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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-8287
LINDBERG CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-1391480
------------------------ ------------------------
(State of Incorporation) (IRS Identification No.)
6133 North River Road, Suite 700 Rosemont, Illinois 60018
(847) 823-2021
----------------------------------------------------------------------------
(Address and telephone number of registrant's principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
The number of shares of the registrant's common stock, $.01 par value,
outstanding as of August 13, 1999 was 5,916,061.
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LINDBERG CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
Part I Financial Information: Page No.
--------
Item 1. Consolidated Statements of Earnings - Three Months
and Six Months Ended June 30, 1999 and 1998 .................3
Consolidated Balance Sheets - As of June 30, 1999
and December 31, 1998 .......................................4
Consolidated Statements of Cash Flows - Six Months
Ended June 30, 1999 and 1998 ................................5
Notes to the Consolidated Financial Statements ...............6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .........................7
Part II Other Information:
Item 1. Legal Proceedings ...........................................11
Item 6 Exhibits and Reports on Form 8-K ............................11
Signatures ..................................................12
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<TABLE>
PART I FINANCIAL INFORMATION
LINDBERG CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales $ 31,583,663 $ 33,033,451 $ 63,724,803 $ 63,905,647
Cost of Sales (22,156,604) (22,675,210) (44,522,239) (43,947,644)
------------ ------------ ------------ ------------
Gross Profit 9,427,059 10,358,241 19,202,564 19,958,003
Selling and
Administrative Expense (4,780,729) (5,077,403) (9,798,320) (9,801,235)
------------ ------------ ------------ ------------
Operating Earnings 4,646,330 5,280,838 9,404,244 10,156,768
Interest Expense - Net (572,076) (770,153) (1,102,223) (1,545,679)
Investment Earnings 29,620 -- 29,620 --
------------ ------------ ------------ ------------
Earnings Before Income
Taxes 4,103,874 4,510,685 8,331,641 8,611,089
Provision for Income
Taxes (1,685,113) (1,827,770) (3,414,422) (3,488,257)
------------ ------------ ------------ ------------
Net Earnings $ 2,418,761 $ 2,682,915 $ 4,917,219 $ 5,122,832
============ ============ ============ ============
Basic Net Earnings Per
Share $ .41 $ .55 $ .83 $ 1.06
============ ============ ============ ============
Weighted Average Shares
Outstanding 5,904,794 4,860,132 5,896,854 4,848,075
============ ============ ============ ============
Diluted Net Earnings Per
Share $ .40 $ .52 $ .82 $ 1.01
============ ============ ============ ============
Weighted Average Shares
Outstanding and
Equivalents 5,994,818 5,127,158 5,983,064 5,088,460
============ ============ ============ ============
Cash Dividends Declared
and Paid $ .08 $ .08 $ .16 $ .16
============ ============ ============ ============
</TABLE>
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<TABLE>
LINDBERG CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1999 1998
ASSETS (Unaudited)
- ------ ------------ ------------
<S> <C> <C>
Current Assets:
Cash $ 183,484 $ 157,391
Receivables (Net) 18,901,190 19,281,571
Net Assets of Discontinued Operations -- 2,142,719
Other Current Assets 3,632,439 2,312,127
------------ ------------
Total Current Assets 22,717,113 23,893,808
Property and Equipment:
Cost 135,731,948 125,918,525
Accumulated Depreciation (62,134,577) (59,181,581)
------------ ------------
Net Property and Equipment 73,597,371 66,736,944
Goodwill (Less Accumulated Amortization) 28,959,074 19,922,274
Notes Receivable 3,783,589 3,250,000
Other Non-Current Assets 1,712,817 1,686,776
------------ ------------
Total Assets $130,769,964 $115,489,802
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Current Maturities of Long-Term Debt $ 2,035,591 $ 2,077,271
Accounts Payable 2,893,071 4,187,398
Accrued Expenses 7,642,137 9,006,770
------------ ------------
Total Current Liabilities 12,570,799 15,271,439
Non-Current Liabilities:
Deferred Income Taxes 13,211,691 7,055,718
Long-Term Debt (Less Current Maturities) 40,274,790 32,683,630
Other Non-Current Liabilities 4,746,450 4,685,851
------------ ------------
Total Non-Current Liabilities 58,232,931 44,425,199
Stockholders' Equity:
Preferred Stock, $0.01 par value:
Authorized 1,000,000 shares. No shares issued. -- --
Common Stock, $0.01 par value:
Authorized 25,000,000 shares.
Issued 6,673,397 shares. 66,734 66,734
Additional Paid-In Capital 31,317,284 31,326,023
Retained Earnings 33,174,185 29,200,569
Treasury Shares (766,311 in 1999 and
790,661 in 1998), at Cost (4,390,241) (4,529,767)
Cumulative Foreign Translation Adjustment (25,114) (93,781)
Underfunded Pension Liability Adjustment (176,614) (176,614)
------------ ------------
Total Stockholders' Equity 59,966,234 55,793,164
------------ ------------
Total Liabilities and Stockholders' Equity $130,769,964 $115,489,802
============ ============
</TABLE>
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<TABLE>
LINDBERG CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
-----------------------------
Increase (Decrease) in Cash June 30,
-----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Earnings $ 4,917,219 $ 5,122,832
Adjustments to Reconcile Net Earnings
to Net Cash Provided by Operating Activities:
Depreciation 3,791,479 2,853,233
Amortization of Goodwill 390,513 323,746
Change in Assets and Liabilities (2,510,432) (517,367)
------------ ------------
Total Adjustments to Reconcile Net Earnings to
Net Cash Provided by Operating Activities 1,671,560 2,659,612
------------ ------------
Net Cash Provided by Operating Activities 6,588,779 7,782,444
Cash Flows from Investing Activities:
Capital Expenditures (5,581,423) (5,266,551)
Cash Received from Sale of Discontinued
Operations 2,299,411 10,931,257
Cash Payments for Acquisitions, Net of
Cash Acquired (9,937,072) (21,313,588)
------------ ------------
Net Cash Used in Investing Activities (13,219,084) (15,648,882)
Cash Flows from Financing Activities:
Net Borrowings Under Revolving Credit Agreement 7,600,000 10,200,000
Repayment of Notes Payable -- (1,780,000)
Dividends Paid (943,602) (775,157)
------------ ------------
Net Cash Provided by Financing Activities 6,656,398 7,644,843
------------ ------------
Net Increase (Decrease) in Cash 26,093 (221,595)
Cash at Beginning of Period 157,391 283,270
------------ ------------
Cash at End of Period $ 183,484 $ 61,675
============ ============
Supplemental Disclosures of Cash Flow Information:
Interest Paid $ 1,378,142 $ 1,524,024
Income Taxes Paid (Net of Refunds) 3,871,477 3,426,831
</TABLE>
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LINDBERG CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 Condensed Financial Statements
The condensed consolidated financial statements included
herein have been prepared by the company, without audit,
pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and
regulations, although the company believes that the
disclosures are adequate to make the information presented not
misleading. It is suggested that these condensed financial
statements be read in conjunction with the consolidated
financial statements and the notes thereto included in the
company's latest annual report on Form 10-K.
Statements for the three month and six month periods ended
June 30, 1999 and June 30, 1998 reflect, in the opinion of the
company, all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the results of these
periods. Results for interim periods are not necessarily
indicative of results for a full year.
NOTE 2 Acquisitions
On February 17, 1999, the company acquired all of the
outstanding shares of Metal-Lab of Wisconsin, Inc. ("Metal-
Lab"), located in Sturtevant, Wisconsin, for $9.9 million.
Metal-Lab primarily serves the tool and die industry. The
cost of the acquisition has been allocated to the assets and
liabilities based on their estimated fair market value.
Goodwill is amortized using the straight line method over 30
years. The acquisition was funded with borrowings under the
revolving credit agreement.
NOTE 3 Debt
In February 1999, the company's revolving credit facility with
its banks was amended to increase the borrowing capacity from
$45 million to $70 million. Additionally, the amendment
extended the maturity date of the agreement relating to the
facility to December 2001 and adjusted certain loan covenants.
NOTE 4 Material Changes
No material changes have occurred with respect to the
company's contingent liabilities outlined in the company's
1998 Form 10-K through the date of this report.
In the quarter ended June 30, 1999, the company adjusted its
purchase accounting related to goodwill and deferred tax assets
and liabilities.
<PAGE 7>
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"Safe Harbor" Statement: This report contains "forward-looking
statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements are
those that are not statements of historical fact, including
statements regarding future revenues, expenses and profits. These
forward-looking statements are subject to known and unknown risks,
uncertainties or other factors which may cause the actual results
of the company to be materially different from the historical
results or from any results expressed or implied by the forward-
looking statements. Such risks and factors include, but are not
limited to, those discussed in Exhibit 99.1 of the company's most
recently filed Form 10-K with the Securities Exchange Commission.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION:
At June 30, 1999, the Company's total debt was $42.3 million, an
increase of $7.5 million from $34.8 million outstanding at December 31,
1998. The Company's total debt to capitalization ratio was 41% at the
end of the second quarter of 1999 as compared to 38% at the end of
1998. During the second quarter of 1999, total debt was reduced by
$800,000.
The level of debt increased as of June 30, 1999 in comparison to the
level at the end of 1998 primarily as a result of the acquisition of
Metal-Lab of Wisconsin, Inc. ("Metal-Lab") on February 17, 1999 for a
purchase price, net of cash received, of $9.9 million. This
transaction was funded with additional borrowings under the Company's
revolving credit facility. The cash effect of this purchase was
offset to a degree by cash generated from the sale of the last
discontinued Precision Products operation - Arrow Acme Company -
during the first quarter.
In February 1999, the Company amended its revolving credit facility to
increase the total borrowing capacity from $45 million to $70 million,
to extend the maturity date of the agreement relating to the facility to
December 2001 and to modify certain loan covenants. At June 30, 1999,
the Company had $36 million of available capacity under the amended
revolving credit facility.
Capital expenditures for the first six months of 1999 were $5.6
million, an increase of $315,000 from the corresponding period of
1998. The spending in the first six months of 1999 related primarily
to the acquisition of additional furnaces and related equipment for
expansion at certain of the company's facilities.
On April 27, 1999, the Board of Directors declared a cash dividend of
$.08 on each share of the Company's common stock, payable on June 1,
1999. The total cash dividends paid on the latter date were $472,000.
This compared to a dividend payout of $.08 per share of common stock,
or $389,000, in the same quarter of 1998.
The Company believes that its borrowing capacity and funds generated
through operations will be sufficient to meet currently foreseen
capital investment and working capital needs in support of existing
businesses for the balance of 1999 and in the longer term.
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OF RESULTS OF OPERATIONS:
Quarter ended June 30, 1999 and 1998
Net sales for the quarter ended June 30, 1999 were $31.6 million,
down $1.4 million, or 4%, from $33.0 million for the corresponding
period in 1998. For the second quarter of 1999, acquisitions made
subsequent to June 30, 1998 accounted for about 9% of total net
sales. Excluding the effect of those acquisitions, the Company's
remaining operations reported a decrease in net sales of
approximately 13% overall. The decline in net sales at existing
operations resulted primarily from weakness in orders at Company
facilities serving customers in commercial aerospace and oilfield
equipment markets.
Gross profit for the second quarter of 1999 was $9.4 million, down
$931,000, or 9%, from $10.4 million in the second quarter of 1998.
The Company's gross margin in the second quarter of 1999 was 29.8%,
compared to 31.4% in the corresponding period of 1998. The gross
profit decrease in the second quarter of 1999 versus the same quarter
of last year related mainly to the lower level of sales volume and
a shift in sales mix toward somewhat reduced margin business.
Selling and administrative expenses for the second quarter of 1999
were $4.8 million, compared to $5.1 million in the second quarter of
1998. The decrease resulted largely from cost reduction efforts
within the Company and a lower level of expense associated with the
management bonus payout for the year. Selling and administrative
expenses as a percentage of sales were 15.1% for the second quarter
of 1999, down slightly from 15.4% in the corresponding period
of 1998.
Interest expense net of interest income in the second quarter of 1999
was $572,000, compared to $770,000 in the second quarter of 1998.
This resulted from an increased level of interest income from notes
receivable related to the divestiture of the Precision Products
segment during 1998 and 1999, and from lower average borrowing levels
during the second quarter of 1999. Borrowing rates were largely
unchanged.
Reflecting the above, net earnings in the second quarter of 1999 were
$2.4 million, down from $2.7 million for the corresponding period of
1998. Diluted earnings per share in the second quarter of 1999 were
$.40 as compared to $.52 per share in the second quarter of 1998.
The number of shares outstanding was higher in the second quarter of
1999 as a result of the sale of 1,000,000 shares of common stock in a
public offering in the third quarter of 1998.
Six Months ended June 30, 1999 and 1998
Net sales for the six months ended June 30, 1999 were $63.7 million,
essentially level with the $63.9 million reported in the corresponding
period in 1998. The level net sales reflected year-to-year weakness in
orders at facilities serving the commercial aerospace and oilfield
equipment markets, offset largely by acquisitions.
Gross profit for the first six months of 1999 was $19.2 million, down
$755,000, or 4%, from $20.0 million for the same period of 1998 primarily
as a result of a shift in the sales mix toward somewhat reduced margin
business. The Company's gross margin in the first six months of 1999 was
30.1%, compared to 31.2% in the corresponding period of 1998.
Selling and administrative expenses for the first six months of 1999
were $9.8 million, level with the $9.8 million reported in the first
six months of 1998. Selling and administrative expenses as a
percentage of sales were 15.4% for the first half of 1999, up
slightly from 15.3% in the corresponding
<PAGE 9>
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period of 1998.
Interest expense net of interest income in the first six months of
1999 was $1.1 million, compared to $1.5 million in the first six
months of 1998. The decrease resulted from an increased level of
interest income related to notes receivable received during 1998 and
early 1999 from the divestiture of the Precision Products segment and
from lower average borrowing levels during the 1999 period.
Reflecting the above, net earnings in the first six months of 1999
were $4.9 million, down from $5.1 million for the corresponding
period of 1998. Diluted earnings per share in the first six months
of 1999 were $.82 as compared to $1.01 per share in the first six
months of 1998. The number of shares outstanding was higher in the
1999 period as a result of the sale of 1,000,000 shares of common
stock in a public offering in the third quarter of 1998.
Possible Effects of Year 2000:
The Company categorizes its exposure to Year 2000 issues as follows:
information technology (IT) systems at its operating facilities; IT systems
at its corporate office; embedded technology; customers; and suppliers.
The Company's IT systems at its operating facilities are, generally,
maintained by Company personnel. The Company has upgraded its
existing software used for order entry, billing, plant routing,
shipping and process management to make it Year 2000 compliant. No
additional employees were hired, nor were any additional costs with
outside vendors incurred, to revise the existing software for
compliance or to install upgrades.
The Company's corporate office utilizes IT systems supplied primarily
by third party vendors for accounting functions and payroll
processing. All such vendors have stated that their software is now
Year 2000 compliant and the Company has verified compliance. The
Company pays annual maintenance fees for the use of this software,
and no additional costs have been incurred nor are there any expected
related to this area.
The Company's operations primarily involve furnaces and ancillary
equipment. Some of these use embedded technology such as
microprocessor-based process controllers. It has been determined
that the embedded technology used in the operations is not date
sensitive in many cases, or is Year 2000 compliant in others.
No single customer accounts for more than 3% of the Company's sales.
In addition, the Company serves over 10,000 customers. The effect
on the Company of the loss of sales from a single customer due to a
Year 2000 issue, therefore, will largely be mitigated due to the
Company's diversified customer base. However, there can be no
assurance that individual plants will not be adversely affected by
the temporary loss of one or more major customers.
With respect to suppliers, the Company's largest costs, excluding
labor, are electricity and natural gas. In the event a utility
supplier cannot provide its service for an extended period due to a
Year 2000 issue, the locations involved would be adversely affected.
It is not feasible for the Company to arrange alternative power
sources due to the level of demand involved. Short-term disruptions
are not expected to have a significant impact on the Company due to
geographic dispersion of the Company's facilities. Other purchased
items used in the operations are available from many suppliers and
there is little or no product differentiation. A disruption related to
these suppliers would have little impact on the Company.
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While subject to speculation, the most reasonably likely worst case
scenario is currently considered by the Company to be the loss of
either electric or gas power at an operating facility. However, the
Company believes that this would be localized and tend to be of a
short duration.
The Company also benefits from having over 99% of its sales generated
within the United States, which has given the Year 2000 issue a high
focus.
The Company has designated a group of management personnel to
coordinate Year 2000 activities. This group has begun to develop a
Year 2000 contingency plan and intends to complete it in advance of
the Year 2000.
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PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
The company was the subject of a pending investigation by the
government and a qui-tam (whistle-blower) lawsuit regarding
alleged violations of the Federal False Claims Act and wrongful
termination. The company learned of the lawsuit in May 1998.
The activities that were the subject of the investigation and
lawsuit related to only one plant, and in the fourth quarter
1998, the company established reserves for the potential
settlement of this claim. In the first quarter of 1999, the
company reached a settlement in principle with the government
and the plaintiff on terms consistent with the reserves
previously established. The company completed the settlement in
the second quarter of 1999.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits Required by Item 601 of Regulation S-K
The following exhibits are attached only to the copies of this
report filed with the Securities and Exchange Commission:
Number and Description of Exhibit
---------------------------------
10.1 Amended and Restated Supplemental Pension Plan dated July
22, 1999
10.2 Employment Agreement dated July 22, 1999, between the
Company and Leo G. Thompson
10.3 Employment Agreement dated July 22, 1999, between the
Company and Stephen S. Penley
11. Statement Re Computation of Net Earnings Per Common Share
27. Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed in the quarter ended June
30, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LINDBERG CORPORATION
Principal Financial and Accounting Officer: By________________________
Stephen S. Penley
Senior Vice President
and Chief Financial Officer
Dated: August 13, 1999
<PAGE 1>
EXHIBIT 10.1
LINDBERG CORPORATION
SUPPLEMENTAL PENSION PLAN
(As Amended and Restated
Effective as of
July 22, 1999)
<PAGE 2>
Mayer, Brown & Platt
Chicago
TABLE OF CONTENTS
PAGE
SECTION 1 General..............................................1
1.1. History, Purpose and Effective Date..................1
1.2. Plan Administration; Plan Year.......................1
1.3. Source of Benefits...................................1
1.4. Indemnification and Exculpation......................2
1.5. Applicable Laws......................................2
1.6. Gender and Number....................................2
1.7. Action by ...........................................2
1.8. Severability of Plan Provisions......................2
1.9. Notices..............................................2
1.10. Defined Terms........................................2
SECTION 2 Participation........................................3
2.1. Participation........................................3
2.2. Plan Not Contract of Employment......................3
SECTION 3 Supplemental Benefit.................................3
3.1. Amount of Supplemental Benefit.......................3
SECTION 4 Vesting and Payment of Supplemental Benefits.........4
4.1. Vesting..............................................4
4.2. Time of Payment of Supplemental Benefit to
Participant......................................4
4.3. Form of Payment to Participant.......................4
4.4. Payment of Plan Benefits to Beneficiaries............5
4.5. Facility of Payment..................................5
4.6. Benefits May Not Be Assigned or Alienated............5
4.7. Tax Liability........................................5
4.8. Company Discretion to Accelerate.....................5
SECTION 5 Administration.......................................6
5.1. Committee Membership and Authority...................6
5.2. Allocation and Delegation of Committee
Responsibilities and Powers.....................6
5.3. Information to be Furnished to Committee.............7
5.4. Committee's Decision Final...........................7
SECTION 6 Amendment and Termination............................7
6.1. Amendment and Termination............................7
6.2. Merger...............................................7
i
<PAGE 3>
SECTION 7 Change of Control....................................8
7.1. Definition...........................................8
7.2. Effect of Change of Control..........................8
ii
<PAGE 4>
LINDBERG CORPORATION
SUPPLEMENTAL PENSION PLAN
-------------------------
SECTION 1
- ---------
General
-------
1.1. History, Purpose and Effective Date. Lindberg Corporation
-----------------------------------
(the "Company"), has established the Lindberg Corporation Supplemental
Pension Plan, formerly known as the Lindberg Corporation 1995
Supplemental Pension Plan (the "Plan"), to enable the eligible employees
of the Company to receive retirement income and other benefits in
addition to the retirement income and other benefits payable under the
qualified plans of the Company. The "Effective Date" of the Plan as set
forth herein is July 22, 1999. The Plan is not intended to qualify
under section 401(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), or to be subject to Parts 2, 3 or 4 of Title I of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA").
The Plan is maintained primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated
employees within the meaning of section 301(a)(3) of ERISA.
1.2. Plan Administration; Plan Year. The Plan shall be
------------------------------
administered by the Lindberg Corporation Pension and Employee Benefits
Committee (the "Committee"), as more fully described in Section 7. The
"Plan Year" means the 12-consecutive-month period beginning on each
January 1 and ending on the following December 31.
1.3. Source of Benefits. The amount of any benefit payable under
------------------
the Plan will be paid in cash from the general assets of the Company.
Such amounts payable shall be reflected on the accounting records of the
Company but shall not be construed to create, or require the creation
of, a trust, custodial or escrow account. No employee or other
individual entitled to benefits under the Plan shall have any right,
title or interest whatever in any assets of the Company or to any
investment reserves, accounts or funds that the Company may purchase,
establish or accumulate to aid in providing the benefits under the Plan.
Nothing contained in the Plan and no action taken pursuant to its
1
<PAGE 5>
provisions shall create a trust or fiduciary relationship of any kind
between the Company and an employee or any other person. Neither an
employee or beneficiary of an employee shall acquire any interest
greater than that of an unsecured creditor.
1.4. Indemnification and Exculpation. The members of the Lindberg
-------------------------------
Corporation Pension and Employee Benefits Committee (the "Committee"),
and its agents, and the officers, directors, and employees of the
Company and its affiliates shall be indemnified and held harmless by the
Company against and from any and all loss, costs, liability, or expense
that may be imposed upon or reasonably incurred by them in connection
with or resulting from any claim, action, suit, or proceeding to which
they may be a party or in which they may be involved by reason of any
action taken or failure to act under the Plan and against and from any
and all amounts paid by them in settlement (with the Company's written
approval) or paid by them in satisfaction of a judgment in any such
action, suit, or proceeding. The foregoing provisions shall not be
applicable to any person if the loss, costs, liability, or expense is
due to such person's gross negligence or willful misconduct.
1.5. Applicable Laws. The Plan shall be construed and
---------------
administered in accordance with the internal laws of the State of
Illinois to the extent that such laws are not preempted by the laws of
the United States of America.
1.6. Gender and Number. Where the context admits, words in any
-----------------
gender shall include any other gender, words in the singular shall
include the plural and the plural shall include the singular.
1.7. Action by Company. Except as specified herein, any action
-----------------
required of or permitted by the Company under the Plan shall be by
approval of the Committee or any person or persons authorized by the
Committee.
1.8. Severability of Plan Provisions. In the event any provision
-------------------------------
of the Plan shall be held invalid or illegal for any reason, any
invalidity or illegality shall not affect the remaining parts of the
Plan, but the Plan shall be construed and enforced as if the invalid or
illegal provision had never been inserted, and the Company shall have
the right to correct and remedy such questions of invalidity or
illegality by amendment as provided in the Plan.
2
<PAGE 6>
1.9. Notices. Any notice or document required to be filed with
-------
the Committee under the Plan will be properly filed if delivered or
mailed by registered mail, postage prepaid, to the Committee (or its
delegate), in care of the Company, at its principal executive offices.
Any notice required under the Plan may be waived by the person entitled
to notice.
1.10. Defined Terms. Terms used frequently with the same meaning
-------------
are indicated by initial capital letters, and are defined throughout the
Plan.
SECTION 2
---------
Participation
-------------
2.1. Participation. The Company by resolution of its Board of
-------------
Directors from time to time shall designate those employees of the
Company who are "Participants" in the Plan. The Committee shall
maintain a record of all such actions, including the dates thereof and
the names of affected employees.
2.2. Plan Not Contract of Employment. The Plan does not
-------------------------------
constitute a contract of employment, and participation in the Plan will
not give any employee the right to be retained in the employ of the
Company nor any right or claim to any benefit under the Plan, unless
such right or claim has specifically accrued under the terms of the
Plan.
SECTION 3
---------
Supplemental Benefit
--------------------
3.1. Amount of Supplemental Benefit. A Participant's
------------------------------
"Supplemental Benefit", payable in the form of a ten year certain and
life annuity, shall be a monthly amount equal to:
(a) the product of .0334 times the Participant's Final Average Pay
times his Years of Benefit Service not in excess of 15 and, if
a Participant's benefit commences prior to his attainment of
age 62, reduced by .3% for each month that payment precedes
his 62nd birthday;
LESS
----
3
<PAGE 7>
(b) the amount of the Accrued Benefit payable under the Lindberg
Corporation Pension Plan, as such plan may be amended from
time to time (the "Pension Plan"), expressed in the form of a
ten-year certain and life annuity, and reduced to the amount
that would be payable to the Participant from the Pension Plan
if he elected commencement in that form at the same time
payment of his Supplemental Benefit commences.
For purposes of the foregoing, "Pay" shall have the same meaning as the
identical term in the Pension Plan without regard to any limitation
imposed by section 401(a)(17) of the Code, "Final Average Pay" shall
mean the monthly average of a Participant's Pay for the period of three
calendar years during which he received the largest total amount of Pay
within the 10 years preceding his termination of employment, and "Years
of Benefit Service" shall have the same meaning as the identical term in
the Pension Plan.
SECTION 4
---------
Vesting and Payment of Supplemental Benefits
--------------------------------------------
4.1. Vesting. Subject to subsection 4.5, a Participant shall
-------
become vested and have a nonforfeitable interest in his Supplemental
Benefit on the later of (a) the day he is credited with 10 Years of
Vesting Service (as defined under the Pension Plan) and (b) the end of
his third full year of participation in this Plan. In addition, a
Participant who dies while employed by the Company shall be fully vested
in the Supplemental Benefit accrued at the time of his death.
Notwithstanding the foregoing provisions of this subsection 4.1, a
Participant or his beneficiary shall have no right to any benefits under
the Plan if the Committee determines that he engaged in a willful,
deliberate or grossly negligent act of commission or omission which is
substantially injurious to the finances or reputation of the Company.
4
<PAGE 8>
4.2. Time of Payment of Supplemental Benefit to Participant. A
------------------------------------------------------
Participant's vested Supplemental Benefit shall commence to be paid as
of the first day of the month following the later of the Participant's
fifty-fifth (55th) birthday or the day he terminates his employment with
the Company (with the first such payment to be made as soon as practical
thereafter).
4.3. Form of Payment to Participant. The normal form of payment
------------------------------
to a Participant is a ten-year certain and life annuity. A Participant
may elect a lump sum, or any form of payment available under the Pension
Plan (which need not be the same form in which he receives his Pension
Plan benefit) which is the Actuarial Equivalent (as defined in the
Pension Plan) of the normal form, provided that no such election of an
alternative form of payment shall be valid if it has not been in effect
for at least six (6) months prior to the Participant's termination of
employment. Subject to the foregoing condition, a Participant may make
a new election of a different form of payment at any time, which
election will automatically revoke any prior election. Accordingly, if
for example a Participant elects an alternative form of payment a year
prior to his termination of employment, but during the six-month period
immediately preceding his termination of employment makes a new election
of a different alternative form, such new election will be invalid
because of the failure to satisfy the six-month rule and he will be paid
in the normal form. If a Participant elects payment in the form of a
lump sum, such lump sum shall be calculated using the Applicable
Treasury Rate and Applicable Mortality Table, as defined in the Pension
Plan.
4.4. Payment of Plan Benefits to Beneficiaries. If a Participant
-----------------------------------------
dies after he has commenced the payment of his Supplemental Benefit,
his Beneficiary shall receive what remains, if anything, of the payments
guaranteed under the form of payment elected by the Participant. If a
vested Participant dies before he has commenced the payment of his
Supplemental Benefit, his Beneficiary shall receive 120 monthly payments
in the amount that would have been paid to the Participant had he
terminated employment on the day before his death, commencing on the
first day of the month following the later of the date of the
Participant's death or the date he would have attained age 55. For
purposes of this Plan, a Participant's "Beneficiary" shall be any person
or persons he designates in writing, provided that in the absence of such
designation his Beneficiary shall be his
5
<PAGE 9>
surviving spouse, if the Participant is married at the time of his death, or
if he is not married, his estate.
4.5. Facility of Payment. If, in the Committee's opinion, a
-------------------
Participant or other person entitled to benefits under the Plan is under
a legal disability or is in any way incapacitated so as to be unable to
manage his financial affairs, payment will be made to the conservator or
other person legally charged with the care of his person or his estate
or, if no such legal conservator will have been appointed, then to any
individual (for the benefit of such Participant or other person entitled
to benefits under the Plan) whom the Committee may from time to time
approve.
4.6. Benefits May Not Be Assigned or Alienated. The Supplemental
-----------------------------------------
Benefit payable to, or on account of, any Participant or Beneficiary
under the Plan may not be voluntarily or involuntarily assigned or
alienated, and any attempt to do so shall cause such Supplemental
Benefit to be forfeited.
4.7. Tax Liability. The Company may withhold from any payment of
-------------
Supplemental Benefit hereunder any taxes required to be withheld and
such sum as the Company may reasonably estimate to be necessary to cover
any taxes for which the Company may be liable and which may be assessed
with regard to such payment.
4.8. Company Discretion to Accelerate. The Company, by resolution
--------------------------------
of its Board of Directors, may accelerate the date of distribution of
any benefits payable under the Plan to or on behalf of any Participant
to the extent that the Company determines that such acceleration is in
the best interests of the Company because of changes in tax laws or
accounting principles, Department of Labor regulations, or any other
reason which negates or diminishes the continued value of the Plan to
the Company or Participant. The amount distributed pursuant to this
subsection will be paid in the form of a lump sum. In the event of
acceleration in accordance with this subsection, the Applicable Treasury
Rate and Applicable Mortality Table will be used to determine the
present value of the Supplemental Benefit.
6
<PAGE 10>
SECTION 5
---------
Administration
--------------
5.1. Committee Membership and Authority. The Committee shall have
----------------------------------
the following discretionary authority, powers, rights and duties in
addition to those vested in it elsewhere in the Plan:
(a) to adopt and apply in a uniform and nondiscriminatory manner
to all persons similarly situated, such rules of procedure and
regulations as, in its opinion, may be necessary for the
proper and efficient administration of the Plan and as are
consistent with the provisions of the Plan;
(b) to enforce the Plan in accordance with its terms and with such
applicable rules and regulations as may be adopted by the
Committee;
(c) to determine conclusively all questions arising under the
Plan, including the power to determine the eligibility of
employees and the rights of Participants and other persons
entitled to benefits under the Plan and their respective
benefits, to make factual findings and to remedy ambiguities,
inconsistencies or omissions of whatever kind;
(d) to maintain and keep adequate records concerning the Plan and
concerning its proceedings and acts in such form and detail as
the Committee may decide;
(e) to direct all payments of benefits under the Plan; and
(f) to employ agents, attorneys, accountants or other persons (who
may also be employed by or represent the Employers) for such
purposes as the Committee considers necessary or desirable to
discharge its duties.
The certificate of a majority of the members of the Committee that the
Committee has taken or authorized any action shall be conclusive in
favor of any person relying on the certificate.
5.2. Allocation and Delegation of Committee Responsibilities and
-----------------------------------------------------------
Powers. In exercising its authority to control and
- ------
7
<PAGE 11>
manage the operation and administration of the Plan, the Committee may allocate
all or any part of its responsibilities and powers to any one or more of its
members and may delegate all or any part of its responsibilities and
powers to any person or persons selected by it. Any such allocation or
delegation may be revoked at any time.
5.3. Information to be Furnished to Committee. The Company shall
----------------------------------------
furnish the Committee such data and information as may be required for
it to discharge its duties and the records of the Company shall be
conclusive on all persons unless determined to be incorrect.
Participants and other persons entitled to benefits under the Plan must
furnish to the Committee such evidence, data or information as the
Committee considers desirable to carry out the Plan.
5.4. Committee's Decision Final. Any interpretation of the Plan
--------------------------
and any decision on any matter within the discretion of the Committee
made by the Committee shall be binding on all persons. A misstatement
or other mistake of fact shall be corrected when it becomes known, and
the Committee shall make such adjustment on account thereof as it
considers equitable and practicable.
SECTION 6
---------
Amendment and Termination
-------------------------
6.1. Amendment and Termination. The Company and the Committee
-------------------------
have the right to amend the Plan from time to time, and the right to
terminate it; provided, however, that no such amendment or termination
of the Plan will:
(a) reduce or impair the interests of Participants in benefits
being paid under the Plan as of the date of amendment or
termination, as the case may be; or
(b) reduce the amount of Plan benefits payable to or on account of
any employee of an Employer to an amount which is less than
the amount to which he would be entitled in accordance with
the provisions of the Plan if the employee terminated
employment immediately prior to the date of the amendment or
termination, as the case may be.
8
<PAGE 12>
6.2. Merger. The Company will not merge or consolidate with any
------
other corporation, or liquidate or dissolve, without making suitable
arrangements, satisfactory to the Committee, for the payment of any
benefits payable under the Plan.
SECTION 7
---------
Change of Control
-----------------
7.1. Definition. "Change of Control" means the happening of any
----------
of the following events:
(a) The Company is merged, consolidated or reorganized into or
with another corporation or other legal person, or there is an
offer to holders of the common stock generally relating to the
acquisition of their shares, and as a result of such merger,
consolidation, reorganization or offer, less than 75% of the
outstanding voting securities or other capital interests of
the surviving, resulting or acquiring corporation or other
legal person are owned in the aggregate by the stockholders of
the Company immediately prior to such merger, consolidation,
reorganization or offer;
(b) The Company sells all or substantially all of its business
and/or assets to any other corporation or other legal person,
less than 75% of the outstanding voting securities or other
capital interests of which are owned in the aggregate,
directly or indirectly, by the persons who were stockholders
of the Company immediately before or after such sale; or
(c) During any period of two consecutive years, individuals who at
the beginning of any such period constitute the directors of
the Company cease for any reason to constitute at least a
majority thereof, unless the election, or the nomination for
election by the Company's stockholders, of each new director
of the Company was approved by a vote of at least two thirds
of such directors of the Company then still in office who were
directors of the Company at the beginning of any such period.
9
<PAGE 13>
7.2. Effect of Change of Control. Notwithstanding any
---------------------------
other provisions of the Plan to the contrary, in the event of a Change
of Control, each Participant shall immediately be fully vested in (a)
any benefits accrued under Section 3 and (b) any additional benefits
payable pursuant to the terms of an individual severance agreement, and
each Participant (or his Beneficiary) shall be paid a lump sum payment
in cash within 30 days of his termination of employment equal to the
actuarially determined present value of his accrued benefit under
Section 3 and, if applicable, his additional pension benefits payable
under the terms of any individual severance agreement. For purposes of
the foregoing sentence, the calculation of the lump sum payment shall
utilize the Applicable Treasury Rate and Applicable Mortality Table, and
the benefit to be converted into the lump sum shall be the normal form
under subsection 3.1 payable as of the first day of the month following
the Participant's termination date or, if the Participant is not yet age
55, the normal form payable as of the first day of the month following
his 55th birthday.
10
<PAGE 1>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT by and between Lindberg Corporation, a Delaware
corporation (the "Company") and Leo G. Thompson (the "Executive"), dated
as of the 22nd day of July, 1999.
The Board of Directors of the Company (the "Board"), has
determined that it is in the best interests of the Company and its
shareholders to assure that the Company will have the continued
dedication of the Executive, notwithstanding the possibility, threat or
occurrence of a Change of Control (as defined below) of the Company.
The Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and
risks created by a pending or threatened Change of Control and to
encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of
Control, and to provide the Executive with compensation and benefits
arrangements upon a Change of Control which ensure that the compensation
and benefits expectations of the Executive will be satisfied and which
are competitive with those of other corporations. Therefore, in order
to accomplish these objectives, the Board has caused the Company to
enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall be
-------------------
the first date during the Protection Period (as defined in Section l(b))
on which a Change of Control occurs. Anything in this Agreement to the
contrary notwithstanding, if a Change of Control occurs and if the
Executive's employment with the Company is terminated prior to the date
on which the Change of Control occurs, and if it is reasonably
demonstrated by the Executive that such termination of employment (i)
was at the request of a third party which has taken steps reasonably
calculated to effect the Change of Control or (ii) otherwise arose in
connection with or anticipation of the Change of Control, then for all
purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination of employment.
(b) The "Protection Period" shall be the period
commencing on the date hereof and ending 24 calendar months after the
date hereof; provided, however, that commencing on the date one year
after the date hereof, and on each annual anniversary of such date (such
date and each annual anniversary thereof shall be hereinafter referred
to as the "Renewal Date"), the Protection Period shall be automatically
extended so as to terminate 24 calendar months from such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give
notice to the Executive that the Board has determined that the
Protection Period shall not be so extended.
2. Change of Control. For the purpose of this Agreement, a
-----------------
"Change of Control" shall mean the occurrence of any of the following
events:
<PAGE 2>
(a) The Company is merged, consolidated or reorganized
into or with another corporation or other legal person, or there is an
offer to holders of the common stock generally relating to the
acquisition of their shares, and as a result of such merger,
consolidation, reorganization or offer, less than 75% of the outstanding
voting securities or other capital interests of the surviving, resulting
or acquiring corporation or other legal person are owned in the
aggregate by the stockholders of the Company immediately prior to such
merger, consolidation, reorganization or offer;
(b) The Company sells all or substantially all of its
business and/or assets to any other corporation or other legal person,
less than 75% of the outstanding voting securities or other capital
interests of which are owned in the aggregate, directly or indirectly,
by the persons who were stockholders of the Company immediately before
or after such sale; or
(c) During any period of two consecutive years,
individuals who at the beginning of any such period constitute the
directors of the Company cease for any reason to constitute at least a
majority thereof, unless the election, or the nomination for election by
the Company's stockholders, of each new director of the Company was
approved by a vote of at least two-thirds of such directors of the
Company then still in office who were directors of the Company at the
beginning of any such period.
3. Employment Period. The Company hereby agrees to continue
-----------------
the Executive in its employ, and the Executive hereby agrees to remain
in the employ of the Company, for the period commencing on the Effective
Date and ending 36 calendar months after the Effective Date (the
"Employment Period").
4. Terms of Employment. (a) Position and Duties. (i)
-------------------- --------------------
During the Employment Period, (A) the Executive's position (including
status, offices, titles and reporting requirements), authority, duties
and responsibility shall be at least commensurate in all material
respects with the most significant of those held, exercised and assigned
at any time during the 90-day period immediately preceding the Effective
Date and (B) the Executive's services shall be performed at the location
where the Executive was employed immediately preceding the Effective
Date or any office or location less than 35 miles from the Executive's
primary residence immediately prior to such relocation.
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled,
the Executive agrees to devote reasonable attention and time during
normal business hours to the business and affairs of the Company and, to
the extent necessary to discharge the responsibilities assigned to the
Executive hereunder, to use the Executive's reasonable best efforts to
perform faithfully and efficiently such responsibilities. During the
Employment Period it shall not be a violation of this Agreement for the
Executive to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements or teach
at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance
of the Executive's responsibilities as an employee of the Company in
2
<PAGE 3>
accordance with this Agreement. It is expressly understood and agreed
that to the extent that any such activities have been conducted by the
Executive prior to the Effective Date, the continued conduct of such
activities (or the conduct of activities similar in nature and scope
thereto) subsequent to the Effective Date shall not thereafter be deemed
to interfere with the performance of the Executive's responsibilities to
the Company.
(b) Compensation. (i) Base Salary. During the
------------ ------------
Employment Period, the Executive shall receive an annual base salary
("Annual Base Salary"), which shall be paid at a monthly rate, at least
equal to twelve times the highest monthly base salary paid or payable to
the Executive by the Company and its affiliated companies in respect of
the twelve-month period immediately preceding the month in which the
Effective Date occurs. During the Employment Period, the Annual Base
Salary shall be reviewed at least annually and shall be increased at any
time and from time to time as shall be substantially consistent with
increases in base salary generally awarded in the ordinary course of
business to other peer executives of the Company and its affiliated
companies. Any increase in Annual Base Salary shall not serve to limit
or reduce any other obligation to the Executive under this Agreement.
Annual Base Salary shall not be reduced after any such increase and the
term Annual Base Salary as utilized in this Agreement shall refer to
Annual Base Salary as so increased. As used in this Agreement, the term
"affiliated companies" shall include any company controlled by,
controlling or under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary,
------------
the Executive shall be awarded, for each fiscal year ending during the
Employment Period, an annual bonus (the "Annual Bonus") in cash at least
equal to the midpoint of his current annual bonus range, but in no event
less than the average annualized (for any fiscal year consisting of less
than 12 full months or with respect to which the Executive has been
employed by the Company for less than 12 full months) bonus paid or
payable, including by reason of any deferral, to the Executive by the
Company and its affiliated companies in respect of the three fiscal
years immediately preceding the fiscal year in which the Effective Date
occurs. Each such Annual Bonus shall be paid no later than the end of
the third month of the fiscal year next following the fiscal year for
which the Annual Bonus is awarded, unless the Executive shall elect to
defer the receipt of such Annual Bonus.
(iii) Profit Sharing, Thrift, Savings and Pension Plans.
-------------------------------------------------
In addition to Annual Base Salary and Annual Bonus payable as
hereinabove provided, the Executive shall be entitled to participate
during the Employment Period in all profit sharing, thrift, savings and
pension plans, practices, policies and programs generally applicable to
other peer executives of the Company and its affiliated companies, but
in no event shall such plans, practices, policies and programs provide
the Executive with profit sharing opportunities (measured with respect
to both regular and special profit sharing opportunities), thrift
opportunities, savings opportunities and pension benefits opportunities,
in each case, less favorable, in the aggregate, than the most favorable
of those provided by the Company and its affiliated companies for the
Executive under
3
<PAGE 4>
such plans, practices, policies and programs as in effect at any time
during the 90-day period immediately preceding the Effective Date.
(iv) Welfare Benefit Plans. During the Employment
-----------------------
Period, the Executive and/or the Executive's family, as the case may be,
shall be eligible for participation in and shall receive all benefits
under welfare benefit plans, practices, policies and programs provided
by the Company and its affiliated companies (including, without
limitation, medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent generally
applicable to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and
programs provide benefits which are less favorable, in the aggregate,
than the most favorable of such plans, practices, policies and programs
in effect for the Executive at any time during the 90-day period
immediately preceding the Effective Date.
(v) Expenses. During the Employment Period, the
--------
Executive shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive in accordance with the
most favorable policies, practices and procedures of the Company and its
affiliated companies in effect for the Executive at any time during the
90-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect at any time thereafter
generally with respect to other peer executives of the Company and its
affiliated companies.
(vi) Perquisites. During the Employment Period, the
-----------
Executive shall be entitled to perquisites in accordance with the most
favorable plans, practices, programs and policies of the Company and
its affiliated companies in effect for the Executive at any time during
the 90-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect at any time thereafter
generally with respect to other peer executives of the Company and its
affiliated companies.
(vii) Office and Support Staff. During the Employment
-------------------------
Period, the Executive shall be entitled to an office or offices of a
size and with furnishings and other appointments, and to personal
secretarial and other assistance, at least equal to the most favorable
of the foregoing provided to the Executive by the Company and its
affiliated companies at any time during the 90-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as
provided at any time thereafter generally with respect to other peer
executives of the Company and its affiliated companies.
(viii) Vacation. During the Employment Period, the
--------
Executive shall be entitled to paid vacation in accordance with the most
favorable plans, policies, programs and practices of the Company and its
affiliated companies as in effect for the Executive at any time during
the 90-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect at any time thereafter
generally with respect to other peer incentives of the Company and its
affiliated companies.
4
<PAGE 5>
(ix) Substitution of Nonqualified Benefits. If the
---------------------------------------
continued provision of benefits to the Executive under any employee
benefit plan of the Company at the level required by this Section 4(b)
would cause such employee benefit plan to violate any minimum coverage
or nondiscrimination requirement of any applicable provision of the
Internal Revenue Code of 1986 (the "Code"), the Company may provide the
closest possible economic equivalent of such benefit in the form of a
nonqualified plan or additional compensation.
5. Termination of Employment. (a) Death or Disability. The
------------------------- -------------------
Executive's employment shall terminate automatically upon the
Executive's death during the Employment Period. If the Company
determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of
"Disability" set forth below), it may give to the Executive written
notice of its intention to terminate the Executive's employment. In
such event, the Executive's employment with the Company shall terminate
effective on the 30th day after receipt of such notice by the Executive
(the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" means the absence of the Executive from the Executive's
duties with the Company on a substantially full-time basis for 180
consecutive business days as a result of incapacity due to mental or
physical illness which is determined to be total and permanent by a
physician selected by the Company or its insurers and acceptable to the
Executive or the Executive's legal representative (such agreement as to
acceptability not to be withheld unreasonably).
(b) Cause. The Company may terminate the Executive's
-----
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean (i) repeated violations by the Executive
of the material obligations of the Executive under Section 4(a) of this
Agreement (other than as a result of incapacity due to physical or
mental illness) which are demonstrably willful and deliberate on the
Executive's part, which are committed in bad faith or without reasonable
belief that such violations are in the best interests of the Company and
which are not remedied in a reasonable period of time after
receipt by the Executive of written notice from the Company of such
violations or (ii) the conviction of the Executive of a felony involving
moral turpitude.
(c) Good Reason. The Executive's employment may be
-----------
terminated during the Employment Period by the Executive for Good
Reason. For purposes of this Agreement, "Good Reason" shall mean:
(i) the assignment to the Executive of any duties inconsistent
in any respect with the Executive's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 4(a) of this Agreement,
or any other action by the Company which results in a diminution in
such position, authority, duties or responsibilities, excluding for
this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly
after receipt of notice thereof given by the Executive;
5
<PAGE 6>
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an
isolated, insubstantial and inadvertent failure not occurring in
bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any
office or location other than that described in Section 4(a)(i)(B)
hereof;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by
this Agreement; or
(v) any failure by the Company or any successor to comply with
and satisfy Section 11(c) of this Agreement, provided that such
successor has received at least ten days prior written notice from
the Company or the Executive of the requirements of Section 11(c)
of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good
Reason" made by the Executive shall be conclusive. Anything in this
Agreement to the contrary notwithstanding, a termination by the
Executive for any reason during the 30-day period immediately following
the first anniversary of the Effective Date shall be deemed to be a
termination for Good Reason for all purposes of this Agreement.
(d) Notice of Termination. Any termination by the
-----------------------
Company for Cause, or by the Executive for Good Reason, shall be
communicated by Notice of Termination to the other party hereto given in
accordance with Section 12(b) of this Agreement. For purposes of this
Agreement, a "Notice of Termination" shall mean a written notice which
(i) indicates the specific termination provision in this Agreement
relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so
indicated and (iii) if the Date of Termination (as defined below) is
other than the date of receipt of such notice, specifies the termination
date (which date shall be not more than 15 days after the giving of such
notice). The failure by the Executive or the Company to set forth in
the Notice of Termination any fact or circumstance which contributes to
a showing of Good Reason or Cause, as the case may be, shall not waive
any right of the Executive or the Company hereunder or preclude the
Executive or the Company from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" shall
-------------------
mean (i) if the Executive's employment is terminated by the Company
for Cause, or by the Executive for Good Reason, the date of receipt
of the Notice of Termination or any later date specified therein, as the
case may be, (ii) if the Executive's employment is terminated by the
Company other than for Cause, Disability or death, the Date of
Termination shall be the date on which the Company notifies the
Executive of such termination, and (iii) if the Executive's employment
is terminated by reason of death or Disability, the Date of Termination
shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
6
<PAGE 7>
6. Obligations of the Company upon Termination. (a) Good
--------------------------------------------- ----
Reason; Other than for Cause or Disability. If, during the Employment
- ------ -----------------------------------
Period, the Company shall terminate the Executive's employment other
than for Cause or Disability or the Executive shall terminate employment
for Good Reason, the Company shall have the following obligations.
(i) The Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the aggregate of
the following amounts:
(A) the amount equal to the product of (x) 3.0 and (y)
the sum of the Executive's Annual Base Salary and the
Executive's Annual Bonus; provided, however, that such amount
shall be paid in lieu of, and the Executive hereby waives the
right to receive, any other amount of severance relating to
salary or bonus continuation to be received by the Executive
upon such termination of employment under any severance plan,
policy or arrangement of the Company; and
(B) the amount equal to the product of (x) the Annual
Bonus and (y) a fraction, the numerator of which is the number
of days in the then current fiscal year through the Date of
Termination, and the denominator of which is 365; and
(C) the amount of the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore
paid and the amount of any compensation previously deferred by
the Executive (together with any accrued interest thereon) and
not yet paid by the Company and any accrued vacation pay of
the Executive not yet paid by the Company.
For purposes of this Agreement, the aggregate of the amounts
described in clauses (A), (B) and (C) of this Section 6(a) shall
hereafter be referred to as the "Special Termination Amount."
(ii) For 36 months after such termination of employment, or
such longer period as any plan, program, practice or policy may
provide, the Company shall continue benefits to the Executive and,
where applicable, the Executive's family at least equal to those
which would have been provided to them in accordance with the
plans, programs, practices and policies described in Section
4(b)(iv) of this Agreement if the Executive's employment had not
been terminated in accordance with the most favorable plans,
practices, programs or policies of the Company and its affiliated
companies generally applicable to other peer executives and their
families during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect
at any time thereafter generally with respect to other peer
executives of the Company and its affiliated companies and
their families (such continuation of such benefits for the
applicable period set forth herein hereinafter referred to as
"Welfare Benefit Continuation"). For purposes of determining
eligibility of the Executive for retiree benefits pursuant
to such plans, practices, programs and policies, the Executive
7
<PAGE 8>
shall be considered to have remained employed until the end of such
36 months' period and to have retired on the last day of such
period. In the event the Executive becomes reemployed with another
employer and is eligible to receive medical or other welfare
benefits under any employer provided plan, the medical or other
welfare benefits described herein shall not be provided by the
Company during such applicable period of eligibility, but shall
resume if such period of eligibility shall terminate. In the
case of any benefit subject to the continuation coverage
requirements of Section 4980A of the Code, the Executive and his
covered dependents shall be considered to have lost their coverage
by reason of the termination of employment at the end of the
Welfare Benefit Continuation period or, if earlier, on the day
before the day the Executive becomes covered by a plan sponsored
by another employer as provided above.
(iii) The 36 month period referred to in Section 6(a)(ii) of
this Agreement (or, if longer, the period provided in each such
plan) shall be considered a period of service for all purposes
(including, as applicable, benefit accrual, employer contributions,
and matching) under each of the plans described in Section
4(b)(iii) of this Agreement, and the accrued benefit or employer
contributions of the Executive under each such plan shall be
determined as if the Executive had been employed through the end of
such period; provided, however, that if the provision of benefits
under any employee benefit plan pursuant to this Section 6(a)(iii)
(or Section 6(a)(ii) of this Agreement) would cause such plan to
violate any minimum coverage or nondiscrimination requirement of
the Code, the provisions of Section 4(b)(ix) of this Agreement
shall apply. For purposes hereof, any matching employer
contribution for any period that ends during such 36 months shall
be determined as if the Executive had made the same employee
contribution during such period as he made during the last period
ending prior to or with the date of termination (or, if greater,
the actual amount of the Executive's contribution for such period).
(b) Death. If the Executive's employment is terminated
-----
by reason of the Executive's death during the Employment Period, this
Agreement shall terminate without further obligations to the Executive's
legal representatives under this Agreement, other than the payment by
the Company of the Special Termination Amount, provided however, that
the amount of such payment determined under Section 6(a)(i)(A) shall be
adjusted as follows. The amount set forth in clause (A) shall be offset
in all cases by any basic life insurance benefit paid or payable in
respect of the Executive's death as a consequence of any premiums paid
by the Company, and, in addition, if the death occurs after six months
following the Change of Control, it shall be offset by the amount of any
salary payments made to the Executive for any periods of employment
following the Change of Control. The Special Termination Amount shall
be paid to the Executive's estate or beneficiary, as applicable, in a
lump sum in cash within 30 days of the Date of Termination. Anything in
this Agreement to the contrary notwithstanding, the Executive's family
shall be entitled to receive benefits at least equal to the most
favorable benefits provided generally by the Company and any of its
affiliated companies to surviving families of peer executives of the
Company and such affiliated companies under such plans, programs,
practices and policies relating to
8
<PAGE 9>
family death benefits, if any, as in effect generally with respect to
other peer executives and their families at any time during the
90-day period immediately preceding the Effective Date or, if more
favorable to the Executive and/or the Executive's family, as in
effect on the date of the Executive's death generally with respect to
other peer executives of the Company and its affiliated companies and
their families.
(c) Disability. If the Executive's employment is
----------
terminated by reason of the Executive's Disability during the
Employment Period, this Agreement shall terminate without further
obligations to the Executive, other than the payment by the Company of
the Special Termination Amount. Such Special Termination Amount, if
Executive's Disability occurs after six months following the Change of
Control, shall be offset by the amount of any salary payments made to
the Executive for any periods of employment following the Change of
Control. The Special Termination Amount shall be paid to the Executive
in a lump sum in cash within 30 days of the Date of Termination.
Anything in this Agreement to the contrary notwithstanding, the
Executive shall be entitled after the Disability Effective Date to
receive disability and other benefits at least equal to the most
favorable of those generally provided by the Company and its affiliated
companies to disabled executives and/or their families in accordance
with such plans, programs, practices and policies relating to
disability, if any, as in effect generally with respect to other peer
executives and their families at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to the
Executive and/or the Executive's family, as in effect at any time
thereafter through the Date of Termination generally with respect to
other peer executives of the Company and its affiliated companies and
their families.
(d) Cause; Other than for Good Reason. If the
---------------------------------------
Executive's employment shall be terminated for Cause during the
Employment Period, this Agreement shall terminate without further
obligations to the Executive other than the obligation to pay to the
Executive Annual Base Salary through the Date of Termination plus the
amount of any compensation previously deferred by the Executive, in each
case to the extent theretofore unpaid. If the Executive terminates
employment during the Employment Period, excluding a termination for
Good Reason, this Agreement shall terminate without further obligations
to the Executive, other than for the following obligations: (1) payment
of the Executive's Annual Base Salary through the Date of Termination to
the extent not theretofore paid, (ii) payment of the product of (x) the
Annual Bonus and (y) a fraction, the numerator of which is the number of
days in the current fiscal year through the Date of Termination, and the
denominator of which is 365 and (iii) payment of any compensation
previously deferred by the Executive (together with any accrued interest
thereon) and not yet paid by the Company and any accrued vacation pay of
the Executive not yet paid by the Company (the amounts described in
paragraphs (i), (ii) and (iii) shall be hereafter referred to as
"Accrued Obligations"). In such case, all Accrued Obligations shall be
paid to the Executive in a lump sum in cash within 30 days of the Date
of Termination.
7. Non-exclusivity of Rights. Except as explicitly modified
-------------------------
or otherwise explicitly provided by this Agreement, (i) nothing in
this Agreement shall prevent or limit the Executive's continuing or
future participation in any benefit, bonus, incentive or
9
<PAGE 10>
other plans, programs, policies or practices provided by the Company or
any of its affiliated companies and for which the Executive may qualify,
nor shall anything herein limit or otherwise affect such rights as the
Executive may have under any other agreements with the Company or any
of its affiliated companies and (ii) amounts which are vested benefits
or which the Executive is otherwise entitled to receive under any
plan, policy, practice or program of the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall
be payable in accordance with such plan, policy, practice or program
except as explicitly modified by this Agreement.
8. Full Settlement. The Company's obligation to make the
----------------
payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action which
the Company may have against the Executive or others. In no event
shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the
Executive under any of the provisions of this Agreement and, except as
provided in Section 6(a)(ii) of this Agreement, such amounts shall not
be reduced whether or not the Executive obtains other employment. The
Company agrees to pay, to the full extent permitted by law, all legal
fees and expenses which the Executive may reasonably incur as a result
of any contest (regardless of the outcome thereof) by the Company, the
Executive or others of the validity or enforceability of, or liability
under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive about the
amount of any payment pursuant to this Agreement), plus in each case
interest on any delayed payment at the applicable Federal rate provided
for in Section 7872(f)(2)(B) of the Code. If there shall be any dispute
between the Company and the Executive (i) in the event of any
termination of the Executive's employment by the Company, whether such
termination was for Cause, or (ii) in the event of any termination of
employment by the Executive, whether Good Reason existed, then, unless
and until there is a final, nonappealable judgment by a court of
competent jurisdiction declaring that such termination was for Cause or
that the determination by the Executive of the existence of Good Reason
was not made in good faith, the Company shall pay all amounts, and
provide all benefits, to the Executive and/or the Executive's family or
other beneficiaries, as the case may be, that the Company would be
required to pay or provide pursuant to Section 6(a) as though such
termination were by the Company without Cause, or by the Executive with
Good Reason; provided, however, that the Company shall not be required
to pay any disputed amount pursuant to this paragraph except upon
receipt of an undertaking by or on behalf of the Executive to repay all
such amounts to which the Executive is ultimately adjudged by such court
not to be entitled.
9. Certain Additional Payments by the Company.
------------------------------------------
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that as a result,
directly or indirectly, of 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"), the Executive would be subject to the excise
tax imposed by
10
<PAGE 11>
Section 4999 of the Code or any interest or penalties are incurred
by the Executive 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 promptly 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, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax
imposed upon the Gross-Up Payment, but excluding any income taxes on the
Payment, the Executive is in the same after-tax position as if no Excise
Tax had been imposed upon the Executive.
(b) Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9, including
whether or when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determinations, shall be made by the accounting firm of Arthur Andersen
& Co., or such other nationally recognized accounting firm selected by
the Company (the "Accounting Firm"), which shall provide detailed
supporting calculations both to the Company and the Executive within 15
business days of receipt of notice from the Executive that there has
been a Payment or such earlier time as is requested by the Company. All
fees and expenses of the Accounting Firm shall be borne solely by the
Company. Any Gross-Up Payment, as determined pursuant to this Section
9, shall be paid to the Executive within five days of the receipt of the
Accounting Firm's determination. If the Accounting Firm determines that
no Excise Tax is payable by the Executive, it shall furnish the
Executive with a written opinion that failure to report the Excise Tax
on the Executive's applicable federal income tax return would not result
in the imposition of a negligence or similar penalty. 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 Section 9(c) 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.
(c) 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 30-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:
11
<PAGE 12>
(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 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
Section 9(c), 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 statute 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.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), 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
Section 9(c)) promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by the Executive of
an amount advanced by the Company pursuant to Section 9(c), a
determination is made that the Executive shall not
12
<PAGE 13>
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 30 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.
10. Confidential Information. The Executive shall hold in a
------------------------
fiduciary capacity for the benefit of the Company all secret or
confidential information, knowledge or data relating to the Company or
any of its affiliated companies, and their respective businesses, which
shall have been obtained by the Executive during the Executive's
employment by the Company or any of its affiliated companies and which
shall not be or become public knowledge (other than by acts by the
Executive or representatives of the Executive in violation of this
Agreement). After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of
the Company or as may otherwise be required by law or legal process,
communicate or divulge any such information, knowledge or data to anyone
other than the Company and those designated by it. In no event shall an
asserted violation of the provisions of this Section 10 constitute a
basis for deferring or withholding any amounts otherwise payable to the
Executive under this Agreement.
11. Successors. (a) This Agreement is personal to the
----------
Executive and without the prior written consent of the Company shall not
be assignable by the Executive otherwise than by will or the laws of
descent and distribution. This Agreement shall inure to the benefit of
and be enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company to
assume expressly 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 hereinbefore 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.
12. Miscellaneous. (a) This Agreement shall be governed by
-------------
and construed in accordance with the laws of the State of Illinois,
without reference to principles of conflict of laws. The captions of
this Agreement are not part of the provisions hereof and shall have no
force or effect. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or
their respective successors and legal representatives. This Agreement
replaces in its entirety the Employment Agreement between the Company
and the Executive dated as of September 17, 1996.
13
<PAGE 14>
(b) All notices and other communications hereunder shall
be in writing and shall be given by hand delivery to the other party or
by registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
If to the Executive:
-------------------
Leo G. Thompson
460 Red Fox Lane
Lake Forest, Illinois 60045
If to the Company:
-----------------
Lindberg Corporation
6133 North River Road, Suite 700
Rosemont, Illinois 60018
Attention: Chief Financial Officer
or to such other address as either party shall have furnished to the
other in writing in accordance herewith. Notice and communications
shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any
other provision of this Agreement.
(d) The Company may withhold from any amounts payable
under this Agreement such Federal, state or local taxes as shall be
required to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist
upon strict compliance with any provision hereof shall not be deemed to
be a waiver of such provision or any other provision of this Agreement.
(f) The Executive and the Company acknowledge that,
except as may otherwise be provided under any other written agreement
between the Executive and the Company, the employment of the Executive
by the Company is "at will" and, prior to the Effective Date, may be
terminated by either the Executive or the Company at any time.
Moreover, if prior to the Effective Date, the Executive's employment
with the Company terminates (other than as provided in Section 1
hereof), then the Executive shall have no further rights under this
Agreement.
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization from its Board of
Directors, the Company has caused these presents to be executed in its
name on its behalf, all as of the day and year first above written.
14
<PAGE 15>
/s/ Leo G. Thompson
--------------------------------
(Executive)
LINDBERG CORPORATION
By /s/ Stephen S. Penley
------------------------------
15
<PAGE 1>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT by and between Lindberg Corporation, a Delaware
corporation (the "Company") and Stephen S. Penley (the "Executive"),
dated as of the 22nd day of July, 1999.
The Board of Directors of the Company (the "Board"), has
determined that it is in the best interests of the Company and its
shareholders to assure that the Company will have the continued
dedication of the Executive, notwithstanding the possibility, threat or
occurrence of a Change of Control (as defined below) of the Company.
The Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and
risks created by a pending or threatened Change of Control and to
encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of
Control, and to provide the Executive with compensation and benefits
arrangements upon a Change of Control which ensure that the compensation
and benefits expectations of the Executive will be satisfied and which
are competitive with those of other corporations. Therefore, in order
to accomplish these objectives, the Board has caused the Company to
enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall be
-------------------
the first date during the Protection Period (as defined in Section l(b))
on which a Change of Control occurs. Anything in this Agreement to the
contrary notwithstanding, if a Change of Control occurs and if the
Executive's employment with the Company is terminated prior to the date
on which the Change of Control occurs, and if it is reasonably
demonstrated by the Executive that such termination of employment (i)
was at the request of a third party which has taken steps reasonably
calculated to effect the Change of Control or (ii) otherwise arose in
connection with or anticipation of the Change of Control, then for all
purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination of employment.
(b) The "Protection Period" shall be the period
commencing on the date hereof and ending 24 calendar months after the
date hereof; provided, however, that commencing on the date one year
after the date hereof, and on each annual anniversary of such date (such
date and each annual anniversary thereof shall be hereinafter referred
to as the "Renewal Date"), the Protection Period shall be automatically
extended so as to terminate 24 calendar months from such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give
notice to the Executive that the Board has determined that the
Protection Period shall not be so extended.
2. Change of Control. For the purpose of this Agreement, a
-----------------
"Change of Control" shall mean the occurrence of any of the following
events:
<PAGE 2>
(a) The Company is merged, consolidated or reorganized
into or with another corporation or other legal person, or there is an
offer to holders of the common stock generally relating to the
acquisition of their shares, and as a result of such merger,
consolidation, reorganization or offer, less than 75% of the outstanding
voting securities or other capital interests of the surviving, resulting
or acquiring corporation or other legal person are owned in the
aggregate by the stockholders of the Company immediately prior to such
merger, consolidation, reorganization or offer;
(b) The Company sells all or substantially all of its
business and/or assets to any other corporation or other legal person,
less than 75% of the outstanding voting securities or other capital
interests of which are owned in the aggregate, directly or indirectly,
by the persons who were stockholders of the Company immediately before
or after such sale; or
(c) During any period of two consecutive years,
individuals who at the beginning of any such period constitute the
directors of the Company cease for any reason to constitute at least a
majority thereof, unless the election, or the nomination for election by
the Company's stockholders, of each new director of the Company was
approved by a vote of at least two-thirds of such directors of the
Company then still in office who were directors of the Company at the
beginning of any such period.
3. Employment Period. The Company hereby agrees to continue
-----------------
the Executive in its employ, and the Executive hereby agrees to remain
in the employ of the Company, for the period commencing on the Effective
Date and ending 30 calendar months after the Effective Date (the
"Employment Period").
4. Terms of Employment. (a) Position and Duties. (i)
-------------------- --------------------
During the Employment Period, (A) the Executive's position (including
status, offices, titles and reporting requirements), authority, duties
and responsibility shall be at least commensurate in all material
respects with the most significant of those held, exercised and assigned
at any time during the 90-day period immediately preceding the Effective
Date and (B) the Executive's services shall be performed at the location
where the Executive was employed immediately preceding the Effective
Date or any office or location less than 35 miles from the Executive's
primary residence immediately prior to such relocation.
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled,
the Executive agrees to devote reasonable attention and time during
normal business hours to the business and affairs of the Company and, to
the extent necessary to discharge the responsibilities assigned to the
Executive hereunder, to use the Executive's reasonable best efforts to
perform faithfully and efficiently such responsibilities. During the
Employment Period it shall not be a violation of this Agreement for the
Executive to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements or teach
at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance
of the Executive's responsibilities as an employee of the Company in
2
<PAGE 3>
accordance with this Agreement. It is expressly understood and agreed
that to the extent that any such activities have been conducted by the
Executive prior to the Effective Date, the continued conduct of such
activities (or the conduct of activities similar in nature and scope
thereto) subsequent to the Effective Date shall not thereafter be deemed
to interfere with the performance of the Executive's responsibilities to
the Company.
(b) Compensation. (i) Base Salary. During the
------------ ------------
Employment Period, the Executive shall receive an annual base salary
("Annual Base Salary"), which shall be paid at a monthly rate, at least
equal to twelve times the highest monthly base salary paid or payable to
the Executive by the Company and its affiliated companies in respect of
the twelve-month period immediately preceding the month in which the
Effective Date occurs. During the Employment Period, the Annual Base
Salary shall be reviewed at least annually and shall be increased at any
time and from time to time as shall be substantially consistent with
increases in base salary generally awarded in the ordinary course of
business to other peer executives of the Company and its affiliated
companies. Any increase in Annual Base Salary shall not serve to limit
or reduce any other obligation to the Executive under this Agreement.
Annual Base Salary shall not be reduced after any such increase and the
term Annual Base Salary as utilized in this Agreement shall refer to
Annual Base Salary as so increased. As used in this Agreement, the term
"affiliated companies" shall include any company controlled by,
controlling or under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary,
------------
the Executive shall be awarded, for each fiscal year ending during the
Employment Period, an annual bonus (the "Annual Bonus") in cash at least
equal to the midpoint of his current annual bonus range, but in no event
less than the average annualized (for any fiscal year consisting of less
than 12 full months or with respect to which the Executive has been
employed by the Company for less than 12 full months) bonus paid or
payable, including by reason of any deferral, to the Executive by the
Company and its affiliated companies in respect of the three fiscal
years immediately preceding the fiscal year in which the Effective Date
occurs. Each such Annual Bonus shall be paid no later than the end of
the third month of the fiscal year next following the fiscal year for
which the Annual Bonus is awarded, unless the Executive shall elect to
defer the receipt of such Annual Bonus.
(iii) Profit Sharing, Thrift, Savings and Pension Plans.
-------------------------------------------------
In addition to Annual Base Salary and Annual Bonus payable as
hereinabove provided, the Executive shall be entitled to participate
during the Employment Period in all profit sharing, thrift, savings and
pension plans, practices, policies and programs generally applicable to
other peer executives of the Company and its affiliated companies, but
in no event shall such plans, practices, policies and programs provide
the Executive with profit sharing opportunities (measured with respect
to both regular and special profit sharing opportunities), thrift
opportunities, savings opportunities and pension benefits opportunities,
in each case, less favorable, in the aggregate, than the most favorable
of those provided by the Company and its affiliated companies for the
Executive under
3
<PAGE 4>
such plans, practices, policies, and programs as in effect at any time
during the 90-day period immediately preceding the Effective Date.
(iv) Welfare Benefit Plans. During the Employment
-----------------------
Period, the Executive and/or the Executive's family, as the case may be,
shall be eligible for participation in and shall receive all benefits
under welfare benefit plans, practices, policies and programs provided
by the Company and its affiliated companies (including, without
limitation, medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent generally
applicable to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and
programs provide benefits which are less favorable, in the aggregate,
than the most favorable of such plans, practices, policies and programs
in effect for the Executive at any time during the 90-day period
immediately preceding the Effective Date.
(v) Expenses. During the Employment Period, the
--------
Executive shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive in accordance with the
most favorable policies, practices and procedures of the Company and its
affiliated companies in effect for the Executive at any time during the
90-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect at any time thereafter
generally with respect to other peer executives of the Company and its
affiliated companies.
(vi) Perquisites. During the Employment Period, the
-----------
Executive shall be entitled to perquisites in accordance with the
most favorable plans, practices, programs and policies of the Company
and its affiliated companies in effect for the Executive at any time
during the 90-day period immediately preceding the Effective Date or, if
more favorable to the Executive, as in effect at any time thereafter
generally with respect to other peer executives of the Company and its
affiliated companies.
(vii) Office and Support Staff. During the Employment
-------------------------
Period, the Executive shall be entitled to an office or offices of a
size and with furnishings and other appointments, and to personal
secretarial and other assistance, at least equal to the most favorable
of the foregoing provided to the Executive by the Company and its
affiliated companies at any time during the 90-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as
provided at any time thereafter generally with respect to other peer
executives of the Company and its affiliated companies.
(viii) Vacation. During the Employment Period, the
--------
Executive shall be entitled to paid vacation in accordance with the most
favorable plans, policies, programs and practices of the Company and its
affiliated companies as in effect for the Executive at any time during
the 90-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect at any time thereafter
generally with respect to other peer incentives of the Company and its
affiliated companies.
4
<PAGE 5>
(ix) Substitution of Nonqualified Benefits. If the
---------------------------------------
continued provision of benefits to the Executive under any employee
benefit plan of the Company at the level required by this Section 4(b)
would cause such employee benefit plan to violate any minimum coverage
or nondiscrimination requirement of any applicable provision of the
Internal Revenue Code of 1986 (the "Code"), the Company may provide the
closest possible economic equivalent of such benefit in the form of a
nonqualified plan or additional compensation.
5. Termination of Employment. (a) Death or Disability. The
------------------------- -------------------
Executive's employment shall terminate automatically upon the
Executive's death during the Employment Period. If the Company
determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of
"Disability" set forth below), it may give to the Executive written
notice of its intention to terminate the Executive's employment. In
such event, the Executive's employment with the Company shall terminate
effective on the 30th day after receipt of such notice by the Executive
(the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" means the absence of the Executive from the Executive's
duties with the Company on a substantially full-time basis for 180
consecutive business days as a result of incapacity due to mental or
physical illness which is determined to be total and permanent by a
physician selected by the Company or its insurers and acceptable to the
Executive or the Executive's legal representative (such agreement as to
acceptability not to be withheld unreasonably).
(b) Cause. The Company may terminate the Executive's
-----
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean (i) repeated violations by the Executive
of the material obligations of the Executive under Section 4(a) of this
Agreement (other than as a result of incapacity due to physical or
mental illness) which are demonstrably willful and deliberate on the
Executive's part, which are committed in bad faith or without reasonable
belief that such violations are in the best interests of the Company and
which are not remedied in a reasonable period of time after
receipt by the Executive of written notice from the Company of such
violations or (ii) the conviction of the Executive of a felony involving
moral turpitude.
(c) Good Reason. The Executive's employment may be
-----------
terminated during the Employment Period by the Executive for Good
Reason. For purposes of this Agreement, "Good Reason" shall mean:
(i) the assignment to the Executive of any duties inconsistent
in any respect with the Executive's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 4(a) of this Agreement,
or any other action by the Company which results in a diminution in
such position, authority, duties or responsibilities, excluding for
this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly
after receipt of notice thereof given by the Executive;
5
<PAGE 6>
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an
isolated, insubstantial and inadvertent failure not occurring in
bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any
office or location other than that described in Section 4(a)(i)(B)
hereof;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by
this Agreement; or
(v) any failure by the Company or any successor to comply with
and satisfy Section 11(c) of this Agreement, provided that such
successor has received at least ten days prior written notice from
the Company or the Executive of the requirements of Section 11(c)
of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good
Reason" made by the Executive shall be conclusive. Anything in this
Agreement to the contrary notwithstanding, a termination by the
Executive for any reason during the 30-day period immediately following
the first anniversary of the Effective Date shall be deemed to be a
termination for Good Reason for all purposes of this Agreement.
(d) Notice of Termination. Any termination by the
-----------------------
Company for Cause, or by the Executive for Good Reason, shall be
communicated by Notice of Termination to the other party hereto given in
accordance with Section 12(b) of this Agreement. For purposes of this
Agreement, a "Notice of Termination" shall mean a written notice which
(i) indicates the specific termination provision in this Agreement
relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so
indicated and (iii) if the Date of Termination (as defined below) is
other than the date of receipt of such notice, specifies the termination
date (which date shall be not more than 15 days after the giving of such
notice). The failure by the Executive or the Company to set forth in
the Notice of Termination any fact or circumstance which contributes to
a showing of Good Reason or Cause, as the case may be, shall not waive
any right of the Executive or the Company hereunder or preclude the
Executive or the Company from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" shall
-------------------
mean (i) if the Executive's employment is terminated by the Company
for Cause, or by the Executive for Good Reason, the date of receipt
of the Notice of Termination or any later date specified therein, as
the case may be, (ii) if the Executive's employment is terminated by
the Company other than for Cause, Disability or death, the Date of
Termination shall be the date on which the Company notifies the
Executive of such termination, and (iii) if the Executive's employment
is terminated by reason of death or Disability, the Date of Termination
shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
6
<PAGE 7>
6. Obligations of the Company upon Termination. (a) Good
--------------------------------------------- ----
Reason; Other than for Cause or Disability. If, during the Employment
- -------------------------------------------
Period, the Company shall terminate the Executive's employment other
than for Cause or Disability or the Executive shall terminate employment
for Good Reason, the Company shall have the following obligations.
(i) The Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the aggregate of
the following amounts:
(A) the amount equal to the product of (x) 2.5 and (y)
the sum of the Executive's Annual Base Salary and the
Executive's Annual Bonus; provided, however, that such amount
shall be paid in lieu of, and the Executive hereby waives the
right to receive, any other amount of severance relating to
salary or bonus continuation to be received by the Executive
upon such termination of employment under any severance plan,
policy or arrangement of the Company; and
(B) the amount equal to the product of (x) the Annual
Bonus and (y) a fraction, the numerator of which is the number
of days in the then current fiscal year through the Date of
Termination, and the denominator of which is 365; and
(C) the amount of the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore
paid and the amount of any compensation previously deferred by
the Executive (together with any accrued interest thereon) and
not yet paid by the Company and any accrued vacation pay of
the Executive not yet paid by the Company.
For purposes of this Agreement, the aggregate of the amounts
described in clauses (A), (B) and (C) of this Section 6(a) shall
hereafter be referred to as the "Special Termination Amount."
(ii) For 30 months after such termination of employment, or
such longer period as any plan, program, practice or policy may
provide, the Company shall continue benefits to the Executive and,
where applicable, the Executive's family at least equal to those
which would have been provided to them in accordance with the
plans, programs, practices and policies described in Section
4(b)(iv) of this Agreement if the Executive's employment had not
been terminated in accordance with the most favorable plans,
practices, programs or policies of the Company and its affiliated
companies generally applicable to other peer executives and their
families during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect
at any time thereafter generally with respect to other peer
executives of the Company and its affiliated companies and their
families (such continuation of such benefits for the applicable
period set forth herein hereinafter referred to as "Welfare Benefit
Continuation"). For purposes of determining eligibility of the
Executive for retiree benefits pursuant to such plans,
practices, programs and policies, the Executive
7
<PAGE 8>
shall be considered to have remained employed until the end of such
30 months' period and to have retired on the last day of such
period. In the event the Executive becomes reemployed with another
employer and is eligible to receive medical or other welfare
benefits under any employer provided plan, the medical or other
welfare benefits described herein shall not be provided by the
Company during such applicable period of eligibility, but shall
resume if such period of eligibility shall terminate. In the case
of any benefit subject to the continuation coverage requirements
of Section 4980A of the Code, the Executive and his covered
dependents shall be considered to have lost their coverage by
reason of the termination of employment at the end of the Welfare
Benefit Continuation period or, if earlier, on the day before the
day the Executive becomes covered by a plan sponsored by another
employer as provided above.
(iii) The 30 month period referred to in Section 6(a)(ii) of
this Agreement (or, if longer, the period provided in each such
plan) shall be considered a period of service for all purposes
(including, as applicable, benefit accrual, employer contributions,
and matching) under each of the plans described in Section
4(b)(iii) of this Agreement, and the accrued benefit or employer
contributions of the Executive under each such plan shall be
determined as if the Executive had been employed through the end of
such period; provided, however, that if the provision of benefits
under any employee benefit plan pursuant to this Section 6(a)(iii)
(or Section 6(a)(ii) of this Agreement) would cause such plan to
violate any minimum coverage or nondiscrimination requirement of
the Code, the provisions of Section 4(b)(ix) of this Agreement
shall apply. For purposes hereof, any matching employer
contribution for any period that ends during such 30 months shall
be determined as if the Executive had made the same employee
contribution during such period as he made during the last period
ending prior to or with the date of termination (or, if greater,
the actual amount of the Executive's contribution for such period).
(b) Death. If the Executive's employment is terminated
-----
by reason of the Executive's death during the Employment Period, this
Agreement shall terminate without further obligations to the Executive's
legal representatives under this Agreement, other than the payment by
the Company of the Special Termination Amount, provided however, that
the amount of such payment determined under Section 6(a)(i)(A) shall be
adjusted as follows. The amount set forth in clause (A) shall be offset
in all cases by any basic life insurance benefit paid or payable in
respect of the Executive's death as a consequence of any premiums paid
by the Company, and, in addition, if the death occurs after six months
following the Change of Control, it shall be offset by the amount of any
salary payments made to the Executive for any periods of employment
following the Change of Control. The Special Termination Amount shall
be paid to the Executive's estate or beneficiary, as applicable, in a
lump sum in cash within 30 days of the Date of Termination. Anything in
this Agreement to the contrary notwithstanding, the Executive's family
shall be entitled to receive benefits at least equal to the most
favorable benefits provided generally by the Company and any
of its affiliated companies to surviving families of peer executives
of the Company and such affiliated companies under such plans,
programs, practices and policies relating to
8
<PAGE 9>
family death benefits, if any, as in effect generally with respect to
other peer executives and their families at any time during the 90-day
period immediately preceding the Effective Date or, if more favorable
to the Executive and/or the Executive's family, as in effect on the
date of the Executive's death generally with respect to other peer
executives of the Company and its affiliated companies and their
families.
(c) Disability. If the Executive's employment is
----------
terminated by reason of the Executive's Disability during the
Employment Period, this Agreement shall terminate without further
obligations to the Executive, other than the payment by the Company of
the Special Termination Amount. Such Special Termination Amount, if
Executive's Disability occurs after six months following the Change of
Control, shall be offset by the amount of any salary payments made to
the Executive for any periods of employment following the Change of
Control. The Special Termination Amount shall be paid to the Executive
in a lump sum in cash within 30 days of the Date of Termination.
Anything in this Agreement to the contrary notwithstanding, the
Executive shall be entitled after the Disability Effective Date to
receive disability and other benefits at least equal to the most
favorable of those generally provided by the Company and its affiliated
companies to disabled executives and/or their families in accordance
with such plans, programs, practices and policies relating to
disability, if any, as in effect generally with respect to other peer
executives and their families at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to the
Executive and/or the Executive's family, as in effect at any time
thereafter through the Date of Termination generally with respect to
other peer executives of the Company and its affiliated companies and
their families.
(d) Cause; Other than for Good Reason. If the
---------------------------------------
Executive's employment shall be terminated for Cause during the
Employment Period, this Agreement shall terminate without further
obligations to the Executive other than the obligation to pay to the
Executive Annual Base Salary through the Date of Termination plus the
amount of any compensation previously deferred by the Executive, in each
case to the extent theretofore unpaid. If the Executive terminates
employment during the Employment Period, excluding a termination for
Good Reason, this Agreement shall terminate without further obligations
to the Executive, other than for the following obligations: (1) payment
of the Executive's Annual Base Salary through the Date of Termination to
the extent not theretofore paid, (ii) payment of the product of (x) the
Annual Bonus and (y) a fraction, the numerator of which is the number of
days in the current fiscal year through the Date of Termination, and the
denominator of which is 365 and (iii) payment of any compensation
previously deferred by the Executive (together with any accrued interest
thereon) and not yet paid by the Company and any accrued vacation pay of
the Executive not yet paid by the Company (the amounts described in
paragraphs (i), (ii) and (iii) shall be hereafter referred to as
"Accrued Obligations"). In such case, all Accrued Obligations shall be
paid to the Executive in a lump sum in cash within 30 days of the Date
of Termination.
7. Non-exclusivity of Rights. Except as explicitly modified
-------------------------
or otherwise explicitly provided by this Agreement, (i) nothing
in this Agreement shall prevent or limit the Executive's continuing
or future participation in any benefit, bonus, incentive or
9
<PAGE 10>
other plans, programs, policies or practices provided by the Company or
any of its affiliated companies and for which the Executive may qualify,
nor shall anything herein limit or otherwise affect such rights as the
Executive may have under any other agreements with the Company or any
of its affiliated companies and (ii) amounts which are vested benefits
or which the Executive is otherwise entitled to receive under any
plan, policy, practice or program of the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall
be payable in accordance with such plan, policy, practice or program
except as explicitly modified by this Agreement.
8. Full Settlement. The Company's obligation to make the
----------------
payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action which
the Company may have against the Executive or others. In no event
shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the
Executive under any of the provisions of this Agreement and, except as
provided in Section 6(a)(ii) of this Agreement, such amounts shall not
be reduced whether or not the Executive obtains other employment. The
Company agrees to pay, to the full extent permitted by law, all legal
fees and expenses which the Executive may reasonably incur as a result
of any contest (regardless of the outcome thereof) by the Company, the
Executive or others of the validity or enforceability of, or liability
under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive about the
amount of any payment pursuant to this Agreement), plus in each case
interest on any delayed payment at the applicable Federal rate provided
for in Section 7872(f)(2)(B) of the Code. If there shall be any dispute
between the Company and the Executive (i) in the event of any
termination of the Executive's employment by the Company, whether such
termination was for Cause, or (ii) in the event of any termination of
employment by the Executive, whether Good Reason existed, then, unless
and until there is a final, nonappealable judgment by a court of
competent jurisdiction declaring that such termination was for Cause or
that the determination by the Executive of the existence of Good Reason
was not made in good faith, the Company shall pay all amounts, and
provide all benefits, to the Executive and/or the Executive's family or
other beneficiaries, as the case may be, that the Company would be
required to pay or provide pursuant to Section 6(a) as though such
termination were by the Company without Cause, or by the Executive with
Good Reason; provided, however, that the Company shall not be required
to pay any disputed amount pursuant to this paragraph except upon
receipt of an undertaking by or on behalf of the Executive to repay all
such amounts to which the Executive is ultimately adjudged by such court
not to be entitled.
9. Certain Additional Payments by the Company.
------------------------------------------
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that as a result,
directly or indirectly, of 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"), the Executive would be subject
to the excise tax imposed by
10
<PAGE 11>
Section 4999 of the Code or any interest or penalties are incurred by
the Executive 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 promptly 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, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax
imposed upon the Gross-Up Payment, but excluding any income taxes on the
Payment, the Executive is in the same after-tax position as if no Excise
Tax had been imposed upon the Executive.
(b) Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9, including
whether or when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determinations, shall be made by the accounting firm of Arthur Andersen
& Co., or such other nationally recognized accounting firm selected by
the Company (the "Accounting Firm"), which shall provide detailed
supporting calculations both to the Company and the Executive within 15
business days of receipt of notice from the Executive that there has
been a Payment or such earlier time as is requested by the Company. All
fees and expenses of the Accounting Firm shall be borne solely by the
Company. Any Gross-Up Payment, as determined pursuant to this Section
9, shall be paid to the Executive within five days of the receipt of the
Accounting Firm's determination. If the Accounting Firm determines that
no Excise Tax is payable by the Executive, it shall furnish the
Executive with a written opinion that failure to report the Excise Tax
on the Executive's applicable federal income tax return would not result
in the imposition of a negligence or similar penalty. 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 Section 9(c) 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.
(c) 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 30-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:
11
<PAGE 12>
(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 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
Section 9(c), 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 statute 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.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), 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
Section 9(c)) promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Section 9(c), a determination
is made that the Executive shall not
12
<PAGE 13>
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 30 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.
10. Confidential Information. The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or
confidential information, knowledge or data relating to the Company or
any of its affiliated companies, and their respective businesses, which
shall have been obtained by the Executive during the Executive's
employment by the Company or any of its affiliated companies and which
shall not be or become public knowledge (other than by acts by the
Executive or representatives of the Executive in violation of this
Agreement). After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of
the Company or as may otherwise be required by law or legal process,
communicate or divulge any such information, knowledge or data to anyone
other than the Company and those designated by it. In no event shall an
asserted violation of the provisions of this Section 10 constitute a
basis for deferring or withholding any amounts otherwise payable to the
Executive under this Agreement.
11. Successors. (a) This Agreement is personal to the
Executive and without the prior written consent of the Company shall not
be assignable by the Executive otherwise than by will or the laws of
descent and distribution. This Agreement shall inure to the benefit of
and be enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company to
assume expressly 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 hereinbefore 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.
12. Miscellaneous. (a) This Agreement shall be governed by
and construed in accordance with the laws of the State of Illinois,
without reference to principles of conflict of laws. The captions of
this Agreement are not part of the provisions hereof and shall have no
force or effect. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or
their respective successors and legal representatives. This Agreement
replaces in its entirety the Employment Agreement between the Company
and the Executive dated as of September 17, 1996.
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<PAGE 14>
(b) All notices and other communications hereunder shall
be in writing and shall be given by hand delivery to the other party or
by registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
If to the Executive:
--------------------
Stephen S. Penley
604 Maple Avenue
Wilmette, Illinois 60091
If to the Company:
------------------
Lindberg Corporation
6133 North River Road, Suite 700
Rosemont, Illinois 60018
Attention: Chief Executive Officer
or to such other address as either party shall have furnished to the
other in writing in accordance herewith. Notice and communications
shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any
other provision of this Agreement.
(d) The Company may withhold from any amounts payable
under this Agreement such Federal, state or local taxes as shall be
required to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist
upon strict compliance with any provision hereof shall not be deemed to
be a waiver of such provision or any other provision of this Agreement.
(f) The Executive and the Company acknowledge that,
except as may otherwise be provided under any other written agreement
between the Executive and the Company, the employment of the Executive
by the Company is "at will" and, prior to the Effective Date, may be
terminated by either the Executive or the Company at any time.
Moreover, if prior to the Effective Date, the Executive's employment
with the Company terminates (other than as provided in Section 1
hereof), then the Executive shall have no further rights under this
Agreement.
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization from its Board of
Directors, the Company has caused these presents to be executed in its
name on its behalf, all as of the day and year first above written.
14
<PAGE 15>
/s/ Stephen S. Penley
--------------------------------
(Executive)
LINDBERG CORPORATION
By /s/ Leo G. Thompson
------------------------------
15
Exhibit 11
Computation of Net Earnings Per Common Share
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- -------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
EARNINGS
- --------
Net Earnings $ 2,418,761 $ 2,682,915 $ 4,917,219 $ 5,122,832
SHARES =========== =========== =========== ===========
Weighted Average
Number of Common
Shares Outstanding
(See Note) 5,904,794 4,860,132 5,896,854 4,848,075
Additional Shares
Assuming Conversion
of Stock Options 90,024 267,026 86,210 240,385
----------- ----------- ----------- -----------
Weighted Average
Common Shares
Outstanding and
Equivalents 5,994,818 5,127,158 5,983,064 5,088,460
=========== =========== =========== ===========
Basic Net Earnings
Per Share $ .41 $ .55 $ .83 $ 1.06
=========== =========== =========== ===========
Diluted Net Earnings
Per Share $ .40 $ .52 $ .82 $ 1.01
=========== =========== =========== ===========
</TABLE>
Note: All activity during the year has been adjusted for the number of
days in the year that the shares were outstanding.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 183,484
<SECURITIES> 0
<RECEIVABLES> 18,901,190
<ALLOWANCES> 514,449
<INVENTORY> 0
<CURRENT-ASSETS> 22,717,113
<PP&E> 135,731,948
<DEPRECIATION> 62,134,577
<TOTAL-ASSETS> 130,769,964
<CURRENT-LIABILITIES> 12,570,799
<BONDS> 0
0
0
<COMMON> 66,734
<OTHER-SE> 31,317,284
<TOTAL-LIABILITY-AND-EQUITY> 130,769,964
<SALES> 31,583,663
<TOTAL-REVENUES> 31,394,772
<CGS> 22,156,604
<TOTAL-COSTS> 22,156,604
<OTHER-EXPENSES> 4,780,729
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 572,076
<INCOME-PRETAX> 4,103,874
<INCOME-TAX> 1,685,113
<INCOME-CONTINUING> 2,418,761
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,418,761
<EPS-BASIC> 0.41
<EPS-DILUTED> 0.40
</TABLE>
