<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended June 27, 1999.
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 0-25150
STRATTEC SECURITY CORPORATION
-----------------------------
(Exact name of registrant as specified in its charter)
WISCONSIN 39-1804239
--------- ----------
(State of Incorporation) (I.R.S. Employer Identification No.)
3333 WEST GOOD HOPE ROAD, MILWAUKEE, WI 53209
---------------------------------------------
(Address of principal executive offices)
(414) 247-3333
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
------------------- ------------------------------------
N/A N/A
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
----------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [x] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment of this Form 10-K. [ ]
The aggregate market value of the voting Common Stock held by non-affiliates of
the registrant as of August 18, 1999 was approximately $192,310,000 (based upon
the last reported sale price of the Common Stock at August 18, 1999 on the
NASDAQ National Market). On August 18, 1999, there were outstanding 5,443,450
shares of $.01 par value Common Stock.
Documents Incorporated by Reference
<TABLE>
<CAPTION>
Part of the Form 10-K
Document into which incorporated
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<S> <C>
Portions of the Annual Report to Shareholders for the
fiscal year ended June 27, 1999. I, II, IV
Portions of the Proxy Statement dated September 21, 1999, for the
Annual Meeting of Shareholders to be held on October 26, 1999. III
</TABLE>
<PAGE> 2
PART I
ITEM 1. BUSINESS
The information set forth under "Company Description" which appears on
pages 4 through 8 of the Company's 1999 Annual Report to Shareholders is
incorporated herein by reference. For information as to export sales, see the
information set forth under "Export Sales" included on page 21 of the Company's
1999 Annual Report to Shareholders, which is incorporated herein by reference.
EMERGING TECHNOLOGIES
New electronic technologies are expected to become increasingly
important in future product designs. These technologies may include radio
frequency transmission and receiving, Hall effects sensing, optical reading and
sensing, and custom integrated circuit technology. Further advancements with
respect to RFID applications such as encrypted signals and rolling codes are
anticipated. Specific applications of certain of these technologies began in
prior model years. Application will occur in both OEM and aftermarket products.
In connection with the development of these technologies, the Company intends to
utilize strategic alliances and/or strategic sourcing with respect to certain
components in order to remain competitive from both a cost and quality
standpoint.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The primary raw materials used by the Company are high-grade zinc and
brass. These materials are generally available from a number of suppliers, but
the Company has chosen to concentrate its sourcing with one primary vendor for
each commodity. The Company believes its sources for raw materials are very
reliable and adequate for its needs. The Company has not experienced any
significant long term supply problems in its operations and does not anticipate
any significant supply problems in the foreseeable future.
PATENTS, TRADEMARKS AND OTHER INTELLECTUAL PROPERTY
The Company believes that the success of its business will not only
result from the technical competence, creativity and marketing abilities of its
employees but also from the protection of its intellectual property through
patents, trademarks and copyrights. As part of its ongoing research, development
and manufacturing activities, the Company has a policy of seeking patents on new
products, processes and improvements when appropriate. The Company owns 23
issued United States patents, with expirations occurring between 2012 and 2018.
Although, in the aggregate, the patents discussed above are of
considerable importance to the manufacturing and marketing of many of its
products, the Company does not consider any single patent or trademark or group
of patents or trademarks to be material to its business as a whole, except for
the STRATTEC and STRATTEC with logo trademarks.
The Company also relies upon trade secret protection for its
confidential and proprietary information. The Company maintains confidentiality
agreements with its key executives. In addition, the Company enters into
confidentiality agreements with selected suppliers, consultants and associates
as appropriate to evaluate new products or business relationships pertinent to
the success of the Company. However, there can be no assurance that others will
not independently obtain similar information and techniques or otherwise gain
access to the Company's trade secrets or that the Company can effectively
protect its trade secrets.
DEPENDENCE UPON SIGNIFICANT CUSTOMERS
A very significant portion of the Company's annual sales are to General
Motors Corporation, Ford Motor Company and DaimlerChrysler Corporation. These
three customers accounted for 85% of the Company's total net sales in each
fiscal year 1997 through 1999. Further information regarding sales to the
Company's largest customers is set forth under "Sales to Largest Customers"
included on page 21 of the Company's 1999 Annual Report to Shareholders, which
is incorporated herein by reference.
<PAGE> 3
The products sold to these customers are model specific, fitting only certain
defined applications. Consequently, the Company is highly dependent on its major
customers for their business, and on these customers' ability to produce and
sell vehicles which utilize the Company's products. The Company has enjoyed
relationships with General Motors Corporation, DaimlerChrysler Corporation and
Ford Motor Company in the past, and expects to do so in the future. However, a
significant change in the purchasing practices of, or a significant loss of
volume from, one or more of these customers could have a detrimental effect on
the Company's financial performance.
SALES AND MARKETING
The Company provides its customers with engineered locksets, which are
unique to specific vehicles. Any given vehicle will typically take 1 to 3 years
of development and engineering design time prior to being offered to the public.
The locksets are designed concurrently with the vehicle. Therefore, commitment
to the Company as the production source occurs 1 to 3 years prior to the start
of production.
The typical process used by the "Big Three" automotive manufacturers in
selecting a lock supplier is to offer the business opportunity to the Company
and various of the Company's competitors. Each competitor will pursue the
opportunity, doing its best to provide the customer with the most attractive
proposal. Price pressure is strong during this process but once an agreement is
reached, the price is fixed for each year of the product program. Typically,
price reductions resulting from productivity improvement by the Company are
included in the contract and are estimated in evaluating each of these
opportunities by the Company. A blanket purchase order, a contract indicating a
specified part will be supplied at a specified price during a defined time
period, is issued by customers for each model year and releases, quantity
commitments, are made to that purchase order for weekly deliveries to the
customer. As a consequence and because the Company is a "Just-in-Time" supplier
to the automotive industry, it does not maintain a backlog of orders in the
classic sense for future production and shipment.
COMPETITION
The Company competes with domestic and foreign-based competitors on the
basis of custom product design, engineering support, quality, delivery and
price. While the number of direct competitors is currently relatively small, the
auto manufacturers actively encourage competition between potential suppliers.
Although the Company may not be the lowest cost producer, it has a dominant
share of the North American market because of its ability to provide a
beneficial combination of price, quality and technical support. In order to
reduce lockset production costs while still offering a wide range of technical
support, the Company utilizes assembly operations in Mexico, which results in
lower assembly labor costs as compared to the United States.
As locks become more sophisticated and involve additional electronics,
competitors with specific electronic expertise may emerge to challenge the
Company.
RESEARCH AND DEVELOPMENT
The Company engages in research and development activities pertinent to
the automotive security industry. A major area of focus for research is the
expanding role of electronic interlocks and modes of communicating authorization
data between consumers and vehicles. Development activities include new
products, applications and product performance improvement. In addition,
specialized data collection equipment is developed to facilitate increased
product development efficiency and continuous quality improvements. For fiscal
years 1999, 1998, and 1997, the Company spent $2,680,000, $2,469,000, and
$2,713,000, respectively, on research and development. The Company believes
that, historically, it has committed sufficient resources to research and
development and anticipates increasing such expenditures in the future as
required to support additional product programs associated with both existing
and new customers. Patents are pursued and will continue to be pursued as
appropriate to protect the Company's interests resulting from these activities.
<PAGE> 4
CUSTOMER TOOLING
An important aspect of the Company's production processes is customer
program specific assembly lines and production tooling. In general, capital
equipment acquired by the Company for customer product programs is recognized as
a long-term asset and depreciated. Tooling for these same programs, obtained
primarily from third party tool suppliers, is accumulated as a current asset on
the Company's balance sheet and rebilled to the customer upon formal product
approval from the customer. For certain products, the Company retains ownership
of both the equipment and tooling. Recovery of these costs occurs over the life
of the program through the piece price. See Notes to Consolidated Financial
Statements included in the Company's 1999 Annual Report to Shareholders, which
is incorporated herein by reference.
ENVIRONMENTAL COMPLIANCE
As is the case with other manufacturers, the Company is subject to
federal, state, local and foreign laws and other legal requirements relating to
the generation, storage, transport, treatment and disposal of materials as a
result of its lock and key manufacturing and assembly operations. These laws
include the Resource Conservation and Recovery Act (as amended), the Clean Air
Act (as amended), the Clean Water Act of 1990 (as amended) and the Comprehensive
Environmental Response, Compensation and Liability Act (as amended). The Company
believes that its existing environmental management policies and procedures are
adequate and it has no current plans for substantial capital expenditures in the
environmental area.
Contamination existing at the Company's Milwaukee site from an
underground waste coolant storage tank and a former above-ground solvent storage
tank, located on the east side of the facility, will be remediated in accordance
with federal, state and local requirements.
The Company does not currently anticipate any materially adverse impact
on its results of operations, financial condition or competitive position as a
result of compliance with federal, state, local and foreign environmental laws
or other legal requirements. However, risk of environmental liability and
charges associated with maintaining compliance with environmental laws is
inherent in the nature of the Company's business and there is no assurance that
material liabilities or charges could not arise.
EMPLOYEES
At June 27, 1999, the Company had approximately 2,870 full-time
employees, of which approximately 515 or 18 percent, were represented by a labor
union.
ITEM 2. PROPERTIES
The Company has two manufacturing plants, one warehouse, and a sales
office. These facilities are described as follows:
<TABLE>
<CAPTION>
LOCATION TYPE SQ. FT. OWNED OR LEASED
-------- ---- ------- ---------------
<S> <C> <C> <C>
Milwaukee, Wisconsin Headquarters and General Offices; Component
Manufacturing, Assembly and Service Parts Distribution... 352,000 Owned
Juarez, Chihuahua Mexico Subsidiary Offices and Assembly.......................... 97,000 Owned
El Paso, Texas Finished Goods Warehouse................................. 12,500 Leased**
Troy, Michigan Sales Office for Detroit Area............................ 3,000 Leased**
</TABLE>
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** Leased unit within a complex.
The Company believes that both of its production facilities are adequate for the
foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
In the normal course of business the Company may be involved in various
legal proceedings from time to time. The Company does not believe it is
currently involved in any claim or action the ultimate disposition of which
would have a material adverse effect on the Company or its financial condition.
<PAGE> 5
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of shareholders during the
fourth quarter of fiscal 1999.
EXECUTIVE OFFICERS OF REGISTRANT
The names, ages and positions of all executive officers of the Company as of the
date of this filing are listed below, together with their business experience
during the past five years. Executive officers are appointed annually by the
Board of Directors at the meeting of directors immediately following the annual
meeting of shareholders. There are no family relationships among any of the
executive officers of the Company, nor any arrangements or understanding between
any such officer and another person pursuant to which he was appointed as an
executive officer.
<TABLE>
<CAPTION>
NAME AND AGE POSITION AND BUSINESS EXPERIENCE
- ------------ --------------------------------
<S> <C>
Harold M. Stratton II, 51 Chairman and Chief Executive
Officer of the Company since 1999. President and
Chief Executive Officer of the Company 1994 to
1999. Vice President of Briggs & Stratton
Corporation and General Manager of the
Technologies Division of Briggs & Stratton
Corporation since 1989.
John G. Cahill, 42 President and Chief Operating Officer of the
Company since 1999. Executive Vice President,
Chief Financial Officer, Treasurer and Secretary
of the Company 1994 to 1999. Vice President,
Chief Financial Officer, Secretary and
Treasurer, Johnson Worldwide Associates, Inc.
(manufacturer and marketer of recreational and
marking systems products) 1992 to 1994 and
Corporate Controller from 1989 to 1992.
Michael R. Elliott, 43 Vice President - Global Market Development since
1999. Vice President - Sales and Marketing of
the Company 1994 to 1999. Vice President -
Marketing and Sales of the Technologies Division
since 1993. Vice President - Corporate
Development of Iverness Casting Group (a
producer of castings and injection molded
products) from 1991 to 1992. Vice President -
Sales and Marketing of Iverness Casting Group
from 1990 to 1991. Sales, Marketing and Planning
Manager of the AC Rochester Division of General
Motors Corporation (an automotive manufacturer)
from 1988 to 1990.
Gerald L. Peebles, 56 Vice President and General Manager of STRATTEC
de Mexico - since 1997. Vice President -
Operations of the Company 1995 - 1997. Vice
President - Operations of the Technologies
Division since 1994. Operations Manager - Juarez
Plant of the Technologies Division from 1990 to
1994. Plant Manager - Juarez Plant of the
Technologies Division from 1988 to 1990.
Donald J. Harrod, 55 Vice President - Engineering of the Company
since 1998. Product Engineering Manager,
Mertior/Rockwell (manufacturer of automotive
parts) 1997 to 1998. Vice President -
Engineering, Coltec Farnem Holley (manufacturer
of automotive parts) 1986 to 1997.
Patrick J. Hansen, 40 Vice President, Chief Financial Officer,
Secretary and Treasurer of the Company since
1999. Corporate Controller of the Company 1995
to 1999. Controller, Schwarz Pharma
(manufacturer of pharmaceutical drugs) 1993 to
1995. Corporate Controller, ASAA Inc.
(manufacturer of automotive parts) 1989 to 1993.
</TABLE>
<PAGE> 6
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information set forth in the "Quarterly Financial Data" section
appearing on page 23 of the Company's 1999 Annual Report to Shareholders is
incorporated herein by reference.
The Company does not intend to pay cash dividends on the Company Common
Stock in the foreseeable future; rather, it is currently anticipated that
Company earnings will be retained for use in its business. The future payment of
dividends will depend on business decisions that will be made by the Board of
Directors from time to time based on the results of operations and financial
condition of the Company and such other business considerations as the Board of
Directors considers relevant. The Company's revolving credit agreement contains
restrictions on the payment of dividends. See Notes to Consolidated Financial
Statements included in the Company's 1999 Annual Report to Shareholders, which
is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth under "Five Year Financial Summary" which
appears on page 23 of the Company's 1999 Annual Report to Shareholders is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The information set forth under "Management's Discussion and Analysis"
which appears on pages 10 through 12 of the Company's 1999 Annual Report to
Shareholders is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company did not hold any market risk sensitive instruments during
the period covered by this report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements, together with the report thereon of Arthur
Andersen LLP dated July 29, 1999, which appear on pages 13 through 23 of the
Company's 1999 Annual Report to Shareholders, are incorporated herein by
reference.
The Quarterly Financial Data (unaudited) which appears on page 23 of
the Company's 1999 Annual Report to Shareholders is incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information on pages 2 through 6 of the Company's Proxy Statement,
dated September 21, 1999, under "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information on pages 7 through 14 of the Company's Proxy Statement,
dated September 21, 1999, under "Executive Compensation" and "Compensation of
Directors" is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information on pages 3 through 6 of the Company's Proxy Statement,
dated September 21, 1999, under "Security Ownership" is incorporated herein by
reference.
<PAGE> 7
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information on pages 7 through 14 of the Company's Proxy Statement,
dated September 21, 1999, under "Executive Compensation" is incorporated herein
by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents Filed as part of this Report
(1) Financial Statements - The following financial statements of
the Company, included on pages 13 through 22 of the Company's
1999 Annual Report to Shareholders, are incorporated by
reference in Item 8.
Report of Independent Public Accountants
Balance Sheets - as of June 27, 1999 and June 28, 1998
Statements of Income - years ended June 27, 1999, June 28,
1998 and June 29, 1997
Statements of Changes in Equity - years ended June 27, 1999,
June 28, 1998 and June 29, 1997
Statements of Cash Flows - years ended June 27, 1999, June 28,
1998 and June 29, 1997
Notes to Financial Statements
(2) Financial Statement Schedules
<TABLE>
<CAPTION>
Page in this
Form 10-K Report
----------------
<S> <C>
Report of Independent Public Accountants 8
Schedule II - Valuation and Qualifying Accounts 9
</TABLE>
All other schedules have been omitted because they are not
applicable or are not required, or because the required
information has been included in the Financial Statements or Notes
thereto.
(3) Exhibits. See "Exhibit Index" beginning on page 11.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the fourth
quarter of fiscal 1999.
<PAGE> 8
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited in accordance with generally accepted auditing standards the
consolidated financial statements included in the STRATTEC SECURITY CORPORATION
Annual Report to Shareholders incorporated by reference in this Form 10-K and
have issued our report thereon dated July 29, 1999. Our audit was made for the
purpose of forming an opinion on those statements taken as a whole. The schedule
listed in the accompanying index is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic consolidated financial statements and, in our opinion,
fairly states in all material respects the financial data required to be set
forth therein in relation to the basic consolidated financial statements taken
as a whole.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
July 29, 1999.
<PAGE> 9
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Balance, Provision Payments Balance,
Beginning Charged to and Accounts End of
of Year Profit & Loss Written Off Year
------- ------------- ----------- ----
<S> <C> <C> <C> <C>
Year ended June 27, 1999
Allowance for doubtful accounts $250 $33 $33 $250
==== === === ====
Year ended June 28, 1998
Allowance for doubtful accounts $250 $0 $0 $250
==== == == ====
Year ended June 29, 1997
Allowance for doubtful accounts $250 $0 $0 $250
==== == == ====
</TABLE>
<PAGE> 10
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
STRATTEC SECURITY CORPORATION
By: /s/ Harold M. Stratton II
------------------------------
Harold M. Stratton II, Chairman and
Chief Executive Officer
Date: August 24, 1999
Pursuant to the requirement of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Harold M. Stratton II Chairman and Chief Executive August 24, 1999
- -------------------------------
Harold M. Stratton II Officer
/s/ John G. Cahill President and Chief Operating August 24, 1999
- -------------------------------
John G. Cahill Officer
/s/ Frank J. Krejci Director August 24, 1999
- -------------------------------
Frank J. Krejci
/s/ Michael J. Koss Director August 24, 1999
- -------------------------------
Michael J. Koss
/s/ Robert Feitler Director August 24, 1999
- -------------------------------
Robert Feitler
</TABLE>
<PAGE> 11
EXHIBIT INDEX TO ANNUAL REPORT
ON FORM 10-K
<TABLE>
<CAPTION>
Page Number in
Sequential Numbering
of all Form 10-K and
Exhibit Exhibit Pages
- ------- -------------
<S> <C> <C>
3.1 (2) Amended and Restated Articles of Incorporation of the Company *
3.2 (2) By-laws of the Company *
4.1 (2) Rights Agreement between the Company and Firstar Trust Company, as Rights Agent *
4.2 (3) Revolving Credit Agreement dated as of February 27, 1995 by and between the Company *
and M&I Bank, together with Revolving Credit Note
10.1(5) STRATTEC SECURITY CORPORATION Stock Incentive Plan *
10.2 Employment Agreements between the Company and the identified executive officers 12
10.3(1) Change In Control Agreement between the Company and the identified executive officers 58
10.15(4) STRATTEC SECURITY CORPORATION Economic Value Added Plan for Executive *
Officers and Senior Managers
13.1 Annual Report to Shareholders for the year ended June 27, 1999 92
21 (1) Subsidiaries of the Company *
23 Consent of Independent Public Accountants dated September 17, 1999 112
27 Financial Data Schedule 113
</TABLE>
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(1) Incorporated by reference from Amendment No. 1 to the Form 10 filed on
January 20, 1995.
(2) Incorporated by reference from Amendment No. 2 to the Form 10 filed on
February 6, 1995.
(3) Incorporated by reference form the April 2, 1995 Form 10-Q filed on May 17,
1995.
(4) Incorporated by reference from the July 2, 1995 Form 10-K filed on September
14, 1995.
(5) Incorporated by reference from the Proxy Statement for the 1997 Annual
Meeting of Shareholders filed on September 10, 1997.
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made as of the 1st day of
February, 1999, by and between STRATTEC SECURITY CORPORATION, a Wisconsin
corporation (the "Company"), and HAROLD M. STRATTON II (the "Employee").
RECITAL
The Company desires to employ the Employee and the Employee is
willing to make his services available to the Company on the terms and
conditions set forth below.
AGREEMENTS
In consideration of the premises and the mutual agreements
which follow, the parties agree as follows:
1. Employment. The Company hereby employs the Employee and the
Employee hereby accepts employment with the Company on the terms and conditions
set forth in this Agreement.
2. Term. The term of the Employee's employment hereunder shall
commence effective on February 1, 1999 and shall continue through June 30, 1999,
and shall thereafter be automatically renewed for successive fiscal year terms
unless either the Company or Employee gives notice of nonrenewal not less than
30 days prior to the end of the then current term (the "Employment Period").
3. Duties. The Employee shall serve as the Chairman of the
Board and Chief Executive Officer of the Company and will, under the direction
of the Board of Directors, faithfully and to the best of Employee's ability,
perform the duties of the Chairman of the Board and Chief Executive Officer. The
Chairman of the Board and Chief Executive Officer shall be one of the principal
executive officers of the Company and shall, subject to the control of the Board
of Directors, supervise all functions of the Company. The Employee shall also
perform such additional duties and responsibilities which may from time to time
be reasonably assigned or delegated by the Board of Directors of the Company.
The Employee agrees to devote Employee's entire business time, effort, skill and
attention to the proper discharge of such duties while employed by the Company.
However, the Employee may engage in other business activities unrelated to, and
<PAGE> 2
not in conflict with, the business of the Company if the Board of Directors
consents in writing to such other business activity.
4. Compensation. The Employee shall receive a base salary of
$240,000 per year, payable in regular and semi-monthly installments (the "Base
Salary"). Employee's Base Salary shall be reviewed annually by the Board of
Directors of the Company to determine appropriate increases, if any, in such
Base Salary.
5. Fringe Benefits.
(a) Medical, Health, Dental, Disability and Life Coverage.
The Employee shall be eligible to participate in any medical, health, dental,
disability and life insurance policy in effect for senior management of the
Company (collectively, the "Senior Management").
(b) Incentive Bonus and Stock Ownership Plans. The Employee
shall be entitled to participate in any incentive bonus or other incentive
compensation plan developed generally for the Senior Management of the Company,
on a basis consistent with Employee's position and level of compensation with
the Company. The Employee shall also be entitled to participate in any incentive
stock option plan or other stock ownership plan developed generally for the
Senior Management of the Company, on a basis consistent with Employee's position
and level of compensation with the Company.
(c) Reimbursement for Reasonable Business Expenses. Subject
to the terms and conditions of the Company's expense reimbursement policy, the
Company shall pay or reimburse the Employee for reasonable expenses incurred by
Employee in connection with the performance of Employee's duties pursuant to
this Agreement, including, but not limited to, travel expenses, expenses in
connection with seminars, professional conventions or similar professional
functions and other reasonable business expenses.
6. Termination of Employment.
(a) Termination for Cause, Disability or Death. During the
term of this Agreement, the Company shall be entitled to terminate the
Employee's employment at any time upon the "Disability" of the Employee or for
"Cause" upon notice to the Employee. The Employee's employment hereunder shall
automatically terminate upon the death of the Employee. For purposes of this
Agreement, "Disability" shall mean a physical or mental sickness or any injury
which renders the Employee incapable of performing the essential functions of
2
<PAGE> 3
Employee's job (with or without reasonable accommodations) and which does or may
be expected to continue for more than 4 months during any 12-month period. In
the event Employee shall be able to perform the essential functions of
Employee's job (with or without reasonable accommodations) following a period of
disability, and does so perform such duties, or such other duties as are
prescribed by the Board Of Directors of the Company, for a period of three
continuous months, any subsequent period of disability shall be regarded as a
new period of disability for purposes of this Agreement. The Company and the
Employee shall determine the existence of a Disability and the date upon which
it occurred. In the event of a dispute regarding whether or when a Disability
occurred, the matter shall be referred to a medical doctor selected by the
Company and the Employee. In the event of their failure to agree upon such a
medical doctor, the Company and the Employee shall each select a medical doctor
who together shall select a third medical doctor who shall make the
determination. Such determination shall be conclusive and binding upon the
parties hereto.
The Company may terminate the Employee's
employment under this agreement for "Cause," effective immediately upon delivery
of notice to the Employee. Cause shall be deemed to exist if the Employee shall
have (1) materially breached the terms of this Agreement; (2) willfully failed
to substantially perform his duties, other than a failure resulting from
incapacity due to physical or mental illness; or (3) serious misconduct which is
demonstrably and substantially injurious to the Company. No act or failure to
act will be considered "cause" if such act or failure is done in good faith and
with a reasonable belief that it is in the best interests of the Company.
In the event of termination for Disability
or death, payments of the Employee's Base Salary shall be made to the Employee,
his designated beneficiary or Employee's estate for a period of six months after
the date of the termination (even if this period would extend beyond the
Employment Period); provided, however that the foregoing payments in the event
of a Disability shall be reduced by the amount, if any, that is paid to Employee
pursuant to a disability plan or policy maintained by the Company. During this
period, the Company shall also reimburse the Employee for amounts paid, if any,
to continue medical, dental and health coverage pursuant to the provisions of
the Consolidated Omnibus Budget Reconciliation Act. During this period, the
Company will also continue Employee's life insurance and disability coverage, to
the extent permitted under applicable policies, and will pay to the Employee the
fringe benefits pursuant to section 5 which have accrued prior to the date of
termination. Termination of this Agreement for a Disability shall not change
Employee's rights to receive benefits, if any, pursuant to any disability plan
or policy then maintained by the Company.
3
<PAGE> 4
(b) Termination Without Cause. If the Employee's employment
is terminated by the Company for any reason other than for Cause, Disability or
death, or if this Agreement is terminated by the Company for what the Company
believes is Cause or Disability, and it is ultimately determined that the
Employee was wrongfully terminated, Employee shall, as damages for such a
termination, receive Employee's Base Salary, for the remainder of the Employment
Period or six months, if longer. During this period, the Company shall also
reimburse the Employee for amounts paid, if any, to continue medical, dental and
health coverage pursuant to the provisions of the Consolidated Omnibus Budget
Reconciliation Act. During this period, the Company will also continue
Employee's life insurance and disability coverage, to the extent permitted under
applicable policies, and will pay to the Employee the fringe benefits pursuant
to section 5 which have accrued prior to the date of termination. The Company's
termination of the Employee's employment under this section 6(b) shall
immediately relieve the Employee of all obligations under this Agreement (except
as provided in sections 7 and 8) and, except as provided below, shall not be
construed to require the application of any compensation which the Employee may
earn in any such other employment to reduce the Company's obligation to provide
severance benefits and liquidated damages under this section 6(b).
(c) Effect of Termination. The termination of the
Employee's employment pursuant to section 6 shall not affect the Employee's
obligations as described in sections 7 and 8.
7. Noncompetition. The parties agree that the Company's
customer contacts and relations are established and maintained at great expense
and by virtue of the Employee's employment with the Company, the Employee will
have unique and extensive exposure to and personal contact with the Company's
customers, and that Employee will be able to establish a unique relationship
with those individuals and entities that will enable Employee, both during and
after employment, to unfairly compete with the Company. Further, the parties
agree that the terms and conditions of the following restrictive covenants are
reasonable and necessary for the protection of the Company's business, trade
secrets and confidential information and to prevent great damage or loss to the
Company as a result of action taken by the Employee. The Employee acknowledges
that the noncompete restrictions and nondisclosure of confidential information
restrictions contained in this Agreement are reasonable and the consideration
provided for herein is sufficient to fully and adequately compensate the
Employee for agreeing to such restrictions. The Employee acknowledges that
Employee could continue to actively pursue Employee's career and earn sufficient
compensation in the same or
4
<PAGE> 5
similar business without breaching any of the restrictions contained in this
Agreement.
(a) During Term of Employment. The Employee hereby
covenants and agrees that, during Employee's employment with the Company,
Employee shall not, directly or indirectly, either individually or as an
employee, principal, agent, partner, shareholder, owner, trustee, beneficiary,
co-venturer, distributor, consultant or in any other capacity, participate in,
become associated with, provide assistance to, engage in or have a financial or
other interest in any business, activity or enterprise which is competitive with
or a supplier to the Company or any successor or assign of the Company. The
ownership of less than a one percent interest in a corporation whose shares are
traded in a recognized stock exchange or traded in the over-the-counter market,
even though that corporation may be a competitor of the Company, shall not be
deemed financial participation in a competitor.
(b) Upon Termination of Employment. The Employee agrees
that during a period after termination of Employee's employment with the Company
equal to the shorter of one year or the duration of Employee's employment with
the Company, Employee will not, directly or indirectly, either individually or
as an employee, agent, partner, shareholder, owner, trustee, beneficiary,
co-venturer, distributor, consultant or in any other capacity:
(i) Canvass, solicit or accept from any person or
entity who is a customer of the Company (any such person or entity is
hereinafter referred to individually as a "Customer" and collectively as the
"Customers") any business in competition with the business of the Company or the
successors or assigns of the Company, including the canvassing, soliciting or
accepting of business from any individual or entity which is or was a Customer
of the Company within the two-year period preceding the date on which the
canvassing, soliciting or accepting of business begins.
(ii) Request or advise any of the Customers, suppliers,
or other business contacts of the Company who currently have or have had
business relationships with the Company within two years preceding the date
hereof or within two years preceding the date of such action, to withdraw,
curtail or cancel any of their business or relations with the Company.
(iii) Induce or attempt to induce any employee, sales
representative, consultant or other personnel of the Company to terminate his or
her relationship or breach his or her agreements with the Company.
5
<PAGE> 6
(iv) Use, disclose, divulge or transmit or cause to be
used by or disclosed, divulged or transmitted to any third party, any
information acquired by the Employee during the Employment Period which relates
to the trade secrets and confidential information of the Company, except as may
be required by law.
(v) Participate in, become associated with, provide
assistance to, engage in or have a financial or other interest in any business,
activity or enterprise which is competitive with the business of the Company or
any successor or assign of the Company to the extent such activities relate to
products or services which are competitive with the products and services of the
Company; provided, however, that the ownership of less than 1% of the stock of a
corporation whose shares are traded in a recognized stock exchange or traded in
the over-the-counter market, even though that corporation may be a competitor of
the Company, shall not be deemed financial participation in a competitor.
For purposes of this section 7, a competitive
business is defined as a business which is involved in designing, developing,
manufacturing or marketing mechanical, electro-mechanical and/or electronic
security and access control products in the global motor vehicle industry.
8. Confidential Information. The parties agree that the
Company's customers, business connections, suppliers, customer lists,
procedures, operations, techniques, and other aspects of its business are
established at great expense and protected as confidential information and
provide the Company with a substantial competitive advantage in conducting its
business. The parties further agree that by virtue of the Employee's employment
with the Company, Employee will have access to, and be entrusted with, secret,
confidential and proprietary information, and that the Company would suffer
great loss and injury if the Employee would disclose this information or use it
to compete with the Company. Therefore, the Employee agrees that during the term
of Employee's employment, and for a period of two years after the termination of
his employment with the Company, Employee will not, directly or indirectly,
either individually or as an employee, agent, partner, shareholder, owner,
trustee, beneficiary, co-venturer, distributor, consultant or in any other
capacity, use or disclose, or cause to be used or disclosed, any secret,
confidential or proprietary information acquired by the Employee during
Employee's employment with the Company whether owned by the Company prior to or
discovered and developed by the Company subsequent to the Employee's employment,
and regardless of the fact that the Employee may have participated in the
discovery and the development of that information. Employee also agrees and
acknowledges that Employee will comply with all
6
<PAGE> 7
applicable laws regarding insider trading or the use of material nonpublic
information in connection with the trading of securities.
9. Common Law of Torts and Trade Secrets. The parties agree
that nothing in this Agreement shall be construed to limit or negate the common
law of torts or trade secrets where it provides the Company with broader
protection than that provided herein.
10. Specific Performance. The Employee acknowledges and agrees
that irreparable injury to the Company may result in the event the Employee
breaches any covenant and agreement contained in sections 7 and 8 and that the
remedy at law for the breach of any such covenant will be inadequate. Therefore,
if the Employee engages in any act in violation of the provisions of sections 7
and 8, the Employee agrees that the Company shall be entitled, in addition to
such other remedies and damages as may be available to it by law or under this
Agreement, to injunctive relief to enforce the provisions of sections 7 and 8.
11. Waiver. The failure of either party to insist, in any one
or more instances, upon performance of the terms or conditions of this Agreement
shall not be construed as a waiver or a relinquishment of any right granted
hereunder or of the future performance of any such term, covenant or condition.
12. Notices. Any notice to be given hereunder shall be deemed
sufficient if addressed in writing, and delivered by registered or certified
mail or delivered personally, in the case of the Company, to its principal
business office, and in the case of the Employee, to his address appearing on
the records of the Company, or to such other address as he may designate in
writing to the Company.
13. Severability. In the event that any provision shall be
held to be invalid or unenforceable for any reason whatsoever, it is agreed such
invalidity or unenforceability shall not affect any other provision of this
Agreement and the remaining covenants, restrictions and provisions hereof shall
remain in full force and effect and any court of competent jurisdiction may so
modify the objectionable provision as to make it valid, reasonable and
enforceable. Furthermore, the parties specifically acknowledge the above
covenant not to compete and covenant not to disclose confidential information
are separate and independent agreements.
14. Amendment. This Agreement may only be amended by an
agreement in writing signed by all of the parties hereto.
15. Governing Law. This Agreement shall be governed by and
construed exclusively in accordance with the laws of the State of Wisconsin,
7
<PAGE> 8
regardless of choice of law requirements. The parties hereby consent to the
jurisdiction of the state courts of the State of Wisconsin and of any federal
court in the venue of Wisconsin for the purpose of any suit, action or
proceeding arising out of or related to this Agreement, and expressly waive any
and all objections they may have as to venue in any of such courts.
16. Dispute Resolution. The parties hereto shall attempt to
resolve disputes arising out of or relating to this Agreement. Any dispute not
resolved in writing within 21 days may be referred by either party to mediation
involving a mediator (a third party neutral), trained and experienced in the
mediation process and mutually agreed to by the parties. The mediator shall
ascribe to and follow the AAA/SPIDR or ABA code of ethics for mediators in
conduct and management of the mediation process. Expenses for the mediation
shall be shared equally by the parties unless otherwise agreed during the
mediation process. The parties may be accompanied in the mediation process by
legal counsel, and/or other persons mutually agreed to by the parties and the
mediator. All participants will openly and honestly participate in the
mediation. The mediation may be terminated at any time, for any reason by the
mediator or by either party. Any resolution reached by the parties during the
mediation shall be recorded in writing and agreed to by the parties. Such
resolution may be drafted and/or revised by the parties' legal counsel and shall
be legally binding on the parties.
17. Benefit. This Agreement shall be binding upon and inure to
the benefit of and shall be enforceable by and against the Company, its
successors and assigns and the Employee, his heirs, beneficiaries and legal
representatives. It is agreed that the rights and obligations of the Employee
may not be delegated or assigned.
IN WITNESS WHEREOF, the parties have executed or caused this
Agreement to be executed as of the day, month and year first above written.
EMPLOYEE STRATTEC SECURITY CORPORATION
/s/ Harold M. Stratton II BY /s/ John G. Cahill
- -------------------------- ------------------
Harold M. Stratton II John G. Cahill, President and
Chief Operating Officer
8
<PAGE> 9
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made as of the 1st day of
February, 1999, by and between STRATTEC SECURITY CORPORATION, a Wisconsin
corporation (the "Company"), and JOHN G. CAHILL (the "Employee").
RECITAL
The Company desires to employ the Employee and the Employee is
willing to make his services available to the Company on the terms and
conditions set forth below.
AGREEMENTS
In consideration of the premises and the mutual agreements
which follow, the parties agree as follows:
1. Employment. The Company hereby employs the Employee and the
Employee hereby accepts employment with the Company on the terms and conditions
set forth in this Agreement.
2. Term. The term of the Employee's employment hereunder shall
commence effective on February 1, 1999 and shall continue through June 30, 1999,
and shall thereafter be automatically renewed for successive fiscal year terms
unless either the Company or Employee gives notice of nonrenewal not less than
30 days prior to the end of the then current term (the "Employment Period").
3. Duties. The Employee shall serve as the President and Chief
Operating Officer of the Company and will, under the direction of the Chief
Executive Officer, faithfully and to the best of Employee's ability, perform the
duties of the President and Chief Operating Officer. The President and Chief
Operating Officer shall be one of the principal executive officers of the
Company and shall, subject to the control of the Chief Executive Officer,
supervise the manufacturing, engineering, materials, and business operations
functions of the Company. The Employee shall also perform such additional duties
and responsibilities which may from time to time be reasonably assigned or
delegated by the Chief Executive Officer of the Company. The Employee agrees to
devote Employee's entire business time, effort, skill and attention to the
proper discharge of such duties while employed by the Company. However, the
Employee may engage in other business activities unrelated to, and not in
conflict with, the business of the Company if the Chief Executive Officer
consents in writing to such other business activity.
4. Compensation. The Employee shall receive a base salary of
$220,000 per year, payable in regular and semi-monthly installments (the "Base
Salary"). Employee's Base Salary shall be reviewed annually by the Board of
Directors of the Company to determine appropriate increases, if any, in such
Base Salary.
<PAGE> 10
5. Fringe Benefits.
(a) Medical, Health, Dental, Disability and Life Coverage.
The Employee shall be eligible to participate in any medical, health, dental,
disability and life insurance policy in effect for senior management of the
Company (collectively, the "Senior Management").
(b) Incentive Bonus and Stock Ownership Plans. The Employee
shall be entitled to participate in any incentive bonus or other incentive
compensation plan developed generally for the Senior Management of the Company,
on a basis consistent with Employee's position and level of compensation with
the Company. The Employee shall also be entitled to participate in any incentive
stock option plan or other stock ownership plan developed generally for the
Senior Management of the Company, on a basis consistent with Employee's position
and level of compensation with the Company.
(c) Reimbursement for Reasonable Business Expenses. Subject
to the terms and conditions of the Company's expense reimbursement policy, the
Company shall pay or reimburse the Employee for reasonable expenses incurred by
Employee in connection with the performance of Employee's duties pursuant to
this Agreement, including, but not limited to, travel expenses, expenses in
connection with seminars, professional conventions or similar professional
functions and other reasonable business expenses.
6. Termination of Employment.
(a) Termination for Cause, Disability or Death. During the
term of this Agreement, the Company shall be entitled to terminate the
Employee's employment at any time upon the "Disability" of the Employee or for
"Cause" upon notice to the Employee. The Employee's employment hereunder shall
automatically terminate upon the death of the Employee. For purposes of this
Agreement, "Disability" shall mean a physical or mental sickness or any injury
which renders the Employee incapable of performing the essential functions of
Employee's job (with or without reasonable accommodations) and which does or may
be expected to continue for more than 4 months during any 12 month period. In
the event Employee shall be able to perform the essential functions of
Employee's job (with or without reasonable accommodations) following a period of
disability, and does so perform such duties, or such other duties as are
prescribed by the President of the Company, for a period of three continuous
months, any subsequent period of disability shall be regarded as a new period of
disability for purposes of this Agreement. The Company and the Employee shall
determine the existence of a Disability and the date upon which it occurred. In
the event of a dispute regarding whether or when a Disability occurred, the
matter shall be referred to a medical doctor selected by the Company and the
Employee. In the event of their failure to agree upon such a medical doctor, the
Company and the Employee shall each select a medical doctor who together shall
select a third
2
<PAGE> 11
medical doctor who shall make the determination. Such determination shall be
conclusive and binding upon the parties hereto.
The Company may terminate the Employee's
employment under this agreement for "Cause," effective immediately upon delivery
of notice to the Employee. Cause shall be deemed to exist if the Employee shall
have (1) materially breached the terms of this Agreement; (2) willfully failed
to substantially perform his duties, other than a failure resulting from
incapacity due to physical or mental illness; or (3) serious misconduct which is
demonstrably and substantially injurious to the Company. No act or failure to
act will be considered "cause" if such act or failure is done in good faith and
with a reasonable belief that it is in the best interests of the Company.
In the event of termination for Disability
or death, payments of the Employee's Base Salary shall be made to the Employee,
his designated beneficiary or Employee's estate for a period of six months after
the date of the termination (even if this period would extend beyond the
Employment Period); provided, however that the foregoing payments in the event
of a Disability shall be reduced by the amount, if any, that is paid to Employee
pursuant to a disability plan or policy maintained by the Company. During this
period, the Company shall also reimburse the Employee for amounts paid, if any,
to continue medical, dental and health coverage pursuant to the provisions of
the Consolidated Omnibus Budget Reconciliation Act. During this period, the
Company will also continue Employee's life insurance and disability coverage, to
the extent permitted under applicable policies, and will pay to the Employee the
fringe benefits pursuant to section 5 which have accrued prior to the date of
termination. Termination of this Agreement for a Disability shall not change
Employee's rights to receive benefits, if any, pursuant to any disability plan
or policy then maintained by the Company.
(b) Termination Without Cause. If the
Employee's employment is terminated by the Company for any reason other than for
Cause, Disability or death, or if this Agreement is terminated by the Company
for what the Company believes is Cause or Disability, and it is ultimately
determined that the Employee was wrongfully terminated, Employee shall, as
damages for such a termination, receive Employee's Base Salary, for the
remainder of the Employment Period or six months, if longer. During this period,
the Company shall also reimburse the Employee for amounts paid, if any, to
continue medical, dental and health coverage pursuant to the provisions of the
Consolidated Omnibus Budget Reconciliation Act. During this period, the Company
will also continue Employee's life insurance and disability coverage, to the
extent permitted under applicable policies, and will pay to the Employee the
fringe benefits pursuant to section 5 which have accrued prior to the date of
termination. The Company's termination of the Employee's employment under this
section 6(b) shall immediately relieve the Employee of all obligations under
this Agreement (except as provided in sections 7 and 8) and, except as provided
below, shall not be construed to require the application of any compensation
which the Employee may earn in any such other employment to reduce the Company's
obligation to provide severance benefits and liquidated damages under this
section 6(b).
3
<PAGE> 12
(c) Effect of Termination. The termination of the
Employee's employment pursuant to section 6 shall not affect the Employee's
obligations as described in sections 7 and 8.
7. Noncompetition. The parties agree that the Company's
customer contacts and relations are established and maintained at great expense
and by virtue of the Employee's employment with the Company, the Employee will
have unique and extensive exposure to and personal contact with the Company's
customers, and that Employee will be able to establish a unique relationship
with those individuals and entities that will enable Employee, both during and
after employment, to unfairly compete with the Company. Further, the parties
agree that the terms and conditions of the following restrictive covenants are
reasonable and necessary for the protection of the Company's business, trade
secrets and confidential information and to prevent great damage or loss to the
Company as a result of action taken by the Employee. The Employee acknowledges
that the noncompete restrictions and nondisclosure of confidential information
restrictions contained in this Agreement are reasonable and the consideration
provided for herein is sufficient to fully and adequately compensate the
Employee for agreeing to such restrictions. The Employee acknowledges that
Employee could continue to actively pursue Employee's career and earn sufficient
compensation in the same or similar business without breaching any of the
restrictions contained in this Agreement.
(a) During Term of Employment. The Employee hereby
covenants and agrees that, during Employee's employment with the Company,
Employee shall not, directly or indirectly, either individually or as an
employee, principal, agent, partner, shareholder, owner, trustee, beneficiary,
co-venturer, distributor, consultant or in any other capacity, participate in,
become associated with, provide assistance to, engage in or have a financial or
other interest in any business, activity or enterprise which is competitive with
or a supplier to the Company or any successor or assign of the Company. The
ownership of less than a one percent interest in a corporation whose shares are
traded in a recognized stock exchange or traded in the over-the-counter market,
even though that corporation may be a competitor of the Company, shall not be
deemed financial participation in a competitor.
(b) Upon Termination of Employment. The Employee agrees
that during a period after termination of Employee's employment with the Company
equal to the shorter of one year or the duration of Employee's employment with
the Company, Employee will not, directly or indirectly, either individually or
as an employee, agent, partner, shareholder, owner, trustee, beneficiary,
co-venturer, distributor, consultant or in any other capacity:
(i) Canvass, solicit or accept from any person or
entity who is a customer of the Company (any such person or entity is
hereinafter referred to individually as a "Customer" and collectively as the
"Customers") any business in competition with the business of the Company or the
successors or assigns of the Company, including the canvassing, soliciting or
accepting of business from any individual
4
<PAGE> 13
or entity which is or was a Customer of the Company within the two-year period
preceding the date on which the canvassing, soliciting or accepting of business
begins.
(ii) Request or advise any of the Customers,
suppliers, or other business contacts of the Company who currently have or have
had business relationships with the Company within two years preceding the date
hereof or within two years preceding the date of such action, to withdraw,
curtail or cancel any of their business or relations with the Company.
(iii) Induce or attempt to induce any employee, sales
representative, consultant or other personnel of the Company to terminate his or
her relationship or breach his or her agreements with the Company.
(iv) Use, disclose, divulge or transmit or cause to be
used by or disclosed, divulged or transmitted to any third party, any
information acquired by the Employee during the Employment Period which relates
to the trade secrets and confidential information of the Company, except as may
be required by law.
(v) Participate in, become associated with, provide
assistance to, engage in or have a financial or other interest in any business,
activity or enterprise which is competitive with the business of the Company or
any successor or assign of the Company to the extent such activities relate to
products or services which are competitive with the products and services of the
Company; provided, however, that the ownership of less than 1% of the stock of a
corporation whose shares are traded in a recognized stock exchange or traded in
the over-the-counter market, even though that corporation may be a competitor of
the Company, shall not be deemed financial participation in a competitor.
For purposes of this section 7, a competitive
business is defined as a business which is involved in designing, developing,
manufacturing or marketing mechanical, electro-mechanical and/or electronic
security and access control products in the global motor vehicle industry.
8. Confidential Information. The parties agree that the
Company's customers, business connections, suppliers, customer lists,
procedures, operations, techniques, and other aspects of its business are
established at great expense and protected as confidential information and
provide the Company with a substantial competitive advantage in conducting its
business. The parties further agree that by virtue of the Employee's employment
with the Company, Employee will have access to, and be entrusted with, secret,
confidential and proprietary information, and that the Company would suffer
great loss and injury if the Employee would disclose this information or use it
to compete with the Company. Therefore, the Employee agrees that during the term
of Employee's employment, and for a period of two years after the termination of
his employment with the Company, Employee will not, directly or indirectly,
either individually or as an employee, agent, partner, shareholder, owner,
trustee, beneficiary,
5
<PAGE> 14
co-venturer, distributor, consultant or in any other capacity, use or disclose,
or cause to be used or disclosed, any secret, confidential or proprietary
information acquired by the Employee during Employee's employment with the
Company whether owned by the Company prior to or discovered and developed by the
Company subsequent to the Employee's employment, and regardless of the fact that
the Employee may have participated in the discovery and the development of that
information. Employee also agrees and acknowledges that Employee will comply
with all applicable laws regarding insider trading or the use of material
nonpublic information in connection with the trading of securities.
9. Common Law of Torts and Trade Secrets. The parties agree
that nothing in this Agreement shall be construed to limit or negate the common
law of torts or trade secrets where it provides the Company with broader
protection than that provided herein.
10. Specific Performance. The Employee acknowledges and agrees
that irreparable injury to the Company may result in the event the Employee
breaches any covenant and agreement contained in sections 7 and 8 and that the
remedy at law for the breach of any such covenant will be inadequate. Therefore,
if the Employee engages in any act in violation of the provisions of sections 7
and 8, the Employee agrees that the Company shall be entitled, in addition to
such other remedies and damages as may be available to it by law or under this
Agreement, to injunctive relief to enforce the provisions of sections 7 and 8.
11. Waiver. The failure of either party to insist, in any one
or more instances, upon performance of the terms or conditions of this Agreement
shall not be construed as a waiver or a relinquishment of any right granted
hereunder or of the future performance of any such term, covenant or condition.
12. Notices. Any notice to be given hereunder shall be deemed
sufficient if addressed in writing, and delivered by registered or certified
mail or delivered personally, in the case of the Company, to its principal
business office, and in the case of the Employee, to his address appearing on
the records of the Company, or to such other address as he may designate in
writing to the Company.
13. Severability. In the event that any provision shall be
held to be invalid or unenforceable for any reason whatsoever, it is agreed such
invalidity or unenforceability shall not affect any other provision of this
Agreement and the remaining covenants, restrictions and provisions hereof shall
remain in full force and effect and any court of competent jurisdiction may so
modify the objectionable provision as to make it valid, reasonable and
enforceable. Furthermore, the parties specifically acknowledge the above
covenant not to compete and covenant not to disclose confidential information
are separate and independent agreements.
6
<PAGE> 15
14. Amendment. This Agreement may only be amended by an
agreement in writing signed by all of the parties hereto.
15. Governing Law. This Agreement shall be governed by and
construed exclusively in accordance with the laws of the State of Wisconsin,
regardless of choice of law requirements. The parties hereby consent to the
jurisdiction of the state courts of the State of Wisconsin and of any federal
court in the venue of Wisconsin for the purpose of any suit, action or
proceeding arising out of or related to this Agreement, and expressly waive any
and all objections they may have as to venue in any of such courts.
16. Dispute Resolution. The parties hereto shall attempt to
resolve disputes arising out of or relating to this Agreement. Any dispute not
resolved in writing within 21 days may be referred by either party to mediation
involving a mediator (a third party neutral), trained and experienced in the
mediation process and mutually agreed to by the parties. The mediator shall
ascribe to and follow the AAA/SPIDR or ABA code of ethics for mediators in
conduct and management of the mediation process. Expenses for the mediation
shall be shared equally by the parties unless otherwise agreed during the
mediation process. The parties may be accompanied in the mediation process by
legal counsel, and/or other persons mutually agreed to by the parties and the
mediator. All participants will openly and honestly participate in the
mediation. The mediation may be terminated at any time, for any reason by the
mediator or by either party. Any resolution reached by the parties during the
mediation shall be recorded in writing and agreed to by the parties. Such
resolution may be drafted and/or revised by the parties' legal counsel and shall
be legally binding on the parties.
17. Benefit. This Agreement shall be binding upon and inure to
the benefit of and shall be enforceable by and against the Company, its
successors and assigns and the Employee, his heirs, beneficiaries and legal
representatives. It is agreed that the rights and obligations of the Employee
may not be delegated or assigned.
IN WITNESS WHEREOF, the parties have executed or caused this
Agreement to be executed as of the day, month and year first above written.
EMPLOYEE STRATTEC SECURITY CORPORATION
S/JOHN G. CAHILL BY HAROLD M. STRATTON
- ------------------- ---------------------------
John G. Cahill Harold M. Stratton II,
Chairman of the Board
and Chief Executive Officer
7
<PAGE> 16
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made as of the 5th day of
January, 1999, by and between STRATTEC SECURITY CORPORATION, a Wisconsin
corporation (the "Company"), and MICHAEL R. ELLIOTT (the "Employee").
RECITAL
The Company desires to employ the Employee and the Employee is
willing to make his services available to the Company on the terms and
conditions set forth below.
AGREEMENTS
In consideration of the premises and the mutual agreements
which follow, the parties agree as follows:
1. Employment. The Company hereby employs the Employee
and the Employee hereby accepts employment with the Company on the terms and
conditions set forth in this Agreement.
2. Term. The term of the Employee's employment
hereunder shall commence effective on January 1, 1999 and shall continue through
June 30, 1999, and shall thereafter be automatically renewed for successive
fiscal year terms unless either the Company or Employee gives notice of
nonrenewal not less than 30 days prior to the end of the then current term (the
"Employment Period").
3. Duties. The Employee shall serve as the Vice
President-Sales and Marketing of the Company and will, under the direction of
the President, faithfully and to the best of Employee's ability, perform the
duties of the Vice President-Sales and Marketing. The Vice President-Sales and
Marketing shall be one of the principal executive officers of the Company and
shall, subject to the control of the President, supervise the sales and
marketing functions of the Company. The Employee shall also perform such
additional duties and responsibilities which may from time to time be reasonably
assigned or delegated by the President of the Company. The Employee agrees to
devote Employee's entire business time, effort, skill and attention to the
proper discharge of such duties while employed by the Company. However, the
Employee may engage in other business activities unrelated to, and not in
conflict with, the business of the
<PAGE> 17
Company if the Chief Executive Officer consents in writing to such other
business activity.
4. Compensation. The Employee shall receive a base salary
of $124,000 per year, payable in regular and semi-monthly installments (the
"Base Salary"). Employee's Base Salary shall be reviewed annually by the Board
of Directors of the Company to determine appropriate increases, if any, in such
Base Salary.
5. Fringe Benefits.
(a) Medical, Health, Dental, Disability and Life
Coverage. The Employee shall be eligible to participate in any medical, health,
dental, disability and life insurance policy in effect for senior management of
the Company (collectively, the "Senior Management").
(b) Incentive Bonus and Stock Ownership Plans.
The Employee shall be entitled to participate in any incentive bonus or other
incentive compensation plan developed generally for the Senior Management of the
Company, on a basis consistent with Employee's position and level of
compensation with the Company. The Employee shall also be entitled to
participate in any incentive stock option plan or other stock ownership plan
developed generally for the Senior Management of the Company, on a basis
consistent with Employee's position and level of compensation with the Company.
(c) Reimbursement for Reasonable Business
Expenses. Subject to the terms and conditions of the Company's expense
reimbursement policy, the Company shall pay or reimburse the Employee for
reasonable expenses incurred by Employee in connection with the performance of
Employee's duties pursuant to this Agreement, including, but not limited to,
travel expenses, expenses in connection with seminars, professional conventions
or similar professional functions and other reasonable business expenses.
6. Termination of Employment.
(a) Termination for Cause, Disability or Death.
During the term of this Agreement, the Company shall be entitled to terminate
the Employee's employment at any time upon the "Disability" of the Employee or
for "Cause" upon notice to the Employee. The Employee's employment hereunder
shall automatically terminate upon the death of the Employee. For purposes of
this Agreement, "Disability" shall mean a physical or mental sickness or
any injury which renders the Employee incapable of performing the essential
functions of
2
<PAGE> 18
Employee's job (with or without reasonable accommodations) and which does or
may be expected to continue for more than 4 months during any 12-month period.
In the event Employee shall be able to perform the essential functions of
Employee's job (with or without reasonable accommodations) following a period of
disability, and does so perform such duties, or such other duties as are
prescribed by the President of the Company, for a period of three continuous
months, any subsequent period of disability shall be regarded as a new period of
disability for purposes of this Agreement. The Company and the Employee shall
determine the existence of a Disability and the date upon which it occurred. In
the event of a dispute regarding whether or when a Disability occurred, the
matter shall be referred to a medical doctor selected by the Company and the
Employee. In the event of their failure to agree upon such a medical doctor,
the Company and the Employee shall each select a medical doctor who together
shall select a third medical doctor who shall make the determination. Such
determination shall be conclusive and binding upon the parties hereto.
The Company may terminate the Employee's
employment under this agreement for "Cause," effective immediately upon delivery
of notice to the Employee. Cause shall be deemed to exist if the Employee shall
have (1) materially breached the terms of this Agreement; (2) willfully failed
to substantially perform his duties, other than a failure resulting from
incapacity due to physical or mental illness; or (3) serious misconduct which is
demonstrably and substantially injurious to the Company. No act or failure to
act will be considered "cause" if such act or failure is done in good faith and
with a reasonable belief that it is in the best interests of the Company.
In the event of termination for Disability or
death, payments of the Employee's Base Salary shall be made to the Employee, his
designated beneficiary or Employee's estate for a period of six months after the
date of the termination (even if this period would extend beyond the Employment
Period); provided, however that the foregoing payments in the event of a
Disability shall be reduced by the amount, if any, that is paid to Employee
pursuant to a disability plan or policy maintained by the Company. During this
period, the Company shall also reimburse the Employee for amounts paid, if any,
to continue medical, dental and health coverage pursuant to the provisions of
the Consolidated Omnibus Budget Reconciliation Act. During this period, the
Company will also continue Employee's life insurance and disability coverage, to
the extent permitted under applicable policies, and will pay to the Employee the
fringe benefits pursuant to section 5 which have accrued prior to the date of
termination. Termination of this Agreement for a Disability shall not change
Employee's rights to receive benefits, if any, pursuant to any disability plan
or policy then maintained by the Company.
3
<PAGE> 19
(b) Termination Without Cause. If the Employee's
employment is terminated by the Company for any reason other than for Cause,
Disability or death, or if this Agreement is terminated by the Company for what
the Company believes is Cause or Disability, and it is ultimately determined
that the Employee was wrongfully terminated, Employee shall, as damages for such
a termination, receive Employee's Base Salary, for the remainder of the
Employment Period or six months, if longer. During this period, the Company
shall also reimburse the Employee for amounts paid, if any, to continue medical,
dental and health coverage pursuant to the provisions of the Consolidated
Omnibus Budget Reconciliation Act. During this period, the Company will also
continue Employee's life insurance and disability coverage, to the extent
permitted under applicable policies, and will pay to the Employee the fringe
benefits pursuant to section 5 which have accrued prior to the date of
termination. The Company's termination of the Employee's employment under this
section 6(b) shall immediately relieve the Employee of all obligations under
this Agreement (except as provided in sections 7 and 8) and, except as provided
below, shall not be construed to require the application of any compensation
which the Employee may earn in any such other employment to reduce the Company's
obligation to provide severance benefits and liquidated damages under this
section 6(b).
(c) Effect of Termination. The termination of the
Employee's employment pursuant to section 6 shall not affect the Employee's
obligations as described in sections 7 and 8.
7. Noncompetition. The parties agree that the Company's
customer contacts and relations are established and maintained at great expense
and by virtue of the Employee's employment with the Company, the Employee will
have unique and extensive exposure to and personal contact with the Company's
customers, and that Employee will be able to establish a unique relationship
with those individuals and entities that will enable Employee, both during and
after employment, to unfairly compete with the Company. Further, the parties
agree that the terms and conditions of the following restrictive covenants are
reasonable and necessary for the protection of the Company's business, trade
secrets and confidential information and to prevent great damage or loss to the
Company as a result of action taken by the Employee. The Employee acknowledges
that the noncompete restrictions and nondisclosure of confidential information
restrictions contained in this Agreement are reasonable and the consideration
provided for herein is sufficient to fully and adequately compensate the
Employee for agreeing to such restrictions. The Employee acknowledges that
Employee could continue to actively pursue Employee's career and earn sufficient
compensation in the same or
4
<PAGE> 20
similar business without breaching any of the restrictions contained in this
Agreement.
(a) During Term of Employment. The Employee
hereby covenants and agrees that, during Employee's employment with the Company,
Employee shall not, directly or indirectly, either individually or as an
employee, principal, agent, partner, shareholder, owner, trustee, beneficiary,
co-venturer, distributor, consultant or in any other capacity, participate in,
become associated with, provide assistance to, engage in or have a financial or
other interest in any business, activity or enterprise which is competitive with
or a supplier to the Company or any successor or assign of the Company. The
ownership of less than a one percent interest in a corporation whose shares are
traded in a recognized stock exchange or traded in the over-the-counter market,
even though that corporation may be a competitor of the Company, shall not be
deemed financial participation in a competitor.
(b) Upon Termination of Employment. The
Employee agrees that during a period after termination of Employee's employment
with the Company equal to the shorter of one year or the duration of Employee's
employment with the Company, Employee will not, directly or indirectly, either
individually or as an employee, agent, partner, shareholder, owner, trustee,
beneficiary, co-venturer, distributor, consultant or in any other capacity:
(i) Canvass, solicit or accept from any
person or entity who is a customer of the Company (any such person or entity is
hereinafter referred to individually as a "Customer" and collectively as the
"Customers") any business in competition with the business of the Company or the
successors or assigns of the Company, including the canvassing, soliciting or
accepting of business from any individual or entity which is or was a Customer
of the Company within the two-year period preceding the date on which the
canvassing, soliciting or accepting of business begins.
(ii) Request or advise any of the Customers,
suppliers, or other business contacts of the Company who currently have or have
had business relationships with the Company within two years preceding the date
hereof or within two years preceding the date of such action, to withdraw,
curtail or cancel any of their business or relations with the Company.
(iii) Induce or attempt to induce any
employee, sales representative, consultant or other personnel of the Company to
terminate his or her relationship or breach his or her agreements with the
Company.
5
<PAGE> 21
(iv) Use, disclose, divulge or transmit or
cause to be used by or disclosed, divulged or transmitted to any third party,
any information acquired by the Employee during the Employment Period which
relates to the trade secrets and confidential information of the Company, except
as may be required by law.
(v) Participate in, become associated with,
provide assistance to, engage in or have a financial or other interest in any
business, activity or enterprise which is competitive with the business of the
Company or any successor or assign of the Company to the extent such activities
relate to products or services which are competitive with the products and
services of the Company; provided, however, that the ownership of less than 1%
of the stock of a corporation whose shares are traded in a recognized stock
exchange or traded in the over-the-counter market, even though that corporation
may be a competitor of the Company, shall not be deemed financial participation
in a competitor.
For purposes of this section 7, a
competitive business is defined as a business which is involved in designing,
developing, manufacturing or marketing mechanical, electro-mechanical and/or
electronic security and access control products in the global motor vehicle
industry.
8. Confidential Information. The parties agree that the
Company's customers, business connections, suppliers, customer lists,
procedures, operations, techniques, and other aspects of its business are
established at great expense and protected as confidential information and
provide the Company with a substantial competitive advantage in conducting its
business. The parties further agree that by virtue of the Employee's employment
with the Company, Employee will have access to, and be entrusted with, secret,
confidential and proprietary information, and that the Company would suffer
great loss and injury if the Employee would disclose this information or use it
to compete with the Company. Therefore, the Employee agrees that during the term
of Employee's employment, and for a period of two years after the termination of
his employment with the Company, Employee will not, directly or indirectly,
either individually or as an employee, agent, partner, shareholder, owner,
trustee, beneficiary, co-venturer, distributor, consultant or in any other
capacity, use or disclose, or cause to be used or disclosed, any secret,
confidential or proprietary information acquired by the Employee during
Employee's employment with the Company whether owned by the Company prior to or
discovered and developed by the Company subsequent to the Employee's employment,
and regardless of the fact that the Employee may have participated in the
discovery and the development of that information. Employee also agrees and
acknowledges that Employee will comply with all
6
<PAGE> 22
applicable laws regarding insider trading or the use of material nonpublic
information in connection with the trading of securities.
9. Common Law of Torts and Trade Secrets. The partie
agree that nothing in this Agreement shall be construed to limit or negate the
common law of torts or trade secrets where it provides the Company with broader
protection than that provided herein.
10. Specific Performance. The Employee acknowledges and
agrees that irreparable injury to the Company may result in the event the
Employee breaches any covenant and agreement contained in sections 7 and 8 and
that the remedy at law for the breach of any such covenant will be inadequate.
Therefore, if the Employee engages in any act in violation of the provisions of
sections 7 and 8, the Employee agrees that the Company shall be entitled, in
addition to such other remedies and damages as may be available to it by law or
under this Agreement, to injunctive relief to enforce the provisions of sections
7 and 8.
11. Waiver. The failure of either party to insist, in any
one or more instances, upon performance of the terms or conditions of this
Agreement shall not be construed as a waiver or a relinquishment of any right
granted hereunder or of the future performance of any such term, covenant or
condition.
12. Notices. Any notice to be given hereunder shall be
deemed sufficient if addressed in writing, and delivered by registered or
certified mail or delivered personally, in the case of the Company, to its
principal business office, and in the case of the Employee, to his address
appearing on the records of the Company, or to such other address as he may
designate in writing to the Company.
13. Severability. In the event that any provision shall be
held to be invalid or unenforceable for any reason whatsoever, it is agreed such
invalidity or unenforceability shall not affect any other provision of this
Agreement and the remaining covenants, restrictions and provisions hereof shall
remain in full force and effect and any court of competent jurisdiction may so
modify the objectionable provision as to make it valid, reasonable and
enforceable. Furthermore, the parties specifically acknowledge the above
covenant not to compete and covenant not to disclose confidential information
are separate and independent agreements.
14. Amendment. This Agreement may only be amended by an
agreement in writing signed by all of the parties hereto.
15. Governing Law. This Agreement shall be governed by and
construed exclusively in accordance with the laws of the State of Wisconsin,
7
<PAGE> 23
regardless of choice of law requirements. The parties hereby consent to the
jurisdiction of the state courts of the State of Wisconsin and of any federal
court in the venue of Wisconsin for the purpose of any suit, action or
proceeding arising out of or related to this Agreement, and expressly waive any
and all objections they may have as to venue in any of such courts.
16. Dispute Resolution. The parties hereto shall attempt to
resolve disputes arising out of or relating to this Agreement. Any dispute not
resolved in writing within 21 days may be referred by either party to mediation
involving a mediator (a third party neutral), trained and experienced in the
mediation process and mutually agreed to by the parties. The mediator shall
ascribe to and follow the AAA/SPIDR or ABA code of ethics for mediators in
conduct and management of the mediation process. Expenses for the mediation
shall be shared equally by the parties unless otherwise agreed during the
mediation process. The parties may be accompanied in the mediation process by
legal counsel, and/or other persons mutually agreed to by the parties and the
mediator. All participants will openly and honestly participate in the
mediation. The mediation may be terminated at any time, for any reason by the
mediator or by either party. Any resolution reached by the parties during the
mediation shall be recorded in writing and agreed to by the parties. Such
resolution may be drafted and/or revised by the parties' legal counsel and shall
be legally binding on the parties.
17. Benefit. This Agreement shall be binding upon and inure to
the benefit of and shall be enforceable by and against the Company, its
successors and assigns and the Employee, his heirs, beneficiaries and legal
representatives. It is agreed that the rights and obligations of the Employee
may not be delegated or assigned.
IN WITNESS WHEREOF, the parties have executed or caused this
Agreement to be executed as of the day, month and year first above written.
EMPLOYEE STRATTEC SECURITY CORPORATION
s/ Michael R. Elliott BY s/ Harold M. Stratton II
- ---------------------- -----------------------------
Michael R. Elliott Harold M. Stratton II, President
<PAGE> 24
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made as of the 1st day of
February, 1999, by and between STRATTEC SECURITY CORPORATION, a Wisconsin
corporation (the "Company"), and PATRICK J. HANSEN (the "Employee").
RECITAL
The Company desires to employ the Employee and the Employee is
willing to make his services available to the Company on the terms and
conditions set forth below.
AGREEMENTS
In consideration of the premises and the mutual agreements
which follow, the parties agree as follows:
1. Employment. The Company hereby employs the Employee
and the Employee hereby accepts employment with the Company on the terms and
conditions set forth in this Agreement.
2. Term. The term of the Employee's employment hereunder
shall commence effective on February 1, 1999 and shall continue through June 30,
1999, and shall thereafter be automatically renewed for successive fiscal year
terms unless either the Company or Employee gives notice of nonrenewal not less
than 30 days prior to the end of the then current term (the "Employment
Period").
3. Duties. The Employee shall serve as the Vice President
and Chief Financial Officer of the Company and will, under the direction of the
Chairman of the Board and Chief Executive Officer, faithfully and to the best of
Employee's ability, perform the duties of the Vice President and Chief Financial
Officer. The Vice President and Chief Financial Officer shall be one of the
principal executive officers of the Company and shall, subject to the control of
the Chairman of the Board and Chief Executive Officer, supervise the finance,
accounting and information services functions of the Company. The Employee shall
also perform such additional duties and responsibilities which may from time to
time be reasonably assigned or delegated by the Chairman of the Board and Chief
Executive Officer of the Company. The Employee agrees to devote Employee's
entire business time, effort, skill and attention to the proper discharge of
such duties while employed by the Company. However, the Employee may engage in
other business activities unrelated to, and not in conflict with, the business
of the Company if the Chairman of the Board and Chief Executive Officer consents
in writing to such other business activity.
4. Compensation. The Employee shall receive a base salary
of $115,000 per year, payable in regular and semi-monthly installments (the
"Base Salary").
<PAGE> 25
Employee's Base Salary shall be reviewed annually by the Board of Directors of
the Company to determine appropriate increases, if any, in such Base Salary.
5. Fringe Benefits.
(a) Medical, Health, Dental, Disability and Life
Coverage. The Employee shall be eligible to participate in any medical, health,
dental, disability and life insurance policy in effect for senior management of
the Company (collectively, the "Senior Management").
(b) Incentive Bonus and Stock Ownership Plans. The
Employee shall be entitled to participate in any incentive bonus or other
incentive compensation plan developed generally for the Senior Management of the
Company, on a basis consistent with Employee's position and level of
compensation with the Company. The Employee shall also be entitled to
participate in any incentive stock option plan or other stock ownership plan
developed generally for the Senior Management of the Company, on a basis
consistent with Employee's position and level of compensation with the Company.
(c) Reimbursement for Reasonable Business Expenses.
Subject to the terms and conditions of the Company's expense reimbursement
policy, the Company shall pay or reimburse the Employee for reasonable expenses
incurred by Employee in connection with the performance of Employee's duties
pursuant to this Agreement, including, but not limited to, travel expenses,
expenses in connection with seminars, professional conventions or similar
professional functions and other reasonable business expenses.
6. Termination of Employment.
(a) Termination for Cause, Disability or Death.
During the term of this Agreement, the Company shall be entitled to terminate
the Employee's employment at any time upon the "Disability" of the Employee or
for "Cause" upon notice to the Employee. The Employee's employment hereunder
shall automatically terminate upon the death of the Employee. For purposes of
this Agreement, "Disability" shall mean a physical or mental sickness or any
injury which renders the Employee incapable of performing the essential
functions of Employee's job (with or without reasonable accommodations) and
which does or may be expected to continue for more than 4 months during any
12-month period. In the event Employee shall be able to perform the essential
functions of Employee's job (with or without reasonable accommodations)
following a period of disability, and does so perform such duties, or such other
duties as are prescribed by the President of the Company, for a period of three
continuous months, any subsequent period of disability shall be regarded as a
new period of disability for purposes of this Agreement. The Company and the
Employee shall determine the existence of a Disability and the date upon which
it occurred. In the event of a dispute regarding whether or when a Disability
occurred, the matter shall be referred to a medical doctor selected by the
Company and the Employee. In the event of their failure to agree upon such a
medical doctor, the Company
2
<PAGE> 26
and the Employee shall each select a medical doctor who together shall select a
third medical doctor who shall make the determination. Such determination shall
be conclusive and binding upon the parties hereto.
The Company may terminate the Employee's employment under this
agreement for "Cause," effective immediately upon delivery of notice to the
Employee. Cause shall be deemed to exist if the Employee shall have (1)
materially breached the terms of this Agreement; (2) willfully failed to
substantially perform his duties, other than a failure resulting from incapacity
due to physical or mental illness; or (3) serious misconduct which is
demonstrably and substantially injurious to the Company. No act or failure to
act will be considered "cause" if such act or failure is done in good faith and
with a reasonable belief that it is in the best interests of the Company.
In the event of termination for Disability or death, payments
of the Employee's Base Salary shall be made to the Employee, his designated
beneficiary or Employee's estate for a period of six months after the date of
the termination (even if this period would extend beyond the Employment Period);
provided, however that the foregoing payments in the event of a Disability shall
be reduced by the amount, if any, that is paid to Employee pursuant to a
disability plan or policy maintained by the Company. During this period, the
Company shall also reimburse the Employee for amounts paid, if any, to continue
medical, dental and health coverage pursuant to the provisions of the
Consolidated Omnibus Budget Reconciliation Act. During this period, the Company
will also continue Employee's life insurance and disability coverage, to the
extent permitted under applicable policies, and will pay to the Employee the
fringe benefits pursuant to section 5 which have accrued prior to the date of
termination. Termination of this Agreement for a Disability shall not change
Employee's rights to receive benefits, if any, pursuant to any disability plan
or policy then maintained by the Company.
(b) Termination Without Cause. If the Employee's employment
is terminated by the Company for any reason other than for Cause, Disability or
death, or if this Agreement is terminated by the Company for what the Company
believes is Cause or Disability, and it is ultimately determined that the
Employee was wrongfully terminated, Employee shall, as damages for such a
termination, receive Employee's Base Salary, for the remainder of the Employment
Period or six months, if longer. During this period, the Company shall also
reimburse the Employee for amounts paid, if any, to continue medical, dental and
health coverage pursuant to the provisions of the Consolidated Omnibus Budget
Reconciliation Act. During this period, the Company will also continue
Employee's life insurance and disability coverage, to the extent permitted under
applicable policies, and will pay to the Employee the fringe benefits pursuant
to section 5 which have accrued prior to the date of termination. The Company's
termination of the Employee's employment under this section 6(b) shall
immediately relieve the Employee of all obligations under this Agreement (except
as provided in sections 7 and 8) and, except as provided below, shall not be
construed to require the application of any compensation which the Employee may
earn in any such other employment to reduce the Company's obligation to provide
severance benefits and liquidated damages under this section 6(b).
3
<PAGE> 27
(c) Effect of Termination. The termination of the
Employee's employment pursuant to section 6 shall not affect the Employee's
obligations as described in sections 7 and 8.
7. Noncompetition. The parties agree that the Company's customer
contacts and relations are established and maintained at great expense and by
virtue of the Employee's employment with the Company, the Employee will have
unique and extensive exposure to and personal contact with the Company's
customers, and that Employee will be able to establish a unique relationship
with those individuals and entities that will enable Employee, both during and
after employment, to unfairly compete with the Company. Further, the parties
agree that the terms and conditions of the following restrictive covenants are
reasonable and necessary for the protection of the Company's business, trade
secrets and confidential information and to prevent great damage or loss to the
Company as a result of action taken by the Employee. The Employee acknowledges
that the noncompete restrictions and nondisclosure of confidential information
restrictions contained in this Agreement are reasonable and the consideration
provided for herein is sufficient to fully and adequately compensate the
Employee for agreeing to such restrictions. The Employee acknowledges that
Employee could continue to actively pursue Employee's career and earn sufficient
compensation in the same or similar business without breaching any of the
restrictions contained in this Agreement.
(a) During Term of Employment. The Employee hereby
covenants and agrees that, during Employee's employment with the Company,
Employee shall not, directly or indirectly, either individually or as an
employee, principal, agent, partner, shareholder, owner, trustee, beneficiary,
co-venturer, distributor, consultant or in any other capacity, participate in,
become associated with, provide assistance to, engage in or have a financial or
other interest in any business, activity or enterprise which is competitive with
or a supplier to the Company or any successor or assign of the Company. The
ownership of less than a one percent interest in a corporation whose shares are
traded in a recognized stock exchange or traded in the over-the-counter market,
even though that corporation may be a competitor of the Company, shall not be
deemed financial participation in a competitor.
(b) Upon Termination of Employment. The Employee agrees
that during a period after termination of Employee's employment with the Company
equal to the shorter of one year or the duration of Employee's employment with
the Company, Employee will not, directly or indirectly, either individually or
as an employee, agent, partner, shareholder, owner, trustee, beneficiary,
co-venturer, distributor, consultant or in any other capacity:
(i) Canvass, solicit or accept from any person or
entity who is a customer of the Company (any such person or entity is
hereinafter referred to individually as a "Customer" and collectively as the
"Customers") any business in competition with the business of the Company or the
successors or assigns of the
4
<PAGE> 28
Company, including the canvassing, soliciting or accepting of business from any
individual or entity which is or was a Customer of the Company within the
two-year period preceding the date on which the canvassing, soliciting or
accepting of business begins.
(ii) Request or advise any of the Customers, suppliers, or
other business contacts of the Company who currently have or have had business
relationships with the Company within two years preceding the date hereof or
within two years preceding the date of such action, to withdraw, curtail or
cancel any of their business or relations with the Company.
(iii) Induce or attempt to induce any employee, sales
representative, consultant or other personnel of the Company to terminate his or
her relationship or breach his or her agreements with the Company.
(iv) Use, disclose, divulge or transmit or cause to be used
by or disclosed, divulged or transmitted to any third party, any information
acquired by the Employee during the Employment Period which relates to the trade
secrets and confidential information of the Company, except as may be required
by law.
(v) Participate in, become associated with, provide
assistance to, engage in or have a financial or other interest in any business,
activity or enterprise which is competitive with the business of the Company or
any successor or assign of the Company to the extent such activities relate to
products or services which are competitive with the products and services of the
Company; provided, however, that the ownership of less than 1% of the stock of a
corporation whose shares are traded in a recognized stock exchange or traded in
the over-the-counter market, even though that corporation may be a competitor of
the Company, shall not be deemed financial participation in a competitor.
For purposes of this section 7, a competitive business
is defined as a business which is involved in designing, developing,
manufacturing or marketing mechanical, electro-mechanical and/or electronic
security and access control products in the global motor vehicle industry.
8. Confidential Information. The parties agree that the Company's
customers, business connections, suppliers, customer lists, procedures,
operations, techniques, and other aspects of its business are established at
great expense and protected as confidential information and provide the Company
with a substantial competitive advantage in conducting its business. The parties
further agree that by virtue of the Employee's employment with the Company,
Employee will have access to, and be entrusted with, secret, confidential and
proprietary information, and that the Company would suffer great loss and injury
if the Employee would disclose this information or use it to compete with the
Company. Therefore, the Employee agrees that during the term of Employee's
employment, and for a period of two years after the termination of his
employment with the Company, Employee will not, directly or indirectly, either
5
<PAGE> 29
individually or as an employee, agent, partner, shareholder, owner, trustee,
beneficiary, co-venturer, distributor, consultant or in any other capacity, use
or disclose, or cause to be used or disclosed, any secret, confidential or
proprietary information acquired by the Employee during Employee's employment
with the Company whether owned by the Company prior to or discovered and
developed by the Company subsequent to the Employee's employment, and regardless
of the fact that the Employee may have participated in the discovery and the
development of that information. Employee also agrees and acknowledges that
Employee will comply with all applicable laws regarding insider trading or the
use of material nonpublic information in connection with the trading of
securities.
9. Common Law of Torts and Trade Secrets. The parties
agree that nothing in this Agreement shall be construed to limit or negate the
common law of torts or trade secrets where it provides the Company with broader
protection than that provided herein.
10. Specific Performance. The Employee acknowledges and
agrees that irreparable injury to the Company may result in the event the
Employee breaches any covenant and agreement contained in sections 7 and 8 and
that the remedy at law for the breach of any such covenant will be inadequate.
Therefore, if the Employee engages in any act in violation of the provisions of
sections 7 and 8, the Employee agrees that the Company shall be entitled, in
addition to such other remedies and damages as may be available to it by law or
under this Agreement, to injunctive relief to enforce the provisions of sections
7 and 8.
11. Waiver. The failure of either party to insist, in any
one or more instances, upon performance of the terms or conditions of this
Agreement shall not be construed as a waiver or a relinquishment of any right
granted hereunder or of the future performance of any such term, covenant or
condition.
12. Notices. Any notice to be given hereunder shall be
deemed sufficient if addressed in writing, and delivered by registered or
certified mail or delivered personally, in the case of the Company, to its
principal business office, and in the case of the Employee, to his address
appearing on the records of the Company, or to such other address as he may
designate in writing to the Company.
13. Severability. In the event that any provision shall be
held to be invalid or unenforceable for any reason whatsoever, it is agreed such
invalidity or unenforceability shall not affect any other provision of this
Agreement and the remaining covenants, restrictions and provisions hereof shall
remain in full force and effect and any court of competent jurisdiction may so
modify the objectionable provision as to make it valid, reasonable and
enforceable. Furthermore, the parties specifically acknowledge the above
covenant not to compete and covenant not to disclose confidential information
are separate and independent agreements.
6
<PAGE> 30
14. Amendment. This Agreement may only be amended by an
agreement in writing signed by all of the parties hereto.
15. Governing Law. This Agreement shall be governed by and
construed exclusively in accordance with the laws of the State of Wisconsin,
regardless of choice of law requirements. The parties hereby consent to the
jurisdiction of the state courts of the State of Wisconsin and of any federal
court in the venue of Wisconsin for the purpose of any suit, action or
proceeding arising out of or related to this Agreement, and expressly waive any
and all objections they may have as to venue in any of such courts.
16. Dispute Resolution. The parties hereto shall attempt
to resolve disputes arising out of or relating to this Agreement. Any dispute
not resolved in writing within 21 days may be referred by either party to
mediation involving a mediator (a third party neutral), trained and experienced
in the mediation process and mutually agreed to by the parties. The mediator
shall ascribe to and follow the AAA/SPIDR or ABA code of ethics for mediators in
conduct and management of the mediation process. Expenses for the mediation
shall be shared equally by the parties unless otherwise agreed during the
mediation process. The parties may be accompanied in the mediation process by
legal counsel, and/or other persons mutually agreed to by the parties and the
mediator. All participants will openly and honestly participate in the
mediation. The mediation may be terminated at any time, for any reason by the
mediator or by either party. Any resolution reached by the parties during the
mediation shall be recorded in writing and agreed to by the parties. Such
resolution may be drafted and/or revised by the parties' legal counsel and shall
be legally binding on the parties.
17. Benefit. This Agreement shall be binding upon and
inure to the benefit of and shall be enforceable by and against the Company, its
successors and assigns and the Employee, his heirs, beneficiaries and legal
representatives. It is agreed that the rights and obligations of the Employee
may not be delegated or assigned.
IN WITNESS WHEREOF, the parties have executed or caused this
Agreement to be executed as of the day, month and year first above written.
EMPLOYEE STRATTEC SECURITY CORPORATION
/s/ Patrick J. Hansen BY /s/ Harold M. Stratton II
- ---------------------- --------------------------
Patrick J. Hansen Harold M. Stratton II,
Chairman of the Board
and Chief Executive Officer
<PAGE> 31
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made as of the 31st day of
December, 1999, by and between STRATTEC SECURITY CORPORATION, a Wisconsin
corporation (the "Company"), and GERALD L. PEEBLES (the "Employee").
RECITAL
The Company desires to employ the Employee and the Employee is
willing to make his services available to the Company on the terms and
conditions set forth below.
AGREEMENTS
In consideration of the premises and the mutual agreements
which follow, the parties agree as follows:
1. Employment. The Company hereby employs the Employee and
the Employee hereby accepts employment with the Company on the terms and
conditions set forth in this Agreement.
2. Term. The term of the Employee's employment hereunder
shall commence effective on January 1, 1999 and shall continue through June 30,
1999, and shall thereafter be automatically renewed for successive fiscal year
terms unless either the Company or Employee gives notice of nonrenewal not less
than 30 days prior to the end of the then current term (the "Employment Period")
3. Duties. The Employee shall serve as the Vice President and
General Manager STRATTEC de Mexico of the Company and will, under the direction
of the President, faithfully and to the best of Employee's ability, perform the
duties of the Vice President and General Manager STRATTEC de Mexico. The Vice
President and General Manager STRATTEC de Mexico shall be one of the principal
executive officers of the Company and shall, subject to the control of the
President, supervise the functions of STRATTEC de Mexico for the Company. The
Employee shall also perform such additional duties and responsibilities which
may from time to time be reasonably assigned or delegated by the President of
the Company. The Employee agrees to devote Employee's entire business time,
effort, skill and attention to the proper discharge of such duties while
employed by the Company. However, the Employee may engage in other business
activities
<PAGE> 32
unrelated to, and not in conflict with, the business of the Company if the
Chief Executive Officer consents in writing to such other business activity.
4. Compensation. The Employee shall receive a base salary of
$120,500 per year, payable in regular and semi-monthly installments (the "Base
Salary"). Employee's Base Salary shall be reviewed annually by the Board of
Directors of the Company to determine appropriate increases, if any, in such
Base Salary.
5. Fringe Benefits.
(a) Medical, Health, Dental, Disability and Life Coverage.
The Employee shall be eligible to participate in any medical, health, dental,
disability and life insurance policy in effect for senior management of the
Company (collectively, the "Senior Management").
(b) Incentive Bonus and Stock Ownership Plans. The
Employee shall be entitled to participate in any incentive bonus or other
incentive compensation plan developed generally for the Senior Management of the
Company, on a basis consistent with Employee's position and level of
compensation with the Company. The Employee shall also be entitled to
participate in any incentive stock option plan or other stock ownership plan
developed generally for the Senior Management of the Company, on a basis
consistent with Employee's position and level of compensation with the Company.
(c) Reimbursement for Reasonable Business Expenses.
Subject to the terms and conditions of the Company's expense reimbursement
policy, the Company shall pay or reimburse the Employee for reasonable expenses
incurred by Employee in connection with the performance of Employee's duties
pursuant to this Agreement, including, but not limited to, travel expenses,
expenses in connection with seminars, professional conventions or similar
professional functions and other reasonable business expenses.
6. Termination of Employment.
(a) Termination for Cause, Disability or Death. During
the term of this Agreement, the Company shall be entitled to terminate the
Employee's employment at any time upon the "Disability" of the Employee or for
"Cause" upon notice to the Employee. The Employee's employment hereunder shall
automatically terminate upon the death of the Employee. For purposes of this
Agreement, "Disability" shall mean a physical or mental sickness or any injury
which renders the Employee incapable of performing the essential functions of
2
<PAGE> 33
Employee's job (with or without reasonable accommodations) and which does or
may be expected to continue for more than 4 months during any 12-month period.
In the event Employee shall be able to perform the essential functions of
Employee's job (with or without reasonable accommodations) following a period of
disability, and does so perform such duties, or such other duties as are
prescribed by the President of the Company, for a period of three continuous
months, any subsequent period of disability shall be regarded as a new period of
disability for purposes of this Agreement. The Company and the Employee shall
determine the existence of a Disability and the date upon which it occurred. In
the event of a dispute regarding whether or when a Disability occurred, the
matter shall be referred to a medical doctor selected by the Company and the
Employee. In the event of their failure to agree upon such a medical doctor, the
Company and the Employee shall each select a medical doctor who together shall
select a third medical doctor who shall make the determination. Such
determination shall be conclusive and binding upon the parties hereto.
The Company may terminate the Employee's employment under
this agreement for "Cause," effective immediately upon delivery of notice to the
Employee. Cause shall be deemed to exist if the Employee shall have (1)
materially breached the terms of this Agreement; (2) willfully failed to
substantially perform his duties, other than a failure resulting from incapacity
due to physical or mental illness; or (3) serious misconduct which is
demonstrably and substantially injurious to the Company. No act or failure to
act will be considered "cause" if such act or failure is done in good faith and
with a reasonable belief that it is in the best interests of the Company.
In the event of termination for Disability or death,
payments of the Employee's Base Salary shall be made to the Employee, his
designated beneficiary or Employee's estate for a period of six months after the
date of the termination (even if this period would extend beyond the Employment
Period); provided, however that the foregoing payments in the event of a
Disability shall be reduced by the amount, if any, that is paid to Employee
pursuant to a disability plan or policy maintained by the Company. During this
period, the Company shall also reimburse the Employee for amounts paid, if any,
to continue medical, dental and health coverage pursuant to the provisions of
the Consolidated Omnibus Budget Reconciliation Act. During this period, the
Company will also continue Employee's life insurance and disability coverage, to
the extent permitted under applicable policies, and will pay to the Employee the
fringe benefits pursuant to section 5 which have accrued prior to the date of
termination. Termination of this Agreement for a Disability shall not change
Employee's rights to receive benefits, if any, pursuant to any disability plan
or policy then maintained by the Company.
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<PAGE> 34
(b) Termination Without Cause. If the Employee's
employment is terminated by the Company for any reason other than for Cause,
Disability or death, or if this Agreement is terminated by the Company for what
the Company believes is Cause or Disability, and it is ultimately determined
that the Employee was wrongfully terminated, Employee shall, as damages for such
a termination, receive Employee's Base Salary, for the remainder of the
Employment Period or six months, if longer. During this period, the Company
shall also reimburse the Employee for amounts paid, if any, to continue medical,
dental and health coverage pursuant to the provisions of the Consolidated
Omnibus Budget Reconciliation Act. During this period, the Company will also
continue Employee's life insurance and disability coverage, to the extent
permitted under applicable policies, and will pay to the Employee the fringe
benefits pursuant to section 5 which have accrued prior to the date of
termination. The Company's termination of the Employee's employment under this
section 6(b) shall immediately relieve the Employee of all obligations under
this Agreement (except as provided in sections 7 and 8) and, except as provided
below, shall not be construed to require the application of any compensation
which the Employee may earn in any such other employment to reduce the Company's
obligation to provide severance benefits and liquidated damages under this
section 6(b).
(c) Effect of Termination. The termination of the
Employee's employment pursuant to section 6 shall not affect the Employee's
obligations as described in sections 7 and 8.
7. Noncompetition. The parties agree that the Company's
customer contacts and relations are established and maintained at great expense
and by virtue of the Employee's employment with the Company, the Employee will
have unique and extensive exposure to and personal contact with the Company's
customers, and that Employee will be able to establish a unique relationship
with those individuals and entities that will enable Employee, both during and
after employment, to unfairly compete with the Company. Further, the parties
agree that the terms and conditions of the following restrictive covenants are
reasonable and necessary for the protection of the Company's business, trade
secrets and confidential information and to prevent great damage or loss to the
Company as a result of action taken by the Employee. The Employee acknowledges
that the noncompete restrictions and nondisclosure of confidential information
restrictions contained in this Agreement are reasonable and the consideration
provided for herein is sufficient to fully and adequately compensate the
Employee for agreeing to such restrictions. The Employee acknowledges that
Employee could continue to actively pursue Employee's career and earn sufficient
compensation in the same or
4
<PAGE> 35
similar business without breaching any of the restrictions contained in this
Agreement.
(a) During Term of Employment. The Employee hereby
covenants and agrees that, during Employee's employment with the Company,
Employee shall not, directly or indirectly, either individually or as an
employee, principal, agent, partner, shareholder, owner, trustee, beneficiary,
co-venturer, distributor, consultant or in any other capacity, participate in,
become associated with, provide assistance to, engage in or have a financial or
other interest in any business, activity or enterprise which is competitive with
or a supplier to the Company or any successor or assign of the Company. The
ownership of less than a one percent interest in a corporation whose shares are
traded in a recognized stock exchange or traded in the over-the-counter market,
even though that corporation may be a competitor of the Company, shall not be
deemed financial participation in a competitor.
(b) Upon Termination of Employment. The Employee agrees
that during a period after termination of Employee's employment with the Company
equal to the shorter of one year or the duration of Employee's employment with
the Company, Employee will not, directly or indirectly, either individually or
as an employee, agent, partner, shareholder, owner, trustee, beneficiary,
co-venturer, distributor, consultant or in any other capacity:
(i) Canvass, solicit or accept from any person or
entity who is a customer of the Company (any such person or entity is
hereinafter referred to individually as a "Customer" and collectively as the
"Customers") any business in competition with the business of the Company or the
successors or assigns of the Company, including the canvassing, soliciting or
accepting of business from any individual or entity which is or was a Customer
of the Company within the two-year period preceding the date on which the
canvassing, soliciting or accepting of business begins.
(ii) Request or advise any of the Customers,
suppliers, or other business contacts of the Company who currently have or have
had business relationships with the Company within two years preceding the date
hereof or within two years preceding the date of such action, to withdraw,
curtail or cancel any of their business or relations with the Company.
(iii) Induce or attempt to induce any employee, sales
representative, consultant or other personnel of the Company to terminate his or
her relationship or breach his or her agreements with the Company.
5
<PAGE> 36
(iv) Use, disclose, divulge or transmit or cause to
be used by or disclosed, divulged or transmitted to any third party, any
information acquired by the Employee during the Employment Period which relates
to the trade secrets and confidential information of the Company, except as may
be required by law.
(v) Participate in, become associated with, provide
assistance to, engage in or have a financial or other interest in any business,
activity or enterprise which is competitive with the business of the Company or
any successor or assign of the Company to the extent such activities relate to
products or services which are competitive with the products and services of the
Company; provided, however, that the ownership of less than 1% of the stock of a
corporation whose shares are traded in a recognized stock exchange or traded in
the over-the-counter market, even though that corporation may be a competitor of
the Company, shall not be deemed financial participation in a competitor.
For purposes of this section 7, a competitive
business is defined as a business which is involved in designing, developing,
manufacturing or marketing mechanical, electro-mechanical and/or electronic
security and access control products in the global motor vehicle industry.
8. Confidential Information. The parties agree that the
Company's customers, business connections, suppliers, customer lists,
procedures, operations, techniques, and other aspects of its business are
established at great expense and protected as confidential information and
provide the Company with a substantial competitive advantage in conducting its
business. The parties further agree that by virtue of the Employee's employment
with the Company, Employee will have access to, and be entrusted with, secret,
confidential and proprietary information, and that the Company would suffer
great loss and injury if the Employee would disclose this information or use it
to compete with the Company. Therefore, the Employee agrees that during the term
of Employee's employment, and for a period of two years after the termination of
his employment with the Company, Employee will not, directly or indirectly,
either individually or as an employee, agent, partner, shareholder, owner,
trustee, beneficiary, co-venturer, distributor, consultant or in any other
capacity, use or disclose, or cause to be used or disclosed, any secret,
confidential or proprietary information acquired by the Employee during
Employee's employment with the Company whether owned by the Company prior to or
discovered and developed by the Company subsequent to the Employee's employment,
and regardless of the fact that the Employee may have participated in the
discovery and the development of that information. Employee also agrees and
acknowledges that Employee will comply with all
6
<PAGE> 37
applicable laws regarding insider trading or the use of material nonpublic
information in connection with the trading of securities.
9. Common Law of Torts and Trade Secrets. The parties agree
that nothing in this Agreement shall be construed to limit or negate the common
law of torts or trade secrets where it provides the Company with broader
protection than that provided herein.
10. Specific Performance. The Employee acknowledges and agrees
that irreparable injury to the Company may result in the event the Employee
breaches any covenant and agreement contained in sections 7 and 8 and that the
remedy at law for the breach of any such covenant will be inadequate. Therefore,
if the Employee engages in any act in violation of the provisions of sections 7
and 8, the Employee agrees that the Company shall be entitled, in addition to
such other remedies and damages as may be available to it by law or under this
Agreement, to injunctive relief to enforce the provisions of sections 7 and 8.
11. Waiver. The failure of either party to insist, in any one
or more instances, upon performance of the terms or conditions of this Agreement
shall not be construed as a waiver or a relinquishment of any right granted
hereunder or of the future performance of any such term, covenant or condition.
12. Notices. Any notice to be given hereunder shall be deemed
sufficient if addressed in writing, and delivered by registered or certified
mail or delivered personally, in the case of the Company, to its principal
business office, and in the case of the Employee, to his address appearing on
the records of the Company, or to such other address as he may designate in
writing to the Company.
13. Severability. In the event that any provision shall be
held to be invalid or unenforceable for any reason whatsoever, it is agreed such
invalidity or unenforceability shall not affect any other provision of this
Agreement and the remaining covenants, restrictions and provisions hereof shall
remain in full force and effect and any court of competent jurisdiction may so
modify the objectionable provision as to make it valid, reasonable and
enforceable. Furthermore, the parties specifically acknowledge the above
covenant not to compete and covenant not to disclose confidential information
are separate and independent agreements.
14. Amendment. This Agreement may only be amended by an
agreement in writing signed by all of the parties hereto.
15. Governing Law. This Agreement shall be governed by and
construed exclusively in accordance with the laws of the State of Wisconsin,
7
<PAGE> 38
regardless of choice of law requirements. The parties hereby consent to the
jurisdiction of the state courts of the State of Wisconsin and of any federal
court in the venue of Wisconsin for the purpose of any suit, action or
proceeding arising out of or related to this Agreement, and expressly waive any
and all objections they may have as to venue in any of such courts.
16. Dispute Resolution. The parties hereto shall attempt to
resolve disputes arising out of or relating to this Agreement. Any dispute not
resolved in writing within 21 days may be referred by either party to mediation
involving a mediator (a third party neutral), trained and experienced in the
mediation process and mutually agreed to by the parties. The mediator shall
ascribe to and follow the AAA/SPIDR or ABA code of ethics for mediators in
conduct and management of the mediation process. Expenses for the mediation
shall be shared equally by the parties unless otherwise agreed during the
mediation process. The parties may be accompanied in the mediation process by
legal counsel, and/or other persons mutually agreed to by the parties and the
mediator. All participants will openly and honestly participate in the
mediation. The mediation may be terminated at any time, for any reason by the
mediator or by either party. Any resolution reached by the parties during the
mediation shall be recorded in writing and agreed to by the parties. Such
resolution may be drafted and/or revised by the parties' legal counsel and shall
be legally binding on the parties.
17. Benefit. This Agreement shall be binding upon and inure to
the benefit of and shall be enforceable by and against the Company, its
successors and assigns and the Employee, his heirs, beneficiaries and legal
representatives. It is agreed that the rights and obligations of the Employee
may not be delegated or assigned.
IN WITNESS WHEREOF, the parties have executed or caused this
Agreement to be executed as of the day, month and year first above written.
EMPLOYEE STRATTEC SECURITY CORPORATION
s/ Gerald L. Peebles BY s/ Harold M. Stratton II
- ---------------------- ------------------------
Gerald L. Peebles Harold M. Stratton II, President
8
<PAGE> 39
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made as of the 31st day of
December, 1999 by and between STRATTEC SECURITY CORPORATION, a Wisconsin
corporation (the "Company"), and DONALD J. HARROD (the "Employee").
RECITAL
The Company desires to employ the Employee and the Employee is
willing to make his services available to the Company on the terms and
conditions set forth below.
AGREEMENTS
In consideration of the premises and the mutual agreements
which follow, the parties agree as follows:
1. Employment. The Company hereby employs the Employee and
the Employee hereby accepts employment with the Company on the terms and
conditions set forth in this Agreement.
2. Term. The term of the Employee's employment hereunder shall
commence effective on November 16, 1998 and shall continue through June 30,
1999, and shall thereafter be automatically renewed for successive fiscal year
terms unless either the Company or Employee gives notice of nonrenewal not less
than 30 days prior to the end of the then current term (the "Employment
Period").
3. Duties. The Employee shall serve as the Vice
President-Engineering of the Company and will, under the direction of the
President, faithfully and to the best of Employee's ability, perform the duties
of the Vice President-Engineering. The Vice President-Engineering shall be one
of the principal executive officers of the Company and shall, subject to the
control of the President, supervise the engineering functions of the Company.
The Employee shall also perform such additional duties and responsibilities
which may from time to time be reasonably assigned or delegated by the President
of the Company. The Employee agrees to devote Employee's entire business time,
effort, skill and attention to the proper discharge of such duties while
employed by the Company. However, the Employee may engage in other business
activities unrelated to, and not in conflict with, the business of the Company
if the Chief Executive Officer consents in writing to such other business
activity.
<PAGE> 40
4. Compensation. The Employee shall receive a base salary of
$118,500 per year, payable in regular and semi-monthly installments (the "Base
Salary"). Employee's Base Salary shall be reviewed annually by the Board of
Directors of the Company to determine appropriate increases, if any, in such
Base Salary.
5. Fringe Benefits.
(a) Medical, Health, Dental, Disability and Life Coverage.
The Employee shall be eligible to participate in any medical, health, dental,
disability and life insurance policy in effect for senior management of the
Company (collectively, the "Senior Management").
(b) Incentive Bonus and Stock Ownership Plans. The Employee
shall be entitled to participate in any incentive bonus or other incentive
compensation plan developed generally for the Senior Management of the Company,
on a basis consistent with Employee's position and level of compensation with
the Company. The Employee shall also be entitled to participate in any incentive
stock option plan or other stock ownership plan developed generally for the
Senior Management of the Company, on a basis consistent with Employee's position
and level of compensation with the Company.
(c) Reimbursement for Reasonable Business Expenses. Subject
to the terms and conditions of the Company's expense reimbursement policy, the
Company shall pay or reimburse the Employee for reasonable expenses incurred by
Employee in connection with the performance of Employee's duties pursuant to
this Agreement, including, but not limited to, travel expenses, expenses in
connection with seminars, professional conventions or similar professional
functions and other reasonable business expenses.
6. Termination of Employment.
(a) Termination for Cause, Disability or Death. During the
term of this Agreement, the Company shall be entitled to terminate the
Employee's employment at any time upon the "Disability" of the Employee or for
"Cause" upon notice to the Employee. The Employee's employment hereunder shall
automatically terminate upon the death of the Employee. For purposes of this
Agreement, "Disability" shall mean a physical or mental sickness or any injury
which renders the Employee incapable of performing the essential functions of
Employee's job (with or without reasonable accommodations) and which does or may
be expected to continue for more than 4 months during any 12-month period.
2
<PAGE> 41
In the event Employee shall be able to perform the essential functions of
Employee's job (with or without reasonable accommodations) following a period of
disability, and does so perform such duties, or such other duties as are
prescribed by the President of the Company, for a period of three continuous
months, any subsequent period of disability shall be regarded as a new period of
disability for purposes of this Agreement. The Company and the Employee shall
determine the existence of a Disability and the date upon which it occurred. In
the event of a dispute regarding whether or when a Disability occurred, the
matter shall be referred to a medical doctor selected by the Company and the
Employee. In the event of their failure to agree upon such a medical doctor, the
Company and the Employee shall each select a medical doctor who together shall
select a third medical doctor who shall make the determination. Such
determination shall be conclusive and binding upon the parties hereto.
The Company may terminate the Employee's
employment under this agreement for "Cause," effective immediately upon delivery
of notice to the Employee. Cause shall be deemed to exist if the Employee shall
have (1) materially breached the terms of this Agreement; (2) willfully failed
to substantially perform his duties, other than a failure resulting from
incapacity due to physical or mental illness; or (3) serious misconduct which is
demonstrably and substantially injurious to the Company. No act or failure to
act will be considered "cause" if such act or failure is done in good faith and
with a reasonable belief that it is in the best interests of the Company.
In the event of termination for Disability
or death, payments of the Employee's Base Salary shall be made to the Employee,
his designated beneficiary or Employee's estate for a period of six months after
the date of the termination (even if this period would extend beyond the
Employment Period); provided, however that the foregoing payments in the event
of a Disability shall be reduced by the amount, if any, that is paid to Employee
pursuant to a disability plan or policy maintained by the Company. During this
period, the Company shall also reimburse the Employee for amounts paid, if any,
to continue medical, dental and health coverage pursuant to the provisions of
the Consolidated Omnibus Budget Reconciliation Act. During this period, the
Company will also continue Employee's life insurance and disability coverage, to
the extent permitted under applicable policies, and will pay to the Employee the
fringe benefits pursuant to section 5 which have accrued prior to the date of
termination. Termination of this Agreement for a Disability shall not change
Employee's rights to receive benefits, if any, pursuant to any disability plan
or policy then maintained by the Company.
3
<PAGE> 42
(b) Termination Without Cause. If the Employee's employment
is terminated by the Company for any reason other than for Cause, Disability or
death, or if this Agreement is terminated by the Company for what the Company
believes is Cause or Disability, and it is ultimately determined that the
Employee was wrongfully terminated, Employee shall, as damages for such a
termination, receive Employee's Base Salary, for the remainder of the Employment
Period or six months, if longer. During this period, the Company shall also
reimburse the Employee for amounts paid, if any, to continue medical, dental and
health coverage pursuant to the provisions of the Consolidated Omnibus Budget
Reconciliation Act. During this period, the Company will also continue
Employee's life insurance and disability coverage, to the extent permitted under
applicable policies, and will pay to the Employee the fringe benefits pursuant
to section 5 which have accrued prior to the date of termination. The Company's
termination of the Employee's employment under this section 6(b) shall
immediately relieve the Employee of all obligations under this Agreement (except
as provided in sections 7 and 8) and, except as provided below, shall not be
construed to require the application of any compensation which the Employee may
earn in any such other employment to reduce the Company's obligation to provide
severance benefits and liquidated damages under this section 6(b).
(c) Effect of Termination. The termination of the
Employee's employment pursuant to section 6 shall not affect the Employee's
obligations as described in sections 7 and 8.
7. Noncompetition. The parties agree that the Company's
customer contacts and relations are established and maintained at great expense
and by virtue of the Employee's employment with the Company, the Employee will
have unique and extensive exposure to and personal contact with the Company's
customers, and that Employee will be able to establish a unique relationship
with those individuals and entities that will enable Employee, both during and
after employment, to unfairly compete with the Company. Further, the parties
agree that the terms and conditions of the following restrictive covenants are
reasonable and necessary for the protection of the Company's business, trade
secrets and confidential information and to prevent great damage or loss to the
Company as a result of action taken by the Employee. The Employee acknowledges
that the noncompete restrictions and nondisclosure of confidential information
restrictions contained in this Agreement are reasonable and the consideration
provided for herein is sufficient to fully and adequately compensate the
Employee for agreeing to such restrictions. The Employee acknowledges that
Employee could continue to actively pursue Employee's career and earn sufficient
compensation in the same or similar business without breaching any of the
restrictions contained in this Agreement.
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<PAGE> 43
(a) During Term of Employment. The Employee hereby
covenants and agrees that, during Employee's employment with the Company,
Employee shall not, directly or indirectly, either individually or as an
employee, principal, agent, partner, shareholder, owner, trustee, beneficiary,
co-venturer, distributor, consultant or in any other capacity, participate in,
become associated with, provide assistance to, engage in or have a financial or
other interest in any business, activity or enterprise which is competitive with
or a supplier to the Company or any successor or assign of the Company. The
ownership of less than a one percent interest in a corporation whose shares are
traded in a recognized stock exchange or traded in the over-the-counter market,
even though that corporation may be a competitor of the Company, shall not be
deemed financial participation in a competitor.
(b) Upon Termination of Employment. The Employee agrees
that during a period after termination of Employee's employment with the Company
equal to the shorter of one year or the duration of Employee's employment with
the Company, Employee will not, directly or indirectly, either individually or
as an employee, agent, partner, shareholder, owner, trustee, beneficiary,
co-venturer, distributor, consultant or in any other capacity:
(i) Canvass, solicit or accept from any person or
entity who is a customer of the Company (any such person or entity is
hereinafter referred to individually as a "Customer" and collectively as the
"Customers") any business in competition with the business of the Company or the
successors or assigns of the Company, including the canvassing, soliciting or
accepting of business from any individual or entity which is or was a Customer
of the Company within the two-year period preceding the date on which the
canvassing, soliciting or accepting of business begins.
(ii) Request or advise any of the Customers, suppliers,
or other business contacts of the Company who currently have or have had
business relationships with the Company within two years preceding the date
hereof or within two years preceding the date of such action, to withdraw,
curtail or cancel any of their business or relations with the Company.
(iii) Induce or attempt to induce any employee, sales
representative, consultant or other personnel of the Company to terminate his or
her relationship or breach his or her agreements with the Company.
(iv) Use, disclose, divulge or transmit or cause to be
used by or disclosed, divulged or transmitted to any third party, any
information
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<PAGE> 44
acquired by the Employee during the Employment Period which relates
to the trade secrets and confidential information of the Company, except as may
be required by law.
(v) Participate in, become associated with, provide
assistance to, engage in or have a financial or other interest in any business,
activity or enterprise which is competitive with the business of the Company or
any successor or assign of the Company to the extent such activities relate to
products or services which are competitive with the products and services of the
Company; provided, however, that the ownership of less than 1% of the stock of a
corporation whose shares are traded in a recognized stock exchange or traded in
the over-the-counter market, even though that corporation may be a competitor of
the Company, shall not be deemed financial participation in a competitor.
For purposes of this section 7, a competitive
business is defined as a business which is involved in designing, developing,
manufacturing or marketing mechanical, electro-mechanical and/or electronic
security and access control products in the global motor vehicle industry.
8. Confidential Information. The parties agree that the
Company's customers, business connections, suppliers, customer lists,
procedures, operations, techniques, and other aspects of its business are
established at great expense and protected as confidential information and
provide the Company with a substantial competitive advantage in conducting its
business. The parties further agree that by virtue of the Employee's employment
with the Company, Employee will have access to, and be entrusted with, secret,
confidential and proprietary information, and that the Company would suffer
great loss and injury if the Employee would disclose this information or use it
to compete with the Company. Therefore, the Employee agrees that during the term
of Employee's employment, and for a period of two years after the termination of
his employment with the Company, Employee will not, directly or indirectly,
either individually or as an employee, agent, partner, shareholder, owner,
trustee, beneficiary, co-venturer, distributor, consultant or in any other
capacity, use or disclose, or cause to be used or disclosed, any secret,
confidential or proprietary information acquired by the Employee during
Employee's employment with the Company whether owned by the Company prior to or
discovered and developed by the Company subsequent to the Employee's employment,
and regardless of the fact that the Employee may have participated in the
discovery and the development of that information. Employee also agrees and
acknowledges that Employee will comply with all applicable laws regarding
insider trading or the use of material nonpublic information in connection with
the trading of securities.
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9. Common Law of Torts and Trade Secrets. The parties agree
that nothing in this Agreement shall be construed to limit or negate the common
law of torts or trade secrets where it provides the Company with broader
protection than that provided herein.
10. Specific Performance. The Employee acknowledges and agrees
that irreparable injury to the Company may result in the event the Employee
breaches any covenant and agreement contained in sections 7 and 8 and that the
remedy at law for the breach of any such covenant will be inadequate. Therefore,
if the Employee engages in any act in violation of the provisions of sections 7
and 8, the Employee agrees that the Company shall be entitled, in addition to
such other remedies and damages as may be available to it by law or under this
Agreement, to injunctive relief to enforce the provisions of sections 7 and 8.
11. Waiver. The failure of either party to insist, in any one
or more instances, upon performance of the terms or conditions of this Agreement
shall not be construed as a waiver or a relinquishment of any right granted
hereunder or of the future performance of any such term, covenant or condition.
12. Notices. Any notice to be given hereunder shall be deemed
sufficient if addressed in writing, and delivered by registered or certified
mail or delivered personally, in the case of the Company, to its principal
business office, and in the case of the Employee, to his address appearing on
the records of the Company, or to such other address as he may designate in
writing to the Company.
13. Severability. In the event that any provision shall be
held to be invalid or unenforceable for any reason whatsoever, it is agreed such
invalidity or unenforceability shall not affect any other provision of this
Agreement and the remaining covenants, restrictions and provisions hereof shall
remain in full force and effect and any court of competent jurisdiction may so
modify the objectionable provision as to make it valid, reasonable and
enforceable. Furthermore, the parties specifically acknowledge the above
covenant not to compete and covenant not to disclose confidential information
are separate and independent agreements.
14. Amendment. This Agreement may only be amended by an
agreement in writing signed by all of the parties hereto.
15. Governing Law. This Agreement shall be governed by and
construed exclusively in accordance with the laws of the State of Wisconsin,
regardless of choice of law requirements. The parties hereby consent to the
jurisdiction of the state courts of the State of Wisconsin and of any federal
court in the venue of Wisconsin for the purpose of any suit, action or
proceeding arising
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out of or related to this Agreement, and expressly waive any and all objections
they may have as to venue in any of such courts.
16. Dispute Resolution. The parties hereto shall attempt to
resolve disputes arising out of or relating to this Agreement. Any dispute not
resolved in writing within 21 days may be referred by either party to mediation
involving a mediator (a third party neutral), trained and experienced in the
mediation process and mutually agreed to by the parties. The mediator shall
ascribe to and follow the AAA/SPIDR or ABA code of ethics for mediators in
conduct and management of the mediation process. Expenses for the mediation
shall be shared equally by the parties unless otherwise agreed during the
mediation process. The parties may be accompanied in the mediation process by
legal counsel, and/or other persons mutually agreed to by the parties and the
mediator. All participants will openly and honestly participate in the
mediation. The mediation may be terminated at any time, for any reason by the
mediator or by either party. Any resolution reached by the parties during the
mediation shall be recorded in writing and agreed to by the parties. Such
resolution may be drafted and/or revised by the parties' legal counsel and shall
be legally binding on the parties.
17. Benefit. This Agreement shall be binding upon and inure to
the benefit of and shall be enforceable by and against the Company, its
successors and assigns and the Employee, his heirs, beneficiaries and legal
representatives. It is agreed that the rights and obligations of the Employee
may not be delegated or assigned.
IN WITNESS WHEREOF, the parties have executed or caused this
Agreement to be executed as of the day, month and year first above written.
EMPLOYEE STRATTEC SECURITY CORPORATION
s/ Donald J. Harrod BY s/ Harold M. Stratton II
- -------------------- ---------------------------------
Donald J. Harrod Harold M. Stratton II, President
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EXHIBIT 10.3
EMPLOYMENT AGREEMENT
AGREEMENT by and between STRATTEC SECURITY CORPORATION, a
Wisconsin corporation (the "Company") and Patrick J. Hansen (the "Executive"),
dated as of the 1st day of February, 1999.
The Board of Directors of the Company (the "Board"), has
determined that it is in the best interests of the Company and its shareholders
to assure that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined below) of the Company. The Board believes it is imperative to diminish
the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions.
(a) The "Effective Date" shall mean the first date
during the Change of Control Period (as defined in Section l(b)) on which a
Change of Control (as defined in Section 2) occurs. Anything in this Agreement
to the contrary notwithstanding, if a Change of Control occurs and if the
Executive's employment with the Company or this Agreement 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 or of this
Agreement (i) was at the request of a third party who has taken steps reasonably
calculated to effect a Change of Control or (ii) otherwise arose in connection
with or anticipation of a 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 or purported termination of this Agreement.
(b) The "Change of Control Period" shall mean the
period commencing on the date hereof and ending on the third anniversary of the
date hereof; provided, however, that commencing on the date one year after the
date hereof, and on each annual anniversary of such date (such date and each
annual anniversary thereof shall be hereinafter referred to as the "Renewal
Date"), unless previously terminated, 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
<PAGE> 2
shall give notice to the Executive that the Change of Control Period shall not
be so extended.
2. Change of Control. For the purpose of this Agreement, a
"Change of Control" shall mean:
(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,
(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 transaction which complies with clauses (i), (ii) and (iii) of
subsection (c) of this Section 2; 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 an actual or threatened election contest with
respect to the election or removal of directors 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 (a "Business Combination"), in each
case, unless, following such Business Combination, (i) 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 Business Combination beneficially own, directly or
indirectly, more than 60% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction owns the
Company through one or more subsidiaries) in substantially the same proportions
as their ownership, immediately prior to such Business Combination of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
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as the case may be, (ii) no Person (excluding any employee benefit plan (or
related trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then outstanding voting securities of such corporation except to the extent that
such ownership existed prior to the Business Combination and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; 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] 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] less than 20% 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 any Person (excluding any
employee benefit plan (or related trust) of the Company or such corporation),
except to the extent that such Person owned 20% or more of the Outstanding
Company Common Stock or Outstanding Company Voting Securities prior to the sale
or disposition, 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 of the action of the Board, providing
for such sale or other disposition of assets of the Company or were elected,
appointed or nominated by the Board.
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 subject to the terms and conditions of this Agreement, for
the period commencing on the Effective Date and ending on the third anniversary
of such date (the "Employment Period").
4. Terms of Employment.
(a) Position and Duties.
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(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 120-day period immediately preceding the
Effective Date and [b] the Executive's services shall be performed at the
location where the Executive was employed immediately preceding the Effective
Date or any office or location less than 35 miles from 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.
(b) Compensation.
(i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times the highest
monthly base salary paid or payable, including any base salary which has been
earned but deferred, to the Executive by the Company and its affiliated
companies in respect of the 12-month period immediately preceding the month in
which the Effective Date occurs. During the Employment Period, the Annual Base
Salary shall be reviewed no more than 12 months after the last salary increase
awarded to the Executive prior to the Effective Date and thereafter at least
annually and shall be first increased no more than 12 months after the last
salary increase awarded to the Executive prior to the Effective Date and
thereafter at least annually by the higher of (x) the average increase
(excluding promotional increases) in base salary awarded to the Executive for
each of the three full fiscal years (annualized in the case of any fiscal year
consisting of less than twelve full months or during which the Executive was
employed for less than twelve months) prior to the Effective Date, and (y) the
percentage increase (excluding promotional increases) in base salary generally
awarded to peer executives of the Company and its affiliated companies for the
year of determination. Any increase in Annual Base Salary shall not serve to
limit or reduce any
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<PAGE> 5
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 higher of (x) the average of the three highest bonuses paid or payable,
including any bonus or portion thereof which has been earned but deferred, to
the Executive by the Company and its affiliated companies in respect of the five
fiscal years (or such shorter period during which the Executive has been
employed by the Company) immediately preceding the fiscal year in which the
Effective Date occurs (annualized for any fiscal year during such period
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) and
(y) the bonus paid or payable (annualized as described above), including any
bonus or portion thereof which has been earned but deferred, to the Executive by
the Company and its affiliated companies in respect of the most recently
completed fiscal year prior to the Effective Date (such higher amount being
referred to as the "Recent Annual 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) 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 programs as in effect at any
time during the 120-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.
(iv) Welfare Benefit Plans. During the Employment
Period, the Executive and/or the Executive's family, as the case may be, shall
be eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company and its
affiliated companies (including, without limitation, medical, prescription,
dental, disability, salary continuance, employee life, group life, accidental
death and travel accident insurance plans and programs) to the extent applicable
generally to other peer executives of the Company and its affiliated
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<PAGE> 6
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 120-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.
(v) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Executive in accordance with the most favorable
policies, practices and procedures of the Company and the affiliated companies
in effect for the Executive at any time during the 120-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.
(vi) Fringe Benefits. During the Employment Period, the
Executive shall be entitled to fringe benefits, including, without limitation,
tax and financial planning services, payment of club dues, and, if applicable,
use of automobile and payment of related expenses, 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 120-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) 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 120-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.
(viii) Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the most
favorable plans, policies, programs and practices of the Company and its
affiliated companies as in effect for the Executive at any time during the
120-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
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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 this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" 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 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 the sole and exclusive
purposes of this Agreement, "Cause" shall mean:
(i) The willful and continued failure of the Executive
to perform substantially the Executive's duties with the Company or one of its
affiliates (other than any such failure resulting from incapacity due to
physical or mental illness), after a written demand for substantial performance
is delivered to the Executive by the Board or the Chief Executive Officer of the
Company which specifically identifies the manner in which the Board or Chief
Executive Officer believes that the Executive has not substantially performed
the Executive's duties, or
(ii) The willful engaging by the Executive in illegal
conduct or gross misconduct which is materially and demonstrably injurious to
the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters of the
entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the
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<PAGE> 8
Executive is guilty of the conduct described in subparagraph (i) or (ii) above,
and specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be
terminated by the Executive for Good Reason. For the sole and exclusive purposes
of this Agreement, "Good Reason" shall mean:
(i) The assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 4(a) of this Agreement, or any other
action by the Company which results in a diminution in such position, authority,
duties or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) Any failure by the Company to comply with any of
the provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(iii) The Company's requiring the Executive to be based
at any office or location other than as provided in Section 4(a)(i)(b) hereof or
the Company's requiring the Executive to travel on Company business to a
substantially greater extent than required immediately prior to the Effective
Date;
(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) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive. Anything in this Agreement to the
contrary notwithstanding, a termination by the Executive for any reason during
the 30-day period immediately following the first anniversary of the Effective
Date shall be deemed to be a termination for Good Reason for all purposes of
this Agreement.
(d) Notice of Termination. Any termination by the Company
for Cause, or by the Executive for Good Reason, shall be communicated by Notice
of Termination to the other party hereto given in accordance with Section 12(b)
of this Agreement. For purposes of this Agreement, a "Notice of Termination"
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
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under the provision so indicated, and (iii) if the Date of Termination (as
defined below) is other than the date of receipt of such notice, specifies the
termination date (which date shall be not more than thirty 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,
respectively, hereunder or preclude the Executive or the Company, respectively,
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 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; Other Than for Cause, Death or
Disability. If, during the Employment Period, the Company shall terminate the
Executive's employment other than for Cause, death or Disability or the
Executive shall terminate employment for Good Reason:
(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 [i] the Executive's Annual Base
Salary through the Date of Termination to the extent not theretofore paid, [ii]
the product of (x) the higher of [A] the Recent Annual Bonus and [B] the Annual
Bonus paid or payable, including any bonus or portion thereof which has been
earned but deferred (and annualized for any fiscal year consisting of less than
12 full months or during which the Executive was employed for less than 12 full
months), for the most recently completed fiscal year during the Employment
Period, if any (such higher amount being referred to as 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 [iii] 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 [i], [ii] and [iii] shall be hereinafter referred
to as the "Accrued Obligations"); and
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[b] The amount equal to the product of [i] three
and [ii] the sum of (x) the Executive's Annual Base Salary and (y) the
Highest Annual Bonus; and
[c] An amount equal to the difference between
[i] the actuarial equivalent of the benefit (utilizing actuarial assumptions no
less favorable to the Executive than those in effect under the Retirement Plan
(as defined below) immediately prior to the Effective Date, except as specified
below with respect to increases in base salary and annual bonus) under the
qualified defined benefit retirement plan in which the Executive participates
(the "Retirement Plan") and any excess or supplemental retirement plan in which
the Executive participates (together, the "SERP") which the Executive would
receive if the Executive's employment continued for three years after the Date
of Termination assuming for this purpose that all accrued benefits are fully
vested, and, assuming that (x) the Executive's base salary increased in each of
the three years by the amount required by Section 4(b)(i) (in the case of
Section 4-(b)(i)(y) based on increases (excluding promotional increases) in base
salary for the most recently completed fiscal year prior to the Date of
Termination) had the Executive remained employed, and (y) the Executive's annual
bonus (annualized for any fiscal year consisting of less than twelve full months
or during which the Executive was employed for less than twelve full months) in
each of the three years bears the same proportion to the Executive's base salary
in such year or fraction thereof as it did for the last full year prior to the
Date of Termination, and [ii] the actuarial equivalent of the Executive's actual
benefit (paid or payable), if any, under the Retirement Plan and the SERP as of
the Date of Termination;
(ii) For three years after the Executive's Date of
Termination, or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, 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)(iv) of this Agreement if the
Executive's employment had not been terminated in accordance with the most
favorable plans, practices, programs or policies of the Company and its
affiliated companies applicable generally to other peer executives and their
families during the 120-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. For
purposes of determining eligibility (but not the time of commencement of
benefits) of the Executive for retiree benefits pursuant to such plans,
practices, programs and policies, the Executive shall be considered to have
remained employed until two and one-half years after the Date of Termination and
to have retired on the last day of such period;
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(iii) The Company shall, at its sole expense as
incurred, provide the Executive with outplacement services the scope and
provider of which shall be selected by the Executive in his sole discretion; and
(iv) To the extent not theretofore paid or provided,
the Company shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is eligible to
receive under any plan, program, policy or practice or contract or agreement of
the Company and its affiliated companies (such other amounts and benefits shall
be hereinafter referred to as the "Other Benefits").
(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 payment of Accrued
Obligations and the timely payment or provision of Other Benefits. Accrued
Obligations 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.
With respect to the provision of Other Benefits, the term Other Benefits as
utilized in this Section 6(b) shall include, without limitation, and the
Executives estate and/or beneficiaries shall be entitled to receive, benefits at
least equal to the most favorable benefits provided by the Company and
affiliated companies to the estates and beneficiaries of peer executives of the
Company and such affiliated companies under such plans, programs, practices and
policies relating to death benefits, if any, as in effect with respect to other
peer executives and their beneficiaries at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive's estate and/or the Executive's beneficiaries, as in effect on the
date of the Executive's death with respect to other peer executives of the
Company and its affiliated companies and their beneficiaries.
(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 payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum
in cash within 30 days of the Date of Termination. With respect to the provision
of Other Benefits, the term Other Benefits as utilized in this Section 6(c)
shall include, and the Executive shall be entitled after the Disability
Effective Date to receive, disability and other benefits at least equal to the
most favorable of those generally provided by the Company and its affiliated
companies to disabled executives and/or their families in accordance with such
plans, programs, practices and policies relating to disability, if any, as in
effect generally with respect to other peer executives and their families at any
time during the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive and/or the Executive's family, as in effect at
any time thereafter generally with respect to other peer executives of the
Company and its affiliated companies and their families.
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<PAGE> 12
(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 (i) his Annual Base Salary through
the Date of Termination, (ii) the amount of any compensation previously deferred
by the Executive, and (iii) Other Benefits, in each case to the extent
theretofore unpaid. If the Executive voluntarily terminates employment during
the Employment Period, excluding a termination for Good Reason, this Agreement
shall terminate without further obligations to the Executive, other than for
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. Nonexclusivity of Rights. 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.
8. Full Settlement. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay 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 Internal Revenue Code
of 1986, as amended (the "Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution by the Company to or for the benefit of the Executive (whether paid
or payable or distributed
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<PAGE> 13
or distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
9) (a "Payment") would be 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 hereinafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by Arthur Andersen & Co. or such other certified public accounting firm as may
be designated by the Executive (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and the Executive within 15
business days of the receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company. In the event that
the Accounting Firm is serving as accountant or auditor for the individual,
entity or group effecting the Change of Control, the Executive shall appoint
another nationally recognized accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to
this Section 9, shall be paid by the Company to the Executive within five days
of the receipt of the Accounting Firm's determination. If the Accounting Firm
determines that no Excise Tax is payable by the Executive, it shall furnish the
Executive with a written opinion that failure to report the Excise Tax on the
Executive's applicable federal income tax return would not result in the
imposition of a negligence or similar penalty. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 9(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of
any claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as
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<PAGE> 14
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 it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) Give the Company any information reasonably
requested by the Company relating to such claim,
(ii) Take such action in connection with contesting
such claim as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by the Company,
(iii) Cooperate with the Company in good faith in
order effectively to contest such claim, and
(iv) Permit the Company to participate in any
proceedings relating to such claim; provided, however, that the Company shall
bear and pay directly all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall indemnify and hold
the Executive harmless, on an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto) imposed as a result of
such representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 9(c), the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or 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.
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(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 9(c)) promptly pay
to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 9(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
10. Confidential Information. The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other than the Company
and those designated by it. In no event shall an asserted violation of the
provisions of this Section 10 constitute a basis for deferring or withholding
any amounts otherwise payable to the Executive under this Agreement.
11. Successors.
(a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company 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
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<PAGE> 16
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 Wisconsin, 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, to his address appearing on the records of the Company.
If to the Company:
Strattec Security Corporation
3333 West Good Hope Road
Milwaukee, WI 53209
Attn: President
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable
under this Agreement such Federal, state, local or foreign taxes as shall be
required to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist
upon strict compliance with any provision hereof 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) of this
Agreement, shall not be deemed to be a waiver of such provision or right or any
other provision or right of this Agreement.
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<PAGE> 17
(f) The Executive and the Company acknowledge that,
except as may otherwise be provided under any other written agreement between
the Executive and the Company, the employment of the Executive by the Company is
"at will" and, prior to the Effective Date, the Executive's employment and this
Agreement may be terminated by either the Executive or the Company at any time
prior to the Effective Date, in which case the Executive shall have no further
rights under this Agreement. From and after the Effective Date this Agreement
shall supersede any other agreement between the parties with respect to the
subject matter hereof.
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.
s/ Patrick J. Hansen
---------------------
Patrick J. Hansen
STRATTEC SECURITY CORPORATION
BY s/ Harold M. Stratton II
-----------------------------
Harold M. Stratton, II,
Chairman of the Board
and Chief Executive Officer
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<PAGE> 18
EMPLOYMENT AGREEMENT
AGREEMENT by and between STRATTEC SECURITY CORPORATION, a Wisconsin
corporation (the "Company") and Donald J. Harrod (the "Executive"), dated as of
the 31st day of December, 1999.
The Board of Directors of the Company (the "Board"), has determined that it
is in the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication of the Executive, notwithstanding the
possibility, threat or occurrence of a Change of Control (as defined below) of
the Company. The Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control and to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions.
(a) The "Effective Date" shall mean the first date during the Change
of Control Period (as defined in Section l(b)) on which a Change of Control (as
defined in Section 2) occurs. Anything in this Agreement to the contrary
notwithstanding, if a Change of Control occurs and if the Executive's employment
with the Company or this Agreement 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 or of this Agreement (i) was at the request
of a third party who has taken steps reasonably calculated to effect a Change of
Control or (ii) otherwise arose in connection with or anticipation of a 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 or
purported termination of this Agreement.
(b) The "Change of Control Period" shall mean the period commencing
on the date hereof and ending on the third anniversary of the date hereof;
provided, however, that commencing on the date one year after the date hereof,
and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, 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
<PAGE> 19
shall give notice to the Executive that the Change of Control Period shall not
be so extended.
2. Change of Control. For the purpose of this Agreement, a "Change of
Control" shall mean:
(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, (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 transaction
which complies with clauses (i), (ii) and (iii) of subsection (c) of this
Section 2; 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 an actual or threatened election contest with respect to the election
or removal of directors 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 (a "Business Combination"), in each case, unless,
following such Business Combination, (i) 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 Business Combination beneficially own, directly or
indirectly, more than 60% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction owns the
Company through one or more subsidiaries) in substantially the same proportions
as their ownership, immediately prior to such Business Combination of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
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<PAGE> 20
as the case may be, (ii) no Person (excluding any employee benefit plan (or
related trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then outstanding voting securities of such corporation except to the extent that
such ownership existed prior to the Business Combination and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; 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]
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] less than 20% 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 any Person (excluding any
employee benefit plan (or related trust) of the Company or such corporation),
except to the extent that such Person owned 20% or more of the Outstanding
Company Common Stock or Outstanding Company Voting Securities prior to the sale
or disposition, 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 of the action of the Board, providing
for such sale or other disposition of assets of the Company or were elected,
appointed or nominated by the Board.
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 subject to the terms and conditions of this Agreement, for the period
commencing on the Effective Date and ending on the third anniversary of such
date (the "Employment Period").
4. Terms of Employment.
(a) Position and Duties.
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<PAGE> 21
(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 120-day period immediately preceding the Effective Date and [b]
the Executive's services shall be performed at the location where the Executive
was employed immediately preceding the Effective Date or any office or location
less than 35 miles from 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.
(b) Compensation.
(i) Base Salary. During the Employment Period, the Executive
shall receive an annual base salary ("Annual Base Salary"), which shall be paid
at a monthly rate, at least equal to twelve times the highest monthly base
salary paid or payable, including any base salary which has been earned but
deferred, to the Executive by the Company and its affiliated companies in
respect of the 12-month period immediately preceding the month in which the
Effective Date occurs. During the Employment Period, the Annual Base Salary
shall be reviewed no more than 12 months after the last salary increase awarded
to the Executive prior to the Effective Date and thereafter at least annually
and shall be first increased no more than 12 months after the last salary
increase awarded to the Executive prior to the Effective Date and thereafter at
least annually by the higher of (x) the average increase (excluding promotional
increases) in base salary awarded to the Executive for each of the three full
fiscal years (annualized in the case of any fiscal year consisting of less than
twelve full months or during which the Executive was employed for less than
twelve months) prior to the Effective Date, and (y) the percentage increase
(excluding promotional increases) in base salary generally awarded to peer
executives of the Company and its affiliated companies for the year of
determination. Any increase in Annual Base Salary shall not serve to limit or
reduce any
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<PAGE> 22
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
higher of (x) the average of the three highest bonuses paid or payable,
including any bonus or portion thereof which has been earned but deferred, to
the Executive by the Company and its affiliated companies in respect of the five
fiscal years (or such shorter period during which the Executive has been
employed by the Company) immediately preceding the fiscal year in which the
Effective Date occurs (annualized for any fiscal year during such period
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) and
(y) the bonus paid or payable (annualized as described above), including any
bonus or portion thereof which has been earned but deferred, to the Executive by
the Company and its affiliated companies in respect of the most recently
completed fiscal year prior to the Effective Date (such higher amount being
referred to as the "Recent Annual 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) 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 programs as in effect at any
time during the 120-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.
(iv) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life, accidental death and
travel accident insurance plans and programs) to the extent applicable generally
to other peer executives of the Company and its affiliated
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<PAGE> 23
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 120-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.
(v) Expenses. During the Employment Period, the Executive shall
be entitled to receive prompt reimbursement for all reasonable expenses incurred
by the Executive in accordance with the most favorable policies, practices and
procedures of the Company and the affiliated companies in effect for the
Executive at any time during the 120-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.
(vi) Fringe Benefits. During the Employment Period, the
Executive shall be entitled to fringe benefits, including, without limitation,
tax and financial planning services, payment of club dues, and, if applicable,
use of automobile and payment of related expenses, 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 120-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) 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 120-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.
(viii) Vacation. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated companies as
in effect for the Executive at any time during the 120-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
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<PAGE> 24
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 this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" 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 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 the sole and exclusive purposes of this
Agreement, "Cause" shall mean:
(i) The willful and continued failure of the Executive to
perform substantially the Executive's duties with the Company or one of its
affiliates (other than any such failure resulting from incapacity due to
physical or mental illness), after a written demand for substantial performance
is delivered to the Executive by the Board or the Chief Executive Officer of the
Company which specifically identifies the manner in which the Board or Chief
Executive Officer believes that the Executive has not substantially performed
the Executive's duties, or
(ii) The willful engaging by the Executive in illegal conduct or
gross misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters of the
entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the
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<PAGE> 25
Executive is guilty of the conduct described in subparagraph (i) or (ii) above,
and specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For the sole and exclusive purposes of this
Agreement, "Good Reason" shall mean:
(i) The assignment to the Executive of any duties inconsistent
in any respect with the Executive's position (including status, offices, titles
and reporting requirements), authority, duties or responsibilities as
contemplated by Section 4(a) of this Agreement, or any other action by the
Company which results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
(ii) Any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(iii) The Company's requiring the Executive to be based at any
office or location other than as provided in Section 4(a)(i)(b) hereof or the
Company's requiring the Executive to travel on Company business to a
substantially greater extent than required immediately prior to the Effective
Date;
(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) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive. Anything in this Agreement to the
contrary notwithstanding, a termination by the Executive for any reason during
the 30-day period immediately following the first anniversary of the Effective
Date shall be deemed to be a termination for Good Reason for all purposes of
this Agreement.
(d) Notice of Termination. Any termination by the Company for Cause,
or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 12(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" 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
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<PAGE> 26
under the provision so indicated, and (iii) if the Date of Termination (as
defined below) is other than the date of receipt of such notice, specifies the
termination date (which date shall be not more than thirty 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,
respectively, hereunder or preclude the Executive or the Company, respectively,
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 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; Other Than for Cause, Death or Disability. If,
during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause, death or Disability or the Executive shall
terminate employment for Good Reason:
(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 [i] the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore paid, [ii] the
product of (x) the higher of [A] the Recent Annual Bonus and [B] the Annual
Bonus paid or payable, including any bonus or portion thereof which has been
earned but deferred (and annualized for any fiscal year consisting of less than
12 full months or during which the Executive was employed for less than 12 full
months), for the most recently completed fiscal year during the Employment
Period, if any (such higher amount being referred to as 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 [iii] 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 [i], [ii] and [iii] shall be hereinafter referred
to as the "Accrued Obligations"); and
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<PAGE> 27
[b] The amount equal to the product of [i] three and [ii]
the sum of (x) the Executive's Annual Base Salary and (y) the Highest Annual
Bonus; and
[c] An amount equal to the difference between [i] the
actuarial equivalent of the benefit (utilizing actuarial assumptions no less
favorable to the Executive than those in effect under the Retirement Plan (as
defined below) immediately prior to the Effective Date, except as specified
below with respect to increases in base salary and annual bonus) under the
qualified defined benefit retirement plan in which the Executive participates
(the "Retirement Plan") and any excess or supplemental retirement plan in which
the Executive participates (together, the "SERP") which the Executive would
receive if the Executive's employment continued for three years after the Date
of Termination assuming for this purpose that all accrued benefits are fully
vested, and, assuming that (x) the Executive's base salary increased in each of
the three years by the amount required by Section 4(b)(i) (in the case of
Section 4-(b)(i)(y) based on increases (excluding promotional increases) in base
salary for the most recently completed fiscal year prior to the Date of
Termination) had the Executive remained employed, and (y) the Executive's annual
bonus (annualized for any fiscal year consisting of less than twelve full months
or during which the Executive was employed for less than twelve full months) in
each of the three years bears the same proportion to the Executive's base salary
in such year or fraction thereof as it did for the last full year prior to the
Date of Termination, and [ii] the actuarial equivalent of the Executive's actual
benefit (paid or payable), if any, under the Retirement Plan and the SERP as of
the Date of Termination;
(ii) For three years after the Executive's Date of Termination,
or such longer period as may be provided by the terms of the appropriate plan,
program, practice or policy, 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)(iv) of this Agreement if the Executive's
employment had not been terminated in accordance with the most favorable plans,
practices, programs or policies of the Company and its affiliated companies
applicable generally to other peer executives and their families during the
120-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. For purposes of determining
eligibility (but not the time of commencement of benefits) of the Executive for
retiree benefits pursuant to such plans, practices, programs and policies, the
Executive shall be considered to have remained employed until two and one-half
years after the Date of Termination and to have retired on the last day of such
period;
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(iii) The Company shall, at its sole expense as incurred, provide
the Executive with outplacement services the scope and provider of which shall
be selected by the Executive in his sole discretion; and
(iv) To the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or benefits
required to be paid or provided or which the Executive is eligible to receive
under any plan, program, policy or practice or contract or agreement of the
Company and its affiliated companies (such other amounts and benefits shall be
hereinafter referred to as the "Other Benefits").
(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 payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations 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. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall
include, without limitation, and the Executives estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and affiliated companies to the estates and
beneficiaries of peer executives of the Company and such affiliated companies
under such plans, programs, practices and policies relating to death benefits,
if any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and its affiliated
companies and their beneficiaries.
(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 payment
of Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive in a lump sum in cash within
30 days of the Date of Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section 6(c) shall
include, and the Executive shall be entitled after the Disability Effective Date
to receive, disability and other benefits at least equal to the most favorable
of those generally provided by the Company and its affiliated companies to
disabled executives and/or their families in accordance with such plans,
programs, practices and policies relating to disability, if any, as in effect
generally with respect to other peer executives and their families at any time
during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive and/or the Executive's family, as in effect at any
time thereafter generally with respect to other peer executives of the Company
and its affiliated companies and their families.
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(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 (i) his Annual Base Salary through the Date of
Termination, (ii) the amount of any compensation previously deferred by the
Executive, and (iii) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for 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. Nonexclusivity of Rights. 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.
8. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay 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 Internal Revenue Code
of 1986, as amended (the "Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment or distribution by the Company
to or for the benefit of the Executive (whether paid or payable or distributed
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<PAGE> 30
or distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
9) (a "Payment") would be 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 hereinafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by Arthur
Andersen & Co. or such other certified public accounting firm as may be
designated by the Executive (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and the Executive within 15 business
days of the receipt of notice from the Executive that there has been a Payment,
or such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change of Control, the Executive shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 9, shall be paid by the Company to the Executive within five days of the
receipt of the Accounting Firm's determination. If the Accounting Firm
determines that no Excise Tax is payable by the Executive, it shall furnish the
Executive with a written opinion that failure to report the Excise Tax on the
Executive's applicable federal income tax return would not result in the
imposition of a negligence or similar penalty. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 9(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon as
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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 it gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If the Company notifies the Executive in writing prior to the expiration of such
period that it desires to contest such claim, the Executive shall:
(i) Give the Company any information reasonably requested by
the Company relating to such claim,
(ii) Take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(iii) Cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) Permit the Company to participate in any proceedings
relating to such claim; provided, however, that the Company shall bear and pay
directly all costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold the
Executive harmless, on an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto) imposed as a result of
such representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 9(c), the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or 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.
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(d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 9(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 9(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the Executive
of an amount advanced by the Company pursuant to Section 9(c), a determination
is made that the Executive shall not be entitled to any refund with respect to
such claim and the Company does not notify the Executive in writing of its
intent to contest such denial of refund prior to the expiration of 30 days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
10. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company or as
may otherwise be required by law or legal process, communicate or divulge any
such information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 10 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
11. Successors.
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company 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
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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 Wisconsin, 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, to his address appearing on the records of the Company.
If to the Company:
Strattec Security Corporation
3333 West Good Hope Road
Milwaukee, WI 53209
Attn: President
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof 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) of this Agreement,
shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.
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(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company is "at will"
and, prior to the Effective Date, the Executive's employment and this Agreement
may be terminated by either the Executive or the Company at any time prior to
the Effective Date, in which case the Executive shall have no further rights
under this Agreement. From and after the Effective Date this Agreement shall
supersede any other agreement between the parties with respect to the subject
matter hereof.
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.
/s/ Donald J. Harrod
--------------------
Donald J. Harrod
STRATTEC SECURITY CORPORATION
BY /s/ Harold M. Stratton II
--------------------------
Harold M. Stratton, II,
Chairman of the Board
and Chief Executive Officer
17
<PAGE> 1
EXHIBIT 13.1
1999 STRATTEC ANNUAL REPORT
COMPANY DESCRIPTION
BASIC BUSINESS
STRATTEC SECURITY CORPORATION designs, develops, manufactures and
markets mechanical locks, electro-mechanical locks and related security
products for major automotive manufacturers. Our
products are shipped to customer locations in the [LOGO]
United States, Canada, Mexico, Europe and South America, and we provide
full service and aftermarket support. We also supply products for the
heavy truck, recreational vehicle, marine and industrial markets, as well
as precision die castings for the transportation, security and recreational
products industries.
HISTORY
STRATTEC formerly was a division of Briggs & Stratton Corporation. On
February 27, 1995, STRATTEC was spun-off from Briggs & Stratton through a
tax-free distribution to the then existing Briggs shareholders.
STRATTEC received substantially all of the assets related to the lock and
key business owned by Briggs & Stratton.
Starting as a division of Briggs & Stratton, and continuing today as a
totally separate and independent company, we have a history in the automotive
lock manufacturing business spanning more than 80 years. We have
also been in the zinc die casting business for approximately 70 years.
STRATTEC has been the world's largest producer of automotive locks [PHOTO]
and keys since the late 1920s, and we currently maintain a dominant
share of the North American markets for these products.
PRODUCTS
Our principal products are locks and keys for cars and trucks. A
typical automobile contains a set of five locks: a steering
column/ignition lock, a glove box lock, two front door locks
[PHOTO] and a deck lid (trunk) lock. Pickup trucks typically use three
to four locks, while sport utility vehicles and vans use five to
seven locks. Some vehicles have additional locks for under-floor
compartments or folding rear seat latches. T-top locks, spare
tire locks, burglar alarm
4
<PAGE> 2
1999 STRATTEC ANNUAL REPORT
locks and door locks with illuminated faces are also offered as options.
Usually two keys are provided with each vehicle lockset.
[PHOTO] STRATTEC produces locks with simple electrical switch devices and
more sophisticated devices, such as resistive elements, radio
frequency identification (RFID) elements and Hall Effect sensors. The primary
focus of these added electronics is increased security and reliability.
Electronics will play an important and ever-increasing role in the [PHOTO]
future of our security-related products.
MARKETS
We are a direct supplier of OEM auto and light truck manufacturers,
over-the-road heavy truck manufacturers and recreational vehicle manufacturers,
as well as other transportation-related manufacturers. For the 1999 model year,
we enjoyed a 66.4% market share in the North American automotive industry,
supplying locks and keys for approximately 90% of General Motor's production,
65% of Ford's, and 99% of DaimlerChrysler's production. We also are an OEM
components supplier to a wide array of smaller industrial manufacturers.
Direct sales to various OEMs represent approximately 82% of
our total sales. The remainder of the company's revenue is received [PHOTO]
primarily through sales to the OEM service channels, and the
locksmith aftermarket.
Sales to General Motors, Ford and DaimlerChrysler are coordinated through
our direct sales personnel located in our Detroit-area office. Sales are also
partially facilitated through daily interaction between our application
engineers located in Detroit and customer engineering departments. Sales to
other OEM customers are accomplished through a combination of our own sales
personnel and manufacturer representative agencies.
STRATTEC's products are supported by an extensive staff of experienced
lock engineers. This staff, which includes product design, quality and
manufacturing engineers, is capable of providing complete
5
<PAGE> 3
1999 STRATTEC ANNUAL REPORT
COMPANY DESCRIPTION
design, development and testing services of new products
for our customers. This staff is also available for customer
problem solving, warranty analysis and other activities [PHOTO]
that arise during a product's life cycle. Our customers
receive after-sales support in the form of special field
service kits, service manuals, and specific in-plant
production repair programs.
The majority of our OEM products are sold in North
America. However, our dominance in the North American
market translates into a world market share of around
21%, making STRATTEC the largest producer of automotive
locks and keys in the world. While a modest amount of
exporting is done to automotive assembly plants in
Europe and South America, we are in the process of
expanding our presence in these markets through
collaborative agreements with lock manufacturers in
those regions.
[PHOTO]
OEM service and replacement parts are sold to the
OEM's own service operations. In addition, we distribute
our components and security products to the automotive
aftermarket through approximately 75 authorized wholesale
distributors, as well as other marketers and users of component
parts, including export customers. These aftermarket activities
are serviced through a new warehousing operation integral to
our Milwaukee headquarters and manufacturing facility.
CUSTOMER FOCUS
Since the majority of the company's sales are to the "Big Three"
North American automotive manufacturers, STRATTEC is organized to assure
that our activities are focused on these major customers and their
associated entities. We have customer-focused teams for General Motors/Delphi,
for Ford, and for Daimler Chrysler/Mitsubishi. A fourth team handles our
industrial and service customers, including such heavy truck manufacturers as
Peterbilt, Kenworth, Mack, Freightliner, Navistar, and GM Volvo.
Each of the four teams possesses all of the necessary disciplines
required to meet their customers'
6
<PAGE> 4
1999 STRATTEC ANNUAL REPORT
[PHOTO]
needs. Leading each team's efforts are Product Business
Managers who handle the overall coordination of various product
programs. The Product Business Managers work closely with
their team's quality engineers, cost engineers, purchasing
agents, internal and external customer service representatives, [GRAPHIC]
service manager, and engineering manager. The engineering
manager in turn helps coordinate the efforts of design
engineers, product and process engineers, component engineers,
and electrical engineers.
STRATTEC uses a formalized product development process to identify and
meet customer needs in the shortest possible time. By creating and following
this streamlined development system, we shorten product lead times, tighten
our response to market changes, and provide our customers with the optimum
value solution to their security requirements. STRATTEC is also QS-9000/ISO
9001 certified. This means we embrace the philosophy that quality should exist
not only in the finished product, but in every step of our process as well.
OPERATIONS
The majority of the components that go into our lock
products are manufactured at our main facility and headquarters
in Milwaukee, Wisconsin. This facility also makes zinc die
cast components for other manufacturers. Lock [PHOTO]
assembly is performed at the Milwaukee location and
at our primary assembly facility, located in Juarez, Mexico.
ADVANCED DEVELOPMENT
Research and development activities are centered
around a dedicated research engineering staff we call
[PHOTO] our Advanced Development Group.
7
<PAGE> 5
1999 STRATTEC ANNUAL REPORT
COMPANY DESCRIPTION
This Group has the responsibility for developing future
products and processes that will keep us in the forefront
of the markets we serve. Among other things, we are
pursuing mechanical as well as electronic products to [PHOTO]
increase security, modularization of related components,
and new manufacturing processes to reduce costs for
ourselves and our customers.
CYCLICAL NATURE OF THE BUSINESS
The manufacturing of components used in automobiles is driven by the normal
peaks and valleys associated with the automotive industry. Typically, the months
of July and August are relatively slow while summer vacation shut-downs and
model year changeover occur at the automotive assembly plants. September volumes
increase rapidly as the new model year begins. This volume strength continues
through October and into early November. As the holiday and winter seasons
approach, the demand for automobiles slows. March usually brings a major sales
and production increase, which then continues through most of June. This results
in our first fiscal quarter (ending in September) sales and operating results
typically being our weakest, with the remaining quarters being more consistent.
ECONOMIC VALUE COMMITMENT
The underlying philosophy of our business, and the means by which we measure
our performance, is Economic Value Added (EVA(R)). Simply stated, economic value
is created when our business enterprise yields a return greater than the cost of
capital we and our shareholders have invested in STRATTEC. The amount by which
our return exceeds the cost of our capital is EVA(R). In line with this
philosophy, EVA(R) bonus plans are in effect for our associates and our outside
directors as an incentive to help positively drive the business.
STRATTEC's significant market share is the result of an eight-decade-long
commitment to creating quality products and systems that are responsive to
changing needs. As technologies advance and markets grow, STRATTEC retains that
commitment to meeting and exceeding the expectations of our customers, and
providing economic value to our shareholders.
8
<PAGE> 6
1999 STRATTEC ANNUAL REPORT
VEHICLE LIST
2000 VEHICLES
We're proud of the quality vehicles that use STRATTEC components. They
include over-the-road trucks like Peterbilt, Kenworth, Mack, Freightliner,
Navistar and GM Volvo. Recreational vehicles like Winnebago, Coachmen, Jayco
and Fleetwood. And the following model year 2000 cars and light trucks:
[PHOTO]
<TABLE>
<CAPTION>
CARS
<S> <C> <C>
Buick Century Chrysler LHS Mitsubishi Galant
Buick Regal Chrysler Sebring Convertible Oldsmobile Alero
Cadillac Eldorado Dodge Intrepid Oldsmobile Intrigue
Chevrolet Camaro Dodge Neon Plymouth Breeze
Chevrolet Cavalier Dodge Stratus Plymouth Neon
Chevrolet Corvette Dodge Viper Plymouth Prowler
Chevrolet Impala Ford Taurus Pontiac Firebird
Chevrolet Lumina General Motors EV1 Pontiac Grand Am
Chevrolet Malibu Jaguar S-Type Pontiac Grand Prix
Chevrolet Monte Carlo Lincoln Continental Pontiac Sunfire
Chrysler Cirrus Lincoln LS Saturn LS
Chrysler Concorde Mercury Sable
Chrysler 300M Mitsubishi Eclipse
LIGHT TRUCKS, VANS AND SPORT UTILITY VEHICLES
Cadillac Escalade Dodge Ram Van/Wagon Isuzu Hombre Pickup
Chevrolet Astro Ford Excursion Jeep Cherokee
Chevrolet Blazer Ford Expedition Jeep Grand Cherokee
Chevrolet Silverado Pickup Ford Explorer Jeep Wrangler
Chevrolet Express Ford F-Series Pickup Lincoln Navigator
Chevrolet S-10 Pickup Ford Ranger Pickup Mazda B-Series Pickup
Chevrolet Suburban GMC Envoy Mercury Mountaineer
Chevrolet Tahoe GMC Denali Mercury Villager
Chevrolet Venture GMC Jimmy Nissan Quest
Chrysler Town & Country GMC Safari Oldsmobile Bravada
Dodge Caravan/Grand Caravan GMC Savana Oldsmobile Silhouette
Dodge Dakota Pickup GMC Sierra Pickup Plymouth Voyager/
Dodge Durango GMC Sonoma Pickup Grand Voyager
Dodge Ramcharger GMC Yukon Pontiac Montana
Dodge Ram Pickup GMC Yukon XL
</TABLE>
9
<PAGE> 7
1999 STRATTEC ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following Discussion and Analysis should be read in conjunction
with the Company's Financial Statements and Notes thereto. Unless otherwise
indicated, all references to years refer to fiscal years.
RESULTS OF OPERATIONS
1999 COMPARED TO 1998
Net sales were $202.6 million in 1999, an increase of 8 percent
compared to net sales of $186.8 million in 1998. Sales to DaimlerChrysler
Corporation increased $5.0 million or 19 percent. Sales to the Ford Motor
Company increased $6.1 million or 13 percent. Sales to these customers increased
primarily due to increased unit production by these customers and a more
favorable product mix. Sales to General Motors Corporation were relatively
consistent with the prior year levels. Labor disruptions at General Motors
Corporation reduced sales to this customer by an estimated $3 million during
both fiscal 1999 (first quarter) and 1998 (fourth quarter). General Motors
Corporation completed its spin-off of Delphi Automotive Systems in May 1999.
Sales to Delphi Automotive Systems totaled $2.8 million in the month of June
1999 and were previously reported as sales to General Motors Corporation. The
Company also began production volume shipments totaling approximately $2.2
million to Mitsubishi Motor Manufacturing of America early in the current fiscal
year in support of the launch of the 1999 Gallant. This is the Company's initial
program with Mitsubishi.
Gross profit as a percentage of net sales was 23.1 percent in 1999
compared to 21.4 percent in 1998. Several factors contributed to the improvement
in gross profit margins, including increased production volumes resulting in
more favorable absorption of fixed overhead costs and a favorable mix of higher
margin products. The prior year included a charge of $750,000 related to cash
payments to the Company's represented employees upon ratification of a new
collective bargaining agreement. Additional improvement in gross profit margins
resulted from the cost of zinc, which the Company uses at a rate of
approximately 1 million pounds per month, being substantially lower in the
current year as compared to the prior year. The average price per pound was
approximately $.52 in fiscal 1999 compared to approximately $.68 in fiscal 1998.
Also contributing to the improved gross profit margin was the devaluation of the
Mexican peso during the first quarter of the current fiscal year which resulted
in lower U.S. dollar costs for the Mexican assembly operation. The rate of
inflation in Mexico during the 12 months ended September 1998 was approximately
14 percent. However, the average U.S. dollar/Mexican peso exchange rate
increased to approximately 9.50 in the first quarter of the current fiscal year
from approximately 7.85 in the first quarter of the prior year.
Engineering, selling and administrative expenses were $20.2 million,
or 10.0 percent of net sales in 1999, compared to $18.9 million, or 10.1 percent
of net sales in 1998. The increase was primarily related to the addition of
associates to support current and future programs and the related recruiting and
relocation costs.
Income from operations was $26.6 million in 1999, compared to $21.0
million in 1998, reflecting the increased sales volume and improved gross margin
as previously discussed above.
The effective income tax rate in fiscal 1999 was 38.1 percent compared
to 37.0 percent in fiscal 1998. The increase is due to an increase in the
federal statutory tax rate resulting from higher net income levels as well as an
increase in the state effective tax rate. The overall effective rate differs
from the federal statutory tax rate primarily due to the effects of state income
taxes.
RESULTS OF OPERATIONS
1998 COMPARED TO 1997
Net sales were $186.8 million in 1998, an increase of 17 percent
compared to net sales of $159.1 million in 1997. The sales increase is primarily
due to increased sales to all three of the Company's largest customers in the
current year compared to prior year levels, with General Motors Corporation
increasing $16.4 million or 23 percent, DaimlerChrysler Corporation increasing
$5.0 million or 24 percent, and Ford Motor Company increasing $2.5 million or 6
percent. Sales growth was primarily due to higher value mechanical and
electro-mechanical content. Increased sales to DaimlerChrysler Corporation also
reflect that company's higher vehicle production schedule in the last six months
of fiscal 1998 compared to the prior year period. Labor disruptions at General
Motors Corporation operations reduced sales to this customer by an estimated $3
million during the current year fourth quarter and by an estimated $2 million
during the second quarter of fiscal 1997.
Gross profit as a percentage of net sales was 21.4 percent in 1998
compared to 20.9 percent in 1997. Gross profit margins improved compared to the
prior year due to
10
<PAGE> 8
1999 STRATTEC ANNUAL REPORT
decreased scrap and premium freight costs. The gross profit margin was
negatively impacted by a $750,000 charge during the current year as a result of
cash payments to the Company's represented employees upon ratification of a new
collective bargaining agreement. During the first six months of 1998, the cost
of zinc, which the Company uses at a rate of approximately 1 million to 1.2
million pounds per month, remained significantly above prior year levels,
increasing to an average of approximately $.74 per pound in the six months ended
December 28, 1997, from an average of $.53 per pound in the six months ended
December 29, 1996, resulting in a negative impact on gross profit margins. The
cost of zinc declined in the second quarter of fiscal 1998 after increasing
dramatically over the previous 12 months.
Gross profit margins were also negatively impacted as inflationary
cost pressures in Mexico over the past 30 months have resulted in higher U.S.
dollar costs. The rate of inflation in Mexico during the six months ended June
28, 1998, and during calendar 1997 and 1996 was approximately 8, 16 and 28
percent, respectively. The U.S. dollar/Mexican peso exchange rate remained
relatively stable during this period with devaluation during the period
September 1997 through June 1998. The exchange rate ranged from approximately
7.40 to 7.90 pesos to the dollar during the period January 1996 through
September 1997, and from approximately 7.80 to 9.00 pesos to the dollar during
the period October 1997 through June 28, 1998.
Engineering, selling and administrative expenses were $18.9 million,
or 10.1 percent of net sales in 1998, compared to $17.7 million, or 11.1 percent
of net sales in 1997. Engineering expenses increased approximately $700,000
primarily in support of new programs. Selling and marketing expenses increased
approximately $200,000 primarily due to increased costs for commissions and
promotional items. Administrative expenses increased approximately $300,000,
primarily due to increased costs to recruit salaried employees.
Income from operations was $21.0 million in 1998, compared to $15.6
million in 1997, reflecting the increased sales volume and improved gross margin
as previously discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated cash from operating activities of $27.5 million
in 1999 compared to $26.0 million in 1998. The increased generation of cash is
due to several factors, including increased sales and operating profit levels as
previously discussed and increases in accounts payable and accrued liabilities
in support of increased production activities. In addition, the Company's
investment in accounts receivable increased by approximately $10.8 million at
June 27, 1999, as compared to June 28, 1998, primarily due to an increase in
outstanding billings for customer tooling and higher sales levels in the current
quarter as compared to the fourth quarter of fiscal 1998. During June 1998,
labor disruptions at General Motors Corporation reduced sales by approximately
$3 million. Inventories decreased by approximately $1.2 million at June 27,
1999, as compared to June 28, 1998, due to decreased sales during June 1998
resulting from the labor disruptions at General Motors Corporation.
Capital expenditures in 1999 were $8.8 million, compared to $7.5
million in 1998. Expenditures were primarily in support of requirements for new
product programs and the upgrade and replacement of equipment. The Company
anticipates that capital expenditures will be approximately $9 million to $10
million in fiscal 2000, primarily in support of requirements for new product
programs and the upgrade and replacement of equipment.
The Board of Directors of the Company has authorized a stock
repurchase program to buy back up to 889,395 outstanding shares. A total of
383,000 shares have been repurchased as of June 27,1999, at a cost of
approximately $9.2 million. Additional repurchases may occur from time to time.
Funding for the repurchases was provided by cash flow from operations and
borrowings under existing credit facilities.
The Company has a $25.0 million unsecured, revolving credit facility
(the "Credit Facility"). There were no outstanding borrowings under the Credit
Facility at June 27, 1999. Interest on borrowings under the Credit Facility are
at varying rates based, at the Company's option, on the London Interbank
offering rate, the Federal Funds Rate, or the bank's prime rate. The Credit
Facility contains various restrictive covenants including covenants that require
the Company to maintain minimum levels for certain financial ratios such as
tangible net worth, ratio of indebtedness to tangible net worth and fixed charge
coverage. The Company believes that the Credit Facility will be adequate, along
with cash flow from operations, to meet its anticipated capital expenditure,
working capital and operating expenditure requirements.
The Company has not been significantly impacted by inflationary
pressures over the
11
<PAGE> 9
1999 STRATTEC ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
last several years, except for zinc and Mexican assembly operations as noted
elsewhere in this Management's Discussion and Analysis.
OTHER
The Company's Year 2000 readiness project has been ongoing since late
1997. The project addresses operating systems, the manufacturing operations,
customers and suppliers. As of June 27, 1999, the Company's operating systems
have been fully updated to Year 2000 compliant versions. The Year 2000 compliant
versions are currently in use throughout the Company. Tests have been performed
in which transaction dates were set forward past January 1, 2000. These test
transactions were accurately processed. The Company plans to continue testing
and retesting throughout the remainder of the calendar year. Verification that
all equipment used in the manufacturing operations is Year 2000 compliant has
been completed. A Year 2000 readiness questionnaire has been distributed to all
suppliers and a risk analysis has been prepared for each supplier based on the
completed questionnaires. On-site assessments have been and continue to be
performed for all high risk suppliers. Based on the results on on-site
assessments, alternate sources will be identified as necessary.
The Company is instituting contingency planning. The Company will
limit employee vacations during late 1999 and early 2000, and the information
systems department will be staffed over the millennium weekend. A chain of
command is being established to respond to unforeseen events and to ensure that
personnel will be available to handle issues that may arise. Despite the
Company's efforts, there is no guarantee or assurance that all Year 2000
problems will be uncovered.
The Company is participating in a program coordinated by the
Automotive Industries Action Group ("AIAG"), a group sponsored and supported by
General Motors Corporation, DaimlerChrysler Corporation and the Ford Motor
Company. Based upon the guidelines of a Year 2000 Readiness Self-Assessment,
developed by the AIAG, the Company is classified as a low risk supplier in
relation to Year 2000 compliance.
The Company implemented a new business information system in February
1997. No significant modifications to the software to be compliant with the
requirements to process transactions in the Year 2000 were required. Therefore,
the Company's cost to become Year 2000 compliant was not material to its
financial condition or results of operations.
MEXICAN OPERATIONS
The Company has assembly operations in Juarez, Mexico. Since December
28, 1998, and prior to December 30, 1996, the functional currency of the Mexican
operation has been the Mexican peso. The effects of currency fluctuations result
in adjustments to the U.S. dollar value of the Company's net assets and to the
equity accounts in accordance with Statement of Financial Accounting Standard
(SFAS) No. 52, "Foreign Currency Translation." During the period December 30,
1996, to December 27, 1998, the functional currency of the Mexican operation was
the U.S. dollar, as Mexico was then considered to be a highly inflationary
economy in accordance with SFAS No. 52. The effect of currency fluctuations in
the remeasurement process was included in the determination of income. The
effect of the December 28, 1998 functional currency change was not material to
the financial results of the company.
PROSPECTIVE INFORMATION
A number of the matters and subject areas discussed in this Annual
Report that are not historical or current facts deal with potential future
circumstances and developments. These include expected future financial results,
product offerings, global expansion, liquidity needs, financing ability, planned
capital expenditures, management's or the Company's expectations and beliefs,
and similar matters discussed in the Company's Management's Discussion and
Analysis and Letter to Our Shareholders. The discussions of such matters and
subject areas are qualified by the inherent risk and uncertainties surrounding
future expectations generally, and also may materially differ from the Company's
actual future experience.
The Company's business, operations and financial performance are
subject to certain risks and uncertainties which could result in material
differences in actual results from the Company's current expectations. These
risks and uncertainties include, but are not limited to, general economic
conditions, in particular, relating to the automotive industry, consumer demand
for the Company's and its customers products, competitive and technological
developments, foreign currency fluctuations, Year 2000 compliance issues and
costs of operations.
Shareholders, potential investors and other readers are urged to
consider these factors carefully in evaluating the forward-looking statements
and are cautioned not to place undue reliance on such forward-looking
statements. The forward-looking statements made herein are only made as of the
date of this Annual Report and the Company undertakes no obligation to
publically update such forward-looking statements to reflect subsequent events
or circumstances.
12
<PAGE> 10
1999 STRATTEC ANNUAL REPORT
CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended
---------------------------------------------------------------
June 27, 1999 June 28, 1998 June 29, 1997
--------------- ------------- --------------
<S> <C> <C> <C>
NET SALES $ 202,625 $ 186,805 $ 159,054
Cost of goods sold 155,821 146,865 125,735
--------- --------- ---------
GROSS PROFIT 46,804 39,940 33,319
Engineering, selling, and
administrative expenses 20,191 18,925 17,684
--------- --------- ---------
INCOME FROM OPERATIONS 26,613 21,015 15,635
Interest income 1,132 351 4
Interest expense - (19) (214)
Other income (expense), net (239) 73 125
--------- --------- ---------
INCOME BEFORE PROVISION FOR
INCOME TAXES 27,506 21,420 15,550
Provision for income taxes 10,491 7,931 5,730
--------- --------- ---------
NET INCOME $ 17,015 $ 13,489 $ 9,820
========= ========= =========
EARNINGS PER SHARE:
BASIC $ 3.02 $ 2.36 $ 1.72
========= ========= =========
DILUTED $ 2.94 $ 2.30 $ 1.70
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
13
<PAGE> 11
1999 STRATTEC ANNUAL REPORT
CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
<TABLE>
<CAPTION>
June 27, 1999 June 28, 1998
----------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 28,611 $ 14,754
Receivables, less allowance for doubtful
accounts of $250 at June 27, 1999,
and June 28, 1998 36,063 25,301
Inventories 13,804 14,962
Customer tooling in progress 3,758 8,692
Future income tax benefits 2,525 2,218
Other current assets 2,522 2,131
--------- ---------
Total current assets 87,283 68,058
PROPERTY, PLANT, AND EQUIPMENT, NET 40,911 39,940
--------- ---------
$ 128,194 $ 107,998
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 17,386 $ 12,457
Accrued liabilities:
Payroll and benefits 9,961 8,170
Environmental 2,820 2,873
Income taxes 201 307
Other 2,054 1,298
--------- ---------
Total current liabilities 32,422 25,105
DEFERRED INCOME TAXES 512 357
BORROWINGS UNDER REVOLVING CREDIT FACILITY - -
ACCRUED PENSION OBLIGATIONS 8,669 8,289
ACCRUED POSTRETIREMENT OBLIGATIONS 4,246 3,849
SHAREHOLDERS' EQUITY
Common stock, authorized 12,000,000 shares $.01 par value, issued
5,945,298 shares at June 27, 1999, and 5,877,150 shares at
June 28, 1998 59 59
Capital in excess of par value 43,999 42,489
Retained earnings 49,451 32,436
Accumulated other comprehensive loss (2,081) (1,863)
Less: Treasury stock, at cost (378,788 shares at
June 27, 1999 and 152,307 shares at June 28, 1998) (9,083) (2,723)
--------- ---------
Total shareholders' equity 82,345 70,398
--------- ---------
$ 128,194 $ 107,998
========= =========
</TABLE>
The accompanying notes are an integral part
of these consolidated balance sheets.
14
<PAGE> 12
1999 STRATTEC ANNUAL REPORT
CONSOLIDATED STATEMENTS OF CHANGE IN EQUITY (IN THOUSANDS)
<TABLE>
<CAPTION>
Accumulated
Capital in Other
Common Excess of Retained Comprehensive Treasury Comprehensive
Stock Par Value Earnings Loss Stock Income
---------- ---------- --------- ------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE,
JUNE 30, 1996 $ 58 $ 40,909 $ 9,127 $ (1,796) -
Net income - - 9,820 - - $ 9,820
Translation adjustments - - - (67) - (67)
--------
Comprehensive income $ 9,753
========
Purchase of common stock - - - - (2,143)
Exercise of stock options,
including tax benefit - 185 - - -
-------- -------- -------- -------- --------
BALANCE,
JUNE 29, 1997 58 41,094 18,947 (1,863) (2,143)
Net income - - 13,489 - - $ 13,489
Translation adjustments - - - - - -
--------
Comprehensive income $ 13,489
========
Purchase of common stock - - - - (591)
Exercise of stock options,
including tax benefit 1 1,395 - - 11
-------- -------- -------- -------- --------
BALANCE,
JUNE 28, 1998 59 42,489 32,436 (1,863) (2,723)
Net income - - 17,015 - - $ 17,015
Translation adjustments - - - (218) - (218)
--------
Comprehensive income $ 16,797
========
Purchase of common stock - - - - (6,416)
Exercise of stock options,
including tax benefit - 1,510 - - 56
-------- -------- -------- -------- --------
BALANCE,
JUNE 27, 1999 $ 59 $ 43,999 $ 49,451 $ (2,081) $ (9,083)
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
15
<PAGE> 13
1999 STRATTEC ANNUAL REPORT
CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended
------------------------------------------------
June 27, 1999 June 28, 1998 June 29, 1997
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $17,015 $13,489 $ 9,820
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 7,107 6,776 5,639
Loss on disposition of property,
plant and equipment 463 168 171
Change in operating assets and liabilities:
(Increase) decrease in receivables (10,788) 4,330 (10,897)
(Increase) decrease in inventories 1,158 (83) (1,473)
(Increase) decrease in other assets 4,203 (1,891) 1,421
Increase in accounts payable
and accrued liabilities 8,311 3,216 1,459
Other, net 54 (54) (50)
------- ------- --------
Net cash provided by
operating activities 27,523 25,951 6,090
------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (8,831) (7,450) (7,972)
Proceeds received on sale of property,
plant and equipment 15 70 196
------- ------- --------
Net cash used in investing activities (8,816) (7,380) (7,776)
------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from (payments of) borrowings under
revolving credit facility - (5,037) 3,607
Purchase of common stock (6,416) (591) (2,143)
Exercise of stock options 1,566 1,407 185
------- ------- --------
Net cash provided by (used in)
financing activities (4,850) (4,221) 1,649
------- ------- --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 13,857 14,350 (37)
CASH AND CASH EQUIVALENTS
Beginning of year 14,754 404 441
------- ------- --------
End of year $28,611 $14,754 $ 404
======= ======= ========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Income taxes paid $ 9,882 $ 7,482 $ 4,984
Interest paid - 19 227
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
16
<PAGE> 14
1999 STRATTEC ANNUAL REPORT
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
STRATTEC SECURITY CORPORATION (the "Company") designs, develops,
manufactures and markets mechanical locks, electro-mechanical locks and related
security products for automotive manufacturers.
The significant accounting policies followed by the Company in the
preparation of these financial statements, as summarized in the following
paragraphs, are in conformity with generally accepted accounting principles.
PRINCIPLES OF CONSOLIDATION AND PRESENTATION: The accompanying
financial statements reflect the consolidated results of the company, its wholly
owned Mexican subsidiary, and its foreign sales corporation.
Certain amounts previously reported have been reclassified to conform
to the June 27, 1999, presentation. These reclassifications have no effect on
previously reported net income or retained earnings.
FISCAL YEAR: The Company's fiscal year ends on the Sunday nearest June
30.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The fair value of financial
instruments does not materially differ from their carrying values.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents include all
short-term investments with an original maturity of three months or less.
INVENTORIES: Inventories are stated at cost, which does not exceed
market. The last-in, first-out (LIFO) method was used for determining the cost
of the inventories at the end of each period.
Inventories consist of the following
(thousands of dollars):
<TABLE>
<CAPTION>
June 27, June 28,
1999 1998
-------- --------
<S> <C> <C>
Finished products $ 4,439 $ 5,114
Work in process 11,145 11,204
Raw materials 774 1,179
LIFO adjustment (2,554) (2,535)
-------- --------
$ 13,804 $ 14,962
======== ========
</TABLE>
CUSTOMER TOOLING IN PROGRESS: The Company accumulates its costs for
development of certain tooling used in component production and assembly. The
costs, which are primarily from third-party tool vendors, are accumulated on the
Company's balance sheet. These amounts then are billed to the customer upon
formal acceptance by the customer of products produced with the individual tool.
PROPERTY, PLANT, AND EQUIPMENT: Property, plant, and equipment are
stated at cost, and depreciation is computed using the straight-line method over
the following estimated useful lives:
<TABLE>
<CAPTION>
Expected
Classification Useful Lives
- -------------------------- ---------------------
<S> <C>
Land improvements 20 years
Buildings and improvements 20 to 35 years
Machinery and equipment 3 to 10 years
</TABLE>
Property, plant, and equipment consist of the following (thousands of
dollars):
<TABLE>
<CAPTION>
June 27, June 28,
1999 1998
-------- --------
<S> <C> <C>
Land $ 1,236 $ 855
Buildings and improvements 10,836 9,819
Machinery and equipment 69,447 64,523
-------- --------
81,519 75,197
Less: accumulated
depreciation (40,608) (35,257)
-------- --------
$40,911 $ 39,940
======== ========
</TABLE>
Expenditures for repairs and maintenance are charged to expense as
incurred. Expenditures for major renewals and betterments, which significantly
extend the useful lives of existing plant and equipment, are capitalized and
depreciated. Upon retirement or disposition of plant and equipment, the cost and
related accumulated depreciation are removed from the accounts and any resulting
gain or loss is recognized in income.
RESEARCH AND DEVELOPMENT COSTS: Expenditures relating to the
development of new products and processes, including significant improvements
and refinements to existing products, are expensed as incurred.
FOREIGN CURRENCY TRANSLATION: Since December 28, 1998, and prior to
December 30, 1996, the functional currency of the Mexican operation has been the
Mexican peso. The effects of currency fluctuations result in adjustments to the
U.S. dollar value of the Company's net assets and to the equity accounts in
accordance with Statement of Financial Accounting Standard (SFAS) No. 52,
"Foreign Currency Translation." During the period December 30 1996, to December
27, 1998, the functional currency of the Mexican operation was the U.S. dollar,
as Mexico then was considered to be a highly inflationary economy in accordance
with SFAS No. 52. The effect of currency fluctuations in the remeasurement
process was included in the determination of net income during this period.
17
<PAGE> 15
1999 STRATTEC ANNUAL REPORT
NOTES TO FINANCIAL STATEMENTS
The effect of the December 28, 1998 functional currency change was not material
to the financial results of the company.
ACCUMULATED OTHER COMPREHENSIVE LOSS: The only component of accumulated
other comprehensive loss is cumulative translation adjustments. Deferred taxes
have not been provided for the translation adjustments in accordance with SFAS
No. 109, "Accounting for Income Taxes."
REVENUE RECOGNITION: Revenue is recognized upon the shipment of
products, net of estimated costs of returns and allowances.
SEGMENT REPORTING: SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," was issued in 1997. This statement
establishes standards for the manner in which public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. Since the
Company operates in a single business segment, this Statement has no impact on
reporting requirements of the Company.
DERIVATIVE INSTRUMENTS: SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," was issued in 1998. The statement
establishes accounting and reporting standards requiring that every derivative
instrument be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 is effective for financial statements
for fiscal years beginning after June 15, 2000. The Company currently does not
hold any such derivative instruments and does not expect this statement to have
an impact on future financial statements.
REVOLVING CREDIT FACILITY
The Company has a $25 million unsecured, revolving credit facility (the
"Credit Facility"), which expires October 31, 2001. Interest on borrowings under
the Credit Facility are at varying rates based, at the Company's option, on the
London Interbank Offering Rate, the Federal Funds Rate, or the bank's prime
rate. There were no outstanding borrowings at June 27, 1999, or June 28, 1998.
The weighted average interest rate on the revolving credit borrowings was 6.2
percent for the year ended June 28, 1998. There were no borrowings under the
credit facility during the year ended June 27, 1999.
The Credit Facility contains various restrictive covenants that require
the Company to maintain minimum levels for certain financial ratios, including
tangible net worth, ratio of indebtedness to tangible net worth and fixed charge
coverage.
ENVIRONMENTAL MATTER
In 1995, the Company recorded a provision of $3.0 million for estimated
costs to remediate a site at the Company's Milwaukee facility contaminated by a
solvent spill, which occurred in 1985. The Company continues to monitor and
evaluate the site and believes, based upon findings-to-date and known
environmental regulations, that the environmental reserve at June 27, 1999, is
adequate.
INCOME TAXES
The provision for income taxes consists of the following (thousands of
dollars):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Currently payable:
Federal $ 8,106 $5,576 $4,469
State 1,976 1,323 1,037
Foreign 416 471 43
------- ------ ------
10,498 7,370 5,549
Deferred taxes (7) 561 181
------- ------ ------
$10,491 $7,931 $5,730
======= ====== ======
</TABLE>
A reconciliation of the U.S. statutory tax rates to the effective tax
rates follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
U.S. statutory rate 35.0% 34.8% 34.4%
State taxes, net of
federal tax benefit 4.7 4.4 4.4
Foreign rate differential .3 .4 (.8)
Other (1.9) (2.6) (1.2)
---- ---- ----
38.1% 37.0% 36.8%
==== ==== ====
</TABLE>
The components of deferred tax assets and (liabilities) are as follows
(thousands of dollars):
<TABLE>
<CAPTION>
June 27, June 28,
1999 1998
------- --------
<S> <C> <C>
Future income tax benefits:
Customer tooling $ 195 $ 156
Payroll-related accruals 499 410
Environmental reserve 1,100 1,121
Other 731 531
------- -------
$ 2,525 $ 2,218
======= =======
Deferred income taxes:
Accrued pension obligations $ 3,381 $ 3,233
Accumulated depreciation (5,549) (5,091)
Postretirement obligations 1,656 1,501
------- -------
($ 512) ($ 357)
======= =======
</TABLE>
Foreign income before the provision for income taxes was not
significant for each of the years indicated.
18
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
1999 STRATTEC ANNUAL REPORT
RETIREMENT PLANS AND POSTRETIREMENT COSTS
The Company has a noncontributory defined benefit pension plan covering
substantially all U.S. associates. Benefits are based on years of service and
final average compensation. The Company's policy is to fund at least the minimum
actuarially computed annual contribution required under the Employee Retirement
Income Security Act of 1974 (ERISA). Plan assets consist primarily of listed
equity and fixed income securities. The Company recognizes the expected cost of
retiree health care and life insurance benefits during the years that the
associates render service. The postretirement health care and life insurance
plans are unfunded.
The following tables summarize the pension and postretirement plans'
income and expense, actuarial assumptions, and funded status for the years
indicated (thousands of dollars):
<TABLE>
<CAPTION>
Pension Postretirement
Benefits Benefits
------------- --------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation
at beginning
of year $26,189 $21,624 $ 3,882 $ 3,092
Service cost 1,380 1,206 206 169
Interest cost 1,948 1,664 289 238
Amendments - 75 - -
Actuarial loss 226 2,058 238 383
Benefits paid (556) (438) (115) -
------- ------- ------- -------
Benefit obligation
at end of year $29,187 $26,189 $ 4,500 $ 3,882
======= ======= ======= =======
CHANGE IN PLAN ASSETS:
Fair value of plan
assets at
beginning of year $26,364 $22,194 - -
Actual return on
plan assets 2,551 4,585 - -
Employer contributions 818 23 115 53
Benefits paid (556) (438) (115) (53)
------- ------- ------ -------
Fair value of plan
assets at end of year 29,177 26,364 - -
======= ======= ====== =======
Funded status (10) 175 (4,500) (3,882)
Unrecognized net gain (7,869) (7,535) (13) (250)
Unrecognized prior
service cost 7 18 260 275
Unrecognized net
transition asset (797) (947) 7 8
------- ------- ------- -------
Accrued benefit cost $(8,669) $(8,289) $(4,246) $(3,849)
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Pension Postretirement
Benefits Benefits
----------------- -----------------
June 27, June 28, June 27, June 28,
1999 1998 1999 1998
----------------- -----------------
<S> <C> <C> <C> <C>
WEIGHTED-AVERAGE ASSUMPTIONS
Discount rate 7.25% 7.5% 7.25% 7.5%
Expected return on
plan assets 8.5% 8.5% n/a n/a
Rate of compensation
increases 4.0% 4.0% n/a n/a
</TABLE>
For measurement purposes, a 6 percent annual rate of increase in the
per capita cost of covered health care benefits was assumed for 1999; the rate
was assumed to remain at that level thereafter.
<TABLE>
<CAPTION>
Pension Postretirement
Benefits Benefits
------------- --------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost $ 1,380 $ 1,206 $ 206 $ 169
Interest cost 1,948 1,664 289 238
Expected return
on plan assets (1,905) (1,705) - -
Amortization of
prior service cost 12 7 16 -
Amortization of
unrecognized
net gain (86) (171) - (9)
Amortization of
unrecognized
net asset (150) (150) 1 1
------- -------- ------ ------
Net periodic
benefit cost $ 1,199 $ 851 $ 512 $ 399
======= ======== ====== ======
</TABLE>
The health care cost trend assumption has a significant effect on the
amounts reported. A 1% change in the health care cost trend rates would have the
following effects (thousands of dollars):
<TABLE>
<CAPTION>
1% Increase 1% Decrease
----------- -----------
<S> <C> <C>
Effect on total of
service and interest
cost components $ 82 ($ 68)
Effect on Postretirement
benefit obligation $632 ($404)
</TABLE>
All U.S. associates of the Company may participate in a 401(k) Plan.
The Company contributes a fixed percentage of up to the first 6 percent of
eligible compensation that a participant contributes to the plan. The Company's
contributions totaled approximately $635,000 in 1999, $548,000 in 1998 and
$487,000 in 1997.
19
<PAGE> 17
1999 STRATTEC ANNUAL REPORT
NOTES TO FINANCIAL STATEMENTS
SHAREHOLDERS' EQUITY
The Company has 12,000,000 shares of authorized common stock, par value
$.01 per share, with 5,566,510 and 5,724,843 shares issued and outstanding at
June 27, 1999, and June 28, 1998, respectively. Holders of Company common stock
are entitled to one vote for each share on all matters voted on by shareholders.
On February 27, 1995, one common stock purchase right (a "right") was
distributed for each share of the Company's common stock outstanding. The rights
are not currently exercisable, but would entitle shareholders to buy one-half of
one share of the Company's common stock at an exercise price of $30 per share if
certain events occurred relating to the acquisition or attempted acquisition of
20 percent or more of the outstanding shares. The rights expire in the year
2005, unless redeemed or exchanged by the Company earlier.
The Board of Directors of the Company authorized a stock repurchase
program to buy back up to 889,395 outstanding shares. As of June 27, 1999,
383,000 shares have been repurchased at a cost of $9,150,000.
EARNINGS PER SHARE (EPS)
A reconciliation of the components of the basic and diluted per share
computations follows (thousands of dollars, except per share amounts):
<TABLE>
<CAPTION>
1999
------------------------------------
Net Per-Share
Income Shares Amount
------ ------ ---------
<S> <C> <C> <C>
Basic EPS $17,015 5,639 $3.02
=====
Stock Options 152
-----
Diluted EPS $17,015 5,791 $2.94
===== =====
<CAPTION>
1998
------------------------------------
Net Per-Share
Income Shares Amount
------ ------ ---------
<S> <C> <C> <C>
Basic EPS $13,489 5,708 $2.36
=====
Stock Options 155
-----
Diluted EPS $13,489 5,863 $2.30
===== =====
<CAPTION>
1997
------------------------------------
Net Per-Share
Income Shares Amount
------ ------ ---------
<S> <C> <C> <C>
Basic EPS $9,820 5,716 $1.72
=====
Stock Options 69
-----
Diluted EPS $9,820 5,785 $1.70
===== =====
</TABLE>
Options to purchase the following shares of common stock were
outstanding as of each date indicated but were not included in the computation
of diluted EPS because the options' exercise prices were greater than the
average market price of the common shares:
<TABLE>
<CAPTION>
Shares Exercise Price
------ --------------
<S> <C> <C>
June 27, 1999 80,000 $37.88
5,000 $32.13
80,000 $31.98
5,000 $30.81
June 28, 1998 80,000 $31.98
5,000 $31.63
June 29, 1997 77,135 $19.68
76,393 $19.28
</TABLE>
STOCK OPTION
AND PURCHASE PLANS
The Company maintains an omnibus stock incentive plan, which provides
for the granting of stock options. The Board of Directors has designated
1,200,000 shares of the Company's common stock available for grant under the
plan at a price not less than the fair market value on the date the option is
granted. Options become exercisable as determined at the date of grant by a
committee of the Board of Directors and expire 5 to 10 years after the date of
grant unless an earlier expiration date is set at the time of grant.
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Shares Price
------ --------
<S> <C> <C>
Balance as of
June 30, 1996 471,393 $13.15
Granted 157,135 $18.17
Exercised 13,750 $11.75
Terminated 15,889 $15.01
-------
Balance
June 29, 1997 598,889 $14.45
-------
Granted 95,000 $31.06
Exercised 78,000 $12.67
-------
Balance at
June 28, 1998 615,889 $17.23
-------
Granted 110,070 $35.44
Exercised 68,148 $15.40
Terminated 20,303 $25.76
-------
Balance at
June 27, 1999 637,508 $20.30
=======
Exercisable as of
June 27, 1999 378,106 $13.16
Available for grant as
of June 27, 1999 402,594
</TABLE>
20
<PAGE> 18
1999 STRATTEC ANNUAL REPORT
NOTES TO FINANCIAL STATEMENTS
During 1997, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation." As permitted by the statement, the Company will
continue to account for its stock-based compensation plans in accordance with
APB Opinion No. 25 and related Interpretations. Accordingly, no compensation
cost related to these plans was charged against earnings in 1999, 1998, and
1997. Had compensation cost for these plans been determined consistent with SFAS
No. 123, the pro forma impact on earnings per share would have been as follows
(thousands of dollars):
<TABLE>
<CAPTION>
June 27, June 28, June 29,
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net income
As reported $17,015 $13,489 $9,820
Pro forma $16,464 $13,057 $9,655
Basic earnings
per share
As reported $ 3.02 $ 2.36 $ 1.72
Pro forma $ 2.92 $ 2.29 $ 1.69
Diluted earnings
per share
As reported $ 2.94 $ 2.30 $ 1.70
Pro forma $ 2.85 $ 2.24 $ 1.69
</TABLE>
The fair value of each option grant was estimated as of the date of
grant using the Black-Scholes pricing model. The resulting compensation cost was
amortized over the vesting period.
The grant date fair values and assumptions used to determine such
impact are as follows:
<TABLE>
<CAPTION>
Options Granted During 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Weighted average grant
date fair value $35.44 $31.06 $18.17
Assumptions:
Risk free interest rates 5.33% 6.07% 6.54%
Expected volatility 29.09% 30.10% 32.11%
Expected term (in years) 5.75 5.75 5.5
</TABLE>
The range of options outstanding as of June 27, 1999, is as follows:
<TABLE>
<CAPTION>
Weighted
Weighted Average
Number of Average Remaining
Options Exercise Price Contractual
Price Range Outstanding/ Outstanding/ Life
per Share Exercisable Exercisable (in years)
------------- --------------- -------------- -----------
<S> <C> <C> <C>
$11.75-$17.05 310,900/310,900 $12.40/$12.40 5.9
$19.28-$23.63 142,251/ 67,206 $19.77/$19.60 2.2
Over $27.63 184,357/ - $34.04/ - 4.4
--------------- -------------- -----------
637,508/378,106 $20.30/$13.68 4.7
=============== ============== ===========
</TABLE>
The Company has an Employee Stock Purchase plan to provide
substantially all U. S. full-time associates an opportunity to purchase shares
of its common stock through payroll deductions. A participant may contribute a
maximum of $5,200 per calendar year to the plan. On the last day of each month,
participant account balances are used to purchase shares of stock at the average
of the highest and lowest reported sales prices of a share of the Company's
common stock on the NASDAQ National Market. A total of 100,000 shares may be
issued under the plan. A total of 3,519 shares were issued from treasury stock
under the plan at an average price of $28.79 during fiscal 1999. A total of
95,788 shares are available for purchase under the plan as of June 27, 1999.
EXPORT SALES
Export sales are summarized below (thousands of dollars):
<TABLE>
<CAPTION>
Export Sales Percent of Net Sales
------------ --------------------
<S> <C> <C>
1999 $27,233 13%
1998 $22,330 12%
1997 $17,179 11%
</TABLE>
These sales were primarily to vehicle manufacturing plants in Canada
and Mexico.
SALES TO LARGEST CUSTOMERS
Sales to the Company's largest customers were as follows (thousands of
dollars and percent of total net sales):
<TABLE>
<CAPTION>
1999 1998 1997
Sales % Sales % Sales %
----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
General Motors
Corporation $ 88,938 44% $ 86,721 46% $ 70,347 44%
Ford Motor
Company 52,241 26% 46,136 25% 43,617 27%
DaimlerChrysler
Corporation 30,757 15% 25,966 14% 21,000 13%
----------- ----------- -----------
$171,936 85% $158,823 85% $134,964 85%
======== == ======== == ======== ==
</TABLE>
21
<PAGE> 19
1999 STRATTEC ANNUAL REPORT
ACCOUNTANTS AND MANAGEMENT REPORTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF STRATTEC SECURITY CORPORATION:
We have audited the accompanying consolidated balance sheets of
STRATTEC SECURITY CORPORATION and subsidiaries, as of June 27, 1999, and June
28, 1998, and the related consolidated statements of income, changes in equity
and cash flows for each of the three years in the period ended June 27, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of STRATTEC SECURITY
CORPORATION and subsidiaries as of June 27, 1999, and June 28, 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended June 27, 1999, in conformity with generally accepted accounting
principles.
/s/ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
July 29, 1999
REPORT OF MANAGEMENT
The management of STRATTEC SECURITY CORPORATION is responsible for the
fair presentation and integrity of the financial statements and other
information contained in this Annual Report. We rely on a system of internal
financial controls to meet the responsibility of providing financial statements.
The system provides reasonable assurances that assets are safeguarded, that
transactions are executed in accordance with management's authorization and that
the financial statements are prepared in accordance with generally accepted
accounting principles, including amounts based upon management's best estimates
and judgments.
The financial statements for each of the years covered in this Annual
Report have been audited by independent auditors, who have provided an
independent assessment as to the fairness of the financial statements.
The Audit Committee of the Board of Directors meets with management and
the independent auditors to review the results of their work and to satisfy
itself that their responsibilities are being properly discharged. The
independent auditors have full and free access to the Audit Committee and have
discussions with the committee regarding appropriate matters, with and without
management present.
/s/Harold M. Stratton II /s/ John Cahill /s/Patrick J. Hansen
Harold M. Stratton II John G. Cahill Patrick J. Hansen
Chairman and President and Vice President and
Chief Executive Officer Chief Operating Officer Chief Financial Officer
22
<PAGE> 20
1999 STRATTEC ANNUAL REPORT
FINANCIAL SUMMARY
FIVE-YEAR FINANCIAL SUMMARY
For all periods after February 26, 1995, the financial data reflect the
consolidated results of the Company and its wholly owned subsidiaries. For all
periods prior to February 27, 1995, the financial data reflect the combined
results of the Technologies Business of Briggs & Stratton Corporation
("Briggs"). On February 27, 1995 Briggs transferred substantially all of the
assets, related debt and liabilities of its Technologies Business to the
Company, which was previously formed as a wholly owned subsidiary of Briggs in
order to receive the distribution (the "Distribution"). The information below
should be read in conjunction with "Management's Discussion and Analysis," and
the Financial Statements and Notes thereto included elsewhere herein. The
following data are in thousands of dollars except per share amounts.
<TABLE>
<CAPTION>
Fiscal Years
------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net sales $202,625 $186,805 $159,054 $139,745 $110,372
Gross profit 46,804 39,940 33,319 29,231 27,893
Engineering, selling, and
administrative expenses 20,191 18,925 17,684 16,632 13,847
Environmental charges - - - - 3,000
-------- -------- -------- -------- --------
Income from operations 26,613 21,015 15,635 12,599 11,046
Interest income 1,132 351 4 22 16
Interest expense - (19) (214) (363) (12)
Other income (expense), net (239) 73 125 286 83
-------- -------- -------- -------- --------
Income before taxes 27,506 21,420 15,550 12,544 11,133
Provision for income taxes 10,491 7,931 5,730 4,830 4,657
-------- -------- -------- -------- --------
Net income $ 17,015 $ 13,489 $ 9,820 $ 7,714 $ 6,476
======== ======== ======== ======== ========
Earnings per share (a):
Basic $ 3.02 $ 2.36 $ 1.72 $ 1.33 -
Diluted $ 2.94 $ 2.30 $ 1.70 $ 1.32 -
BALANCE SHEET DATA
Net working capital $ 54,861 $ 42,953 $ 32,399 $ 21,181 $ 18,978
Total assets 128,194 107,998 95,669 82,818 70,103
Long-term liabilities 12,915 12,138 16,000 10,937 8,198
Equity 82,345 70,398 56,093 48,298 40,943
</TABLE>
(a)Earnings per share is presented for fiscal years subsequent to the
Distribution.
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Earnings Market Price
Per Share Per Share
---------------
Quarter Net Sales Gross Profit Net Income Basic Diluted High Low
------- --------- ------------ ---------- ---------------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
1999 First $ 40,362 $ 8,835 $ 2,813 $ .49 $ .48 32 1/4 25 3/4
Second 54,529 12,373 4,662 .83 .81 31 3/4 20
Third 51,220 12,071 4,471 .79 .77 33 7/8 27 3/4
Fourth 56,514 13,525 5,069 .91 .88 37 3/8 26
-------- -------- ------- ----- -----
TOTAL $202,625 $ 46,804 $17,015 $3.02 $2.94
======== ======== ======= ===== =====
1998 First $ 42,868 $ 8,488 $ 2,398 $ .42 $ .41 28 1/4 19 1/2
Second 49,722 10,142 3,433 .60 .59 30 1/4 23
Third 47,420 10,623 3,835 .67 .65 29 1/4 25
Fourth 46,795 10,687 3,823 .67 .65 33 1/4 27
-------- -------- ------- ----- -----
TOTAL $186,805 $ 39,940 $13,489 $2.36 $2.30
======== ======== ======= ===== =====
</TABLE>
Shareholders of record at June 27, 1999, were 4,654.
23
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Form 10-K of our report dated July 29, 1999, included in the
Company's Annual Report to Shareholders of STRATTEC SECURITY CORPORATION for the
fiscal year ended June 27, 1999, and to all references to our firm included in
this Form 10-K.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
September 17, 1999.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-27-1999
<PERIOD-START> JUN-29-1998
<PERIOD-END> JUN-27-1999
<CASH> 28,611
<SECURITIES> 0
<RECEIVABLES> 36,313
<ALLOWANCES> 250
<INVENTORY> 13,804
<CURRENT-ASSETS> 87,283
<PP&E> 81,519
<DEPRECIATION> 40,608
<TOTAL-ASSETS> 128,194
<CURRENT-LIABILITIES> 32,422
<BONDS> 0
0
0
<COMMON> 59
<OTHER-SE> 82,286
<TOTAL-LIABILITY-AND-EQUITY> 128,194
<SALES> 202,625
<TOTAL-REVENUES> 202,625
<CGS> 155,821
<TOTAL-COSTS> 155,821
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 33
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 27,506
<INCOME-TAX> 10,491
<INCOME-CONTINUING> 17,015
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,015
<EPS-BASIC> 3.02
<EPS-DILUTED> 2.94
</TABLE>
