys for
Echlin Inc.
UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
- - - - - - - - - - - - - - - - - - - - - - - - - - - - x
:
ECHLIN INC., Civil Action No.:
:
Plaintiff and 98-CV-0635 (GLG)
Counterclaim Defendant. :
- against - :
SPX CORPORATION, :
Defendant and :
Counterclaim Plaintiff.
:
- - - - - - - - - - - - - - - - - - - - - - - - - - - - x
REPLY TO COUNTERCLAIMS
Plaintiff and counterclaim defendant Echlin Inc. ("Echlin"), by its
undersigned attorneys, for its reply to the Answer, Affirmative Defenses and
Counterclaim for Declaratory and Injunctive Relief (the "Answer and
Counterclaims") of defendant SPX Corporation ("SPX"), states:
1. The allegations set forth in paragraphs 1 through 50 of the Answer
and Counterclaims respond to the allegations of the Complaint and require no
response. To the extent that a response may be deemed to be required, Echlin
generally denies any new allegations set forth in those paragraphs.
51. Denies the allegations in paragraph 51 of the Answer and
Counterclaims.
52. Denies the allegations in paragraph 52 of the Answer and
Counterclaims.
53. Denies the allegations in paragraph 53 of the Answer and
Counterclaims.
REPLY TO COUNTERCLAIMS
54. Denies the allegations in paragraph 54 of the Answer and
Counterclaims, except admits that on February 17, 1998 SPX delivered a letter
to the Echlin board of directors and respectfully refers the Court to that
letter for its contents.
55. Denies the allegations in paragraph 55 of the Answer and
Counterclaims except denies knowledge or information sufficient to form a
belief as to the reasons for decisions taken by SPX.
56. Denies the allegations in paragraph 56 of the Answer and
Counterclaims.
57. The allegations in paragraph 57 of the Answer and Counterclaims set
forth legal conclusions to which no response is required. To the extent a
response may be deemed to be required, Echlin denies the allegations in
paragraph 57 and each and every subparagraph thereof.
58. Denies knowledge or information sufficient to form a belief as to
the truth of the allegations in paragraph 58 of the Answer and Counterclaims,
except admits upon information and belief that SPX is a Delaware corporation
with its principal place of business in Muskegon, Michigan and that shares of
SPX are traded on the New York Stock Exchange.
59. Admits the allegations in paragraph 59 of the Answer and
Counterclaims.
60. The allegations in paragraph 60 of the Answer and Counterclaims
state legal conclusions to which no response is required, except Echlin denies
that this Court has subject matter jurisdiction over Counts I and IV of SPX's
counterclaims.
61. The allegations in paragraph 61 of the Answer and Counterclaims
state legal conclusions to which no response is required.
62. Denies the allegations in paragraph 62 of the Answer and
Counterclaims, except admits that in February 1997, Trevor Jones, the chairman
of the board of directors and interim chief executive officer of Echlin, met
with John B. Blystone, the chairman, president and chief executive officer of
SPX; that in November 1997, Larry McCurdy, the president and chief executive
officer of Echlin met with Mr. Blystone to discuss business in general, at
which meeting a possible business combination between the two companies was
discussed; and that on November 24, 1997, Robert F. Tobey, Echlin's vice
president-corporate development met with Patrick O'Leary, SPX's vice
president-finance and chief financial officer, at which meeting general
discussion regarding a business combination took place.
63. Denies the allegations in paragraph 63 of the Answer and
Counterclaims, except admits that on February 17, 1998, SPX sent a letter to
Echlin's board of directors and respectfully refers the Court to that letter
for its contents.
64. Denies the allegations in paragraph 64 of the Answer and
Counterclaims, except admits that on February 17, 1998 SPX sent a letter to
Echlin's board of directors and respectfully refers the Court to that letter
for its contents.
65. Denies the allegations in paragraph 65 of the Answer and
Counterclaims, except admits that on February 17, 1998 SPX sent a letter to
Echlin's board of directors and respectfully refers the Court to that letter
for its contents.
66. Denies the allegations of paragraph 66 of the Answer and
Counterclaims, except admits that on February 17, 1998, SPX sent a letter to
Echlin's board of directors and respectfully refers the Court to that letter
for its contents.
67. Denies the allegations of paragraph 67 of the Answer and
Counterclaims, except admits that on February 17, 1998, SPX sent a letter to
Echlin's board of directors and respectfully refers the Court to that letter
for its contents.
68. Denies the allegations of paragraph 68 of the Answer and
Counterclaims, except admits that Echlin's certificate of incorporation
includes provisions relating to Echlin's Series A Cumulative Voting Preferred
Stock and respectfully refers the Court to that document for its contents.
69. The allegations in paragraph 69 of the Answer and counterclaim
state a legal conclusion to which no response is required.
70. Denies knowledge or information sufficient to form a belief as to
the truth of the allegations in paragraph 70 of the Answer and Counterclaims,
except admits upon information and belief that SPX filed with the Securities
and Exchange Commission (the "SEC") preliminary exchange offer materials and
preliminary solicitation materials to solicit written demands that a special
meeting of Echlin shareholders be called.
71. Denies the allegations in paragraph 71 of the Answer and
Counterclaims, except respectfully refers the Court to the February 17, 1998
letter from SPX to the Echlin board of directors for its contents.
72. Admits that the record date for submitting demands to call a
special meeting of Echlin shareholders was established as February 17, 1998
when Cede & Co. ("Cede"), the nominee of The Depository Trust Company,
executed a written demand on behalf of 714,100 Echlin shares held of record by
Cede, at the request of its participant Merrill Lynch, Pierce, Fenner & Smith
Incorporated, on behalf of SPX, and denies all other allegations in paragraph
72 of the Answer and Counterclaims.
73. Denies knowledge or information sufficient to form a belief as to
the truth of the allegations in paragraph 73 of the Answer and Counterclaims,
except admits upon information and belief that on March 6, 1998, SPX filed its
definitive proxy materials with the SEC.
74. Denies the allegations in paragraph 74 of the Answer and
Counterclaims.
75. For its response to paragraph 75 of the Answer and Counterclaims,
admits that on February 17, 1998, SPX delivered to Echlin a letter requesting
access to the record of shareholders of Echlin and respectfully refers the
Court to that letter for its contents.
76. For its response to paragraph 76 of the Answer and Counterclaims,
admits that on February 27, 1998, SPX, through its designated agent, made
inspection and obtained from Echlin a copy of the list of registered
stockholders as of the record date of February 17, 1998, and respectfully
refers the Court to that document for its contents.
77. Admits the allegations in paragraph 77 of the Answer and
Counterclaims.
78. Admits the allegations of paragraph 78 of the Answer and
Counterclaims.
79. For its response to the allegations in paragraph 79 of the Answer
and Counterclaims states that those allegations have been set forth in
correspondence between SPX and SPX's outside counsel, on one hand, and Echlin
and Echlin's outside counsel, on the other hand, and respectfully refers the
Court to that correspondence for its contents.
80. The allegations in paragraph 80 of the Answer and Counterclaims
state a legal conclusion to which no response is required. To the extent a
response may be deemed to be required, Echlin denies the allegations in
paragraph 80 of the Answer and Counterclaims.
81. Denies the allegations in paragraph 81 of the Answer and
Counterclaims, except admits that in connection with solicitations with record
dates, Cede & Co., as nominee of The Depository Trust Company ("DTC"), will
provide to an issuer, at the request any interested party, an omnibus proxy
with a participant listing indicating the number of shares held as of the
record date by each DTC participant and admits that Echlin's stock ownership
records maintained by its transfer agent only reflect record holders of Echlin
stock.
82. Denies the allegations in paragraph 82 of the Answer and
Counterclaims.
83. Denies the allegations in paragraph 83 of the Answer and
Counterclaims.
84. Denies the allegations in paragraph 84 of the Answer and
Counterclaims.
85. Denies the allegations in paragraph 85 of the Answer and
Counterclaims.
86. Denies the allegations in paragraph 86 of the Answer and
Counterclaims, except admits that Echlin supported a proposed amendment to the
Connecticut Business Corporation Act.
87. Denies the allegations in paragraph 87 of the Answer and
Counterclaims, except admits that on March 25, 1997, the Connecticut House of
Representatives voted not to adopt a proposed amendment to the Connecticut
Business Corporation Act.
88. Denies the allegations in paragraph 88 of the Answer and
Counterclaims, except admits that on March 25, 1998 SPX delivered to Echlin
purported demands for a special meeting.
89. Denies the allegations in paragraph 89 of the Answer and
Counterclaims, except admits that on April 6, 1998 Echlin commenced this
action and delivered a letter to SPX and respectfully refers the Court to that
letter for its contents.
90. Denies the allegations in paragraph 90 of the Answer and
Counterclaims.
91. Denies the allegations in paragraph 91 of the Answer and
Counterclaims.
92. Denies the allegations in paragraph 92 of the Answer and
Counterclaims.
93. Denies the allegations in paragraph 93 of the Answer and
Counterclaims.
94. Denies the allegations in paragraph 94 of the Answer and
Counterclaims, except states that the first sentence in paragraph 94 states a
legal conclusion to which no response is required.
95. Denies the allegations in paragraph 95 of the Answer and
Counterclaims.
96. Repeats and realleges its responses to paragraphs 1 through 95 of
the Answer and Counterclaims as if fully restated herein.
97. Denies the allegations in paragraph 97 of the Answer and
Counterclaims.
98. The allegations in paragraph 98 of the Answer and Counterclaims
state a legal conclusion to which no response is required.
99. The allegations in paragraph 99 of the Answer and Counterclaims
state a legal conclusion to which no response is required.
100. Denies the allegations in paragraph 100 of the Answer and
Counterclaims, except admits that on April 6, 1998, Echlin delivered a letter
to SPX and Echlin respectfully refers the Court to that letter for its
contents.
101. Denies the allegations in paragraph 101 of the Answer and
Counterclaims.
102. Repeats and realleges its responses to paragraphs 1 through 101 of
the Answer and Counterclaims as if fully restated herein.
103. Denies the allegations in paragraph 103 of the Answer and
Counterclaims.
104. Denies the allegations in paragraph 104 of the Answer and
Counterclaims, except admits that the members of the Echlin board of directors
owe duties to Echlin shareholders and other constituencies.
105. Denies the allegations in paragraph 105 of the Answer and
Counterclaims.
106. Denies the allegations in paragraph 106 of the Answer and
Counterclaims.
107. Denies the allegations in paragraph 107 of the Answer and
Counterclaims.
108. Repeats and realleges its responses to paragraphs 1 through 107 of
the Answer and Counterclaims as if fully restated herein.
109. The allegations in paragraph 109 of the Answer and Counterclaims
state a legal conclusion to which no response is required.
110. Denies the allegations in paragraph 110 of the Answer and
Counterclaims, and each and every subparagraph thereof.
111. Denies the allegations in paragraph 111 of the Answer and
Counterclaims.
112. Denies the allegations in paragraph 112 of the Answer and
Counterclaims.
113. Denies the allegations in paragraph 113 of the Answer and
Counterclaims.
114. Denies the allegations in paragraph 114 of the Answer and
Counterclaims.
115. Repeats and realleges its responses to paragraphs 1 through 114 of
the Answer and Counterclaims as if fully restated herein.
116. Denies the allegations in paragraph 116 of the Answer and
Counterclaims.
117. Respectfully refers the Court to Echlin's by-laws for their
contents.
118. Denies the allegations in paragraph 118 of the Answer and
Counterclaims.
119. Denies the allegations in paragraph 119 of the Answer and
Counterclaims.
120. Echlin denies the allegations of the ad damnum clause of the
Answer and Counterclaims and denies any and all allegations of the Answer and
Counterclaims to the extent a response has not otherwise been provided.
AFFIRMATIVE DEFENSES
FIRST AFFIRMATIVE DEFENSE
121. The Answer and Counterclaims fail to state a claim upon which
relief can be granted.
SECOND AFFIRMATIVE DEFENSE
122. This Court lacks subject matter jurisdiction over the claims
asserted in Counts I and IV of the Answer and Counterclaims.
THIRD AFFIRMATIVE DEFENSE
123. The Court should abstain from exercising subject matter
jurisdiction over the claims asserted in Counts I and IV of the Answer and
Counterclaims under Burford v. Sun Oil Co., 319 U.S. 315 (1943).
FOURTH AFFIRMATIVE DEFENSE
124. Count II of the Answer and Counterclaims fails to join
indispensable parties.
FIFTH AFFIRMATIVE DEFENSE
125. The claims asserted in the Answer and Counterclaims are barred
under the doctrine of unclean hands.
SIXTH AFFIRMATIVE DEFENSE
126. The claims asserted in the Answer and Counterclaims are barred
under the doctrine of laches.
SEVENTH AFFIRMATIVE DEFENSE
127. The claims asserted in the Answer and Counterclaims are barred
under the doctrine of equitable estoppel.
EIGHTH AFFIRMATIVE DEFENSE
128. The claims asserted in the Answer and Counterclaims are barred
under the doctrine of waiver.
NINTH AFFIRMATIVE DEFENSE
129. The claims asserted in the Answer and Counterclaims are barred
because SPX's alleged injuries were not legally or proximately caused by any
acts or omission of Echlin and were caused, if at all, by the conduct of SPX
or third parties, including without limitation the prior, intervening or
superseding conduct of SPX and/or such third parties.
WHEREFORE, plaintiff and counterclaim defendant Echlin respectfully
requests that the counterclaims be dismissed, that Echlin be awarded its costs
including attorneys' fees in responding to the counterclaims and that the
Court grant Echlin such other relief as it may deem just and proper.
Dated: New York, New York
May 4, 1998
DAVIS POLK & WARDWELL
By: ______________________________
Dennis E. Glazer
Federal Bar No. CT 02919
450 Lexington Avenue
New York, New York 10017
(212) 450-4000
- and-
TYLER COOPER & ALCORN, LLP
Ronald J. Cohen
Federal Bar No. CT 04158
205 Church Street
New Haven, Connecticut 06510
(203) 784-8200
Attorneys for Plaintiff and
Counterclaim Defendant
Echlin Inc.
CERTIFICATE OF SERVICE
The undersigned, one of the attorneys for plaintiff and counterclaim
defendant Echlin Inc. in this action, certifies that on May 4, 1998, he caused
to be served a copy of the foregoing Reply to Counterclaims by first-class
mail, postage preparid, upon Alexander R. Sussman, Esq., Fried, Frank, Harris,
Shriver & Jacobson, One New York Plaza, New York, New York 10004, and Stefan
R. Underhill, Esq., Day, Berry & Howard, One Canterbury Green, Stamford,
Connecticut 06901-2047.
________________________________
One of the Attorneys for
Echlin Inc.
UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
- -----------------------------------------------x
:
ECHLIN INC., :
:
Plaintiff and Counterclaim-Defendant, :
: Civil Action No.
-against- : 98-CV-635 (GLG)
:
SPX CORPORATION, : May 4, 1998
:
Defendant and Counterclaimant. :
:
- -----------------------------------------------x
RESPONSIVE BRIEF FOR MAY 7
PRELIMINARY INJUNCTION HEARING
Stephan R. Underhill Ronald J. Cohen
Jonathan B. Tropp David Schneider
Day, Berry & Howard Tyler, Cooper & Alcorn LLP
One Canterbury Green 205 Church Street
Stamford, Connecticut 06901-2047 New Haven, Connecticut 06510
(203) 977-7300 (203) 784-8200
Alexander R. Sussman Dennis E. Glazer
Kenneth Applebaum Kenneth M. Bernstein
Peter Jerdee John J. Clarke, Jr.
Israel David Davis Polk & Wardwell
Fried, Frank, Harris, Shriver & 450 Lexington Avenue
Jacobson New York, New York 10017
One New York Plaza (212) 450-4000
New York, New York 10004-1980
(212) 859-8000
Attorneys for SPX Corporation Attorneys for Echlin Inc.
TABLE OF CONTENTS
Page
PRELIMINARY STATEMENT................................................ 1
STATEMENT OF FACTS................................................... 4
ARGUMENT............................................................. 5
I. ECHLIN WAS AND IS REQUIRED TO CALL THE
SPECIAL MEETING TO BE HELD BY JUNE 23........................... 5
A. The Demands Delivered on March 25 Far
Exceed the 35% Statutory Requirement........................ 6
B. Delay in Issuance of the Cede Omnibus
Proxy Does Not Alter The Effectiveness
Of The Demands As Of March 25, 1998......................... 10
1. Cede Does Not Itself Exercise
Stockholder Rights...................................... 10
2. Cede's Record Ownership of Stock
Does Not Alter the Rights of Beneficial
Owners Under Section 33-696(a).......................... 12
3. The Effect of Sections 33-708(c)
and 33-697.............................................. 14
C. Echlin's Misconduct Should Preclude Its
Arguments to Delay the Calling of the Special Meeting....... 17
1. Echlin Violated SEC Rule 14a-13 in
Not Advising Cede of the Record Date
of the Stockholder Solicitation......................... 17
2. Failure to Provide SPX with the Cede List............... 18
II. THE EQUITIES IN THIS CASE AND THE FACT THAT SPX AND
THE OTHER SHAREHOLDERS OF ECHLIN WILL SUFFER
IRREPARABLE HARM IF ECHLIN IS NOT ENJOINED TO CALL
THE SPECIAL MEETING SUPPORT SPX'S REQUEST FOR
PRELIMINARY INJUNCTIVE RELIEF................................... 18
III. ECHLIN SHOULD BE ENJOINED TO
COMPLY WITH SEC RULE 14A-9...................................... 20
CONCLUSION........................................................... 22
TABLE OF AUTHORITIES
Cases Page
MMI Investments L.L.C. v. Eastern Co., 701 A.2d 50
(Conn. Super. Ct. 1996)........................................10, 11
Preston v. Allison, 650 A.2d 646 (Del. 1994)..........................11
Hyde Park Partners, L.P. v. Connolly, 839 F.2d 837
(1st Cir. 1988)................................................15, 16
Shoen v. AMERCO, 885 F. Supp. 1332 (D. Nev. 1994).....................15
Statutes and Other Authorities
17 C.F.R. Section 240.14a-9...........................................18
17 C.F.R. Section 240.14a-13...............................6 n.4, 14, 17
C.G.S.A. Section 33-696..........................5, 5 n.3, 6, 10, 11, 12
C.G.S.A. Section 33-697...........................................11, 13
C.G.S.A. Section 33-708.......................................11, 12, 13
C.G.S.A. Section 33-946...........................................14, 17
Connecticut Stock Corporation Act Section 33-326.....................10
UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
- ------------------------------------------------x
:
ECHLIN INC., :
:
Plaintiff and Counterclaim-Defendant, :
: Civil Action No.
-against- : 98-CV-635 (GLG)
:
SPX CORPORATION, : May 4, 1998
:
Defendant and Counterclaimant. :
:
- -----------------------------------------------.x
RESPONSIVE BRIEF FOR MAY 7
PRELIMINARY INJUNCTION HEARING
Defendant and Counterclaimant SPX Corporation ("SPX") submits
this Responsive Brief, in accordance with this Court's April 16 Scheduling
Order, in opposition to Echlin's ("Echlin") motion for a preliminary
injunction and in further support of SPX's motion for a preliminary injunction.
PRELIMINARY STATEMENT
Ever since SPX made its February 17 proposal for a business
combination, Echlin has denied that any offer had actually been made by SPX.
That pretense is over. On April 30, 1998, SPX formally commenced its premium
Exchange Offer for all of Echlin's outstanding shares. Under the applicable
Williams Act and SEC tender offer timing rules, SPX's offer may be consummated
on May 28, 1998, subject to the satisfaction of certain conditions (which are
expected to be satisfied by the time of the Special Meeting, should SPX
prevail at that meeting). See SPX Exchange Offer, SPX Ex. 1 at 42-47.(1)
Consequently, with the Exchange Offer now pending, the Special Meeting should
be scheduled no later than June 23, 1998. On May 4, 1998, Echlin announced a
proposed merger with Dana Corporation that should not affect the scheduling of
that meeting.
- ------------
(1)Pertinent exhibits cited in this brief are annexed to the
Affidavit of Peter Jerdee, to be submitted forthwith, and are cited as "SPX Ex.
__." SPX's Exhibits are indexed in Mr. Jerdee's Affidavit to cross-reference
them to the Affidavit or Deposition in which they have been offered into the
record. Deposition pages cited herein, and in SPX's Reply Brief, will be
submitted separately to the Court for its convenience.
Echlin commenced this lawsuit on April 6, at the same time,
issuing a grossly misleading press release that it had received "valid"
Demands for the Special Meeting ("Demands") from only 1.9% of its
stockholders, rather than from the over 50% it had actually received as of
that date. As the record now shows, there is no merit to Echlin's claims or
its excuses for not calling the Special Meeting. Echlin has received the Cede
Omnibus Consent (also referred to as the "Cede omnibus proxy") (SPX Ex. 2),(2)
eliminating its first excuse for not counting the Demands. Echlin's second
excuse, the use of a February 18 record date on the ADP Client Proxy that was
delivered to Echlin on March 25, 1998 ("ADP Proxy," SPX Ex. 3) was never a
serious objection because Echlin always had the information from which it
could determine the validity of the ADP Proxy.
- ------------
(2)The Cede omnibus proxy for a demand solicitation is styled a Cede
omnibus consent. The Cede Omnibus Consent sent to Echlin by Depository Trust is
referred to herein as the "Cede omnibus proxy" because it is often referred to
in the record as such.
The Cede omnibus proxy confirms that 99% of the stock for which
Demands were submitted by ADP ("ADP Demands"), as mailing and processing agent
for its client brokerage and financial firms, were owned of record by the same
beneficial owners on February 17 and 18. Moreover, the ADP Demands were
nullified in the tabulation process, not because of this 1% discrepancy, but
solely because Echlin concocted an unprecedented and incorrect proxy
tabulation rule for that very purpose with the effect of disenfranchising
street name holders of 25,000,000 Echlin shares.
Accordingly, although Echlin began this lawsuit with a bang on
April 6, its claims should be put to rest with a whimper at the May 7
preliminary injunction hearing. It is now indisputable, factually and legally,
that on March 25, 1998, SPX delivered valid Demands from holders of well over
35% of Echlin's stock as of the February 17 record date (with total Demands
later exceeding 50%). Echlin was therefore required by April 24, 1998 to call
the Special Meeting to be held no later than June 23, 1998. SPX respectfully
requests that this Court require Echlin to perform that statutory duty.
In addition, the record establishes several federal securities
law and proxy rule violations by Echlin which require redress through issuance
of an appropriate preliminary injunction. That injunction should require
suitable coercive disclosure by Echlin and should enjoin it from violating
federal securities laws and proxy rules in connection with solicitations of
stockholders or in Echlin's SEC filings and publicly disseminated
communications concerning the Special Meeting.
STATEMENT OF FACTS
The pertinent facts were summarized in our Memorandum in Support
of SPX's Motion for a Preliminary Injunction, dated April 13, 1998, ("SPX P.I.
Mem."), annexed to SPX's Motion for Preliminary Injunction of that date. The
parties are also submitting a Joint Stipulation of Facts pursuant to the April
16 Scheduling Order. For purposes of adjudicating the issues before this
Court, there are few genuine disputes of fact. Accordingly, in the Argument
below, we present the facts necessary to the Court's determination of the
pending motions and point out the factual errors in Echlin's memorandum of law
in support of its later-filed motion for preliminary injunction ("Echlin's
opening brief," cited as "E. P.I. Mem.").
Discovery has established one crucial fact that deserves
emphasis. It is now clear that Echlin could easily have confirmed the
validity of the ADP Demands, submitted by ADP as processing agent for
brokerage and financial firms, by comparing the ADP Proxy to the Cede
participants' list on the February 17 record date, which Echlin has had
available to it at all relevant times, which Echlin had in its possession long
before the demands were delivered. See SPX Ex. 2. Indeed, once SPX received
that Cede list in discovery in this action, SPX readily traced the ADP Demands
to the February 17 Cede list showing that they were almost all for shares of
record with Cede on February 17, in themselves far exceeding the required 35%
demand level. See SPX Ex. 4. On May 1, SPX requested in the letter to Mr.
Leckerling which forwarded the tracing analysis to him that, in light of the
fact that the Cede omnibus proxy had been delivered to him, he review SPX's
proof that over 35% of record stockholders on February 17 had made valid
Demands in order to obviate the need for the May 7 hearing. Echlin's counsel
dismissed this analysis in less than one business day. On May 4, counsel for
Echlin responded in a letter by indicating that Echlin disputes the validity
of SPX Ex. 4, but offered no substantive rebuttal of the essential facts that
exhibit establishes.
ARGUMENT
I. ECHLIN WAS AND IS REQUIRED TO CALL THE
SPECIAL MEETING TO BE HELD BY JUNE 23
Echlin's claim here is that SPX falsely announced it had
delivered to Echlin on March 25, 1998 Demands to call the Special Meeting from
holders of over 35% of Echlin's stock. That claim fails for the simple reason
that SPX did, in fact, deliver valid Demands exceeding the required 35% level.
Under Connecticut law, since sufficient Demands were delivered, Echlin was
required within 30 days to call the Special Meeting to be held within 60 days
of that notice. Thus, not only should Echlin's claim be rejected, but SPX's
motion for preliminary injunctive relief should be granted, requiring Echlin to
call the Special Meeting no later than June 23, 1998.
A. The Demands Delivered on March 25 Far
Exceed the 35% Statutory Requirement
The controlling Connecticut statute, Section 33-696 of the
Corporation Act,(3) provides that a corporation "shall hold" a special meeting
of shareholders, if the holders of at least 35% of all the votes entitled to
be cast at the special meeting "sign, date and deliver to the corporation's
secretary one or more written demands for the meeting" describing the
meeting's purposes. C.G.S.A. Section 33-696(a)(2). Subsection (b) of Section
33-696 provides that, if not otherwise fixed by the Corporation, "the record
date for determining shareholders entitled to demand a special meeting is the
date the first shareholder signs the demand." C.G.S.A. Section 33-696(b).
The setting of the record date not only determines which stockholders may
submit demands, but also establishes the total shares of outstanding stock
necessary to calculate whether demands delivered meet the 35% requirement on
the record date.
- ------------
(3)Section 33-696 of the Corporation Act provides in relevant part:
(a) A corporation shall hold a special meeting of shareholders:
(1) On call of its board of directors . . .; or (2) if the holders
of at least ten per cent of all the votes entitled to be cast on
any issue proposed to be considered at the proposed special meeting
sign, date and deliver to the corporation's secretary one or more
written demands for the meeting describing the purpose or purposes
for which it is to be held, except that if the corporation has a
class of voting stock registered pursuant to Section 12 of the
Securities Exchange Act of 1934, . . . and no person held ten per
cent or more of such votes on February 1, 1988, the corporation
need not hold such meeting except upon demand of the holders of
not less than thirty-five percent of such votes.
C.G.S.A. Section 33-696(a) (emphasis added.)
It is a basic principle of federal securities law(4) and
Connecticut law(5) that the beneficial owner of stock on the prescribed record
date, rather than the nominee record holder of that stock, is entitled to the
benefits and rights of ownership, including the right to vote, to receive
dividends, or to execute consents or demands for corporate action. In the
case of demands for a special meeting under Section 33-696, and specifically
the ADP Demands for the Special Meeting here, the statutory language and
intent are abundantly clear that, if those demands present shares owned by
beneficial owners as of the record date exceeding 35% of a corporation's
outstanding stock, those demands require the corporation to call the special
meeting. See Point I.B. infra.
- ------------
(4)See, e.g., SEC Rule 14a-13, discussed in Point I.C.1. infra.
(5)See Point I.B. infra.
All that was needed for Echlin's Corporate Secretary, Mr.
Leckerling, to determine the validity of the Demands that were delivered on
March 25 was to review the Cede participant list as of the February 17 record
date. That list was in the possession of Morrow & Co. ("Morrow"), Echlin's
proxy solicitors. More specifically, with respect to the ADP Demands, Mr.
Leckerling could then have confirmed that ADP's participating firms held
sufficient Echlin stock of record in Cede name to validate and effectuate the
ADP Demands signed by street name holders having accounts at those firms.
As noted above, SPX has performed that analysis in SPX Exhibit
5 to establish this dispositive fact at the May 7 hearing. That analysis
demonstrates that, at a minimum, the ADP Proxy reflected ADP Demands in
respect of 25,059,196 Echlin shares, or over 39.6% of Echlin's outstanding
stock, and represented Gold Demand Cards signed by street name holders who
owned that many shares of record on February 17, 1998. SPX has invited Echlin
and Mr. Leckerling to identify any errors or uncertainties in that exhibit,
see SPX Ex. 5 (May 1, 1998), but has received no substantive response.
When combined with the SPX Demand for its first 714,100 shares
and other Demands already confirmed as "valid" by Mr. Leckerling, the record
establishes that, on March 25, SPX delivered to Echlin valid Demands in
respect of 26,202,074 Echlin shares at a minimum (and SPX could prove even
greater numbers, if required, as explained in the May 1, 1998 letter to Mr.
Leckerling). See id. But SPX needed Demands on only 22,137,129 shares, which
is the number constituting 35% of Echlin's outstanding stock on the February
17 record date. Consequently, unless Echlin raises a genuine issue or dispute
concerning Demands in respect of over 4,000,000 Echlin shares, the 35%
requirement has been met.
Echlin's apparent arguments to contest the 35% showing fail to
raise any such genuine issue. As SPX itself noted in its initial brief, NYSE
records show only 199,300 shares that might be at issue, and it turns out that
87,250 of these shares were SPX shares which accordingly, have been backed out
of SPX's tracing analysis. Echlin noted during discovery that the Cede record
position for one Cede participant, Bear Stearns & Co. Inc. ("Bear Stearns"),
increased from 696,812 Echlin shares on February 17, 1998 to 2,679,437 Echlin
shares on February 18, 1998. Significantly, however, this increase was not
reflected, and had no bearing, on the ADP Proxy. The ADP Proxy reports a
February 18, 1998 position for Bear Stearns of 696,712 Echlin shares (100
shares less than its true February 17, 1998 Cede position) -- and Demands on
only 54,900 of those shares were made in the ADP Proxy. Thus, no objection to
their validity can be raised. See ADP Proxy, SPX Ex. 3, at 1. Thus, the Bear
Stearns data are immaterial.
Similarly, Echlin suggested during discovery that Echlin shares
may have traded on the London Stock Exchange, among various mutual fund
families, and directly between holders of Echlin shares, and that such trading
would not be reflected on the records of the New York Stock Exchange.
However, Echlin has failed to explain how these hypothetical and speculative
issues affect any of the Demands for any Echlin shares reflected and counted
in SPX Exhibit 4 that were not of record as of February 17, 1998. It thus
appears that the Demands delivered satisfied the 35% statutory requirement.
B. Delay in Issuance of the Cede Omnibus
Proxy Does Not Alter The Effectiveness
Of The Demands As Of March 25, 1998
1. Cede Does Not Itself Exercise
Stockholder Rights
Echlin concedes that it has now received the Cede omnibus proxy
and the Participant Listing with respect to the February 17, 1998 record date.
There is no longer any question then that the Demands delivered by over 35%
of Echlin's beneficial owners were valid as a matter of law on March 25, 1998
since Cede, by issuance of the omnibus proxy, appointed each of DTC's
Participants as of the February 17, 1998 record date with the right to exercise
the number of shares of Echlin stock each Participant held through Cede on
February 17, 1998. In other words, Cede's issuance of the omnibus proxy on
April 7, 1998 (which because Echlin claims it did not arrive, was followed by
delivery later with a duplicate Cede omnibus proxy) gave effect to the Demands
delivered to Echlin as of March 25.
This is clear from the face of the omnibus proxy itself which
confers voting rights to the Participants for shares held as of a specific
record date indicated on the Participant Listing attaching to the omnibus
proxy. See Cede Omnibus Consent, SPX Ex. 2. Furthermore, DTC's own policies
evince that Cede's issuance of the omnibus proxy is merely a formality
designed solely to effectuate the votes of beneficial owners of the issuing
corporation as of a certain record date and that Cede itself does not vote or
exercise other stockholder rights:(6)
------------
(6)Echlin, itself, admits that, "Cede & Co. does not itself have an
interest in shareholder decisions for the many corporations in which it is a
record holder." E. P.I. Mem. at 8.
For solicitations where a record date has been
established, DTC assigns applicable Cede & Co. voting
rights or consenting rights to its Participants having
securities credited to their accounts on the record date
. . . .
Although DTC holds securities in the name of its nominee,
Cede & Co., DTC does not exercise voting rights for these
securities. Instead, DTC mails an omnibus proxy to the
issuer as soon as practicable after the record date. The
omnibus proxy will have a DTC security position listing
attached to it, containing Participants' positions for
the close of business on the record date.
See DTC Participant Operating Procedures, SPX Ex. 6, at 2-3 (emphasis added).
Carl Urist, DTC Vice President and Deputy General Counsel, confirmed that DTC's
issuance of a Cede omnibus proxy is done as a matter of course in order to
effectuate the voting and other rights associated with the shares it holds for
its Participants on the record date. See Urist Dep. Tr. at 26.
To allow the timing of delivery of a Cede omnibus proxy to delay
the effectiveness of stockholder action would also be unfair and impractical, as
the record here confirms. Mr. Urist and Depository Trust believed, and
confirmed to SPX, that the Cede Omnibus Consent was mailed to Echlin on April 8
- -- but, according to Mr. Leckerling, it was never received. See Urist Dep. Tr.
at 33-35; Leckerling Dep. Tr. at 200-203. SPX did not learn of that fact until
the Court conference on April 14. Clearly, such contingencies should not be
allowed as a legal matter to delay the effectiveness of demands duly delivered
to a corporation.
The purpose of the Cede omnibus proxy is to permit the
verification of demands. The statute requires timing of the meeting to run from
delivery of the demands, not verification. Otherwise, a corporation could delay
a meeting by delaying verification (as Echlin is trying to do by refusing to
request Coopers to verify the demands now that the Cede omnibus proxy has been
received).
2. Cede's Record Ownership of Stock Does Not Alter the Rights of
Beneficial Owners Under Section 33-696(a)
MMI Invs. L.L.C. v. Easter Co., 701 A.2d 50 (Conn. Super. Ct.
1996), makes clear that while an omnibus proxy is ultimately necessary to
verify the demands executed by beneficial owners, the fact that a Cede omnibus
proxy is issued only after demands of 35% of the shares have been delivered,
or any other delay in verifying the 35% number, does not affect the
corporation's obligation to call the special meeting within 30 days from the
date the demands were delivered.
In MMI, the court concluded that for purposes of Section
33-326(c) of the Connecticut Stock Corporation Act (the predecessor to Section
33-696(a) of the Corporation Act) shares owned of record by Cede were
irrelevant and that beneficial ownership was controlling. In that case, an
insurgent, MMI, sought to require the corporation to call a special meeting of
shareholders. MMI had obtained demands from in excess of 10% of the company's
shares, but fewer than 35%, but contended that 10% was sufficient because Cede
had held in excess of 10% of the votes on February 1, 1988 under an exception
provided in the statute. The court explained:
Cede and Company is not an investor. It is nothing more
than a nominee for the convenience of others. It is a
tool used by the stock market to facilitate and make
more efficient trading in the shares of publicly held
companies.
Id. at 63. Accordingly, the court concluded that Cede's 43%
record ownership on February 1, 1988 was irrelevant to the determination
whether any person "held" ten percent or more of "such votes" on February 1,
1988. Id.
Similarly, the reasoning of MMI compels the conclusion that the
timing of delivery of the Cede omnibus proxy should not have any substantive
effect on the demands made by beneficial owners. Under standard canons of
statutory construction, it is a necessary corollary of MMI, which held that the
beneficial owners, not Cede, must "hold" more than 10% of "such votes" to
trigger the statutory exception, that the "holders of not less than
thirty-five per cent of such votes" in the succeeding clause of the same
sentence of the same statute likewise refers to the beneficial owners, not
Cede. Therefore, here, where well over 35% of the beneficial owners of Echlin
stock submitted Demands on March 25, 1988, the Demands were valid as of that
date since the Cede omnibus proxy was subsequently delivered to Echlin
verifying the Demands.
The cases upon which Echlin relies for the proposition that
record ownership is a fundamental prerequisite to a valid demand are
inapposite. All of those cases concern actual votes, not demands. They
relate to a different statute (indeed, only one case is from Connecticut) and
they concern a different issue. This case is not about construing the
ambiguous actions of a record holder nor is it about the failure of a specific
beneficial owner to perfect a vote by obtaining a necessary proxy. It is
about validating more than 30 million demands of shareholders under Section
33-696(a), which specifically concerns demands for the call of a special
meeting. Cf. Preston v. Allison, 650 A.2d 646 (Del. 1994) (giving effect to
voting instructions by beneficial owners notwithstanding error by fiduciary
record holder).
3. The Effect of Sections 33-708(c)
and 33-697
It is clear not only from Section 33-696 of the Corporation
Act, but also from the overall statutory architecture, particularly Sections
33-708(c) and 33-697, that with respect to the validity of demands, the
Legislature was solely concerned with whether, in fact, 35% of the beneficial
owners on the record date actually made demands.
Section 33-708(c) of the Corporation Act provides that:
The corporation is entitled to reject a vote, consent,
waiver or proxy appointment if the secretary or other
officer or agent authorized to tabulate votes, acting in
good faith, has reasonable basis for doubt about the
validity of the signature on it or about the signatory's
authority to sign for the shareholder.
C.G.S.A. Section 33-708(c) (emphasis added).
As explained in SPX's opening brief (pp. 13-15) and further
confirmed by discovery, if Section 33-708(c) is applicable to this case,
Echlin had no good faith reasonable basis for invalidating the Demands
delivered on March 25, 1998 for a number of reasons: (1) SPX did, in fact,
deliver valid Demands exceeding the required 35% level (see Point I supra);
(2) Echlin was aware that neither Echlin nor SPX knew the identity of the 95%
Echlin shareholders who hold Echlin shares through Cede absent a Participant
Listing (Cornwell Aff., SPX Ex. 7, Paragraph 14); and (3) Echlin knew that it
could have verified the identities of those holders simply by providing
Coopers & Lybrand with the Participant Listing for February 17, 1998 that
Morrow, Echlin's own proxy solicitor, had obtained from DTC. See Urist Dep.
Tr. at 58-59, Morrow Dep. Tr. at 22.
However, upon further review of the Corporation Act's overall
statutory scheme, it appears that Section 33-708(c) does not apply at all to
support Echlin's rejection of the Demands. First, Section 33-708(c) does not
apply here because Echlin's challenge to the Demands has nothing to do with
"the validity of the signature" or "the signatory's authority to sign for the
shareholder," the only grounds under this section for rejecting a proxy.
Indeed there could be no such challenge here because there is no question
about the validity of ADP's signature on the ADP Proxy and it is clear that
ADP is authorized to submit proxies on behalf of its participating members.
Second, and most significantly, Section 33-708(c), by its
terms, only applies to the rejection of a "vote, consent, waiver or proxy
appointment" -- not to a demand. This is because, as noted, with respect to a
demand solicitation, the only issue is whether in fact 35% of the beneficial
owners on the record date actually made demands. Thus, even if the corporate
secretary, "acting in good faith, has reasonable basis for doubt," and thus
rejects demands of 35% of the shares, that decision would not be entitled to
any deference once it is shown that, in fact, those demands were made by 35% of
the beneficial owners as of the record date.
Furthermore, Section 33-697 expressly protects this right of
shareholders to call a special meeting, notwithstanding the corporation's
rejection of demands even when made in good faith with a reasonable basis, by
authorizing the court to summarily order a special meeting upon application
of any shareholder where the shareholder shows that the corporation failed to
notice the special meeting within 30 days after the date sufficient valid
demands were delivered to it. C.G.S.A. Section 33-697(a). Thus, the
statutory scheme clearly indicates that demands are not to be treated as votes
or consents; rather, a corporation must give effect to demands delivered to it
and call a special meeting where it has been shown, as it has been here, that
beneficial owners of 35% of its shares as of the record date have so demanded.
Accordingly, since in fact shareholders holding well over 35% of
Echlin shares as of the February 17, 1998 record date demanded the Special
Meeting as of March 25, 1998 and Echlin has the omnibus proxy to verify those
Demands, as a matter of law, Echlin had an obligation to call the Special
Meeting within 30 days of March 25, 1998, and to hold the Special Meeting no
later than 60 days thereafter, on June 23, 1998.
C. Echlin's Misconduct Should Preclude Its
Arguments to Delay the Calling of the Special Meeting
As we have demonstrated, the Demands delivered on March 25 to
Echlin, as a legal matter, were effective on that date, despite the delay in
issuance of Cede's omnibus proxy. If there were any question on that score,
Echlin's own wrongdoing in causing that delay should preclude it from arguing
for any postponement of the Special Meeting on that basis. Moreover, Echlin's
illegal and inequitable conduct in preventing SPX's access to the Cede
participant list and in failing even to attempt to tabulate the Demands of its
street name stockholders should weight heavily against its unfounded and
speculative arguments that the Demands did not exceed the 35% level on March
25.
1. Echlin Violated SEC Rule 14a-13 in
Not Advising Cede of the Record Date
of the Stockholder Solicitation
In connection with its revocation solicitation of its
stockholders, Echlin was required by Rule 14a-13 to inform Cede that it was
commencing a solicitation in connection with a February 17, 1998 record date.
See 17 C.F.R. Section 240.14a-13. Had Echlin complied with Rule 14a-13, DTC,
in accordance with its own written policies, would have caused the Cede omnibus
proxy to issue to Echlin automatically well before March 25, 1998, thereby
effectuating the Demands delivered to Echlin on that date. Echlin should thus
be precluded from contending that the Special Meeting should be postponed as
a result of its own failure to fulfill its obligations under federal law.
2. Failure to Provide SPX with the Cede List
On February 17, 1998, SPX demanded under Section 33-946 of the
Corporation Act that Echlin provide it with a Cede participant listing as of
the February 17 record date. Echlin refused. Furthermore, Echlin refused to
authorize DTC to provide the Cede participant listing to SPX. Echlin should
not be allowed to delay the Special Meeting based on its own flagrant
disregard of its legal obligations, which impeded SPX's ability to conduct its
solicitation.
II. THE EQUITIES IN THIS CASE AND THE FACT THAT SPX AND THE OTHER
SHAREHOLDERS OF ECHLIN WILL SUFFER IRREPARABLE HARM IF ECHLIN IS NOT
ENJOINED TO CALL THE SPECIAL MEETING SUPPORT SPX'S REQUEST FOR
PRELIMINARY INJUNCTIVE RELIEF
If Echlin is not enjoined to call the Special Meeting, SPX and
Echlin's other shareholders will suffer irreparable harm from illegal
interference with, and delay of, the Special Meeting at which Echlin
stockholders would be able to consider SPX's proposal. See Hyde Park
Partners, L.P. v. Connolly, 839 F.2d 837 (1st Cir. 1988) (offeror in any
takeover attempt suffers irreparable harm where measure effectively kills
takeover bid or makes it less likely to succeed); Shoen v. AMERCO, 885 F.
Supp. 1332, 1352 (D. Nev. 1994) ("denial or frustration of the right of
shareholders to vote their shares or obtain representation on the board of
directors amounts to an irreparable injury"). The irreparable harm that
Echlin is causing to its own shareholders is all the more immediate and the
need for an injunction all the more pressing in light of the fact that SPX has
already formally commenced its premium Exchange Offer. The Exchange Offer
commenced on April 30, 1998, and, therefore, under the applicable Williams Act
and SEC timing rules, it may be consummated as soon as May 28, 1998.(7) See
SPX Ex. 1.
- ------------
(7)The consummation of the Exchange Offer is subject to the satisfaction
of certain conditions which are expected to be satisfied by the time the Special
Meeting is held should SPX prevail at the meeting.
On the other hand, there will be no harm or prejudice to Echlin
if the Special Meeting is held. Preliminary relief is both appropriate and
necessary where, as here, one party will suffer irreparable harm unless the
court intervenes and the other party incurs no injury. Hyde Park Partners,
L.P. v. Connolly, 839 F.2d 837 (1st Cir. 1988).
Furthermore, this Court should issue the preliminary injunction
to enjoin Echlin to immediately call the Special Meeting because, as explained
in SPX's opening brief (pp. 15-21), the refusal of Echlin's management to do so
breaches their fiduciary duties to Echlin's stockholders and unjustifiably
infringes upon stockholder voting rights. Further, it impedes and attempts to
delay the Special Meeting, which, far from posing a threat to Echlin
Stockholders, affirmatively will afford stockholders an opportunity to exercise
their voting rights.
In light of the irreparable harm SPX will suffer if Echlin is
not enjoined to call the Special Meeting, the lack of any such harm to Echlin
if the Special Meeting is held, and Echlin's management and board's blatant
breach of their fiduciary duties in not calling the meeting, the equities in
this case dictate that SPX's motion for injunctive relief should be granted.
III. ECHLIN SHOULD BE ENJOINED TO
COMPLY WITH SEC RULE 14A-9
Echlin's inequitable conduct warrants the issuance of a
preliminary injunction against its continued dissemination of false
information of its shareholders. the legal standards relevant to this
injunctive relief are set forth in Echlin's own opening brief (E. P.I. Mem. at
18-19 and 25-28), and need not be restated at length here. If suffices to say
that Echlin's repeated public declaration of deficiencies in SPX's demand
solicitation, without disclosing the material facts that show the deficiencies
result from Echlin's own deliberate conduct, has left an indelible mark on
SPX's reputation, that will impact both the solicitation of proxies in
connection with the Special Meeting and the Exchange Offer.
Echlin has widely disseminated, as a statement of fact, that
over 30 million demands were invalid because SPX "failed" to obtain the Cede
omnibus proxy. Echlin has failed to disclose, however, at least the following
material facts necessary to make this representation not misleading:
(1) At all relevant times, Echlin had in its possession the DTC
participant listing sufficient to verify the demands;
(2) Echlin refused to produce the DTC participant list to SPX
despite SPX's demand under Section 33-946 of the Corporation Act and refused to
authorize DTC to provide it to SPX;
(3) had Echlin complied with Rule 14a-13(a)(1)(ii)(B) of the
SEC proxy rules, and disclosed to DTC that Echlin had itself commenced a
revocation solicitation for the record date, DTC would have caused an omnibus
proxy to be sent to Echlin automatically well before March 25, 1998; see Point
I.C.1. supra; and
(4) DTC makes an omnibus proxy available to any issuer upon
request, but Echlin deliberately refused to request one.
Likewise, Echlin has widely disseminated, as a statement of
fact, that over 26 million demands represented on the ADP Proxy were invalid,
because an "independent" accounting firm concluded the proxy set forth a
February 18, 1998 record date. Echlin has failed to disclose, however, at
least the following material facts necessary to make this statement not
misleading:
(1) Echlin's agents were aware on February 18, 1998 that ADP
was mailing to shareholders one-day off record and did nothing;
(2) After receipt of the ADP Proxy, Echlin retained Coopers to
"count" the demands subject to rules drafted by Echlin designed to
disenfranchise these votes, from which Coopers had explicitly dissociated
itself.
(3) Coopers has virtually no relevant prior experience in this
area; and
(4) Coopers or Echlin could have matched substantially all of
the votes represented on the ADP Proxy -- constituting themselves more than
35% of Echlin's shares -- to the Cede record list as of February 17, which was
in its possession long before March 25, 1998.
Even now Echlin has refused to compare the ADP Proxy to the Cede
record list as of February 17, 1998 even though SPX has given Echlin a
document that performs the entire analysis. In light of Echlin's blatant and
repeated violation of Rule 14a-9 (including in press releases issued on April 6
and April 14), and the permanent mark Echlin has successfully placed on SPX
by charging SPX with submitting fewer than 2% valid demands when over 50% have
been tendered, an injunction against the continued violation by Echlin of Rule
14a-9 is required.
CONCLUSION
For all of the foregoing reasons and those set forth in SPX's
opening brief, SPX respectfully requests that this Court deny Echlin's request
for injunctive relief and grant SPX's motion for a preliminary injunction.
Dated: May 4, 1998
SPX CORPORATION
_______________________________________________
Stephan R. Underhill (#ct 00372)
Jonathan B. Tropp (#ct 1295)
DAY, BERRY & HOWARD
One Canterbury Green
Stamford, Connecticut 06901-2047
(203) 977-7300
- and -
Alexander R. Sussman (#ct 18853)
Kenneth Applebaum
Peter Jerdee
Israel David
FRIED, FRANK, HARRIS, SHRIVER &
JACOBSON
One New York Plaza
New York, New York 10004-1980
(212) 859-8000
Attorneys for SPX Corporation
CERTIFICATION
THIS IS TO CERTIFY that a copy of the foregoing was
hand-delivered this May 4, 1998, to plaintiff's counsel, as follows: Ronald
J. Cohen, Esq. and David W. Schneider, Esq., Tyler, Cooper & Alcorn LLP, 205
Church Street, New Haven, Connecticut 06510; and Dennis E. Glazer, Esq.,
Kenneth M. Bernstein, Esq., John J. Clarke, Jr., Esq., Davis Polk & Wardwell,
450 Lexington Avenue, New York, New York 10017.
________________________________________________
Jonathan B. Tropp
