<PAGE>
SECURITIES & EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1998
Commission File Number: 0-21345
CONTROL DEVICES, INC.
-------------------------------------
(Exact name of Registrant as specified in Charter)
Indiana 01-0490335
- ---------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. employer identification No.)
incorporation of organization)
228 Northeast Road Standish, Maine 04084
- ---------------------------------- ----------
(Address of principal executive offices) (Zip Code)
The Company's telephone number, including area code: (207) 642-4535
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 such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Shares, no par value: 8,299,524 shares as of October 9, 1998.
<PAGE>
CONTROL DEVICES, INC.
INDEX
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
PART I: FINANCIAL INFORMATION
- ------------------------------
ITEM 1: FINANCIAL STATEMENTS
Consolidated Balance Sheets as of September 30, 1998 (Unaudited)
and December 31, 1997 3
Consolidated Statements of Income (Unaudited) for the Three and
Nine Months Ended September 30, 1998 and 1997 4
Consolidated Statements of Shareholders' Equity (Unaudited) for
the Nine Months Ended September 30, 1998 and 1997 5
Consolidated Statements of Cash Flows (Unaudited) for the Nine
Months Ended September 30, 1998 and 1997 6-7
Notes to Consolidated Financial Statements 8-12
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 13-16
PART II: OTHER INFORMATION
- ---------------------------
ITEMS 1-5: OTHER INFORMATION 17
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 17
SIGNATURES 17
- ----------
</TABLE>
2
<PAGE>
CONTROL DEVICES, INC.
CONSOLIDATED BALANCE SHEETS
(Thousands of dollars, except share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- -----------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $12,379 $ 9,996
Receivables, less allowance for doubtful
accounts of $507 and $468, respectively 14,058 11,311
Inventories 9,133 6,414
Other current assets 2,027 1,595
------- -------
Total current assets 37,597 29,316
PROPERTY, PLANT AND EQUIPMENT, net 13,469 14,262
GOODWILL, net 8,820 7,471
------- -------
$59,886 $51,049
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of long term debt $ 546 $ 612
Short-term debt 594 320
Accounts payable 6,452 5,706
Accrued employee benefits 5,114 4,250
Accrued expenses 4,471 3,403
------- -------
Total current liabilities 17,177 14,291
LONG-TERM DEBT 171 640
OTHER LIABILITIES 2,431 2,029
COMMITMENTS AND CONTINGENCIES (Note 4)
SHAREHOLDERS EQUITY:
Common Shares, no par value; 16,000,000 authorized;
8,295,836 and 8,284,451 in 1998 and 1997, respectively
issued and outstanding 20,135 20,014
Foreign currency translation adjustment (290) (554)
Retained Earnings 20,262 14,629
------- -------
Total shareholders' equity 40,107 34,089
------- -------
$59,886 $51,049
======= =======
</TABLE>
3
<PAGE>
CONTROL DEVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of dollars, except share and per share amounts)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months ended Nine Months ended
September 30, September 30,
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales $ 18,990 $ 16,042 $ 58,116 $ 52,140
Cost of sales 12,228 10,456 37,372 33,036
--------- --------- -------- ---------
Gross profit 6,762 5,586 20,744 19,104
Selling, general and
administrative expenses 3,006 2,438 8,684 8,245
Research and development 1,422 1,073 4,053 3,363
--------- --------- -------- ---------
4,428 3,511 12,738 11,608
--------- --------- -------- ---------
Operating income 2,334 2,075 8,007 7,496
Interest expense (income), net (89) 92 (193) 239
--------- --------- -------- ---------
Income before income taxes 2,423 1,983 8,200 7,257
Income tax provision 615 769 2,234 2,818
--------- --------- -------- ---------
Net income $ 1,808 $ 1,214 $ 5,966 $ 4,439
========= ========= ======== =========
Earnings per share:
Basic $ 0.22 $ 0.15 $ 0.72 $ 0.54
Diluted $ 0.21 $ 0.14 $ 0.68 $ 0.52
Weighted average number of
common shares and equivalents
outstanding
Basic 8,295,836 8,272,004 8,292,093 8,272,004
Diluted 8,794,127 8,538,811 8,779,842 8,487,691
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
CONTROL DEVICES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 and 1997
(Thousands of dollars)
(UNAUDITED)
<TABLE>
<CAPTION>
Foreign
Currency
Common Translation Retained
Shares Adjustment Earnings Total
------ ----------- -------- -----
<S> <C> <C> <C> <C>
BALANCE at December 31, 1996 $19,917 $(314) $ 8,726 $28,329
Net income -- -- 4,439 4,439
Foreign currency translation
adjustment -- (226) -- (226)
-------------------------------------------
BALANCE at September 30, 1997 $19,917 $(540) $13,165 $32,542
===========================================
BALANCE at December 31, 1997 $20,014 $(554) $14,629 $34,089
Net income -- -- 5,966 5,966
Foreign currency translation
adjustment -- 264 -- 264
Payment of Dividends (333) (333)
Issuance of Common Shares 121 121
-------------------------------------------
BALANCE at September 30, 1998 $20,135 $(290) $20,262 $40,107
===========================================
</TABLE>
5
<PAGE>
CONTROL DEVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
------ ------
<S> <C> <C>
CASH FLOWS FROM OPERATIONS:
Net income $ 5,966 $ 4,439
Adjustments to reconcile net income to cash
provided by operations:
Depreciation and amortization 2,177 1,801
Deferred income taxes 202 (56)
Changes in assets and liabilities:
(Increase) decrease in receivables (937) (2,025)
(Increase) decrease in inventories (1,726) (757)
(Increase) decrease in other current assets (28) (58)
Increase (decrease) in accounts payable (204) 584
Increase (decrease) in accrued employee benefits 74 (28)
Increase (decrease) in accrued expenses 622 1,508
Increase (decrease) in other long-term liabilities (22) 117
-------- --------
Cash provided by operations 6,124 5,525
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Arnould (including transaction
fees and expenses), net of cash acquired (2,100) --
Capital expenditures (1,152) (2,532)
-------- --------
Cash used in investing activities (3,252) (2,532)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt (552) (599)
Net change in short-term debt 235 (201)
Payment of dividends (333) --
Proceeds from issuance of common shares 120 --
-------- --------
Cash used in financing activities (530) (800)
-------- --------
EFFECT OF EXCHANGE RATES ON CASH 41 (8)
-------- --------
Increase (decrease) in cash and cash equivalents 2,383 2,185
-------- --------
CASH AND CASH EQUIVALENTS, beginning of period 9,996 6,238
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 12,379 $ 8,423
======== ========
</TABLE>
The accompanying notes an an integral part of these statements.
6
<PAGE>
SUPPLEMENTAL CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
------------ ------------
(Thousands of dollars)
<S> <C> <C>
Cash paid for interest $ 188 $ 235
Cash paid for income taxes $ 1,320 $ 2,432
</TABLE>
SUPPLEMENTAL DISCLOSURE OF FINANCING AND INVESTING ACTIVITIES:
On September 11, 1998 Control Devices paid a quarterly dividend on its
outstanding common shares equal to $0.02 per share to shareholders of record on
August 28, 1998.
7
<PAGE>
CONTROL DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All information as of September 30, 1998 and for the three and nine months
ended September 30, 1998 and 1997 is unaudited.)
(1) Organization and Basis of Presentation:
---------------------------------------
Control Devices, Inc. ("CDI"), which was organized on June 10, 1994, designs,
manufactures and markets circuit breakers, electronic ceramic components
parts and electronic sensors used by original equipment manufacturers
("OEMs") in the automotive, appliance and telecommunications markets. On
July 29, 1994, CDI purchased certain assets and liabilities (the "Business")
of GTE Control Devices Incorporated and Dominican Overseas Trading Company
(collectively, the "Seller"), indirect wholly-owned subsidiaries of GTE
Corporation.
On April 1, 1996, CDI purchased Realisations et Diffusion pour l'Industrie
("RDI"), which distributes CDI's circuit breakers, electronic sensors and
other manufacturers products to the Northern European market from its
headquarters near Paris, France.
On June 26, 1998, CDI purchased Arnould Electro Industrie SA ("AEI"), which
distributes electronic components to the Northern European market from its
headquarters near Paris, France. The "Company" refers to CDI, RDI, AEI and
CDI's other consolidated subsidiaries.
The consolidated balance sheet as of September 30, 1998, the consolidated
statements of operations for the three and nine months ended September 30,
1998 and 1997, and the consolidated statements of shareholders' equity and
cash flows for the nine months ended September 30, 1998 and 1997 have been
prepared by the Company and are unaudited. In the opinion of management, all
adjustments necessary to present fairly the financial position, results of
operations and cash flows at September 30, 1998 and 1997 have been made and
all such adjustments are of a normal recurring nature. The accounting
policies followed during the interim periods reported on are in conformity
with generally accepted accounting principles and are consistent with those
applied for annual periods. The results of operations for the three and nine
month periods ended September 30, 1998 and 1997 are not necessarily
indicative of the operating results for the full year.
(2) Acquisition of AEI:
-------------------
On June 26, 1998, CDI purchased all of the issued and outstanding stock of
AEI for $2.6 million. CDI paid $2.1 million from existing cash on hand and
delivered a promissory note totaling $0.5 million, payable within a year.
The purchase method was used to account for the acquisition. In preparing
AEI's financial information, the aggregate purchase price has been allocated
to the assets and liabilities of AEI based on preliminary estimates of fair
market value and are subject to change. Any adjustments resulting from the
final purchase price allocation, which could result in changes to the
carrying values of assets and liabilities, including goodwill, are not
expected to be material to the financial statements.
8
<PAGE>
The net assets acquired after allocating the purchase price are as follows
(Thousands of dollars):
<TABLE>
<S> <C>
Cash $ 531
Receivables 1,349
Inventories 751
Other current assets 342
Goodwill 1,403
Property, plant and equipment 101
Accounts payable (650)
Accrued expenses (1,196)
-------
$ 2,631
=======
</TABLE>
The unaudited pro forma results of operations for the nine months ended
September 30, 1998 and 1997, respectively, had the acquisition of AEI
occurred at January 1, 1998 and January 1, 1997, respectively, are provided
in the following table. These pro forma results include adjustments for
depreciation and amortization of assets acquired based on their estimated
fair market values at the acquisition date, adjustments for the elimination
of interest income on excess cash balances, reduction of selling, general and
administrative expenses associated with duplication of duties, and the
related income tax effect. The unaudited pro forma information does not
necessarily represent what the results of operations would have been in such
periods and is not intended to be indicative of future results
<TABLE>
<CAPTION>
Nine Months
Ended
September 30,
1998 1997
------------- ------------
(Unaudited - Thousands of dollars,
except per share amounts)
<S> <C> <C>
Net sales $61,935 $56,096
Net income 6,216 4,684
Earnings per share:
Basic $ 0.75 $ 0.57
Diluted $ 0.71 $ 0.55
Weighted average number of common
shares and equivalents outstanding
Basic 8,292 8,272
Diluted 8,780 8,488
</TABLE>
9
<PAGE>
(3) Debt:
-----
Debt consists of the following as of September 30, 1998 and
December 31, 1997 (Thousands of dollars):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
RDI Notes $ 369 $ 738
RDI fixed rate loans 348 514
RDI short-term debt 594 320
--------- --------
Total debt $1,311 $1,572
Less: Current portion of long-term debt 546 612
Short-term debt 594 320
--------- --------
Total long-term debt $ 171 $ 640
========= ========
</TABLE>
The outstanding notes, issued by CDI in connection with the acquisition of
RDI (the "RDI Notes"), bear interest at 8% per annum and are due in three
equal annual installments commencing on April 1, 1997. CDI has the right to
prepay the RDI Notes at any time without premium.
The RDI fixed rate loans bear interest at the weighted average rate of 7.7%
and are secured by certain assets of RDI.
Fleet Bank of Maine ("Fleet Bank") and the Company are parties to a loan
agreement, pursuant to which Fleet Bank has agreed to provide a $20.0 million
revolving line of credit facility to the Company to fund strategic
acquisitions and, if needed, for working capital. The facility has a maturity
date of September 30, 2000. The facility has three interest rate options
consisting of (i) Fleet Bank's prime rate for daily rate borrowings, (ii)
Fleet Bank's cost of funds rate plus 1.5% for borrowings of 30 days or less,
or (iii) the corresponding London Interbank Offering Rate (LIBOR) plus 1.5%
for borrowings of 30, 60, 90 or 180 days. The line of credit contains certain
financial and other covenants including but not limited to, minimum tangible
net worth, debt to net worth, and minimum cash flow coverage. The financial
covenants are to be met on a quarterly basis. The Company is in compliance
with all covenants as of September 30, 1998 and believes that the covenants
will not restrict its future operations. To date, there have been no
borrowings under this line of credit facility.
RDI has various credit facilities available to it totaling $0.8 million with
rates ranging from 0.5% to 1.0% over the Paris Inter-Bank Offered Rate. As
of September 30, 1998, RDI had borrowings aggregating under $0.1 million,
under these facilities.
In connection with the acquisition of AEI, the Company delivered a promissory
note totaling
3.2 million FF ($0.6 million at current exchange rates), due six months after
the closing of the acquisition. There is no interest obligation associated
with this note.
(4) Commitments and Contingencies:
------------------------------
The Company has various claims and contingent liabilities arising in the
ordinary conduct of business. In the opinion of management, they are not
expected to have a material adverse effect on the financial position of the
Company.
10
<PAGE>
(5) Inventories:
------------
Inventories are stated at the lower of cost or market value. Cost of
inventories is determined by the first-in, first-out ("FIFO") method of
inventory valuation. Classes of inventories as of September 30, 1998 and
December 31, 1997 are as follows ( Thousands of dollars).
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Raw materials and supplies $2,074 $1,345
Work - in - process 1,938 1,333
Finished goods 5,121 3,736
------ ------
$9,133 $6,414
====== ======
</TABLE>
(6) Comprehensive Income:
---------------------
The Company adopted SFAS No. 130. "Reporting Comprehensive Income" which
establishes standards for reporting and displaying comprehensive income and
its components. The following table reports comprehensive income for the
three and nine months ended September 30, 1998 and 1997 are as follows
(Thousands of dollars).
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Net income $1,808 $1,214 $5,966 $4,439
------ ------ ------ ------
Other comprehensive income (expense), net of tax:
Foreign currency translation adjustments 345 (12) 264 (226)
------ ------ ------ ------
Other comprehensive income (expense) 345 (12) 264 (226)
------ ------ ------ ------
Comprehensive income $2,153 $1,202 $6,230 $4,213
====== ====== ====== ======
</TABLE>
11
<PAGE>
(7) Earnings Per Common Share:
--------------------------
The reconciliation of basic and diluted per-share computation are as follows
(Thousands of dollars, except share and per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income $1,808 $1,214 $5,966 $4,439
Weighted Average Common
Shares Outstanding - Basic 8,296 8,272 8,292 8,272
Dilutive effect of outstanding 498 267 488 216
options
Weighted Average Common
Shares Outstanding - Diluted 8,794 8,539 8,780 8,488
======= ======= ======= =======
Earnings per share:
Basic $ 0.22 $ 0.15 $ 0.72 $ 0.54
======= ======= ======= =======
Diluted $ 0.21 $ 0.14 $ 0.68 $ 0.52
======= ======= ======= =======
</TABLE>
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTbHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1997
Net sales in the three months ended September 30, 1998 were $19.0 million, an
increase of $2.9 million or 18.4% compared to the same period in 1997, this
increase was primarily a result of continued growth in the automotive sensor
product area, an introduction of a new circuit breaker product, and the
continued growth in sales at RDI. Sensor sales grew 8.0% to $3.2 million for the
three months ended September 30, 1998 compared to the three months ended
September 30, 1997, as a result of continued volume increases in recently
introduced sensor products. Circuit breaker sales increased 10.0% to $7.8
million, primarily as a result of an introduction of a circuit breaker used in
battery powered riding toys. Net RDI sales (gross RDI sales less inter-company
sales) increased 46.1% in the three months ended September 30, 1998 compared to
the same period in 1997, primarily as a result of the recent acquisition of AEI.
Ceramic sales in the third quarter of 1998 decreased 1.8% to $1.5 million
compared to the third quarter of 1997. The decrease in ceramics sales was
primarily a result a slowdown in the wireless telecommunications market.
Gross profits in the three months ended September 30, 1998 were $6.8 million, an
increase of $1.2 million or 21.1% compared to the same period in 1997. As a
percentage of net sales, gross profits for the three months ended September 30,
1998 were 35.6%, compared to 34.8% for the same period in 1997. This increase
is primarily due to the higher new sensor start-up expenses in the prior period.
Selling, general and administrative ("SG&A") expenses in the three months ended
September 30, 1998 were $3.0 million, an increase of $0.6 million or 23.3% as
compared to the three months ended September 30, 1997. As a percentage of net
sales, SG&A expenses were 15.8% for the three months ended September 30, 1998 as
compared to 15.2% for the same period in 1997. This increase was primarily the
result of the increased expenses associated with the AEI acquisition.
Research and development ("R&D") expenses in the three months ended September
30, 1998 were $1.4 million, an increase of $0.3 million or 32.5% as compared to
the three months ended September 30, 1997. As a percentage of net sales,
research and development expenses were 7.5% in 1998 compared to 6.7% in the same
period of 1997. The increase in R&D expense was primarily the result of higher
spending on prototype tooling and materials associated with new product
development efforts.
Operating income in the three months ended September 30, 1998 was $2.3 million,
an increase of $0.3 million from the same period in 1997. As a percentage of
net sales, operating income was 12.3% in the three months ended September 30,
1998 compared to 12.9% for the third quarter 1997.
Interest income for the three months ended September 30, 1998 was $0.1 million
compared to $0.1 million of interest expense in the three months ended September
30, 1997. The decrease was due to the reduction of debt and increased income
from cash reserves.
The provision for income tax was $0.6 million for the three months ended
September 30, 1998 compared to $0.8 million for the three months ended September
30, 1997. The effective tax rate was 25.4% in the three months ended September
30, 1998 compared to 38.8% in the same period of 1997. The reduction in the
effective tax rate for the second quarter can primarily be attributed to the
benefit of the international reorganization, which took place on January 1,
1998, which resulted in certain income being taxed at lower rates.
13
<PAGE>
Net income was $1.8 million in the three months ended September 30, 1998, an
increase of $0.6 million or 48.9%, compared to the three months ended September
30, 1997. As a percentage of net sales, net income was 9.5% in the three months
ended September 30, 1998, compared to 7.6% for the three months ended September
30, 1997.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1997
Net sales in the nine months ended September 30, 1998 were $58.1 million, an
increase of $6.0 million or 11.5%, compared to the same period in 1997, which
was primarily a result of growth in the automotive sensor product area and
growth in sales at RDI. Sensor sales increased 31.1% to $11.0 million for the
nine months ended September 30, 1998, compared to the same period in 1997. Net
RDI sales (gross RDI sales less inter-company sales) increased 19.1% in the nine
months ended September 30, 1998 compared to the same period in 1997, as a result
of the recent acquisition of AEI coupled with the strengthening of the European
markets.
Gross profits in the nine months ended September 30, 1998 were $20.7 million, an
increase of $1.6 million or 8.6% compared to the same period in 1997. As a
percentage of net sales, gross profits for the nine months ended September 30,
1998 were 35.7% compared to 36.6% for the same period in 1997. The gross profits
percentage has been impacted by pricing pressures and lower margins associated
with new sensor products.
Selling, general and administrative expenses in the nine months ended September
30, 1998 were $8.7 million, an increase of $0.4 million or 5.3% compared to the
nine months ended September 30, 1997. As a percentage of net sales, SG&A
expenses were 14.9% for the nine months ended September 30, 1998, compared to
15.8% for the same period in 1997. The increase in R&D expense was primarily the
result of higher spending on prototype tooling and materials associated with new
product development efforts.
Research and development expenses in the nine months ended September 30, 1998
were $4.1 million, an increase of $0.7 million or 20.5% as compared to the nine
months ended September 30, 1997. As a percentage of net sales, research and
development expenses were 7.0% in 1998 compared to 6.4% for the same period of
1997.
Operating income in the nine months ended September 30, 1998 was $8.0 million an
increase of $0.5 million or 6.8% as compared to the nine months ended September
30, 1997. As a percentage of net sales, operating income was 13.8% in the nine
months ended September 30, 1998 as compared to 14.4% for the nine months in
1997. The decrease in operating income, as a percentage of net sales, was
primarily a result of the lower gross margins.
Interest income for the nine months ended September 30, 1998 was $0.2 million
compared to $0.2 million of interest expense in the nine months ended September
30, 1997. The decrease was due to the reduction of debt and increased income
from cash reserves.
The provision for income tax was $2.2 million for the nine months ended
September 30, 1998 compared to $2.8 million for the nine months ended September
30, 1997. The effective tax rate was 27.2% in the nine months ended September
30, 1998 compared to 38.8% in the same period of 1997. The reduction in the
effective tax rate can be attributed to the benefit of the international
reorganization, which took place on January 1, 1998, and resulted in certain
income being taxed at lower rates.
Net income was $6.0 million in the nine months ended September 30, 1998 an
increase of $1.5 million or 34.4% as compared to the nine months ended September
30, 1997. As a percentage of net sales, net income was 10.3% in the nine months
ended September 30, 1998 compared to 8.5% in the nine months ended September 30,
1997.
14
<PAGE>
SEASONALITY
The Company's performance is dependent primarily on automotive vehicle
production which is seasonal in nature. The Company's revenues tend to be
somewhat lower in the third and fourth quarters as automotive OEM's schedule
plant tooling changeovers, vacations and holiday shutdowns.
LIQUIDITY AND CAPITAL RESOURCES
Since its formation and initial capitalization, the Company has financed its
operations and investments in property, equipment and acquisitions primarily
through cash generated from operations.
Cash and cash equivalents totaled $12.4 million as of September 30, 1998
compared to $10.0 million as of December 31, 1997.
On June 26, 1998, CDI purchased all of the issued and outstanding stock of AEI
for $2.6 million. CDI paid $2.1 million from existing cash on hand and
delivered a promissory note totaling 3.2 million FF ($571,000 at current
exchange rates), payable within a year.
RDI has various credit facilities available to them totaling $0.8 million with
rates ranging from 0.5% to 1.0% over the Paris Inter-Bank Offered Rate. As of
September 30, 1998 and December 31, 1997 RDI had borrowings aggregating under
$0.1 million and $0.3 million, respectively, under these facilities.
Fleet Bank of Maine ("Fleet Bank") and the Company are parties to a loan
agreement, pursuant to which Fleet Bank has agreed to provide a $20.0 million
revolving line of credit facility to the Company to fund strategic acquisitions
and, if needed, for working capital. The facility has a maturity date of
September 30, 2000. The line of credit contains certain covenants. To date there
have been no borrowings under this line of credit facility.
The Company believes its current cash and cash equivalents, together with
existing credit facilities and cash flows from operations, will be sufficient to
meet the Company's cash requirements for at least the next twelve months.
EFFECT OF FASB PRONOUNCEMENTS:
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information" was released in July of 1997 and will be adopted for 1998 year-end
reporting purposes.
YEAR 2000 COMPLIANCE:
Over the next two years, most companies will face a potentially serious business
problem because many software applications and business equipment developed in
the past may not properly recognize calendar dates beginning in the year 2000.
This problem could cause systems to become unstable, stop working altogether or
provide incorrect data based upon dates.
In 1997, the Company began modifying its existing computer system programming to
process transactions in the year 2000 and beyond. The Company is also surveying
all significant suppliers to determine their compliance with the year 2000 issue
and what impact, if any, their efforts will have on the Company's business. All
material systems within the Company are expected to be compliant by June 30,
1999. Anticipated spending for this modification, expected to cost roughly
$75,000, will be expensed as incurred and is not expected to have a significant
impact on the Company's ongoing results of operations.
15
<PAGE>
However, if the Company and third parties upon which it relies are unable to
address this issue in a timely manner, it could result in a material financial
risk to the Company. In order to assure that this does not occur, the Company
plans to devote all resources required to resolve any significant year 2000
issues in a timely manner.
CAUTIONARY STATEMENT:
This Form 10-Q contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ from the results
discussed in the forward-looking statements. Factors that might cause such a
difference include, but are not limited to, changes to U.S. and foreign tax laws
and regulations, the percentage of the Company's profits generated by foreign
operations, risk of customer labor interruptions, cyclicality of automotive and
appliance industries, reliance on OEM's, and competing technologies.
16
<PAGE>
PART II OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders
None
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
10.18 Amended Employment Agreement with Michel Hauser-Kauffmann
10.19 Termination Benefits Agreement with Jeffrey G. Wood
10.20 Termination Benefits Agreement with Bruce D. Atkinson
10.21 Loan Agreement dated September 22, 1998 between the Company and
Fleet Bank of Maine.
27.1 Financial Data Schedule for the nine months ended September 30,
1998 and 1997.
27.2 Restated FDS for the three months ended March 31, 1997 and 1996.
27.3 Restated FDS for the six months ended June 30, 1997 and 1996.
27.4 Restated FDS for the nine months ended September 30, 1997 and
1996.
(b) Reports on Form 8-K
None
Pursuant to the requirements to the Security Exchange Act of 1934, the
Registrant has duly caused this Amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
Control Devices, Inc.
-----------------------------------
(Registrant)
Date: October 16, 1998 By /s/ Jeffrey G. Wood
---------------------------------
Name: Jeffrey G. Wood
Vice President and
Chief Financial Officer
17
<PAGE>
Exhibit 10.18
- --------------------------------------------------------------------------------
AMENDMENT NO. 3 TO THE EMPLOYMENT CONTRACT OF
JANUARY 10, 1986
- --------------------------------------------------------------------------------
BETWEEN THE UNDERSIGNED:
- ------------------------
Realisations et Diffusion pour l'Industrie, a Societe par Actions
Simplifiee (simplified joint stock company), with share capital of FRF
14,250,000, whose registered office is located at ZAC de Villepine, 5-7 Allee
Louis Breguet, 93421 Villepinte Cedex, registered with the Commercial and
Companies Registry of Bobigny under the number B712042803, represented by Mr.
Bruce Atkinson acting in the capacity of legal representing RDI Management
Company Inc., Manager of RDI,
(Hereinafter referred to as "RDI")
OF THE FIRST PART,
AND:
- ----
Mr. Michel Hauser Kauffmann, born on March 19, 1943, in Lapalisse (03), of
French nationality, residing at 9, rue Meynadier, 75019 Paris, registered with
the INSEE (national Institute of Statistics and Economics Surveys) under the
number 01430303138017,
(Hereinafter referred to as "Mr. Kauffmann")
OF THE SECOND PART,
<PAGE>
WHEREAS:
- --------
Mr. Kauffmann was hired by RDI under an indefinite term contract dated
January 10, 1986, a contract which includes a clause recapturing his seniority
as from November 15, 1964.
In 1996, Mr. Kauffmann transferred to Control Devices Inc. (hereinafter
referred to as "CDI"), the shares he held within RDI (Mr. Kauffmann held 18.46%
of said shares).
At the request of the CDI group, RDI now wishes to preserve the atmosphere
of trust prevailing between the parties and, in light of a possible change in
control within the parent company, CDI, to provide Mr. Kauffmann with various
guaranties as set out below.
This amendment shall replace the provision of Article "II. TERMINATION" of
the amendment of March 29, 1996 in the event of a change in the control of CDI,
such Article "II-Termination" remaining applicable in all other cases, as well
as the other provisions of the employment contract.
NOW, THEREFORE, THE PARTIES HAVE AGREED AS FOLLOWS:
- ---------------------------------------------------
Article 1 DEFINITION
1.1 It is expressly agreed by the parties that the term "Change in Control"
covers any modification in CDI's share capital made under the following
conditions:
(i) the holding, by any company or individual, directly or indirectly, as
owner, of 20 percent or more of the shares of CDI;
(ii) any change to the legal status of CDI resulting from a merger,
restructuring, and, in particular, a transfer, unless at the close of
such transactions, 60 percent of the shares continue to be held by the
same shareholders, and/or, if at least the majority of the members of
the new Board of Directors were members of the incumbent Board of
Directors as of the date of said transaction;
(iii) any change of at least the majority of individuals who are incumbent
members of the Board of Directors.
1.2 It is expressly agreed by the parties that "Effective Date" shall mean
the date on which the "Change in Control" took place and that of any
"Change in Control" made subsequently to the date of signature of the
present amendment.
<PAGE>
ARTICLE 2 SCOPE OF APPLICATION
2.1 It is expressly agreed by the parties that the present amendment will
only apply in the event of a "Change in Control" as defined in Article
1, for a period of three years as from the date of said change.
2.2 After the first "Change in Control", each new "Change in Control"
taking place as from the signature of the present amendment shall have
the effect of starting a new three year period, for the application
hereof, unless RDI notifies Mr. Kauffmann of the non-renewal of said
period, by registered letter with return receipt requested, at least
sixty days before the date of the "Change in Control".
Article 3 CONTINUATION OF THE CONTRACT
3.1 In the event of a "Change in Control", RDI undertakes to maintain Mr.
Kauffmann's employment contract, with his agreement, for a period of at
least three years as from the date of said change.
3.2 In the event it is impossible for RDI to maintain Mr. Kauffmann's
employment contract, it is agreed by the parties that the employer's
failure to comply with this contractual undertaking shall be resolved
by the grant of damages representing the amount of salary Mr. Kauffmann
would have received for the period starting from the date of
termination of his employment contract, up until the term of three
years. For this calculation, the gross base salary shall be that
defined in Article 4 of the present amendment.
ARTICLE 4 ANNUAL BASE SALARY
4.1 For the application of the present amendment, the annual base salary is
defined as the annual gross fixed salary paid to Mr. Kauffmann by RDI.
4.2 In the event of a "Change in Control", Mr. Kauffmann's base salary
may not be less than that which he was receiving before said change.
Moreover, Mr. Kauffmann shall benefit from increases in salary at least
identical to those applied to other RDI Executives.
ARTICLE 5 ANNUAL BONUS (INCENTIVE)
In the event of a "Change in Control", Mr. Kauffmann shall receive, in
addition to his base salary, as defined in Article 4 of the present amendment,
an annual bonus corresponding to the incentive bonus defined in Article 4.3 of
the amendment of March 29, 1996.
<PAGE>
Article 6 SPECIAL BONUS
6.1 Amount
------
To the extent that Mr. Kauffmann remains an RDI employee after the "Change
in Control", and if he is still an RDI employee one year after the "Effective
Date", he shall receive, in addition to the various benefits which he already
has pursuant to (i) his employment contract, (ii) any collective bargaining
agreement provisions, (iii) any custom and/or (iv) any undertaking made by and
applicable to RDI, a special bonus equal to the sum of (i) one year of the gross
annual base salary received during the first fiscal year following the
"Effective Date" and (ii) the amount of the last annual bonus received by Mr.
Kauffmann at the "Effective Date".
6.2 Payment
-------
The special bonus shall be paid to Mr. Kauffmann within the thirty days
subsequent to the end of the first year following the "Effective Date".
ARTICLE 7 CORPORATE BENEFITS
Mr. Kauffmann shall benefit from all of the corporate benefits which had
been granted him before the "Change in Control". Any change to said benefits
without Mr. Kauffmann's agreement shall constitute a substantive modification to
his employment contract.
ARTICLE 8 TERMINATION OF THE EMPLOYMENT CONTRACT
8.1 Notice
------
In application of the "Termination" clause of the employment contract of
January 10, 1986, the parties shall be entitled to terminate the contractual
relationship, by registered letter with return receipt requested, and in
providing six months' notice.
8.2 Cause for Termination
---------------------
Without prejudice to an indemnity in lieu of notice, a possible indemnity
in lieu of paid vacation and an indemnity for con-compliance with the provisions
of Article 3, Mr. Kauffmann shall receive the indemnities defined in Article 8.3
of the present amendment, in the event of termination of his employment contract
under the following conditions:
. termination at the employer's initiative except in the case (i) willful
misconduct, i.e., misconduct of extreme gravity committed by the
employee with the intention to harm RDI, (ii) gross misconduct, i.e.,
misconduct of extreme gravity preventing any continuation of the
employment contract;
<PAGE>
. termination at the employee's initiative (i) for "just cause" when it
is made during the period defined in Article 3.1 of the present
amendment, or (ii) without stating any reason when it is made within
thirty days as from the end of the first year following the "Effective
Date".
For the present amendment, the term "just cause" shall mean:
. the attribution by RDI to Mr. Kauffmann of obligations not
corresponding to his position, status, and/or his duties as they are
defined in his employment contract, (ii) any decision by RDI to reduce
his position, status and duties;
. any modifications by RDI of his duties as Sales Manager (i) in Europe
for the parent company's products regardless of where they are
manufactured and/or (ii) for the distribution of electronic components
and the distribution of products intended for spare parts for
automobiles;
. any change, after the "Effective Date", in the situation of his
position in the organizational chart of the CDI group, and more
generally, any modification in hierarchical placement (reporting) of
Mr. Kauffmann's position, which is placed under the hierarchical
supervision of the Chief Executive Officer of the CDI group;
. more broadly, any substantive modification to Mr. Kauffmann's
employment contract;
. finally, more generally, any violation by RDI of its legal,
contractual or collective bargaining agreement obligations with respect
to Mr. Kauffmann.
8.3 Termination Indemnities
-----------------------
8.3.1 Amount
------
In the event of termination of Mr. Kauffmann's employment contract by
either of the parties to the present amendment, under the conditions set out in
Article 8.2, in addition to the salary and/or bonus accrued during the period
worked and not yet paid, Mr. Kauffmann shall be granted, other than (i) an
indemnity in lieu of notice, (ii) an indemnity in lieu of paid vacation and
(iii) an indemnity for failure to comply with the provisions set out in Article
3 of the present amendment, where applicable, (iv) a severance payment equal to
two years and three months of gross salary.
The salary taken into account for calculating such severance payment shall
be the average of the salary received by Mr. Kauffmann (i) during the last five
years preceding the "Change in Control" (gross base salary as defined in
Article 4.1, benefits in-kind, bonuses
<PAGE>
or financial advantages granted to Mr. Kauffmann on any basis whatsoever) or,
(ii) during the last twelve months or even, (iii) the last three months
preceding the date on which notification of the termination is given, depending
on which is the most favorable to Mr. Kauffmann.
It is expressly agreed by the parties that his severance payment paid
pursuant to Article 8.3 of the present amendment shall replace all other
dismissal indemnities which may be owed to Mr. Kauffmann in application of the
legal and collective bargaining agreement provisions in force.
8.32 Payment
-------
The indemnities provided for in Article 3 and 8 of the present amendment
shall be paid by RDI to Mr. Kauffmann within thirty days of the actual
termination of the employment contract.
ARTICLE 9 APPLICABLE LAW
The present amendment and the rights and obligations of the parties arising
hereunder shall be governed by and construed in accordance with French law.
Executed in _____________ in two counterparts
On ____________________ , 1998
____________________________ ____________________________________________
Mr. Kauffmann Realisations et Distribution des Industries
Bruce D. Atkinson
Representant Legal
<PAGE>
Exhibit 10.19
TERMINATION BENEFITS AGREEMENT
------------------------------
AGREEMENT by and between Control Devices, Inc., an Indiana corporation (the
"Company"), and Jeffrey G. Wood (the "Executive"), dated as of the third day of
September, 1998.
WHEREAS, 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 in Section 2) of the Company.
WHEREAS, 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.
WHEREAS, to accomplish these objectives, the Board desires to cause the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall mean the first
-------------------
date during the Change of Control Period (as defined in Section 1(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 who 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 "Change of Control Period" shall mean the period commencing on the
date on which a Change of Control occurs and ending on the third anniversary of
such date provided, however, that commencing on each Renewal Date, the Change of
Control Period shall be automatically extended so as to terminate three years
from such Renewal Date, unless at least 60 days prior to the Renewal Date the
Company shall give notice to the Executive that the Change of Control Period
shall not be so extended.
(c) The "Renewal Date" shall mean each anniversary of the Effective Date of
this Agreement.
2. Change of Control. For the purpose of this Agreement, a "Change of
-----------------
Control" shall mean:
<PAGE>
(a) The acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that the following acquisitions shall not constitute a Change
of Control: (i) any acquisition directly from the Company (excluding an
acquisition by virtue of the exercise of a conversion privilege), (ii) any
acquisition by the Company, (iii) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Company or any corporation
controlled by the Company or (iv) any acquisition by any corporation pursuant to
a reorganization, merger or consolidation, if, following such reorganization,
merger or consolidation, the conditions described in clauses (i), (ii) and (iii)
of subsection (c) of this Section 2 are satisfied; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or
other actual or threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board; or
(c) Approval by the shareholders of the Company of a reorganization, merger
or consolidation, in each case, unless, following such reorganization, merger or
consolidation, (i) more than 60% of, respectively, the then outstanding shares
of common stock of the corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the outstanding Company Common Stock and Outstanding
Company Voting securities immediately prior to such reorganization, merger or
consolidation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Stock and outstanding Company Voting Securities, as
the case may be, (ii) no Person (excluding the Company, any employee benefit
plan (or related trust) of the Company or such corporation resulting from such
reorganization merger or consolidation and any Person beneficially owning
immediately prior to such reorganization, merger or consolidation, directly or
indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding
Voting Securities, as the case may be) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such reorganization, merger or
consolidation or the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors and (iii) at least a majority of the members of the board of directors
of the corporation resulting from such reorganization, merger or consolidation
were members of the Incumbent Board at the time of the execution of the initial
agreement providing for such reorganization, merger or consolidation; or
(d) Approval by the shareholders of the Company of (i) a complete
liquidation or dissolution of the Company or (ii) the sale or other disposition
of all or substantially all of the assets of the Company, other than to a
corporation, with respect to which following such sale or other disposition, (A)
<PAGE>
more than 60% of, respectively, the then outstanding shares of common stock of
such corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership immediately prior to such
sale or other disposition, of the Outstanding Company Common Stock and
outstanding Company Voting Securities, as the case may be, (B) no Person
(excluding the Company and any employee benefit plan (or related trust) of the
Company or such corporation and any Person beneficially owning, immediately
prior to such sale or other disposition directly or indirectly, 20% or more of
the Outstanding Company Common Stock or Outstanding Company Voting Securities,
as the case may be) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of such corporation
and the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors and (C) at
least a majority of the members of the board of directors of such corporation
were members of the Incumbent Board at the time of the execution of the initial
agreement or action of the Board providing for such sale or other disposition of
assets of the Company.
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, in accordance with the terms and provisions of this Agreement, for the
period commencing on the Effective Date and ending on the third anniversary of
such date (the "Employment Period"). The Employment Period shall be
automatically extended so as to terminate three years from each Renewal Date,
unless this Agreement is terminated pursuant to the provisions of Section 5.
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 responsibilities 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 which is the headquarters of the Company and is
less than 35 miles from such location.
(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 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.
<PAGE>
(b) Compensation. (i) Base Salary. During the Employment Period, the
------------ -----------
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid in equal installments on a monthly basis, 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 shallbe
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 average annualized (for
any fiscal year consisting of less than twelve full months or with respect to
which the Executive has been employed by the Company for less than twelve 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 (the "Recent Average Bonus"). 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) Special Bonus. In addition to Annual Base Salary and Annual Bonus
-------------
payable as herein above provided, if the Executive remains employed with the
Company and its affiliated companies through the first anniversary of the
Effective Date, the Company shall pay to the Executive a special bonus (the
"Special Bonus") in recognition of the Executive's services during the crucial
one-year transition period following the Change of Control in cash equal to the
sum of (A) the Executive's Annual Base Salary and (B) the greater of (1) the
Annual Bonus paid or payable, including by reason of any deferral, to the
Executive (and annualized for any fiscal year consisting of less than twelve
full months or for which the Executive has been employed for less than twelve
full months) for the most recently completed fiscal year during the Employment
Period, if any, and (2) the Recent Average Bonus (such greater amount shall be
hereinafter referred to as the "Highest Annual Bonus"). The Special Bonus shall
be paid no later than 30 days following the first anniversary of the Effective
Date.
(iv) Incentive, Savings and Retirement Plans. During the Employment
---------------------------------------
Period, the Executive shall be entitled to participate in all incentive, savings
and retirement plans, practices, policies and programs applicable generally 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 incentive opportunities (measured with respect to both regular and special
incentive opportunities, to the extent, if any, that such distinction is
applicable), savings opportunities and retirement benefit 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
such plans, practices, policies and as in effect at any time during the 90-day
period immediately preceding the Effective Date or if more favorable to the
Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
<PAGE>
(v) 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 applicable generally
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 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 or, if more favorable to the Executive, those provided generally
at any time after the Effective Date to other peer executives of the Company and
its affiliated companies.
(vi) Expenses. During the Employment Period, the Executive shall be
--------
entitled to receive prompt reimbursement for all reasonable employment 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 generally at
any time thereafter with respect to other peer executives of the Company and its
affiliated companies.
(vii) Fringe Benefits. During the Employment Period, the Executive shall
---------------
be entitled to fringe benefits 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 generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies.
(viii) 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 exclusive 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 generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
(ix) 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 generally at
any time thereafter with respect to other peer executives of the Company and its
affiliated companies.
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 in accordance with Section 12(b) of its intention to terminate the
Executive's employment. In such event, the Executive's employment with the
Company shall terminate effective an 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" shall mean the absence of the Executive from the Executive's duties
with the Company on a 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
<PAGE>
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) a material breach by the Executive of the Executive's obligations under
Section 4(a) (other than as a result of incapacity due to physical or mental
illness) which is demonstrably willful and deliberate on the Executive's part,
which is committed in bad faith or without reasonable belief that such breach is
in the best interests of the Company and which is not remedied in a reasonable
period of time after receipt of written notice from the Company specifying such
breach or (ii) the conviction of the Executive of a felony involving moral
turpitude.
(c) Good Reason; Window Period. The Executive's employment may be
--------------------------
terminated (i) during the Employment Period by the Executive for Good Reason or
(ii) during the Window Period by the Executive without any reason. For purposes
of this Agreement, the "Window Period" shall mean the 30-day period immediately
following the first anniversary of the Effective Date. 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) 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;
(ii) any failure by the Company to comply with any of the provisions of
Section 4(b), 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);
(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 to comply with and satisfy Section 11(c),
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).
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination by the Company for Cause, or by
---------------------
the Executive without any reason during the Window Period or for Good Reason,
shall be communicated by Notice of Termination to the other party hereto given
in accordance with Section 12(b). For purposes of this Agreement, a "Notice of
Termination" means 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
<PAGE>
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 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" means (i) if the
-------------------
Executive's employment is terminated by the Company for Cause, or by the
Executive during the Window Period or 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 or Disability, 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. Obligations of the Company upon Termination.
-------------------------------------------
(a) Good Reason or during the Window Period; Other Than for Cause, Death
--------------------------------------------------------------------
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 either for Good Reason or without any reason during
the Window Period:
(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 sum of (1) the Executive's Annual Base Salary through the Date of
Termination to the extent not theretofore paid, (2) the product of (x) the
Highest 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 (3) the Special Bonus, if due to
the Executive pursuant to Section 4(b) (iii), to the extent not theretofore
paid and (4) any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon) and any accrued
vacation pay, in each case to the extent not theretofore paid (the sum of
the amounts described in clauses (1), (2), (3) and (4) shall be hereinafter
referred to as the "Accrued Obligations"); and
B. the amount (such amount shall be hereinafter referred to as the
"Severance Amount") equal to 2.9 times the Executive's "Base Amount" (the
average annual taxable compensation for the five years preceding the Change
in Control Date; and
C. a separate lump-sum supplemental retirement benefit (the amount of such
benefit shall be hereinafter referred to as the "Supplemental Retirement
Amount") equal to the difference between (1) the actuarial equivalent
(utilizing for this purpose the actuarial assumptions utilized with respect
to the [Company's Retirement Plan] (or any successor plan thereto) (the
"Retirement Plan") during the 90-day period immediately preceding the
Effective Date) of the benefit payable under the Retirement Plan and any
supplemental and/or excess retirement plan of the Company and its
affiliated companies providing benefits for the Executive (the "SERP")
which the Executive would receive if the Executive's employment continued
at the compensation level provided for in Sections 4(b)(i) and 4(b)(ii) for
the remainder of the
<PAGE>
Employment Period, assuming for this purpose that all accrued benefits are
fully vested and that benefit accrual formulas are no less advantageous to
the Executive than those in effect during the 90-day period immediately
proceeding the Effective Date, and (2) the actuarial equivalent (utilizing
for this purpose the actuarial assumptions utilized with respect to the
Retirement Plan during the 90-day period immediately preceding the
Effective Date) of the Executive's actual benefit (paid or payable), if
any, under the Retirement Plan and the SERP; and
(ii) for the remainder of the Employment Period, or such longer period as
any plan, program, practice or policy may provide, the Company shall continue
benefits to the Executive and/or 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)(v) 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 as
in effect and applicable generally 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 generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies and
their families, provided, however, that if the Executive becomes reemployed with
another employer and is eligible to receive medical or other welfare benefits
under another employer provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under such other plan
during such applicable period of eligibility (such continuation of such benefits
for the applicable period herein set forth shall be 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 shall be considered to have remained employed until the
end of the Employment Period and to have retired on the last day of such period;
(iii) to the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Executive and/or the Executive's family any other
amounts or benefits required to be paid or provided or which the Executive
and/or the Executive's family is eligible to receive pursuant to this Agreement
and under any plan, program, policy or practice or contract or agreement of the
Company and its affiliated companies as in effect and applicable generally 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 generally thereafter with respect to other peer executives of the Company
and its affiliated companies and their families (such other amounts and benefits
shall be hereinafter referred to as the "Other Benefits"); and
(iv) each Company stock option held by the Executive that is outstanding
immediately prior to such termination shall, pursuant to its terms and without
any further action on the part of the Board of Directors or the Compensation
Committee of the Company, become fully vested and exercisable as of such
termination.
(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 for (i) payment of Accrued Obligations (which 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) and the timely payment or
provision of the Welfare Benefit Continuation and Other Benefits (excluding, in
each case, Death Benefits (as defined below)) and (ii) payment to the
Executive's estate or beneficiary, as applicable, in a lump sum in cash within
30 days of the Date of Termination of an amount equal to the greater of (A) the
sum of the Severance Amount and the Supplemental Retirement Amount and (B) the
present value (determined as provided in
<PAGE>
Section 280G(d)(4) of the Code of any cash amount to be received by the
Executive or the Executive's family as a death benefit pursuant to the terms of
any plan, policy or arrangement of the Company and its affiliated companies but
not including any proceeds of life insurance covering the Executive to the
extent paid for directly or on a contributory basis by the Executive (which
shall be paid in any event as an Other Benefit) (the benefits included in this
clause (B) shall be hereinafter referred to as the "Death Benefits").
(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 for (i)
payment of Accrued Obligations (which shall be paid to the Executive in a lump
sum in cash within 30 days of the Date of Termination) and the timely payment or
provision of the Welfare Benefit Continuation and other Benefits (excluding, in
each case, Disability Benefits (as defined below)) and (ii) payment to the
Executive in a lump sum in cash within 30 days of the Date of Termination
of an amount equal to the greater of (A) the sum of the Severance Amount and the
Supplemental Retirement Amount and (B) the present value (determined as provided
in Section 280G(d)(4) of the Code) of any cash amount to be received by the
Executive as a disability benefit pursuant to the terms of any plan, policy or
arrangement of the Company and its affiliated companies, but not including any
proceeds of disability insurance covering the Executive to the extent paid for
directly or on a contributory basis by the Executive (which shall be paid in any
event as an Other Benefit).
(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 either for Good Reason or
without any reason during the Window Period, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. 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. Reduction in Benefits Under Certain Circumstances.
-------------------------------------------------
(a) General. Notwithstanding anything in this Agreement to the contrary,
-------
in the event that the accounting firm which was serving as the independent
auditors for the Company immediately prior to the Effective Date (the
"Auditors") determines that any payment or distribution by the Company to or for
the benefit of the Executive, whether paid or payable (or distributed or
distributable) pursuant to the terms of this Agreement or otherwise (a
"Payment"), excluding for this purpose any "Vesting Amount" (as hereinafter
defined), would not be deductible by the Company for federal income tax purposes
because of Section 280G of the Code, disregarding for purposes of this test the
effect of any "Vesting Amount", then the aggregate present value of the amounts
payable or distributable to or for the benefit of the Executive pursuant to this
Agreement, (the "Agreement Payments") excluding the "Vesting Amount" shall be
reduced (but not below zero) to the Reduced Amount. For purposes of this
Section 7(a), the "Reduced Amount" shall be an amount expressed in present value
which maximizes the aggregate present value of Agreement Payments (excluding for
this purpose any "Vesting Amount") without causing any Payment to be non-
deductible by the Company because of Section 280G of the Code disregarding for
purposes of this test the effect of any "Vesting Amount." "Vesting Amount"
means any amount attributable to the vesting and exercisability of Company stock
options pursuant to Section 6(a)(iv) hereof.
<PAGE>
(b) Reduction of Payments. If the Auditors determine that any Payment
---------------------
would not be deductible by the Company because of Section 280G of the Code,
disregarding for purposes of this test the effect of any Vesting Amount, then
the Company shall promptly give the Executive both notice to that effect and a
detailed calculation thereof and of the Reduced Amount. The Executive may then
elect, in his sole discretion, which and how much of the Agreement Payments
shall be eliminated or reduced (as long as after such election the aggregate
present value of the Agreement Payments equals the Reduced Amount) and shall
advise the Company in writing of his election within ten days of his receipt of
notice. If no such election is made by the Executive within such ten-day
period, then the Company may elect which and how much of the Agreement Payments
shall be eliminated or reduced (as long as after such election the aggregate
present value of the Agreement Payments equals the Reduced Amount) and shall
notify the Executive promptly of such election. For purposes of this Section 7,
present value shall be determined in accordance with Section 280G(d)(4) of the
Code. All determinations made by the Auditors under this Section 7 shall be
binding upon the Company and the Executive and shall be made within thirty (30)
days of the Executive's termination of employment.
As promptly as practicable following such determination and the elections
hereunder, the Company shall pay or distribute to or for the benefit of the
Executive such amounts as are then due to him under this Agreement and shall
promptly pay to or distribute for the benefit of the Executive in the future
such amounts as may become due to him under this Agreement.
(c) Underpayment. As a result of the uncertainty in the application of
------------
Section 280G of the Code at the time of the initial determination by the
Auditors hereunder, it is possible that additional Agreement Payments which will
not have been made by the Company should have been made (an "Underpayment"),
consistent with the calculation of the Reduced Amount hereunder. In the event
that the Auditors, based upon controlling precedent, determine that any
Underpayment has occurred, such Underpayment shall promptly be paid by the
Company to or for the benefit of the Executive, together with interest at the
applicable federal rate provided for in Section 7872(f)(2)(A) of the Code.
(d) Overpayment. (i) In the event it shall be determined that any
-----------
Agreement Payment made is subject to the excise tax imposed by 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 collectively referred to herein as the "Excise Tax"), the
Company will pay the Executive an amount (a "Gross-Up Payment") such that after
payment by the Executive of all taxes (including, without limitation, income
taxes and Excise Tax) imposed on the Gross-Up Payment, the Executive retains a
portion of the Gross-Up Payment equal to the Excise Tax imposed on such
Agreement Payment, exclusive of any portion of such Excise Tax attributable to
the vesting and exercisability of Company stock options pursuant to Section
6(a)(iv).
(ii) 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 a Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive is informed
in writing 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 he 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:
<PAGE>
(A) give the Company any information reasonably requested by the Company
relating to such claim,
(B) take such action, at the expense of the Company, in connection with
contesting such claim as the Company shall reasonably request in writing
from time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney reasonably
selected by the Company,
(C) cooperate with the Company in good faith in order effectively to
contest such claim, and
(D) permit the Company to participate in any proceedings relating to such
claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expense. Without limitation on the foregoing, the Company
shall control all proceedings taken in connection with such contest and, at its
sole option, may pursue or forgo 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.
(iii) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 7(d)(ii), the Executive receives any refund of
Excise Tax paid with the amount advanced, the Executive shall (subject to the
Company's complying with the requirements of Section 7(d)(ii)) promptly pay to
the Company the amount of such refund (with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the Executive
of any amount advanced by the Company pursuant to Section 7(d)(ii), a final
determination is made that the Executive shall not be entitled to any refund
with respect to such claim, 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.
(iv) Notwithstanding the foregoing, if it is determined by the Auditors,
based upon controlling precedent, that no Excise Tax will be due if a portion of
an Agreement Payment is treated for all purposes as a loan to the Executive, the
smallest portion of the Agreement Payment necessary to eliminate the Excise Tax
(the "Loan Amount") shall be so treated, and the Executive shall promptly
<PAGE>
repay to the Company the Loan Amount, together with interest thereon from the
date the Agreement Payment was received by the Executive at the applicable
federal rate provided for in Section 7872(f)(2)(A) of the Code, and no Gross-Up
Payment will be made.
8. Non-exclusivity of Rights. Except as provided in Sections 6(a)(ii),
-------------------------
6(b) and 6(c), nothing in this Agreement shall prevent or limit the Executive's
continuing or future participation in any plan, program, policy or practice
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 contract or agreement with the
Company or any of its affiliated companies. Amounts which are vested benefits
or which the Executive is otherwise entitled to receive under any plan, policy,
practice or program of or any contract or agreement with 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 or contract or
agreement except as explicitly modified by this Agreement.
9. Full Settlement; Resolution of Disputes. (a) 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), such amounts shall not be reduced
whether or not the Executive obtains other employment. The Company agrees to pay
promptly as incurred, 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)(A) of the Code.
(b) 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 amounts 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.
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
<PAGE>
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.
<PAGE>
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 will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to 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 Indiana, 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.
(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:
-------------------
If to the Company:
-----------------
Attention:
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 addresses.
(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.
<PAGE>
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof or any other provision of this Agreement or
the failure to assert any right the Executive or the Company may have hereunder,
including, without limitation, the right of the Executive to terminate
employment for Good Reason pursuant to Section 5(c)(i)-(v), shall not be deemed
to be a waiver of such provision or right or any other provision or right of
this Agreement.
(f) The Executive and the Company acknowledge that, except as may otherwise
be provided 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, 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.
Jeffrey G. Wood
CONTROL DEVICES, INC.
By____________________________
Ralph R. Whitney, Jr.
<PAGE>
Exhibit 10.20
TERMINATION BENEFITS AGREEMENT
------------------------------
AGREEMENT by and between Control Devices, Inc., an Indiana corporation (the
"Company"), and Bruce D. Atkinson (the "Executive"), dated as of the third day
of September, 1998.
WHEREAS, 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 in Section 2) of the Company.
WHEREAS, 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.
WHEREAS, to accomplish these objectives, the Board desires to cause the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall mean the first
-------------------
date during the Change of Control Period (as defined in Section 1(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 who 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 "Change of Control Period" shall mean the period commencing on the
date on which a Change of Control occurs and ending on the third anniversary of
such date provided, however, that commencing on each Renewal Date, the Change of
Control Period shall be automatically extended so as to terminate three years
from such Renewal Date, unless at least 60 days prior to the Renewal Date the
Company shall give notice to the Executive that the Change of Control Period
shall not be so extended.
(c) The "Renewal Date" shall mean each anniversary of the Effective Date of
this Agreement.
2. Change of Control. For the purpose of this Agreement, a "Change of
-----------------
Control" shall mean:
<PAGE>
(a) The acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that the following acquisitions shall not constitute a Change
of Control: (i) any acquisition directly from the Company (excluding an
acquisition by virtue of the exercise of a conversion privilege), (ii) any
acquisition by the Company, (iii) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Company or any corporation
controlled by the Company or (iv) any acquisition by any corporation pursuant to
a reorganization, merger or consolidation, if, following such reorganization,
merger or consolidation, the conditions described in clauses (i), (ii) and (iii)
of subsection (c) of this Section 2 are satisfied; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or
other actual or threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board; or
(c) Approval by the shareholders of the Company of a reorganization, merger
or consolidation, in each case, unless, following such reorganization, merger or
consolidation, (i) more than 60% of, respectively, the then outstanding shares
of common stock of the corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the outstanding Company Common Stock and Outstanding
Company Voting securities immediately prior to such reorganization, merger or
consolidation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Stock and outstanding Company Voting Securities, as
the case may be, (ii) no Person (excluding the Company, any employee benefit
plan (or related trust) of the Company or such corporation resulting from such
reorganization merger or consolidation and any Person beneficially owning
immediately prior to such reorganization, merger or consolidation, directly or
indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding
Voting Securities, as the case may be) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such reorganization, merger or
consolidation or the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors and (iii) at least a majority of the members of the board of directors
of the corporation resulting from such reorganization, merger or consolidation
were members of the Incumbent Board at the time of the execution of the initial
agreement providing for such reorganization, merger or consolidation; or
(d) Approval by the shareholders of the Company of (i) a complete
liquidation or dissolution of the Company or (ii) the sale or other disposition
of all or substantially all of the assets of the Company, other than to a
corporation, with respect to which following such sale or other disposition, (A)
<PAGE>
more than 60% of, respectively, the then outstanding shares of common stock of
such corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership immediately prior to such
sale or other disposition, of the Outstanding Company Common Stock and
outstanding Company Voting Securities, as the case may be, (B) no Person
(excluding the Company and any employee benefit plan (or related trust) of the
Company or such corporation and any Person beneficially owning, immediately
prior to such sale or other disposition directly or indirectly, 20% or more of
the Outstanding Company Common Stock or Outstanding Company Voting Securities,
as the case may be) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of such corporation
and the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors and (C) at
least a majority of the members of the board of directors of such corporation
were members of the Incumbent Board at the time of the execution of the initial
agreement or action of the Board providing for such sale or other disposition of
assets of the Company.
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, in accordance with the terms and provisions of this Agreement, for the
period commencing on the Effective Date and ending on the third anniversary of
such date (the "Employment Period"). The Employment Period shall be
automatically extended so as to terminate three years from each Renewal Date,
unless this Agreement is terminated pursuant to the provisions of Section 5.
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 responsibilities 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 which is the headquarters of the Company and is
less than 35 miles from such location.
(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 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.
<PAGE>
(b) Compensation. (i) Base Salary. During the Employment Period, the
------------ -----------
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid in equal installments on a monthly basis, 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 average annualized (for
any fiscal year consisting of less than twelve full months or with respect to
which the Executive has been employed by the Company for less than twelve 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 (the "Recent Average Bonus"). 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) Special Bonus. In addition to Annual Base Salary and Annual Bonus
-------------
payable as herein above provided, if the Executive remains employed with the
Company and its affiliated companies through the first anniversary of the
Effective Date, the Company shall pay to the Executive a special bonus (the
"Special Bonus") in recognition of the Executive's services during the crucial
one-year transition period following the Change of Control in cash equal to the
sum of (A) the Executive's Annual Base Salary and (B) the greater of (1) the
Annual Bonus paid or payable, including by reason of any deferral, to the
Executive (and annualized for any fiscal year consisting of less than twelve
full months or for which the Executive has been employed for less than twelve
full months) for the most recently completed fiscal year during the Employment
Period, if any, and (2) the Recent Average Bonus (such greater amount shall be
hereinafter referred to as the "Highest Annual Bonus"). The Special Bonus shall
be paid no later than 30 days following the first anniversary of the Effective
Date.
(iv) Incentive, Savings and Retirement Plans. During the Employment
---------------------------------------
Period, the Executive shall be entitled to participate in all incentive, savings
and retirement plans, practices, policies and programs applicable generally 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 incentive opportunities (measured with respect to both regular and special
incentive opportunities, to the extent, if any, that such distinction is
applicable), savings opportunities and retirement benefit 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
such plans, practices, policies and as in effect at any time during the 90-day
period immediately preceding the Effective Date or if more favorable to the
Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
<PAGE>
(v) 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 applicable generally
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 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 or, if more favorable to the Executive, those provided generally
at any time after the Effective Date to other peer executives of the Company and
its affiliated companies.
(vi) Expenses. During the Employment Period, the Executive shall be
--------
entitled to receive prompt reimbursement for all reasonable employment 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 generally at
any time thereafter with respect to other peer executives of the Company and its
affiliated companies.
(vii) Fringe Benefits. During the Employment Period, the Executive shall
---------------
be entitled to fringe benefits 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 generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies.
(viii) 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 exclusive 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 generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
(ix) 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 generally at
any time thereafter with respect to other peer executives of the Company and its
affiliated companies.
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 in accordance with Section 12(b) of its intention to terminate the
Executive's employment. In such event, the Executive's employment with the
Company shall terminate effective an 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" shall mean the absence of the Executive from the Executive's duties
with the Company on a 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
<PAGE>
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) a material breach by the Executive of the Executive's obligations under
Section 4(a) (other than as a result of incapacity due to physical or mental
illness) which is demonstrably willful and deliberate on the Executive's part,
which is committed in bad faith or without reasonable belief that such breach is
in the best interests of the Company and which is not remedied in a reasonable
period of time after receipt of written notice from the Company specifying such
breach or (ii) the conviction of the Executive of a felony involving moral
turpitude.
(c) Good Reason; Window Period. The Executive's employment may be
--------------------------
terminated (i) during the Employment Period by the Executive for Good Reason or
(ii) during the Window Period by the Executive without any reason. For purposes
of this Agreement, the "Window Period" shall mean the 30-day period immediately
following the first anniversary of the Effective Date. 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) 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;
(ii) any failure by the Company to comply with any of the provisions of
Section 4(b), 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);
(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 to comply with and satisfy Section 11(c),
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).
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination by the Company for Cause, or by
---------------------
the Executive without any reason during the Window Period or for Good Reason,
shall be communicated by Notice of Termination to the other party hereto given
in accordance with Section 12(b). For purposes of this Agreement, a "Notice of
Termination" means 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
<PAGE>
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 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" means (i) if the
-------------------
Executive's employment is terminated by the Company for Cause, or by the
Executive during the Window Period or 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 or Disability, 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. Obligations of the Company upon Termination.
-------------------------------------------
(a) Good Reason or during the Window Period; Other Than for Cause, Death
--------------------------------------------------------------------
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 either for Good Reason or without any reason during
the Window Period:
(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 sum of (1) the Executive's Annual Base Salary through the Date of
Termination to the extent not theretofore paid, (2) the product of (x) the
Highest 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 (3) the Special Bonus, if due to
the Executive pursuant to Section 4(b) (iii), to the extent not theretofore
paid and (4) any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon) and any accrued
vacation pay, in each case to the extent not theretofore paid (the sum of
the amounts described in clauses (1), (2), (3) and (4) shall be hereinafter
referred to as the "Accrued Obligations"); and
B. the amount (such amount shall be hereinafter referred to as the
"Severance Amount") equal to 2.9 times the Executive's "Base Amount" (the
average annual taxable compensation for the five years preceding the Change
in Control Date; and
C. a separate lump-sum supplemental retirement benefit (the amount of such
benefit shall be hereinafter referred to as the "Supplemental Retirement
Amount") equal to the difference between (1) the actuarial equivalent
(utilizing for this purpose the actuarial assumptions utilized with respect
to the [Company's Retirement Plan] (or any successor plan thereto) (the
"Retirement Plan") during the 90-day period immediately preceding the
Effective Date) of the benefit payable under the Retirement Plan and any
supplemental and/or excess retirement plan of the Company and its
affiliated companies providing benefits for the Executive (the "SERP")
which the Executive would receive if the Executive's employment continued
at the compensation level provided for in Sections 4(b)(i) and 4(b)(ii) for
the remainder of the
<PAGE>
Employment Period, assuming for this purpose that all accrued benefits are
fully vested and that benefit accrual formulas are no less advantageous to
the Executive than those in effect during the 90-day period immediately
proceeding the Effective Date, and (2) the actuarial equivalent (utilizing
for this purpose the actuarial assumptions utilized with respect to the
Retirement Plan during the 90-day period immediately preceding the
Effective Date) of the Executive's actual benefit (paid or payable), if
any, under the Retirement Plan and the SERP; and
(ii) for the remainder of the Employment Period, or such longer period as
any plan, program, practice or policy may provide, the Company shall continue
benefits to the Executive and/or 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)(v) 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 as
in effect and applicable generally 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 generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies and
their families, provided, however, that if the Executive becomes reemployed with
another employer and is eligible to receive medical or other welfare benefits
under another employer provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under such other plan
during such applicable period of eligibility (such continuation of such benefits
for the applicable period herein set forth shall be 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 shall be considered to have remained employed until the
end of the Employment Period and to have retired on the last day of such period;
(iii) to the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Executive and/or the Executive's family any other
amounts or benefits required to be paid or provided or which the Executive
and/or the Executive's family is eligible to receive pursuant to this Agreement
and under any plan, program, policy or practice or contract or agreement of the
Company and its affiliated companies as in effect and applicable generally 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 generally thereafter with respect to other peer executives of the Company
and its affiliated companies and their families (such other amounts and benefits
shall be hereinafter referred to as the "Other Benefits"); and
(iv) each Company stock option held by the Executive that is outstanding
immediately prior to such termination shall, pursuant to its terms and without
any further action on the part of the Board of Directors or the Compensation
Committee of the Company, become fully vested and exercisable as of such
termination.
(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 for (i) payment of Accrued Obligations (which 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) and the timely payment or
provision of the Welfare Benefit Continuation and Other Benefits (excluding, in
each case, Death Benefits (as defined below)) and (ii) payment to the
Executive's estate or beneficiary, as applicable, in a lump sum in cash within
30 days of the Date of Termination of an amount equal to the greater of (A) the
sum of the Severance Amount and the Supplemental Retirement Amount and (B) the
present value (determined as provided in
<PAGE>
Section 280G(d)(4) of the Code of any cash amount to be received by the
Executive or the Executive's family as a death benefit pursuant to the terms of
any plan, policy or arrangement of the Company and its affiliated companies but
not including any proceeds of life insurance covering the Executive to the
extent paid for directly or on a contributory basis by the Executive (which
shall be paid in any event as an Other Benefit) (the benefits included in this
clause (B) shall be hereinafter referred to as the "Death Benefits").
(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 for (i)
payment of Accrued Obligations (which shall be paid to the Executive in a lump
sum in cash within 30 days of the Date of Termination) and the timely payment or
provision of the Welfare Benefit Continuation and other Benefits (excluding, in
each case, Disability Benefits (as defined below)) and (ii) payment to the
Executive in a lump sum in cash within 30 days of the Date of Termination of an
amount equal to the greater of (A) the sum of the Severance Amount and the
Supplemental Retirement Amount and (B) the present value (determined as provided
in Section 280G(d)(4) of the Code) of any cash amount to be received by the
Executive as a disability benefit pursuant to the terms of any plan, policy or
arrangement of the Company and its affiliated companies, but not including any
proceeds of disability insurance covering the Executive to the extent paid for
directly or on a contributory basis by the Executive (which shall be paid in any
event as an Other Benefit).
(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 either for Good Reason or
without any reason during the Window Period, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. 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. Reduction in Benefits Under Certain Circumstances.
-------------------------------------------------
(a) General. Notwithstanding anything in this Agreement to the contrary,
-------
in the event that the accounting firm which was serving as the independent
auditors for the Company immediately prior to the Effective Date (the
"Auditors") determines that any payment or distribution by the Company to or for
the benefit of the Executive, whether paid or payable (or distributed or
distributable) pursuant to the terms of this Agreement or otherwise (a
"Payment"), excluding for this purpose any "Vesting Amount" (as hereinafter
defined), would not be deductible by the Company for federal income tax purposes
because of Section 280G of the Code, disregarding for purposes of this test the
effect of any "Vesting Amount", then the aggregate present value of the amounts
payable or distributable to or for the benefit of the Executive pursuant to this
Agreement, (the "Agreement Payments") excluding the "Vesting Amount" shall be
reduced (but not below zero) to the Reduced Amount. For purposes of this
Section 7(a), the "Reduced Amount" shall be an amount expressed in present value
which maximizes the aggregate present value of Agreement Payments (excluding for
this purpose any "Vesting Amount") without causing any Payment to be non-
deductible by the Company because of Section 280G of the Code disregarding for
purposes of this test the effect of any "Vesting Amount." "Vesting Amount"
means any amount attributable to the vesting and exercisability of Company stock
options pursuant to Section 6(a)(iv) hereof.
<PAGE>
(b) Reduction of Payments. If the Auditors determine that any Payment
---------------------
would not be deductible by the Company because of Section 280G of the Code,
disregarding for purposes of this test the effect of any Vesting Amount, then
the Company shall promptly give the Executive both notice to that effect and a
detailed calculation thereof and of the Reduced Amount. The Executive may then
elect, in his sole discretion, which and how much of the Agreement Payments
shall be eliminated or reduced (as long as after such election the aggregate
present value of the Agreement Payments equals the Reduced Amount) and shall
advise the Company in writing of his election within ten days of his receipt of
notice. If no such election is made by the Executive within such ten-day
period, then the Company may elect which and how much of the Agreement Payments
shall be eliminated or reduced (as long as after such election the aggregate
present value of the Agreement Payments equals the Reduced Amount) and shall
notify the Executive promptly of such election. For purposes of this Section 7,
present value shall be determined in accordance with Section 280G(d)(4) of the
Code. All determinations made by the Auditors under this Section 7 shall be
binding upon the Company and the Executive and shall be made within thirty (30)
days of the Executive's termination of employment.
As promptly as practicable following such determination and the elections
hereunder, the Company shall pay or distribute to or for the benefit of the
Executive such amounts as are then due to him under this Agreement and shall
promptly pay to or distribute for the benefit of the Executive in the future
such amounts as may become due to him under this Agreement.
(c) Underpayment. As a result of the uncertainty in the application of
------------
Section 280G of the Code at the time of the initial determination by the
Auditors hereunder, it is possible that additional Agreement Payments which will
not have been made by the Company should have been made (an "Underpayment"),
consistent with the calculation of the Reduced Amount hereunder. In the event
that the Auditors, based upon controlling precedent, determine that any
Underpayment has occurred, such Underpayment shall promptly be paid by the
Company to or for the benefit of the Executive, together with interest at the
applicable federal rate provided for in Section 7872(f)(2)(A) of the Code.
(d) Overpayment. (i) In the event it shall be determined that any
-----------
Agreement Payment made is subject to the excise tax imposed by 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 collectively referred to herein as the "Excise Tax"), the
Company will pay the Executive an amount (a "Gross-Up Payment") such that after
payment by the Executive of all taxes (including, without limitation, income
taxes and Excise Tax) imposed on the Gross-Up Payment, the Executive retains a
portion of the Gross-Up Payment equal to the Excise Tax imposed on such
Agreement Payment, exclusive of any portion of such Excise Tax attributable to
the vesting and exercisability of Company stock options pursuant to Section
6(a)(iv).
(ii) 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 a Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive is informed
in writing 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 he 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:
<PAGE>
(A) give the Company any information reasonably requested by the Company
relating to such claim,
(B) take such action, at the expense of the Company, in connection with
contesting such claim as the Company shall reasonably request in writing
from time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney reasonably
selected by the Company,
(C) cooperate with the Company in good faith in order effectively to
contest such claim, and
(D) permit the Company to participate in any proceedings relating to such
claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expense. Without limitation on the foregoing, the Company
shall control all proceedings taken in connection with such contest and, at its
sole option, may pursue or forgo 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.
(iii) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 7(d)(ii), the Executive receives any refund of
Excise Tax paid with the amount advanced, the Executive shall (subject to the
Company's complying with the requirements of Section 7(d)(ii)) promptly pay to
the Company the amount of such refund (with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the Executive
of any amount advanced by the Company pursuant to Section 7(d)(ii), a final
determination is made that the Executive shall not be entitled to any refund
with respect to such claim, 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.
(iv) Notwithstanding the foregoing, if it is determined by the Auditors,
based upon controlling precedent, that no Excise Tax will be due if a portion of
an Agreement Payment is treated for all purposes as a loan to the Executive, the
smallest portion of the Agreement Payment necessary to eliminate the Excise Tax
(the "Loan Amount") shall be so treated, and the Executive shall promptly
<PAGE>
repay to the Company the Loan Amount, together with interest thereon from the
date the Agreement Payment was received by the Executive at the applicable
federal rate provided for in Section 7872(f)(2)(A) of the Code, and no Gross-Up
Payment will be made.
8. Non-exclusivity of Rights. Except as provided in Sections 6(a)(ii),
-------------------------
6(b) and 6(c), nothing in this Agreement shall prevent or limit the Executive's
continuing or future participation in any plan, program, policy or practice
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 contract or agreement with the
Company or any of its affiliated companies. Amounts which are vested benefits
or which the Executive is otherwise entitled to receive under any plan, policy,
practice or program of or any contract or agreement with 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 or contract or
agreement except as explicitly modified by this Agreement.
9. Full Settlement; Resolution of Disputes. (a) 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), such amounts shall not be reduced
whether or not the Executive obtains other employment. The Company agrees to pay
promptly as incurred, 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)(A) of the Code.
(b) 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 amounts 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.
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
<PAGE>
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.
<PAGE>
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 will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to 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 Indiana, 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.
(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:
-------------------
If to the Company:
-----------------
Attention:
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 addresses.
(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.
<PAGE>
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof or any other provision of this Agreement or
the failure to assert any right the Executive or the Company may have hereunder,
including, without limitation, the right of the Executive to terminate
employment for Good Reason pursuant to Section 5(c)(i)-(v), shall not be deemed
to be a waiver of such provision or right or any other provision or right of
this Agreement.
(f) The Executive and the Company acknowledge that, except as may otherwise
be provided 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, 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.
Bruce D. Atkinson
CONTROL DEVICES, INC.
By____________________________
Ralph R. Whitney, Jr.
<PAGE>
Exhibit 10.21
September 22, 1998
Mr. Bruce D. Atkinson
President
Control Devices, Inc.
228 Northeast Road
Standish, Maine 04084
Dear Bruce:
Fleet Bank of Maine is pleased to approve a $20,000,000.00 revolving line of
credit to Control Devices, Inc. This letter, when properly signed and accepted,
will constitute an agreement between Fleet Bank of Maine of Portland, Maine
(hereinafter referred to as "Bank"), which agrees to lend, and Control Devices,
Inc. of Standish, Maine (hereinafter referred to as "Borrower") which agrees to
borrow, in accordance with the following terms and conditions, in addition to
those as outlined in the loan documents:
BORROWER: Control Devices, Inc.
- ---------
PURPOSE: To provide funds for acquisition financing, working capital for the
- --------
company's ongoing operations or the issuance of commercial or standby
letters of credit.
MAXIMUM AMOUNT: Twenty million and 00/100 dollars ($20,000,000.00),
- ---------------
representing a $5,000,000.00 increase.
INTEREST RATE: During the term of the proposed financing, the Borrower will
- --------------
have three interest rate options. Under the three rate options, interest
is payable monthly based on actual days outstanding over a 360 day year.
1) 30, 60, 90, or 180 day London Interbank Offering Rate (LIBOR) plus
1.50%.
2) Fleet Bank of Maine's cost of funds plus 1.50% for borrowings of 30
days or less.
3) Fleet Bank of Maine's prime lending rate (currently 8.50%), adjusted
daily.
COMPENSATING BALANCE REQUIREMENT: As consideration for this commitment,
- ---------------------------------
Borrower agrees to maintain average collected demand deposit compensating
balances of $500,000.00 with Fleet Bank of Maine at all times.
<PAGE>
Mr. Bruce D. Atkinson
September 22, 1998
TERM: On demand, with interest payable monthly. Payments not made within 10
- -----
days of the due date will be assessed a late fee equal to 5% of the payment
amount.
PREPAYMENT: There shall be no prepayment charge on such advances for which the
- -----------
prime lending rate of interest is elected. If a fixed rate of interest is
elected (even if the fixed rate date is elected in advance and while
Borrower is paying interest at the variable rate), then a prepayment charge
for such advances so elected shall be payable by Borrower to Bank utilizing
a yield maintenance formula satisfactory to Bank.
COLLATERAL: Unsecured.
- ------------
DEPOSIT ACCOUNTS: As consideration for this loan, Borrower is to continue
- -----------------
maintaining its primary depository relationship with Fleet Bank of Maine
during the term of this financing. If for any reason this relationship
changes, Fleet Bank of Maine specifically reserves the right to review and
modify the rate and term of the loan without waiving the demand feature
thereof.
FINANCIAL STATEMENTS: During the term of this financing, Borrower will provide
- ---------------------
to Bank its audited fiscal year end financial statements (10-K), prepared
by a certified public accountant acceptable to Bank, within 120 days of its
fiscal year end. In addition, Borrower will also provide management
prepared quarterly interim financial statements (10-Q) and covenant
compliance certificates within 45 days from the end of each quarter and
annual projections.
FINANCIAL COVENANTS: During the term of the proposed financing, the Borrower
- --------------------
and its subsidiaries will be required to maintain the following financial
covenants, measured quarterly:
* Minimum tangible net worth of $22,000,000 through 12/31/99 and
$25,000,000 thereafter.
* Maximum total debt to tangible net worth ratio of 1.00 to 1.
* Minimum quarterly cash flow coverage ratio of 1.5X, measured as
follows:
Earnings before interest, taxes, depreciation and amortization
--------------------------------------------------------------
Current portion of long term debt + interest
AUTHORITY TO ACT: Borrower shall provide all evidence of its organization,
- -----------------
existence, legal good standing, and authority to enter into said
transactions as may be required by Bank or its counsel.
<PAGE>
Mr. Bruce D. Atkinson
September 22, 1998
LEGAL & COSTS: Borrower shall be responsible for bearing the cost of all legal
- --------------
work to document these transactions. All instruments executed and delivered
in connection with the closing of the loan shall be in form and substance
satisfactory to Bank's counsel. All other matters relating to the law shall
be made to meet the satisfaction of such counsel. All costs incurred by
Bank to document these transactions will be borne by Borrower, regardless
of whether the loan is actually closed or the financing consummated.
WRITTEN MODIFICATION: Borrower may not maintain any action against the Bank on
- ---------------------
any agreement to lend money, extend credit, forbear from collection of a
debt or make any other accommodation for repayment of a debt for more than
$250,000 unless the promise, contract or agreement is in writing and signed
by a duly authorized representative of Bank.
NONASSIGNABILITY OF COMMITMENT: This commitment is expressly offered only to
- -------------------------------
Borrower and only for the purposes described herein. This commitment may
not be assigned without the written permission of Fleet Bank of Maine.
YEAR 2000: This commitment is subject to, among other conditions contained
- ---------
herein, the Borrower's demonstration to the satisfaction of Bank that (a)
the Borrower has taken and is taking all necessary and appropriate steps to
ascertain the extent of and successfully address business and financial
risks facing the Borrower as a result of the Year 2000 Risk (that is the
risk that computer applications used by Borrower and/or by its suppliers,
vendors and customers may be unable to recognize and perform without error
date-sensitive functions involving certain dates prior to and any date
after December 31, 1999) and (b) the Borrower's material computer
applications and those of its key vendors and suppliers will, on a timely
basis, adequately address the Year 2000 Risk in all material respects.
EXPIRATION DATE: The revolving line of credit is available for your use through
- ----------------
September 30, 2000, and is subject to review prior to renewal. However,
Bank shall be under no obligation hereunder unless acceptance of the terms
hereof is delivered to it by September 30, 1998.
The parties hereto agree that this commitment shall survive any loan closings
under this commitment and that each of the obligations and undertakings of
Borrower hereunder shall be continuing and shall not cease until the entire
loan, together with interest is paid in full.
This commitment may be terminated by Bank at any time upon discovery, by Bank,
of a material adverse change in or any misrepresentations or erroneous
statements about Borrower's position with respect to solvency, credit
worthiness, government regulation, or any other substantial factor. Such
termination shall become effective upon the mailing of notice of termination by
Bank by certified first-class mail to Borrower at the address shown on this
commitment.
<PAGE>
Mr. Bruce D. Atkinson
September 22, 1998
If you are in agreement with these terms, please acknowledge your acceptance of
this commitment by signing and returning the original of this letter. You may
retain a signed copy for your records.
Sincerely,
Peter C. Sylvestre
Vice President
ACCEPTED AND ACKNOWLEDGED:
Control Devices, Inc.
Date:______________ By:___________________________________
Bruce D. Atkinson, President
<PAGE>
FIRST AMENDMENT
TO
LOAN AGREEMENT
THIS FIRST AMENDMENT TO LOAN AGREEMENT, dated as of September 30, 1998,
between CONTROL DEVICES, INC., an Indiana corporation with its principal place
of business in Standish, Maine ("Borrower") and FLEET BANK OF MAINE, a Maine
financial institution ("Bank").,
WITNESSETH:
WHEREAS, Borrower and Bank are parties to a Loan agreement dated as of
October 8, 1996, (the "Loan Agreement"): and
WHEREAS, Borrower and Bank desire to amend the Loan Agreement;
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Borrower and Bank hereby agree as follows:
1. Section 1(a) of the Loan Agreement is hereby deleted and replaced with
following:
Subject to the terms and provision of this Agreement, Bank hereby establishes a
line of credit in Borrower's favor in the principal amount of up to Twenty
Million Dollars ($20,000,000) (the "Line of Credit"). The Line of Credit will
be available, subject to the terms hereof, until September 30, 2000, when the
Line of Credit, if not previously extended in writing by Bank, shall be
terminated and all amounts outstanding thereunder shall be paid in full.
2. The reference in Section 6 (g) of the Loan Agreement to "$350,000"
shall be deleted and replaced with a reference to "$500,000".
3. The following shall be added as a new subsection (i) to Section 6 of
the Loan Agreement:
(i) Borrower shall, upon written request therefor by Bank to Borrower,
which request may be withdrawn and remade from time to time at the sole
discretion of Bank furnish Bank, on a quarterly basis, as soon as
available, and in any event within (10) days after the end of each quarter,
an updated status report, all in reasonable detail, by a representative of
Borrower which is acceptable to Bank, reporting on the current status of
the Borrower's computer system as it relates to the Year 2000 computer
problem, which report shall also include estimated time, costs and budget
allocations for completing any purchases, renovations or reprogramming
which may be necessary for Borrower to become Year 2000 Compliant without
any material interruption in the Borrower's business, financial condition
or prospects.
4. Section 7 (a) of the Loan Agreement shall be deleted and replaced with
the following:
Minimum Tangible Net Worth: permit its tangible net worth, measured as
of the end of each of Borrower's fiscal quarters, to be less than
$22,000,000, through December 31, 1999 or less than $25,000,000
thereafter, as shown on Borrower's financial statements;
5. Section 13 of the Loan Agreement is hereby amended by adding the
following to the end thereof:
(k) Bank may at any time pledge all or any portion of its rights
under the loan documents including any portion of the promissory note to
any of the twelve (12) Federal Reserve Banks organized under Section 4 of
the Federal Reserve Act, 12 U.S.C. Section 341. No such pledge or
enforcement thereof shall release Bank from its obligations under any of
the loan documents.
(l) Borrower and any Guarantor hereby grant to Bank, a lien, security
interest and right of setoff as security for all liabilities and
obligations to Bank, whether now existing or hereafter arising, upon and
against deposits, credits, collateral
<PAGE>
and property, now or hereafter in the possession, custody, safekeeping or
control of Bank or any entity under the control of Fleet Financial Group,
Inc., or in transit to any of them. At any time, without demand or notice,
Bank may set off the same or any part thereof and apply the same to any
liability or obligation of Borrower and any Guarantor even though unmatured
and regardless of the adequacy of any other collateral securing the Loan.
ANY AND ALL RIGHTS TO REQUIRE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH
RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE LOAN, PRIOR TO EXERCISING
ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER
PROPERTY OF THE BORROWER OR ANY GUARANTOR, ARE HEREBY KNOWINGLY,
VOLUNTARILY AND IRREVOCABLY WAIVED.
6. Except as set forth on the attached Schedule A, all of the information
set forth on the Schedules to the Loan Agreement is true and accurate as of
the date hereof, and such Schedules are hereby incorporated herein by
reference as if they were attached hereto.
7. In all other respects the Loan Agreement remains unmodified and in full
force and effect, and is hereby ratified and affirmed. Borrower represents
and warrants to Bank that no default now exists under the Loan Agreement.
From and after the date of this First Amendment, any reference in the Loan
Agreement to "this Agreement" and any reference to the Loan Agreement
between Borrower and Bank, shall mean such Agreement as amended hereby
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
Loan Agreement to be duly executed as an instrument under seal by their
respective officers thereunto duly authorized, as of the date first above
written, regardless of the actual date of execution and delivery.
WITNESS CONTROL DEVICES, INC.
/S/ Michael A. Foisy BY /S/ Jeffrey G. Wood
-------------------- -------------------------
Print Name Jeffrey G. Wood
---------------------
Its: Vice President - CFO
---------------------------
FLEET BANK OF MAINE
/S/ Coustance Bilodeau BY: /S/ Peter Sylvestre
----------------------- -------------------
Peter Sylvestre
Its Vice President
<PAGE>
LINE OF CREDIT NOTE
$20,000,000.00 As of September 30, 1998
FOR VALUE RECEIVED, the undersigned CONTROL DEVICES, INC., an Indiana
corporation ("Maker"), promises to pay to the order of FLEET BANK OF MAINE, a
Maine financial institution (together with its successors and assigns as holder
of this Note, the "Bank"), the sum of Twenty Million Dollars ($20,000,000.00),
or so much thereof as may be advanced, which Maker may borrow in full or in
part, repay in full or in part, and reborrow in accordance with the terms of a
Loan Agreement between maker and Bank, dated as of October 8, 1996, as amended
by First Amendment dated as of September 30, 1998 (the "Loan Agreement")
together with interest upon the principal sum thereof from tie to time advanced,
computed from the date of each advance at an interest rate selected by maker in
accordance with the terms of the Loan Agreement. Interest is payable as set
forth in the Loan Agreement, and the entire outstanding amount hereof is due on
September 30, 2000, or sooner if the term hereof is accelerated by Bank in
accordance with the Loan Agreement. Payments may be applied as follows, at the
option of the holder hereof: (1) first to all fees and charges payable hereunder
or in connection herewith, other than principal or interest; (2) second to the
interest on the unpaid balance of the debt evidenced hereby, with interest on
all overdue interest at the same rate and (3) the remainder to the unpaid
principal of the debt, until the same is paid in full.
If any monthly installment of interest is not received with ten (10) days
of the date due, the maker shall be liable for a late fee of five percent (5%)
of the amount of such delinquent installment. If this Note is not paid in full
on September 30, 2000, or on such other date as may be specified in any demand
for payment made by the Bank in accordance with the terms of the Loan Agreement,
interest on the unpaid balance shall accrue at a fluctuating rate equal to five
percent (5%) per annum above the rate(s) that would otherwise apply, until paid
in full. All computation of interest due hereunder shall be based on the actual
number of days elapsed over a 360-day year.
This Note is subject to the condition that at no time shall Maker be
obligated to required to pay interest at a rate which could subject the holder
hereof to either civil or criminal liability, forfeiture or less of principal,
interest, or other sums as a result of being in excess of the maximum interest
rate which Maker is permitted by law to contract or agree to pay or which the
holder hereof is permitted to receive. If by the terms of this Note Maker is at
any time required or obligated to pay interest at a rate in excess of such
maximum rate, the rate of interest under this Note shall be deemed to be
immediately reduced to such maximum rate for so long as such maximum rate shall
be in effect and shall thereafter by payable at the rate herein provided.
Maker and any other party liable herefor may prepay this Note in full or in
part from time to time without premium or penalty, provided that prior written
notice of the intention to make prepayment must be given to the holder hereof
and provided further that the Yield Maintenance Formula referred to in the Loan
Agreement may be applicable to certain prepayments. Such optional prepayment
privilege is in addition to, and not in substitution of, any repayment of
principal required or otherwise contemplated under the Loan Agreement.
Maker and all other parties liable herefor, whether principal, guarantor,
endorser or otherwise, hereby severally waive demand, presentment, protest and
notice of every kind, and waive all recourse to suretyship and guarantorship
defenses generally, including, but not limited to, any extensions of time for
payment or performance which may granted to Maker or to any other liable party,
any modification or amendments to this Note, the Loan Agreement or any documents
securing payment and performance hereof or thereof, any act or omission to act
by or on behalf of the holder hereof, any invalidity or unenforceability or any
security, guaranty or endorsement given herefor, any release of security,
whether any such release is intentional,
<PAGE>
unintentional or by operation of law, and all other indulgences of any type
which may be granted by the holder hereof to Maker or to any other party liable
herefor. Maker and such other parties further severally waive any right to
indemnity, contribution, exoneration or reimbursement of any kind by any other
party directly or indirectly liable herefor, whether maker, endorser, guarantor
or otherwise, on account of any payment made hereunder, and further severally
waive any right of subrogation to the rights, remedies or security of the holder
hereof on account of any payment made hereunder, and do also agree that they are
jointly and severally liable to the holder hereof for all costs and expenses
arising out of or related to the negotiation, enforcement and/or administration
of this Note and/or the Loan Agreement, including any of the foregoing related
to the collection of the indebtedness incurred in connection therewith including
reasonable attorney's fees.
All installments and sums due hereunder shall be paid to Fleet Bank of
Maine, as payee hereof at Two Portland Square, PO Box 1280, Portland, Maine
04104, or to such other parties or addresses as the holder hereof may from time
to time designate in writing to maker or to other parties liable herefor. This
Note evidences a loan for business and commercial purposes, and not for
personal, family, or household purposes.
No invalidity or unenforceability or any portion of this Note shall affect
the validity or enforceability of the remaining portions hereof. This Note shall
be construed in accordance with the laws of the State of Maine as an instrument
given under seal.
ATTEST: CONTROL DEVICES, INC.
BY: /S/ Jeffrey G. Wood
- -------------------------- ----------------------------
Print Name Jeffrey G. Wood
---------------------
Its: Vice President CFO
--------------------------
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<PAGE>
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<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> SEP-30-1998 SEP-30-1997
<CASH> 12,379 0
<SECURITIES> 0 0
<RECEIVABLES> 14,058 0
<ALLOWANCES> (507) 0
<INVENTORY> 9,133 0
<CURRENT-ASSETS> 2,027 0
<PP&E> 13,469 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 59,886 0
<CURRENT-LIABILITIES> 17,177 0
<BONDS> 0 0
0 0
0 0
<COMMON> 20,135 0
<OTHER-SE> (290) 0
<TOTAL-LIABILITY-AND-EQUITY> 0 0
<SALES> 58,116 52,140
<TOTAL-REVENUES> 58,116 52,140
<CGS> 37,372 33,036
<TOTAL-COSTS> 50,110 44,644
<OTHER-EXPENSES> 0 0
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<INTEREST-EXPENSE> (193) 239
<INCOME-PRETAX> 8,200 7,257
<INCOME-TAX> 2,234 2,818
<INCOME-CONTINUING> 5,966 4,439
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 5,966 4,439
<EPS-PRIMARY> 0.72<F1> 0.54<F1>
<EPS-DILUTED> 0.68<F1> 0.52<F1>
<FN>
<F1>
This information has been prepared in accordance with SFAS No. 128, and basic
and diluted EPS have been entered in place of primary and fully diluted,
respectively.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> MAR-31-1997 MAR-31-1996
<CASH> 6,676 0
<SECURITIES> 0 0
<RECEIVABLES> 9,505 0
<ALLOWANCES> 514 0
<INVENTORY> 6,091 0
<CURRENT-ASSETS> 24,163 0
<PP&E> 19,938 0
<DEPRECIATION> 6,330 0
<TOTAL-ASSETS> 45,395 0
<CURRENT-LIABILITIES> 12,549 0
<BONDS> 0 0
0 0
0 0
<COMMON> 19,917 0
<OTHER-SE> (459) 0
<TOTAL-LIABILITY-AND-EQUITY> 45,395 0
<SALES> 17,287 10,772
<TOTAL-REVENUES> 17,287 10,772
<CGS> 10,814 6,919
<TOTAL-COSTS> 14,647 8,953
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 87 312
<INCOME-PRETAX> 2,553 1,507
<INCOME-TAX> 1,017 580
<INCOME-CONTINUING> 1,536 861
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,536 861
<EPS-PRIMARY> 0.19<F1> .20<F1>
<EPS-DILUTED> 0.18<F1> .20<F1>
<FN>
<F1>
This information has been prepared in accordance with SFAS No. 128, and basic
and diluted EPS have been entered in place of primary and fully diluted,
respectively.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> JUN-30-1997 JUN-30-1996
<CASH> 7,787 0
<SECURITIES> 0 0
<RECEIVABLES> 11,657 0
<ALLOWANCES> 480 0
<INVENTORY> 5,735 0
<CURRENT-ASSETS> 26,466 0
<PP&E> 13,505 0
<DEPRECIATION> 6,943 0
<TOTAL-ASSETS> 47,546 0
<CURRENT-LIABILITIES> 13,148 0
<BONDS> 0 0
0 0
0 0
<COMMON> 19,917 0
<OTHER-SE> (528) 0
<TOTAL-LIABILITY-AND-EQUITY> 47,546 0
<SALES> 36,098 28,180
<TOTAL-REVENUES> 36,098 28,180
<CGS> 22,580 17,870
<TOTAL-COSTS> 30,677 23,907
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 147 828
<INCOME-PRETAX> 5,274 3,445
<INCOME-TAX> 2,049 1,322
<INCOME-CONTINUING> 3,225 1,991
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,225 1,991
<EPS-PRIMARY> 0.39<F1> 0.47<F1>
<EPS-DILUTED> 0.38<F1> 0.47<F1>
<FN>
<F1>
This information has been prepared in accordance with SFAS No. 128, and basic
and diluted EPS have been entered in place of primary and fully diluted,
respectively.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> SEP-30-1997 SEP-30-1996
<CASH> 8,423 0
<SECURITIES> 0 0
<RECEIVABLES> 10,904 0
<ALLOWANCES> 495 0
<INVENTORY> 6,364 0
<CURRENT-ASSETS> 26,954 0
<PP&E> 14,089 0
<DEPRECIATION> 7,524 0
<TOTAL-ASSETS> 48,563 0
<CURRENT-LIABILITIES> 13,267 0
<BONDS> 0 0
0 0
0 0
<COMMON> 19,917 0
<OTHER-SE> (540) 0
<TOTAL-LIABILITY-AND-EQUITY> 48,563 0
<SALES> 52,140 44,158
<TOTAL-REVENUES> 52,140 44,158
<CGS> 33,036 28,313
<TOTAL-COSTS> 44,644 38,049
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 239 1,329
<INCOME-PRETAX> 7,257 4,780
<INCOME-TAX> 2,818 1,774
<INCOME-CONTINUING> 4,439 2,808
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,439 2,808
<EPS-PRIMARY> 0.54<F1> 0.66<F1>
<EPS-DILUTED> 0.52<F1> 0.66<F1>
<FN>
<F1>
This information has been prepared in accordance with SFAS No. 128, and basic
and diluted EPS have been entered in place of primary and fully diluted,
respectively.
</FN>
</TABLE>
