UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
Commission File Number: 33-93464
DICTAPHONE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 06-0992637
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3191 Broadbridge Avenue
Stratford, CT 06614
(203) 381-7000
(Address of principal executive offices, including zip code,
and telephone number, including area code)
---------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO ____
Number of shares of Common Stock, par value $.01 per share, outstanding as of
November 9, 1999: 12,934,000
The Common Stock of the registrant is not publicly traded.
<PAGE>
DICTAPHONE CORPORATION
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
Unaudited Condensed Consolidated Statements of Operations for the
Three Months Ended September 30, 1998 and September 30, 1999 2
Unaudited Condensed Consolidated Statements of Operations for the
Nine Months Ended September 30, 1998 and September 30, 1999 3
Condensed Consolidated Balance Sheets as of December 31, 1998
and September 30, 1999 (Unaudited) 4
Unaudited Condensed Consolidated Statements of Cash Flow for the
Nine Months Ended September 30, 1998 and September 30, 1999 5
Notes to Unaudited Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 20
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 28
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 28
ITEM 6. Exhibits and Reports on Form 8-K 28
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DICTAPHONE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
September 30, 1998 September 30, 1999
------------------ ------------------
<S> <C> <C>
Revenues:
Product sales and rentals $ 52,200 $ 60,066
Contract manufacturing sales 11,575 10,830
Support services 22,101 24,965
------ ------
Total revenue 85,876 95,861
------ ------
Costs and expenses:
Cost of sales, rentals and support services 45,131 51,505
Selling and administrative 26,776 27,877
Amortization of intangibles 4,679 2,681
Research and development 4,898 2,099
----- -----
Operating profit 4,392 11,699
Interest expense 9,913 10,029
Other expense (income) - net 450 (45)
(Loss) income before income taxes (5,971) 1,715
Income tax benefit (expense) 587 (832)
------ ------
Net (loss) income (5,384) 883
Stock dividends on PIK Preferred Stock 782 1,527
------ ------
Net loss applicable to Common Stock $ (6,166) $ (644)
======== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
DICTAPHONE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, 1998 September 30, 1999
------------------ ------------------
<S> <C> <C>
Revenues:
Product sales and rentals $ 153,419 $ 156,833
Contract manufacturing sales 35,067 34,078
Support services 66,200 73,221
---------- ---------
Total revenue 254,686 264,132
---------- ---------
Costs and expenses:
Cost of sales, rentals and support services 137,100 141,257
Selling and administrative 82,105 79,242
Amortization of intangibles 20,393 9,158
Research and development 12,854 6,979
-------- --------
Operating profit 2,234 27,496
Interest expense 29,632 30,092
Other (income) expense - net (205) 332
-------- --------
Loss before income taxes (27,193) (2,928)
Income tax benefit (expense) 253 (1,753)
-------- --------
Net loss (26,940) (4,681)
Stock dividends on PIK Preferred Stock 2,266 4,237
-------- --------
Net loss applicable to Common Stock $ (29,206) $ (8,918)
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
DICTAPHONE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
----------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,727 $ 8,742
Accounts receivable, less allowances of $968 and $2,346, respectively 77,432 93,105
Inventories 53,362 45,216
Other current assets 7,259 6,310
---------- ----------
Total current assets 149,780 153,373
Property, plant and equipment, net 32,425 37,177
Deferred financing costs, net of accumulated amortization of $14,246
and $15,705, respectively 9,920 8,580
Intangibles, net of accumulated amortization of $122,595 and
$131,753 respectively 206,122 196,996
Deferred tax asset 39,765 39,294
Other assets 16,315 20,980
---------- ----------
Total assets $ 454,327 $ 456,400
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,778 $ 9,820
Interest payable 10,067 4,089
Accrued pension liability 8,352 9,284
Accrued liabilities 31,433 34,089
Advance billings 39,586 45,268
Current portion of long-term debt 795 789
---------- ----------
Total current liabilities 99,011 103,339
Long-term debt 369,737 353,106
Other liabilities 14,141 13,387
---------- ----------
Total liabilities 482,889 469,832
---------- ----------
Contingencies (Note 5)
Stockholders' equity:
Preferred stock ($.01 par value; 7,500,000 shares authorized; 2,391,500
and 2,649,500 shares of 14% PIK perpetual preferred stock
issued and outstanding, liquidation values of $23,915 and $26,495
at December 31, 1998 and September 30, 1999, respectively) 23,915 26,495
Preferred stock ($.01 par value; 10,000,000 shares authorized; none
and 2,000,000 shares of 12% Convertible PIK preferred stock issued and
outstanding, liquidation value of $21,657 at September 30, 1999) --- 21,657
Common stock ($.01 par value; 30,000,000 shares authorized; 12,934,000
shares outstanding at December 31, 1998 and September 30, 1999) 130 130
Notes receivable from stockholders (741) (741)
Additional paid-in capital 120,955 116,718
Treasury stock, at cost (660) (660)
Accumulated deficit (170,417) (175,098)
Accumulated other comprehensive loss (1,744) (1,933)
---------- ----------
Total stockholders' equity (deficit) (28,562) (13,432)
---------- ----------
Total liabilities and stockholders' equity $ 454,327 $ 456,400
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
DICTAPHONE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, 1998 September 30, 1999
------------------ ------------------
<S> <C> <C>
Operating activities:
Net loss $ (26,940) $ (4,681)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 31,308 18,225
Provision for deferred income taxes (393) 453
Changes in assets and liabilities:
Accounts receivable (11,354) (15,682)
Inventories (5,759) 8,126
Other current assets 874 828
Accounts payable and accrued liabilities (13,240) (1,066)
Advance billings 5,024 5,664
Other assets and other (7,867) (8,562)
---------- ----------
Net cash (used in) provided by operating activities (28,347) 3,305
---------- ----------
Investing activities:
Net investment in fixed assets (5,314) (8,457)
Sale of building 14,000 ---
---------- ----------
Net cash provided by (used in) investing activities 8,686 (8,457)
---------- ----------
Financing activities:
Sale of preferred stock --- 20,000
Repayment under term loan facility (1,800) ---
Borrowings under revolving credit facility 54,000 31,000
Repayment under revolving credit facility (37,000) (47,500)
Other (1,536) (1,293)
---------- ----------
Net cash provided by financing activities 13,664 2,207
---------- ----------
Effect of exchange rate changes on cash (50) (40)
---------- ----------
Decrease in cash (6,047) (2,985)
Cash and cash equivalents, beginning of period 10,277 11,727
---------- ----------
Cash and cash equivalents, end of period $ 4,230 $ 8,742
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 34,369 $ 34,699
========== ==========
Income taxes paid $ 335 $ 201
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
DICTAPHONE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in thousands, or as otherwise indicated)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The condensed consolidated financial statements of Dictaphone Corporation
(the "Company") are unaudited, as of and for the three and nine month periods
ended September 30, 1999 and September 30, 1998, but in the opinion of
management contain all adjustments which are of a normal and recurring nature
necessary to present fairly the financial position and results of operations and
cash flows for the periods presented. These financial statements should be read
in conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
COSTS AND EXPENSES. Operating expenses of field sales and service offices
which represent the cost of support services revenue are included in cost of
sales.
DERIVATIVE FINANCIAL INSTRUMENTS. The Company has only limited involvement
with derivative financial instruments and does not use them for trading
purposes. The Company enters into interest rate swap and cap agreements to
reduce its exposure to interest rate fluctuations. The net gain or loss from
exchange of interest payments is included in interest expense in the
consolidated financial statements and interest paid in the condensed
consolidated statements of cash flow.
ACCOUNTING PRONOUNCEMENTS. In June 1998, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). The
statement requires companies to recognize all derivatives as either assets or
liabilities, with the instruments measured at fair value. The accounting for
changes in fair value, gains or losses, depends on the intended use of the
derivative and its resulting designation. The statement, as amended, is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
The Company will adopt SFAS 133 by January 1, 2001. Adoption of SFAS 133 is not
currently expected to have a material impact on the Company's consolidated
financial statements.
6
<PAGE>
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Raw materials and work in process $ 15,799 $ 19,797
Supplies and service parts 15,376 10,825
Finished products 22,187 14,594
---------- ----------
Total inventories $ 53,362 $ 45,216
========== ==========
</TABLE>
3. INTANGIBLES
The following summarizes intangible assets, net of accumulated amortization
and writedowns of $122,595 and $131,753 at December 31, 1998 and September 30,
1999, respectively. Amortization expense for the three and nine months ended
September 30, 1998 was $4,679 and $20,393, and for the three and nine months
ended September 30, 1999 was $2,681 and $9,158, respectively.
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Goodwill $ 127,611 $ 124,530
Tradenames 71,265 69,805
Service contracts 2,530 ---
Non-compete agreement 2,463 1,459
Patents 2,253 1,202
---------- ----------
$ 206,122 $ 196,996
========== ==========
</TABLE>
4. INCOME TAXES
The income tax expense for the three and nine months ended September 30,
1999 is $832 and $1,753, respectively. The income tax expense for both the three
and nine month periods relates to income attributable to the Company's Non-U.S.
Operations.
The Company has recorded a gross deferred tax asset of $101.6 million
reflecting the benefit of net operating loss carryforwards and various book tax
temporary differences. The net operating loss carryforward for federal income
tax purposes as of September 30, 1999 is $137.0 million, of which $13.7 million
of the net operating loss carryforward will expire in the year 2010, $33.2
million will expire in the year 2011, $40.0 million will expire in the year
2012, $35.7 million will expire in the year 2018 and $14.4 million will expire
in the year 2020. In order to fully realize the deferred tax asset, the Company
will need to generate future taxable income prior to expiration of the net
operating loss carryforwards. In 1997, the Company established a valuation
allowance of $24.1 million against the deferred tax asset. During 1998, the
Company increased its valuation allowance by $20.8 million. During the first
nine months of 1999, the Company increased its valuation allowance by $2.6
million resulting in a deferred tax asset of $54.1 million. Including a deferred
tax liability of $14.8 million, the net deferred tax asset at September 30,
1999, totalled $39.3 million. Management believes, based upon the Company's
history of prior operating results, its current circumstances, and its
expectations for the future, that taxable income of the Company will more likely
7
<PAGE>
4. INCOME TAXES (Continued)
than not be sufficient to fully utilize the deferred tax asset of $54.1 million
recorded at September 30, 1999, prior to expiration. The amount of the deferred
tax asset considered realizable, however, could be reduced if estimates of
future taxable income during the net operating loss carryforward period are
reduced.
5. CONTINGENCIES AND CONCENTRATIONS OF RISK
Concentrations of Risks
A substantial portion of the Company's revenues are derived from the sale
of products manufactured at the Company's manufacturing facility which is
located in Melbourne, Florida. This manufacturing facility is subject to the
normal hazards of any such facility that could result in damage to the facility.
Any such damage to this facility or prolonged delay in the operations of this
facility for repairs or other reason would have a materially adverse effect on
the Company's financial position and results of operations.
Contingencies
On February 14, 1995, Pitney Bowes, Inc. ("Pitney Bowes") filed a complaint
against Sudbury Systems, Inc. ("Sudbury") in the United States District court
for the District of Connecticut alleging intentional and wrongful interference
with Pitney Bowes's plans to sell the Company. The complaint seeks damages and a
declaratory judgment relating to the validity of a patent owned by Sudbury
entitled "Rapid Simultaneous Multiple Access Information Storage and Retrieval
System" and the alleged infringement thereof by the Company. Sudbury responded
by answering the complaint and filing a third-party complaint against the
Company alleging patent infringement and seeking preliminary and permanent
injunctive relief and treble damages. Sudbury's patent expired in April 1998. As
a result, injunctive relief is no longer available to Sudbury. Pretrial
proceedings, including claim construction and dispositive motions are
continuing. A trial date in 2000 is likely.
Management believes the Company has meritorious defenses to the claims
against it. Consequently, the Company has not provided for any loss exposure in
connection with this complaint. Additionally, regardless of the outcome of this
litigation, Pitney Bowes has agreed to defend this action and to indemnify the
Company for any liabilities arising from such litigation.
The Company is subject to federal, state and local laws and regulations
concerning the environment and is currently participating in administrative
proceedings as a participant in a group of potentially responsible parties in
connection with two third party disposal sites. These proceedings are in the
preliminary stage, and it is currently impossible to reasonably estimate the
potential costs of remediation, the timing and extent of remedial actions which
may be required by governmental authorities, and the amount of the liability, if
any, of the Company alone or in relation to that of any other responsible
parties. When it is possible to make a reasonable estimate of the Company's
liability with respect to such a matter, a provision will be made as
appropriate. Additionally, the Company has settled and paid its liability at
three other third party disposal sites. At a fourth site, the Company has paid
approximately $11 thousand for its share of the costs of the first phase of the
clean up of the site and management believes that it has no continuing material
liability for any later phases of the cleanup. Consequently, management believes
that its future liability, if any, for these four sites is not material. In
addition, regardless of the outcome of such matters, Pitney Bowes has agreed to
indemnify the Company in connection with retained environmental liabilities and
8
<PAGE>
5. CONTINGENCIES AND CONCENTRATIONS OF RISK (Continued)
Contingencies (cont.)
for breaches of the environmental representations and warranties in the Stock
and Asset Purchase Agreement, originally executed on April 25, 1995 and amended
August 11, 1995 between Dictaphone Acquisition Corporation and Pitney Bowes
subject to certain limitations.
In July, 1999, Bruce Hilt d/b/a Integrated Resources, Inc. filed a
complaint in the Middle District of Alabama against the Company and Pitney Bowes
Credit Corporation. Plaintiff commenced this action in Alabama State Court as a
purported class action for similarly situated persons within the State of
Alabama. Plaintiff alleges that the Company's recording system he leases from
Pitney Bowes Credit Corporation is not Y2K compliant and will not function after
December 31, 1999. The complaint seeks damages of less than $74,000 per class
member and alleges that there are hundreds of potential class members. In
August, 1999, the Company and Pitney Bowes removed the action to Federal Court,
in part based on the new Federal Y2K Act, 15 U.S.C. ss. 6601, et seq. (the "Y2K
Act"). Plaintiff has filed a motion to remand the case to State Court, which is
fully briefed and before the Court.
Plaintiff to date has not moved to certify the case as a class action. In
October, 1999, the Company and Pitney Bowes filed a motion to dismiss the
action. Plaintiff has not yet responded to the motion to dismiss, and no hearing
date has been set by the Court.
The Company intends to continue to vigorously defend this action. Although
the litigation is in its preliminary stages, the Company believes that it has
meritorious defenses to this case, especially in light of a remedy that has been
offered to plaintiff, and does not believe that a class should be certified.
The Company is a defendant in a number of additional lawsuits and
administrative proceedings, none of which will, in the opinion of management,
have a material adverse effect on the Company's consolidated financial position
or results of operations.
The Company does not believe that the ultimate resolution of the
litigation, administrative proceedings and environmental matters described above
in the aggregate will have a material adverse effect on the Company's
consolidated financial position or results of operations.
6. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT INFORMATION
The following consolidated financial statements include the Company and all
majority-owned subsidiaries as follows: Dictaphone Canada Ltd/Ltee, Dictaphone
Company Ltd., Dictaphone Deutschland GmbH, Dictaphone Netherlands BV and
Dictaphone International A.G. (together "Dictaphone Non-U.S.").
Dictaphone Corporation has fully and unconditionally guaranteed the
repayment of $200.0 million of 11-3/4% Senior Subordinated Notes Due 2005 (the
"Notes") issued to finance the acquisition of the Company from Pitney Bowes. The
Notes are subordinate to financing of the Credit Agreement, dated August 7,
1995, as amended by five amendments to the Credit Agreement, dated June 28,
1996, June 27, 1997, July 21, 1997, November 14, 1997 and December 31, 1998
(collectively, the "Credit Agreement"), and other senior indebtedness as defined
9
<PAGE>
6. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT INFORMATION
(Continued)
in the indenture pursuant to which the Notes were issued (the "Note Indenture").
The Credit Agreement currently consists of a $75.0 million Tranche B Term Loan
due June 30, 2002 (the "Tranche B Loan"), a $62.75 million Tranche C Term Loan
due June 30, 2002 (the "Tranche C Loan" and together with the Tranche B Loan,
the "Term Loans") and a six-year revolving credit facility of up to $40.0
million (the "Revolving Credit Facility"). Dictaphone Non-U.S. is not a
guarantor of the Notes. In January 1998, Dictaphone Corporation was merged into
Dictaphone Corporation (U.S.), whereupon the surviving corporation changed its
name to "Dictaphone Corporation".
The following are the supplemental consolidating statements of operations
for the three and nine month periods ended September 30, 1998 and 1999, the
supplemental consolidating balance sheet information as of December 31, 1998 and
September 30, 1999, and cash flow information for the nine month periods ended
September 30, 1998 and 1999.
DICTAPHONE CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
THREE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Dictaphone Dictaphone Consolidating
Corporation Non-U.S. Adjustments Consolidated
----------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Revenue from:
Product sales and rentals $ 50,780 $ 3,593 $ (2,173) $ 52,200
Contract manufacturing sales 11,575 --- --- 11,575
Support services 20,222 1,879 --- 22,101
---------- --------- ---------- ----------
Total revenues 82,577 5,472 (2,173) 85,876
---------- --------- ---------- ----------
Costs and expenses:
Cost of sales, rentals and support services 43,800 3,445 (2,114) 45,131
Selling and administrative 28,815 2,640 --- 31,455
Research and development 4,898 --- --- 4,898
Interest expense - net and other 9,337 1,026 --- 10,363
---------- --------- ---------- ----------
Total costs and expenses 86,850 7,111 (2,114) 91,847
---------- --------- ---------- ----------
Equity (loss) earnings (702) --- 702 ---
---------- --------- ---------- ----------
(Loss) income before income taxes (4,975) (1,639) 643 (5,971)
Income tax (expense) benefit (23) 586 24 587
---------- --------- ---------- ----------
Net (loss) income $ (4,998) $ (1,053) $ 667 $ (5,384)
========== ========= ========== ==========
</TABLE>
10
<PAGE>
6. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL
STATEMENT INFORMATION (Continued)
DICTAPHONE CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
THREE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Dictaphone Dictaphone Consolidating
Corporation Non-U.S. Adjustments Consolidated
----------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Revenue from:
Product sales and rentals $ 56,629 $ 7,967 $ (4,530) $ 60,066
Contract manufacturing sales 10,830 --- --- 10,830
Support services 22,495 2,470 --- 24,965
---------- ---------- ---------- ----------
Total revenues 89,954 10,437 (4,530) 95,861
---------- ---------- ---------- ----------
Costs and expenses:
Cost of sales, rentals and support services 50,428 5,607 (4,530) 51,505
Selling and administrative 28,433 2,125 --- 30,558
Research and development 2,099 --- --- 2,099
Interest expense - net and other 9,453 531 --- 9,984
---------- ---------- ---------- ----------
Total costs and expenses 90,413 8,263 (4,530) 94,146
---------- ---------- ---------- ----------
Equity earnings (loss) 1,801 --- (1,801) ---
---------- ---------- ---------- ----------
Income (loss) before income taxes 1,342 2,174 (1,801) 1,715
Income tax expense 21 811 --- 832
---------- ---------- ---------- ----------
Net income (loss) $ 1,321 $ 1,363 $ (1,801) $ 883
========== ========== ========== ==========
</TABLE>
11
<PAGE>
6. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
INFORMATION (Continued)
DICTAPHONE CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Dictaphone Dictaphone Consolidating
Corporation Non-U.S. Adjustments Consolidated
----------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Revenue from:
Product sales and rentals $ 147,103 $ 13,514 $ (7,198) $ 153,419
Contract manufacturing sales 35,067 --- --- 35,067
Support services 60,488 5,712 --- 66,200
---------- ---------- ---------- ----------
Total revenues 242,658 19,226 (7,198) 254,686
---------- ---------- ---------- ----------
Costs and expenses:
Cost of sales, rentals and support services 132,359 12,260 (7,519) 137,100
Selling and administrative 93,420 9,078 --- 102,498
Research and development 12,854 --- --- 12,854
Interest expense - net and other 26,978 2,449 --- 29,427
---------- ---------- ---------- ----------
Total costs and expenses 265,611 23,787 (7,519) 281,879
---------- ---------- ---------- ----------
Equity (loss) earnings (1,800) --- 1,800 ---
---------- ---------- ---------- ----------
(Loss) income before income taxes (24,753) (4,561) 2,121 (27,193)
Income tax (expense) benefit (1,383) 1,754 (118) 253
---------- ---------- ---------- ----------
Net (loss) income $ (26,136) $ (2,807) $ 2,003 $ (26,940)
========== ========== ========== ==========
</TABLE>
12
<PAGE>
6. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
INFORMATION (Continued)
DICTAPHONE CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Dictaphone Dictaphone Consolidating
Corporation Non-U.S. Adjustments Consolidated
----------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Revenue from:
Product sales and rentals $ 146,159 $ 20,225 $ (9,551) $ 156,833
Contract manufacturing sales 34,078 --- --- 34,078
Support services 66,267 6,954 --- 73,221
---------- ---------- ---------- ----------
Total revenues 246,504 27,179 (9,551) 264,132
---------- ---------- ---------- ----------
Costs and expenses:
Cost of sales, rentals and support services 136,044 14,868 (9,655) 141,257
Selling and administrative 81,836 6,564 --- 88,400
Research and development 6,979 --- --- 6,979
Interest expense - net and other 28,292 2,132 --- 30,424
---------- ---------- ---------- ----------
Total costs and expenses 253,151 23,564 (9,655) 267,060
---------- ---------- ---------- ----------
Equity earnings (loss) 2,874 --- (2,874) ---
---------- ---------- ---------- ----------
(Loss) income before income taxes (3,773) 3,615 (2,770) (2,928)
Income tax expense 66 1,645 42 1,753
---------- ---------- ---------- ----------
Net (loss) income $ (3,839) $ 1,970 $ (2,812) $ (4,681)
========== ========== ========== ==========
</TABLE>
13
<PAGE>
6. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
INFORMATION (Continued)
DICTAPHONE CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Dictaphone Dictaphone Consolidating
Corporation Non-U.S. Adjustments Consolidated
----------- -------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,114 $ 1,613 $ --- $ 11,727
Accounts receivable, less allowances 75,447 6,782 (4,797) 77,432
Inventories 50,666 2,987 (291) 53,362
Other current assets 4,062 3,079 118 7,259
---------- ---------- ---------- ----------
Total current assets 140,289 14,461 (4,970) 149,780
Investments in subsidiaries 28,520 --- (28,520) ---
Property, plant and equipment, net 29,320 3,105 --- 32,425
Deferred financing costs, net 9,920 --- --- 9,920
Intangibles, net 192,492 13,630 --- 206,122
Other assets 52,028 4,052 --- 56,080
---------- ---------- ---------- ----------
Total assets $ 452,569 $ 35,248 $ (33,490) $ 454,327
========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, interest payable
and accrued liabilities $ 53,100 $ 11,111 $ (5,581) $ 58,630
Advance billings 37,294 2,292 --- 39,586
Current portion of long-term debt 628 167 --- 795
---------- ---------- ---------- ----------
Total current liabilities 91,022 13,570 (5,581) 99,011
Long-term debt 369,445 17,783 (17,491) 369,737
Other liabilities 13,324 817 --- 14,141
Stockholders' equity (deficit) (21,222) 3,078 (10,418) (28,562)
---------- ---------- ---------- ----------
Total liabilities and stockholders' equity $ 452,569 $ 35,248 $ (33,490) $ 454,327
========== =========== ========== ===========
</TABLE>
14
<PAGE>
6. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
INFORMATION (Continued)
DICTAPHONE CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Dictaphone Dictaphone Consolidating
Corporation Non-U.S. Adjustments Consolidated
----------- -------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,861 $ 881 $ --- $ 8,742
Accounts receivable, less allowances 84,115 12,067 (3,077) 93,105
Inventories 43,582 1,821 (187) 45,216
Other current assets 2,895 3,339 76 6,310
---------- ---------- ---------- ----------
Total current assets 138,453 18,108 (3,188) 153,373
Investments in subsidiaries 31,194 --- (31,194) ---
Property, plant and equipment, net 34,389 2,788 --- 37,177
Deferred financing costs, net 8,580 --- --- 8,580
Intangibles, net 184,364 12,632 --- 196,996
Other assets 56,542 3,732 --- 60,274
---------- ---------- ---------- ----------
Total assets $ 453,522 $ 37,260 $ (34,382) $ 456,400
========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, interest payable
and accrued liabilities $ 49,489 $ 11,954 $ (4,161) $ 57,282
Advance billings 42,758 2,510 --- 45,268
Current portion of long-term debt 628 161 --- 789
---------- ---------- ---------- ----------
Total current liabilities 92,875 14,625 (4,161) 103,339
Long-term debt 352,945 17,152 (16,991) 353,106
Other liabilities 12,763 624 --- 13,387
Stockholders' equity (deficit) (5,061) 4,859 (13,230) (13,432)
---------- ---------- ---------- ----------
Total liabilities and stockholders' equity $ 453,522 $ 37,260 $ (34,382) $ 456,400
========== ========== ========== ==========
</TABLE>
15
<PAGE>
6. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
INFORMATION (Continued)
DICTAPHONE CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Dictaphone Dictaphone Consolidating
Corporation Non-U.S. Adjustments Consolidated
----------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Operating activities:
Net loss $ (26,136) $ (2,807) $ 2,003 $ (26,940)
Adjustments to reconcile net loss
to net cash (used in) provided by
operating activities:
Depreciation and amortization 29,253 2,055 --- 31,308
Provision for deferred income taxes 1,150 (1,543) --- (393)
Change in assets and liabilities:
Accounts receivable (15,822) 2,638 1,830 (11,354)
Inventories (5,380) (58) (321) (5,759)
Other current assets 885 (129) 118 874
Accounts payable and accrued
liabilities (11,909) 680 (2,011) (13,240)
Advance billings 5,190 (166) --- 5,024
Other assets and other (4,976) 516 (3,407) (7,867)
---------- ---------- ---------- ----------
Cash (used in) provided by investing
activities (27,745) 1,186 (1,788) (28,347)
---------- ---------- ---------- ----------
Investing activities:
Net investment in fixed assets (4,895) (419) --- (5,314)
Sale of building 14,000 --- --- 14,000
---------- ---------- ---------- ----------
Cash provided by (used in) investing
activities 9,105 (419) --- 8,686
---------- ---------- ---------- ----------
Financing activities:
Repayment under term loan facility (1,800) --- --- (1,800)
Borrowing from revolving credit facility 54,000 --- --- 54,000
Repayment under revolving credit facility (37,000) --- --- (37,000)
Other (1,473) (1,851) 1,788 (1,536)
---------- ---------- ---------- ----------
Cash provided by (used in) financing
activities 13,727 (1,851) 1,788 13,664
---------- ---------- ---------- ----------
Effect of exchange rate changes on cash --- (50) --- (50)
---------- ---------- ---------- ----------
Decrease in cash (4,913) (1,134) --- (6,047)
Cash and cash equivalents,
beginning of period 8,276 2,001 --- 10,277
---------- ---------- ---------- ----------
Cash and cash equivalents,
end of period $ 3,363 $ 867 $ --- $ 4,230
========== ========== ========== ==========
</TABLE>
16
<PAGE>
6. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
INFORMATION (Continued)
DICTAPHONE CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Dictaphone Dictaphone Consolidating
Corporation Non-U.S. Adjustments Consolidated
----------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Operating activities:
Net (loss) income $ (3,839) $ 1,970 $ (2,812) $ (4,681)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization 16,963 1,262 --- 18,225
Provision for deferred income taxes --- 130 323 453
Change in assets and liabilities:
Accounts receivable (8,668) (5,294) (1,720) (15,682)
Inventories 7,084 1,146 (104) 8,126
Other current assets 1,167 (58) (281) 828
Accounts payable and accrued (3,752) 1,266 1,420 (1,066)
liabilities
Advance billings 5,464 200 --- 5,664
Other assets and other (11,200) (536) 3,174 (8,562)
---------- ---------- ---------- ----------
Cash provided by operating
activities 3,219 86 --- 3,305
---------- ---------- ---------- ----------
Investing activities:
Net investment in fixed assets (8,110) (347) --- (8,457)
---------- ---------- ---------- ----------
Cash used in investing activities (8,110) (347) --- (8,457)
---------- ---------- ---------- ----------
Financing activities:
Sale of Preferred Stock 20,000 --- --- 20,000
Borrowing from revolving credit facility 31,000 --- --- 31,000
Repayment under revolving credit facility (47,500) --- --- (47,500)
Other (862) (431) --- (1,293)
---------- ---------- ---------- ----------
Cash provided by (used in) financing
activities 2,638 (431) --- 2,207
---------- ---------- ---------- ----------
Effect of exchange rate changes on cash --- (40) --- (40)
---------- ---------- ---------- ----------
Decrease in cash (2,253) (732) --- (2,985)
Cash and cash equivalents,
beginning of period 10,114 1,613 --- 11,727
---------- ---------- ---------- ----------
Cash and cash equivalents,
end of period $ 7,861 $ 881 $ --- $ 8,742
========== ========== ========== ==========
</TABLE>
17
<PAGE>
7. COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130") as of January 1, 1998. SFAS 130
establishes standards for reporting and display of comprehensive income and its
components.
Total comprehensive (loss) income for the three and nine months ending
September 30, 1998 and 1999 consists of the following:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net (loss) income $(5,384) $ 883 $ (26,940) $(4,681)
Foreign currency translation
adjustments 76 (20) (282) (189)
------- ------- --------- -------
Total comprehensive (loss) income $(5,308) $ 863 $ (27,222) $(4,870)
======= ======= ========= =======
</TABLE>
18
<PAGE>
8. DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION
Dictaphone has two reportable segments: System Products and Services, and
Contract Manufacturing. The System Products and Services segment consists of the
sale and service of system-related products to dictation and voice management
and communications recording system customers in selected vertical markets. The
Contract Manufacturing segment consists of the Manufacturing Operations of
Dictaphone which provides outside electronics manufacturing services to original
equipment manufacturers in the telecommunications, data management, computer and
electronics industries.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. Dictaphone evaluates performance
based on profit or loss from operations before income taxes, including
nonrecurring gains and losses and foreign exchange gains and losses.
DICTAPHONE CORPORATION
SEGMENT PROFIT AND LOSS
<TABLE>
<CAPTION>
System
Products & Contract
Services Manufacturing Total
----------- ------------- -----
<S> <C> <C> <C>
Revenue from external customers
Three months ended September 30, 1999 $ 85,031 $ 10,830 $ 95,861
Three months ended September 30, 1998 74,301 11,575 85,876
Nine months ended September 30, 1999 230,054 34,078 264,132
Nine months ended September 30, 1998 219,619 35,067 254,686
Intersegment revenues
Three months ended September 30, 1999 --- 9,097 9,097
Three months ended September 30, 1998 --- 12,233 12,233
Nine months ended September 30, 1999 --- 28,984 28,984
Nine months ended September 30, 1998 --- 43,662 43,662
Segment profit (loss)
Three months ended September 30, 1999 450 1,265 1,715
Three months ended September 30, 1998 (7,466) 1,495 (5,971)
Nine months ended September 30, 1999 (6,862) 3,934 (2,928)
Nine months ended September 30, 1998 (30,531) 3,338 (27,193)
Segment assets
As of September 30, 1999 413,288 43,112 456,400
As of December 31, 1998 $ 410,522 $ 43,805 $ 454,327
</TABLE>
19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1998 1999 1998 1999
---- ---- ---- ----
(in millions)
(unaudited)
<S> <C> <C> <C> <C>
Total revenue $ 85.9 $ 95.9 $ 254.7 $ 264.1
Cost of sales, rentals and support services 45.1 51.5 137.1 141.2
Selling and administrative expense (1) 31.5 30.6 102.5 88.4
Research and development 4.9 2.1 12.9 7.0
--------- --------- -------- ---------
Operating profit 4.4 11.7 2.2 27.5
--------- --------- -------- ---------
Net interest expense and other 10.4 10.0 29.4 30.4
Income tax benefit (expense) 0.6 (0.8) 0.3 (1.8)
--------- --------- -------- ---------
Net (loss) income $ (5.4) $ 0.9 $ (26.9) $ (4.7)
========= ========= ======== =========
EBITDA (2) $ 10.9 $ 16.5 $ 33.0 $ 44.0
========= ========= ======== =========
</TABLE>
- ---------------------
(1) Includes amortization of intangibles.
(2) EBITDA is defined as income before effect of changes in accounting
plus interest, income taxes, depreciation, amortization and other
significant non-cash, non-recurring charges. EBITDA is presented
because it is a widely accepted financial indicator of a company's
ability to incur and service debt. However, EBITDA should not be
considered in isolation or as a substitute for net income or cash flow
data prepared in accordance with generally accepted accounting
principles or as a measure of a company's profitability or liquidity,
and is not necessarily comparable to similarly titled measures of
other companies.
20
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1998 1999 1998 1999
---- ---- ---- ----
(in millions)
(unaudited)
<S> <C> <C> <C> <C>
Revenue from:
Sales:
Integrated Voice Systems $ 9.1 $ 12.2 $ 33.1 $ 26.4
Integrated Health Systems 12.3 19.5 32.4 49.0
Communication Recording Systems 19.4 12.5 48.8 37.2
Customer Service Parts 4.2 4.3 13.3 12.3
International and Dealer Operations 6.8 11.3 24.8 31.0
Rentals 0.4 0.3 1.0 0.9
-------- --------- -------- ---------
Product Sales and Rentals 52.2 60.1 153.4 156.8
======== ========= ======== =========
Support service:
Customer Service 19.3 21.0 58.5 62.5
Application & Training Specialists 0.9 1.5 2.0 3.7
International and Dealer Operations 1.9 2.5 5.7 7.0
-------- --------- -------- ---------
Total support service 22.1 25.0 66.2 73.2
-------- --------- -------- ---------
Total System Products and Services 74.3 85.1 219.6 230.0
Contract Manufacturing 11.6 10.8 35.1 34.1
-------- --------- -------- ---------
Total revenue $ 85.9 $ 95.9 $ 254.7 $ 264.1
======== ========= ======== =========
</TABLE>
RESULTS OF OPERATIONS - THIRD QUARTER 1999 VS. THIRD QUARTER 1998
Total revenue increased 11.6% to $95.9 million in the third quarter of 1999
from $85.9 million in the third quarter of 1998. This increase is attributable
to higher product sales revenue from Integrated Voice Systems ("I.V.S.') and
Integrated Health Systems ("I.H.S."), higher support service revenue from
Application and Training Specialists ("A.T.S.") and higher revenue from Customer
Service and International and Dealer Operations, offset in part, by lower
product sales revenue from Communications Recording Systems ("C.R.S."), and
lower revenue from Contract Manufacturing.
I.V.S. revenue increased 33.0% to $12.2 million due to increased Enterprise
Express(TM) revenue. I.V.S. orders in the third quarter of 1999 increased 26.8%
to $12.5 million from $9.9 million in the third quarter of 1998. I.H.S. revenue
increased 59.2% to $19.5 million from $12.3 million due to the continued growth
of Enterprise Express(TM) sales. I.H.S. orders in the third quarter of 1999
increased 42.6% to $25.8 million from $18.1 million in the third quarter of
1998. C.R.S. revenue from existing products has been impacted by the
announcement of the Company's new generation of products, namely daVinci(TM) and
Freedom(TM). C.R.S. revenue declined 35.5% to $12.5 million from $19.4 million
due to lower Prolog(TM)/Guardian(TM) sales. C.R.S. orders in the third quarter
of 1999 declined 17.9% to $13.6 million from $16.5 million in the third quarter
of 1998. Customer Service revenue (including sale of parts) increased 7.6% to
$25.3 million from $23.5 million due to increased installation and warranty
revenue. A.T.S. revenue increased 59.4% to $1.5 million due to increased
training provided in support of system products. Sales and support service
revenue from International and Dealer Operations increased 59.2% to $13.8
million from $8.7 million due to increased system, C.R.S., desktop and portable
and service revenue derived from the Company's Canadian Operations and increased
desktop and portable, C.R.S. and system revenue derived from its European
Operations. Orders for International and Dealer Operations in the third quarter
of 1999 increased 56.7% to $10.8 million from $6.9 million in the third quarter
of 1998. Contract Manufacturing revenue declined by 6.4% to $10.8 million from
$11.6 million in the third quarter of 1998 due to lower sales from existing
customers.
21
<PAGE>
Cost of sales, rentals and support services increased 14.1% to $51.5
million (53.7% of revenue) in the third quarter of 1999 from $45.1 million
(52.6% of revenue) in the third quarter of 1998.
Selling and administrative expenses (including amortization of intangibles)
declined 2.9% to $30.6 million (31.9% of revenue) in the third quarter of 1999
from $31.5 million (36.6% of revenue) in the third quarter of 1998. This
decrease is attributable to lower amortization expense related to intangibles,
lower I.V.S. and C.R.S. selling expenses and lower international operating
expenses, partially offset by increased I.H.S. selling expenses.
Research and development expenses of $2.1 million (3.5% of product sales
and rental revenue) declined 57.1% from $4.9 million (9.4% of product sales and
rental revenue), reflecting reduced staffing and a more focused development
effort consistent with the requirements of major projects under development.
The Company recorded an operating profit of $11.7 million (12.2% of
revenue) during the third quarter of 1999 compared to an operating profit of
$4.4 million (5.1% of revenue) for the third quarter of 1998. Excluding the
impact of reduced amortization expense, operating profit would have increased by
$5.3 million due to higher revenue.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1999 VS. NINE MONTHS
ENDED SEPTEMBER 30, 1998
Total revenue for the first nine months of 1999 of $264.1 million increased
3.7% from $254.7 million for the first nine months of 1998. The Company
experienced increased product sales revenue from I.H.S. and higher revenue from
A.T.S., Customer Service and International and Dealer Operations, partially
offset by lower product sales revenue from I.V.S. and C.R.S. and lower revenue
from Contract Manufacturing.
I.V.S. revenue declined 20.2% to $26.4 million in response to actions taken
by the Company in the fourth quarter of 1998 to reduce and consolidate its sales
force to focus on the more profitable systems business in commercial markets.
I.V.S. orders for the first nine months of 1999 declined 16.9% to $28.0 million
from $33.7 million for the first nine months of 1998. I.V.S. order backlog at
September 30, 1999 increased 23.1% to $5.8 million versus order backlog at
December 31, 1998. I.H.S. revenue increased 51.2% to $49.0 million from $32.4
million due to the continued growth of Enterprise Express(TM) sales. I.H.S.
orders for the first nine months of 1999 increased 62.6% to $62.0 million from
$38.1 million for the first nine months of 1998. I.H.S. order backlog at
September 30, 1999 increased 86.7% to $27.1 million versus order backlog at
December 31, 1998. C.R.S. revenue declined 23.8% to $37.2 million from $48.8
million due to lower Prolog(TM)/Guardian(TM) sales. C.R.S. orders for the first
nine months of 1999 declined 5.8% to $42.5 million from $45.1 million for the
first nine months of 1998. C.R.S. order backlog at September 30, 1999 increased
103.6% to $10.3 million versus order backlog at December 31, 1998. Customer
Service revenue (including sale of parts) increased 4.2% to $74.8 million from
$71.8 million due to increased warranty and installation revenue. A.T.S. revenue
increased $1.7 million to $3.7 million due to increased customer training
provided in support of system products. Sales and support service revenue from
International and Dealer Operations increased 24.6% to $38.0 million due to
increased Canadian system, desktop and portable, C.R.S. and service revenue and
higher system, C.R.S. and service revenue derived from the Company's European
Operations. International and Dealer Operations orders for the first nine months
of 1999 increased 36.5% to $31.0 million from $22.7 million for the first nine
months of 1998. Order backlog for International and Dealer Operations at
September 30, 1999 increased 24.1% to $2.1 million versus order backlog at
December 31, 1998. Contract Manufacturing revenue declined 2.8% to $34.1 million
from $35.1 million for the first nine months of 1998.
Cost of sales, rentals and support services increased 3.0% to $141.2
million (53.5% of revenue) for the first nine months of 1999 from $137.1 million
22
<PAGE>
(53.8% of revenue) for the first nine months of 1998. This decline in cost of
sales expressed as a percentage of revenue is attributable to lower Customer
Service field overhead, technical and support costs and improved Canadian
margins.
Selling and administrative expenses (including amortization of intangibles)
declined 13.8% to $88.4 million (33.5% of revenue) for the first nine months of
1999 from $102.5 million (40.2% of revenue) for the first nine months of 1998.
This decrease is attributable to lower amortization expense, lower selling
expenses associated with I.V.S. sales force reductions and related overhead
expenses, lower C.R.S. selling expenses and lower international operating
expenses.
Research and development expenses of $7.0 million (4.4% or product sales
and rental revenue) declined 45.7% from $12.9 million (8.4% of product sales and
rental revenue), reflecting reduced staffing and a more focused development
effort.
The Company recorded an operating profit of $27.5 million (10.4% of
revenue) during the first nine months of 1999 compared to an operating profit of
$2.2 million (0.9% of revenue) for the first nine months of 1998. Excluding the
impact of reduced amortization expense, operating profit would have increased by
$14.0 million due to higher revenue, lower costs and reduced operating expenses.
The Company has recorded a gross deferred tax asset of $101.6 million
reflecting the benefit of net operating loss carryforwards and various book tax
temporary differences. The net operating loss carryforward for federal income
tax purposes as of September 30, 1999 is $137.0 million, of which $13.7 million
of the net operating loss carryforward will expire in the year 2010, $33.2
million will expire in the year 2011, $40.0 million will expire in the year
2012, $35.7 million will expire in the year 2018 and $14.4 million will expire
in the year 2020. In order to fully realize the deferred tax asset, the Company
will need to generate future taxable income prior to expiration of the net
operating loss carryforwards. In 1997, the Company established a valuation
allowance of $24.1 million against the deferred tax asset. During 1998, the
Company increased its valuation allowance by $20.8 million. During the first
nine months of 1999, the Company increased its valuation allowance by $2.6
million resulting in a deferred tax asset of $54.1 million. Including a deferred
tax liability of $14.8 million, the net deferred tax asset at September 30, 1999
totalled $39.3 million. Management believes, based upon the Company's history of
prior operating results, its current circumstances, and its expectations for the
future, that taxable income of the Company will more likely than not be
sufficient to fully utilize the deferred tax asset of $54.1 million recorded at
September 30, 1999, prior to expiration. The amount of the deferred tax asset
considered realizable, however, could be reduced if estimates of future taxable
income during the net operating loss carryforward period are reduced.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements consist primarily of scheduled
payments of principal and interest on its indebtedness, working capital needs
and capital expenditures. At September 30, 1999, the Company had outstanding
Term Loans of $131.6 million, a $22.0 million loan outstanding under the $40.0
million Revolving Credit Facility and the Notes. Availability under the
Revolving Credit Facility at September 30, 1999 was $18.0 million. Scheduled
annual principal payments on the Term Loans are $0.6 million in 1999 and 2000,
$36.3 million in 2001 and $94.0 million in 2002. There are no scheduled
reductions in the Revolving Credit Facility over the next two years.
On December 31, 1998, the Company and the lenders executed a fifth
amendment to the Credit Agreement. Under the terms of this amendment, the
lenders agreed to waive compliance by the Company with the financial covenants
as of December 31, 1998 and for the four-fiscal quarter period then ended. Other
changes effected by the amendment were (i) modifications to the covenants and
related definitions in respect of certain asset sales and the utilization of the
proceeds from such asset sales, (ii) modifications to the required Maximum
Leverage, Minimum EBITDA and Minimum Interest Coverage Ratio covenants (as
23
<PAGE>
defined in the Credit Agreement), (iii) a change in the maturity date of the
Tranche C Loans to be equal to that of the Tranche B Loans, and (iv) an increase
in the interest rate on the Tranche B Loans to be equal to that of the Tranche C
Loans.
In January 1999, the Company sold 2.0 million shares of its 12% Convertible
Pay-in-Kind Preferred Stock to Stonington Capital Appreciation 1994 Fund, L.P.
("Stonington") for $20 million. In February 1999, $11.75 million was used for
the semi-annual interest payment on the Notes. Proceeds from the sale were also
used to repay amounts outstanding under the Revolving Credit Facility.
In connection with the terms of the Credit Agreement, the Company entered
into interest rate swap agreements in November 1995, effective February 16,
1996, with an aggregate notional principal amount equivalent to $75.0 million
which matured on February 16, 1999. The swap effectively converted that portion
of the Term Loans to a fixed rate component of 5.8%; thus, reducing the impact
of changes in interest rates, converting the total effective interest rate on
fifty percent of the initial outstanding Term Loans to 9.55%. No funds under the
swap agreements were actually borrowed or were repaid. Amounts due to or from
the counterparties were reflected in interest expense in the periods in which
they accrued. On February 11, 1999, the Company entered into interest rate cap
agreements effective February 16, 1999, with an aggregate notional principal
amount equivalent to $66.0 million maturing on February 16, 2001. The cap limits
that portion of the Company's Term Loans to a fixed rate component of 5.5%; thus
reducing the impact of increases in interest rates, limiting the effective
interest rate on fifty percent of the currently outstanding Term Loans to 9.25%.
In addition, the Credit Agreement contains covenants that significantly
limit or prohibit, among other things, the ability of the Company to incur
indebtedness, make prepayments of certain indebtedness, pay dividends on common
stock, make investments, engage in transactions with stockholders and
affiliates, create liens, sell assets and engage in mergers and consolidations
and requires that the Company maintain certain financial ratios.
The Company had $200.0 million of Notes outstanding as of September 30,
1999. The Notes are subordinated to the Credit Agreement financings and other
senior indebtedness, as defined in the Note Indenture. The Notes contain
covenants similar to the Credit Agreement and provide for each noteholder to
have the right to require that the Company repurchase the Notes at 101% of the
principal amount upon a change of control (as defined in the Note Indenture).
The Notes bear interest of 11-3/4% per annum, payable semi-annually on each
February 1 and August 1. The Notes mature on August 1, 2005. At September 30,
1999, the fair value of the Notes was favorable $56 million based on dealer
quotes.
Capital expenditures for the first nine months of 1999 totaled $8.5
million. The Company does not expect that the limitation on capital expenditures
contained in the Credit Agreement will limit, in any material respects, the
Company's ability to fund capital expenditures.
The Company's quarterly revenues and other operating results have been and
will continue to be affected by a wide variety of factors that could have a
material adverse effect on the Company's financial performance during any
particular quarter. Such factors include, but are not limited to, the level of
orders that are received and shipped by the Company in any given quarter, the
rescheduling and cancellation of orders by customers, availability and cost of
materials, the Company's ability to enhance its existing products and to
develop, manufacture and successfully introduce and market new products, new
product developments by the Company's competitors, market acceptance of products
of both the Company and its competitors, competitive pressures on prices, the
ability to attract and retain qualified technical personnel, significant damage
to or prolonged delay in operations at the Company's sole manufacturing
facility, and interest rate and foreign exchange fluctuations. The Company
introduced a number of new products in its target markets in 1997, 1998 and the
24
<PAGE>
first nine months of 1999 which are expected to enhance future revenues and
liquidity of the Company. However, there can be no assurance that the Company
will be able to implement its plans to introduce such products in a timely
fashion, or that such products will meet the expectations of the Company for
either revenues or profitability. Notwithstanding the introduction of its new
products, the 1999 sale of 12% Convertible Pay-in-Kind Preferred Stock to
Stonington and its availability under the Revolving Credit Facility, the Company
will continue to focus on cash flows from operating activities. The Company has
implemented new measures to improve working capital in order to provide this
improved cash flow, but there can be no assurance, however, that the Company
will be successful in such efforts.
YEAR 2000 READINESS
General
- -------
Most businesses are facing a challenge at the turn of the century due to a
common computer-related practice employed since the 1960's of representing a
year with just two digits rather than four digits. The problem is not restricted
to system hardware components but will be manifested within many operating
systems, firmware, application software and equipment used throughout an
organization. Dictaphone has been and continues to be actively engaged in
resolving its Year 2000 issues. The Company established a Year 2000 Project
Office charged with evaluating the Company's Year 2000 issues and identifying
and developing appropriate remedies and action plans with respect to the
Company's internal systems and the Company's products to ensure a smooth
transition into the new millennium.
The Year 2000 Project Office adopted a five phase program to address the
Company's Year 2000 issues consisting of Phase I - review and inventory of
existing systems, products, equipment and suppliers that may be affected by the
Year 2000 issue; Phase II - assessment of the impact of the Year 2000 issue on
systems, products, equipment and suppliers; Phase III - remediation or
replacement of non-compliant systems, products and equipment and determination
and implementation of solutions to address non-compliant suppliers and vendors;
Phase IV - testing of systems, product and equipment following remediation; and
Phase V - contingency planning.
The Company's Year 2000 efforts have concentrated on two major areas: 1)
internal use systems, equipment and third party products used in the Company's
operations and 2) products sold by the Company to its customers.
State of Readiness
- ------------------
The Company is utilizing both internal and external resources to perform
Year 2000 testing on its internal systems and equipment. The Company has
completed Phases I through IV of its program for all of its critical systems and
equipment. The Company continues to review and test the Year 2000 compliance of
these systems and will continue to do so throughout the remainder of the year.
In connection with the Company's efforts to make its internal systems Year 2000
compliant, the Company accelerated the implementation of certain components of a
new enterprise-wide computer system. The Company completed the implementation of
these components in September 1999.
With respect to third party suppliers, in early 1998 the Company began the
process of identifying and prioritizing critical suppliers and vendors and
initiated communication concerning their plans to address the Year 2000 issue.
Based on the responses we have received to date, we have not identified any
critical problems or failures and we do not anticipate a material adverse impact
on our business due to third party Year 2000 problems. However, there can be no
assurance that these responses are accurate or that we will receive responses
from all third parties. In the event that any of the Company's significant
25
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suppliers, vendors or service providers, such as the telecommunications
providers, do not successfully achieve Year 2000 compliance prior to the
millennium event, and the Company is unable to replace them with new or
alternate suppliers, vendors or service providers, the Company's business
operations could be materially adversely affected .
With respect to products sold to the Company's customers, the Company has
completed Phases I and II of the program and is actively engaged in Phases III
through IV. The Company has identified certain products which require
remediation, has developed and communicated the necessary remediations to the
Company's customers and is installing such remediations at customer sites.
Installations of product remediations and installation of new products to
replace non-compliant products will continue throughout 1999.
Many of the Company's products rely on third party hardware, software and
firmware. The Company has been diligently working with all such third parties to
ascertain their readiness and the affect, if any, of their products' compliance
status on the efficient and effective operation and use of the Company's
products. Generally, all software, hardware and firmware are supplied to the
Company by leading software companies that have Year 2000 programs of their own.
A majority of these vendors have provided disclosure statements to the Company
as to their products' Year 2000 compliance status. The Company has relied on
these disclosure statements in making assessments about the Company's products.
However, there can be no guarantee that these disclosure statements are accurate
or that the software, hardware or firmware certified by these statements on
which the Company has relied, will operate effectively and efficiently during
and after the millennium. The Company has, however, conducted certain Year 2000
testing on integrated products and believes that the risk of material operating
failures associated with the components provided by these third parties is
consistent with their product representations concerning Year 2000 compliance.
Costs
- -----
The Company estimates that the aggregate costs of its Year 2000 program
will be approximately $12.5 million, including $10.8 million of costs already
incurred. Of the total program costs, approximately $9.0 million represents new
software and hardware purchases for internal Company systems which have been
accelerated in connection with the Year 2000 issue. A significant portion of the
remaining $1.7 million represents the remaining implementation costs of the
non-Year 2000 critical components of the enterprise-wide computer system. This
enterprise-wide computer system will be fully implemented during 2000. The
Company does not believe that the costs associated with Year 2000 issues will
have a material adverse effect on the Company's consolidated financial position,
results of operations or cash flows in future periods. However, these cost
estimates, as well as the project timetables previously mentioned are based on
management's best estimates, and there can be no guarantee that these estimates
will be achieved or that actual results will not materially differ from these
estimates.
Risks
- -----
With respect to the Company's internal systems, the most reasonably likely
worst case scenario for the Company's failure to identify or remediate a Year
2000 problem could be an interruption in, or failure of, certain normal business
activities or operations. Such failures could materially and adversely affect
the Company's results of operations, liquidity and financial condition. In
addition, any disruption in the business of our key suppliers or selling
partners as a result of Year 2000 issues or any general disruption or failure of
the financial, telecommunications, power or other infrastructure could also
disrupt our business and potentially have a material impact on the Company's
consolidated financial position, results of operations or cash flows.
26
<PAGE>
The Company's Year 2000 program, however, is expected to significantly
reduce the Company's exposure to these types of failures. The Company believes
that the implementation of the new systems and the timely completion of the Year
2000 program should reduce the risk of internal business interruption and
adverse financial impact.
With respect to products sold to customers, the most reasonably likely
worst case scenario for Year 2000 related product failures could include the
suspension of use of such product, or continued use of the product with reduced
functionality or operating ability. If this were to occur, customers could
attempt to assert liability claims against the Company. Year 2000 claims could
result in costly and distracting litigation and in material liability to the
Company. If our products suffer significant Year 2000 defects, we could suffer
damage to our business and reputation. Correcting defects could be costly and
could divert resources from new product development and sales activity. However,
the Company believes that, based on the level of Year 2000 testing performed to
date, the product remedies being made available to its customers, the time
remaining to implement such remedies, and the legal defenses available to the
Company, the likelihood of the occurrence of such worst case scenario is
minimized.
Contingency Plans
- -----------------
Contingency plans are being prepared, where practical, so that critical
business functions will continue to operate. These plans will address the
Company's internal systems and equipment, products sold by the Company to
customers and third party supplier relationships. The contingency plans include
manual alternatives to electronic processes, repair or replacement of products
and systems and changes in suppliers.
With respect to our products and the support we provide our customers for
their product performance, our contingency planning includes increased staffing
of our customer call centers throughout the millennium weekend to handle any
increase in customer service calls and any general Year 2000 inquiries. In
addition, our service organization has restricted vacation and any personal time
of its employees during the critical December 1999 through January 2000
timeframe to better meet our customer needs. We will have increased levels of
technical support staff, including product engineering, available throughout the
millennium weekend to further supplement our service organization. With regard
to our internal systems, resources from the information systems area will be
working throughout the millennium roll-over weekend to verify the operation and
functionality of our critical systems and equipment.
Contingency planning efforts will continue throughout 1999, and will
continue to be updated and revised to reflect the most current information on
the Company's state of readiness, and the state of readiness of the Company's
suppliers and customers.
The Company may, from time to time, provide estimates as to future
performance. Such estimates would be "forward-looking" statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Because such statements include risks and
uncertainties, actual results may differ materially from those estimates
provided. The Company undertakes no duty to update such forward looking
statements. Factors that could cause actual results to differ from these forward
looking statements include, but are not limited to, those previously discussed
herein.
27
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's cash flows and earnings are subject to fluctuations from
changes in interest rates and, to a lesser extent, foreign currency exchange
fluctuations. See "Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources" for
further information on interest rate risk.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 5 to the Company's Condensed Consolidated Statements of Operations
(Unaudited) which is incorporated herein by reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
10.22 -- Employment Agreement dated June 1, 1999, between Dictaphone
Corporation and Mr. Daniel P. Hart.
10.23 -- Employment Agreement dated June 1, 1999, between Dictaphone
Corporation and Mr. Joseph D. Skrzypczak.
10.24 -- Employment Agreement dated June 1, 1999, between Dictaphone
Corporation and Mr. Ronald A. Elwell.
10.25 -- Employment Agreement dated June 1, 1999, between Dictaphone
Corporation and Mr. Robert G. Schwager.
10.26 -- Amendment No. 3 to the Management Stock Option Plan, dated as
of July 28, 1999.
27 -- Financial Data Schedule.
UNDERTAKING:
The undersigned, Dictaphone Corporation, hereby undertakes, pursuant to
Regulation S-K, Item 601(b), paragraph (4) (iii), to furnish to the Securities
and Exchange Commission upon request all constituent instruments defining the
rights of holders of long-term debt of Dictaphone Corporation and its
consolidated subsidiaries not filed herewith for the reason that the total
amount of securities authorized under any of such instruments does not exceed 10
percent of the total consolidated assets of Dictaphone Corporation and its
consolidated subsidiaries.
(b) Reports on Form 8-K
-------------------
There were no Reports on Form 8-K filed by the Company during the three
months ended September 30, 1999.
28
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 12, 1999 Dictaphone Corporation
---------------------------------------------
(Registrant)
By: /s/ John H. Duerden
---------------------------------------------
Name: John H. Duerden
Title: Chairman, Chief Executive Officer
and President
(Principal Executive Officer)
By: /s/ Joseph D. Skrzypczak
---------------------------------------------
Name: Joseph D. Skrzypczak
Title: Chief Operating Officer, Chief Financial
Officer and Director
(Principal Financial and Accounting Officer)
29
<PAGE>
EXHIBIT INDEX
EXHIBITS DESCRIPTION
-------- -----------
10.22 -- Employment Agreement dated June 1, 1999, between Dictaphone
Corporation and Mr. Daniel P. Hart.
10.23 -- Employment Agreement dated June 1, 1999, between Dictaphone
Corporation and Mr. Joseph D. Skrzypczak.
10.24 -- Employment Agreement dated June 1, 1999, between Dictaphone
Corporation and Mr. Ronald A. Elwell.
10.25 -- Employment Agreement dated June 1, 1999, between Dictaphone
Corporation and Mr. Robert G. Schwager.
10.26 -- Amendment No. 3 to the Management Stock Option Plan, dated as
of July 28, 1999.
27 -- Financial Data Schedule.
30
EXHIBIT 10.22
EMPLOYMENT AGREEMENT
AGREEMENT by and between Dictaphone Corporation, a Delaware corporation
(the "Company"), and Daniel P. Hart (the "Executive"), dated as of the 1st day
of June, 1999.
WHEREAS, the Executive is currently employed by the Company in an executive
position of importance to the business and prospects of the Company; and
WHEREAS, the Company has determined that it is in the best interests of the
Company and its shareholders to secure the services of the Executive on a
full-time basis in the position, and for the period set forth below, and the
Executive desires to continue to serve in such capacity.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. EMPLOYMENT PERIOD. The Company shall employ the Executive, and the
Executive shall serve the Company, on the terms and conditions set forth in this
Agreement, for the period commencing on June 1, 1999, and ending on May 31, 2001
(the "Employment Period"). The Employment Period may be renewed as provided in
Section 11 hereof.
2. POSITION AND DUTIES. (a) The Executive shall serve as General Counsel,
Senior Vice President - Corporate Development, Secretary of the Company,
reporting to the Chief Executive Officer of the Company, and as such shall be
the senior officer most directly responsible for the Company's legal affairs,
human resources department and shall also be directly involved in the formation
and implementation of the Company's corporate and business strategies of the
Company, with such duties and responsibilities as are customarily assigned to
such position, and such other duties and responsibilities not inconsistent
therewith as may be assigned to the Executive from time to time by the Company.
<PAGE>
(b) The Executive's services shall be performed at the Company's
headquarters in Stratford, Connecticut, subject to such business travel as may
be required from time to time.
3. COMPENSATION. (a) BASE SALARY. During the Employment Period, the
Executive shall receive a base salary (the "Annual Base Salary") at the annual
rate of $250,000. The Annual Base Salary shall be payable in accordance with the
Company's payroll practices as in effect from time to time, subject to
applicable taxes and withholding. During the Employment Period, the Annual Base
Salary shall be reviewed for possible merit increases at least annually, on or
about December 1. Any increase in the Annual Base Salary shall not limit or
reduce any other obligation of the Company under this Agreement. The Annual Base
Salary shall not be reduced after any such increase, and the term "Annual Base
Salary" shall thereafter refer to the Annual Base Salary as so increased.
(b) ANNUAL BONUS. In addition to the Annual Base Salary, for each
calendar year or portion of a calendar year during the Employment Period, the
Executive shall be eligible to earn an annual performance bonus (the "Annual
Bonus") pursuant to the Company's management incentive bonus programs, as in
effect from time to time. In the event of a "Change of Control" (as defined
herein), the Annual Bonus shall be paid immediately to Executive on a pro-rated
basis as calculated pursuant to the formula set forth in Section 5(a)(i)(A)(2)
hereof.
(c) BENEFITS. During the Employment Period: (i) the Executive shall be
entitled to participate in all stock incentive, savings and retirement plans,
practices, policies and programs of the Company to the same extent as made
available to other key executives as a group; and (ii) 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, all welfare benefit plans,
2
<PAGE>
practices,policies and programs provided by the Company (including, without
limitation, medical, prescription, dental, disability, salary continuance,
employee life insurance, group life insurance, accidental death and travel
accident insurance plans and programs) to the same extent as made available to
other key executives as a group.
(d) FRINGE BENEFITS. During the Employment Period, the Executive shall
be entitled to paid vacation, car allowance (not less than is in effect as of
the date hereof) and such other benefits as shall be made available to other key
executives as a group from time to time. In addition, during the term of the
Employment Period, the Company shall procure and maintain term life insurance in
the amount of One Million ($1,000,000) dollars for Executive, payable to the
Executive's designated beneficiary.
4. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The Executive's
employment shall terminate automatically upon the Executive's death during the
Employment Period. The Company shall be entitled to terminate the Executive's
employment because of the Executive's "Disability" (as herein defined) during
the Employment Period. "Disability" means that (i) the Executive has been
unable, for a period of six (6) months, or for a total of 180 days in any given
period of twelve (12) months, to perform the Executive's duties under this
Agreement, as a result of physical or mental illness or injury, and (ii) a
physician selected by the Company or its insurers, has determined that the
Executive's incapacity is total and permanent. A termination of the Executive's
employment by the Company for Disability shall be communicated to the Executive
by written notice, and shall be effective on the 30th day after receipt of such
notice by the Executive (the "Disability Effective Date"), unless the Executive
is able to, and does, return to full-time performance of the Executive's duties
before the Disability Effective Date.
3
<PAGE>
(b) BY THE COMPANY. (i) The Company may terminate the Executive's
employment during the Employment Period for Cause or without Cause. "Cause"
means:
A. (i) the repeated failure or refusal of the Executive to
perform the Executive's material duties or responsibilities under this Agreement
(other than as a result of physical or mental illness or injury) or (ii) the
engaging by the Executive in gross misconduct or dishonesty that is materially
injurious to the Company; PROVIDED THAT in the case of conduct covered by
subclause (i) the Company shall give written notice to the Executive at least
ninety (90) days prior to such termination of the Company's intent to terminate,
which notice shall set out in detail the ways in which Executive has failed to
perform such duties and/or responsibilities, and Executive shall have failed to
cure such failure prior to the expiration of such 90-day period;
B. any fraud, embezzlement or other dishonesty or breach of
business ethics by the Executive that could likely adversely affect the
Company's business or reputation;
C. the Executive's conviction of a felony or entering into a plea
of nolo contendere with respect to a felony; or
D. failure by the Executive to provide sixty (60) days advance
written notice of resignation (other than in connection with a termination as a
result of "Good Reason" (as hereinafter defined)).
(ii) A termination of employment by the Company for Cause shall
be effectuated by giving the Executive written notice ("Notice of Termination
for Cause") of the termination, setting forth the conduct of the Executive that
constitutes Cause. Except as provided in subclause A of Section 4(b)(i) above, a
termination of employment by the Company for Cause shall be effective on the
4
<PAGE>
date when the Notice of Termination for Cause is given, unless the notice sets
forth a later date (which date shall in no event be later than thirty (30) days
after the notice is given).
(iii) A termination of the Executive's employment by the Company
without Cause shall be effected by giving the Executive written notice of the
termination.
(c) BY THE EXECUTIVE FOR GOOD REASON. (i) For purposes of this
Agreement, "Good Reason" means:
A. the assignment to the Executive of any duties and/or
responsibilities inconsistent in any respect with paragraph (a) of Section 2 of
this Agreement (including but not limited to a material reduction in
responsibilities, rank or reporting relationship), other than actions that are
not taken in bad faith and are remedied by the Company within twenty (20)
business days after receipt of written notice thereof from the Executive;
B. any failure by the Company to comply with any provision of
Section 3 of this Agreement, other than failures that are not taken in bad faith
and are remedied by the Company within twenty (20) business days after receipt
of written notice thereof from the Executive;
C. any failure by the Company to comply with Section 10(c) of
this Agreement;
D. the Company's requiring the Executive to be based at any
office or location more than a reasonable commuting distance from the Company's
executive headquarters as of the date hereof; or
E. following the occurrence of a "Change of Control" of the
Company (as defined below) (i) the occurrence, within two (2) years of the date
of the Change of Control, of any event that would otherwise constitute "Good
Reason" within the provisions of Section 4(c)(A)-(D) hereof, or (ii) a
5
<PAGE>
termination by the Executive, at the Executive's own initiative, for any reason
during the four (4) month period immediately following the first twelve (12)
month period following the date of the Change of Control. For purposes of this
Agreement, "Change of Control" means the happening of any of the following
events:
(1) An acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 40% or more of either (A) the then outstanding shares
of common stock of the Company (the "Outstanding Company Common Stock") or (B)
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"); excluding, however, the following: (A)
any acquisition directly from the Company, other than an acquisition by virtue
of the exercise of a conversion privilege unless the security being so converted
was itself acquired directly from the Company, (B) any acquisition by the
Company, (C) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by the
Company or (D) any acquisition by any Person pursuant to a transaction which
complies with clauses (A), (B) and (C) of subsection (3) of this Section 4(c);
or
(2) A change in the composition of the Board such that the
individuals who, as of the first day of the Employment Period, constitute the
Board (such Board shall be hereinafter referred to as the "Incumbent Board")
cease for any reason to constitute at least a majority of the Board; PROVIDED,
HOWEVER, for purposes of this Section 4(c), that any individual who becomes a
member of the Board subsequent to such date, whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of those individuals who are members of the Board and who were also
members of the Incumbent Board (or deemed to be such pursuant to this proviso)
shall be considered as though such individual were a member of the Incumbent
Board; PROVIDED FURTHER, however, that any such individual whose initial
assumption of office occurs as a result of either an actual or threatened
6
<PAGE>
election contest (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the Board shall
not be so considered as a member of the Incumbent Board; or
(3) The approval by the shareholders of the Company of a
reorganization, merger or consolidation or sale or other disposition of all or
substantially all of the assets of the Company ("Corporate Transaction");
excluding, however, such a Corporate Transaction pursuant to which (A) all or
substantially all of the individuals and entities who are the beneficial owners,
respectively, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities immediately prior to such Corporate Transaction will
beneficially own, directly or indirectly, more than 50% of, respectively, the
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 Corporate
Transaction (including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in substantially the
same proportions as their ownership, immediately prior to such Corporate
Transaction, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (B) no Person (other than the Company,
7
<PAGE>
any employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company or such corporation
resulting from such Corporate Transaction) will beneficially own, directly or
indirectly, 20% or more of, respectively, the outstanding shares of common stock
of the corporation resulting from such Corporate Transaction or the combined
voting power of the outstanding voting securities of such corporation entitled
to vote generally in the election of directors except to the extent that such
ownership existed with respect to the Company prior to the Corporate Transaction
and (C) individuals who were members of the Incumbent Board will constitute at
least a majority of the members of the board of directors of the corporation
resulting from such Corporate Transaction; or
(4) The sale or spin-off of any of the Company's divisions
or operations which in part, or in the aggregate, generated at least 30% of the
Company's most recent annual revenues; or
(5) The approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company; or
(6) Stonington Capital Appreciation 1994 Fund, L.P. ceases
to beneficially control or own more than 50% of the Outstanding Company Common
Stock (other than as a result of (i) sales of Company Common Stock to the public
by the Company or Stonington or (ii) distributions by Stonington to its
partners).
(ii) A termination of employment by the Executive for Good Reason
shall be effectuated by giving the Company written notice ("Notice of
Termination for Good Reason") of the termination, setting forth the conduct of
the Company that constitutes Good Reason. Such Notice of Termination for Good
Reason may be given by Executive not later than one hundred fifty (150) days
(four (4) months in the event of Change of Control) following the circumstance
8
<PAGE>
giving rise to a "Good Reason" termination right hereunder. A termination of
employment by the Executive for Good Reason shall be effective on the thirtieth
(30th) business day following the date when the Notice of Termination for Good
Reason is given, unless the notice sets forth a later date (which date shall in
no event be later than thirty (30) days after the notice is given).
(d) NO WAIVER. The failure to set forth any fact or circumstance in a
Notice of Termination for Cause or a Notice of Termination for Good Reason shall
not constitute a waiver of the right to assert, and shall not preclude the party
giving notice from asserting, such fact or circumstance in an attempt to enforce
any right under or provision of this Agreement.
(e) DATE OF TERMINATION. The "Date of Termination" means the date of
the Executive's death, the Disability Effective Date, the date on which the
termination of the Executive's employment by the Company for Cause or by the
Executive for Good Reason is effective, or the date on which the Company gives
the Executive notice of a termination of employment without Cause or the
Executive gives the Company notice of a termination of employment without Good
Reason, as the case may be.
5. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) OTHER THAN FOR CAUSE OR
DEATH; GOOD REASON. If, during the Employment Period, the Company terminates the
Executive's employment, other than for Cause, or the Executive terminates his
employment for Good Reason, the Company shall pay the amounts, and continue the
benefits described, in subparagraph (i) below to the Executive. The payments
provided pursuant to this Section 5(a) are intended as severance payments for a
termination of the Executive's employment by the Company other than for Cause or
9
<PAGE>
for the actions of the Company leading to a termination of the Executive's
employment by the Executive for Good Reason and shall be the sole and exclusive
remedy therefor; PROVIDED FURTHER that as a condition precedent for such
payments the Executive shall execute and deliver a general release of all claims
(other than any claims or rights pursuant to stockholders agreements, stock
option incentive and other benefit plans, as provided in Section 6 hereof)
against the Company, in form and substance satisfactory to the Company.
(i) The amounts to be paid as described above are:
A. The Executive's earned and accrued but unpaid cash
compensation, in the form of a lump-sum payment, to be paid within thirty (30)
days after the Date of Termination, which shall equal the sum of (1) any portion
of the Executive's Annual Base Salary earned through the Date of Termination
that has not yet been paid, (2) an amount equal to the Annual Bonus that would
have been paid for the fiscal year in which the Date of Termination occurs,
calculated as if all goals had been achieved at the expected level (the "Annual
Bonus Amount"), times 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; (3) any compensation previously deferred by the Executive
pursuant to this Agreement or otherwise that has not yet been paid, and the
immediate payment of which is otherwise permitted by applicable plan documents;
and (4) any accrued but unpaid Annual Bonuses and vacation pay (the amounts set
forth in subclauses (1)-(4) constitute the "Accrued Obligations"); and
B. (I) In the event that such termination is effective prior
to the occurrence of a Change of Control, a payment payable in equal amounts in
accordance with the Company's standard payroll practices over a twenty-four (24)
month period of an amount equal to the product of (x) two (2) times (y) the sum
10
<PAGE>
of (a) the Annual Base Salary and annual car allowance as of the Date of
Termination (the "Final Base Salary") and (b) an amount equal to thirty (30%)
percent of the Final Base Salary;
(II) In the event that such termination is effective at
any time following the occurrence of a Change of Control (or in connection with
a Change of Control), a payment payable in equal amounts in accordance with the
Company's standard payroll practices over a twenty-four (24) month of an amount
equal to the product of (x) three (3) times (y) the sum of (a) the Final Base
Salary and (b) an amount equal to the higher of (w) fifty (50%) percent of Final
Base Salary and (z) a percentage of Final Base Salary equal to the highest
percentage Annual Bonus paid to, or earned by, the Executive during any of three
(3) years immediately prior to the Date of Termination.
C. The benefits to be continued are benefits to the
Executive and/or the Executive's family at least as favorable as those that
would have been provided to them under Section 3(c) of this Agreement if the
Executive's employment had continued through the end of the Employment Period or
for two years, whichever is greater; PROVIDED, HOWEVER, that during any period
when the Executive is eligible to receive such benefits under another
employer-provided plan, the benefits provided by the Company under this Section
5(a)(c) may be made secondary to those provided under such other plan.
D. 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 the Executive's sole discretion, but
the cost thereof shall not exceed $40,000 in any nine (9) month period; provided
that the Executive may elect, upon prior written notice to the Company, to
receive a lump-sum payment of $40,000 subject to applicable taxes and
withholding, in lieu of outplacement services hereunder.
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E. 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, the Company shall pay the
Accrued Obligations to the Executive or the Executive's estate or legal
representative, as applicable, in a lump-sum payment (subject to applicable
taxes and withholding) within thirty (30) days after the Date of Termination,
and the Company shall have no further obligations under this Agreement. If
Executive's employment is terminated by reason of Disability, Executive shall be
entitled to receive disability benefits at the expiration of the severance
payments, to the extent available under the Company's benefit plans; in the
event of conflict between the severance benefits hereunder and long-term
disability benefits payable under the Company's plans, Executive shall have the
right to choose between them if such benefits are mutually exclusive.
(c) CAUSE; OTHER THAN FOR GOOD REASON. If the Executive's employment
is terminated by the Company for Cause during the Employment Period, or if the
Executive terminates his employment during the Employment Period other than for
Good Reason, the Company shall pay the Executive, in a lump-sum payment (subject
to applicable taxes and withholding) within thirty (30) days of the Date of
Termination, any earned and unpaid Annual Base Salary through the Date of
Termination, and the Company shall have no further obligations under this
Agreement.
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6. NON-EXCLUSIVITY 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
for which the Executive may qualify, nor shall anything in this Agreement 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. Vested benefits
and other amounts that 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 on or after the Date of Termination
shall be payable in accordance with such plan, policy, practice, program,
contract or agreement, as the case may be, except as explicitly modified by this
Agreement.
7. NO MITIGATION. In no event shall the Executive be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this Agreement and,
except as specifically provided in this Agreement, such amounts shall not be
reduced, regardless of whether the Executive obtains other employment.
8. CONFIDENTIAL INFORMATION; NONCOMPETITION. The Executive acknowledges
that his employment by the Company will, throughout the term of employment,
bring him into close contact with many confidential affairs of the Company,
including information about costs, profits, markets, sales, products, key
personnel, pricing policies, operational methods, technical processes and other
business affairs and methods and other information not readily available to the
public, and plans for future development. The Executive further acknowledges
that the services to be performed under this Agreement are of a special, unique,
unusual, extraordinary and intellectual character. The Executive further
acknowledges that the business of the Company is international in scope, that
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its products are marketed throughout the world, that the Company competes in
nearly all of its business activities with other entities that are or could be
located in nearly any part of the world and that the nature of the Executive's
services, position and expertise are such that he is capable of competing with
the Company from nearly any location in the world. In recognition of the
foregoing, the Executive covenants and agrees:
(a) The Executive, at all times during the Employment Period and
thereafter, shall hold in a fiduciary capacity for the benefit of the Company
all secret, trade, proprietary or confidential information, knowledge or data
relating to the Company or any of its affiliated companies and shareholders, and
their respective businesses, that the Executive obtains during the Executive's
employment by the Company or any of its affiliated companies and that is not
public knowledge (other than as a result of the Executive's violation of this
Section 8(a)) ("Confidential Information"). The Executive shall not communicate,
divulge or disseminate Confidential Information at any time during or after the
Executive's employment with the Company, except with the prior written consent
of the Company or as otherwise required by law or legal process. The Executive
shall deliver promptly to the Company on termination of the Executive's
employment by the Company, or at any other time the Company may so request, at
the Company's expense, all memoranda, notes, records, reports and other
documents (and all copies thereof) relating to the Company's business, which the
Executive obtained while employed by, or otherwise serving or acting on behalf
of, the Company and which the Executive may then posses or have under the
Executive's control.
(b) During the "Noncompetition Period," the Executive shall not,
without the prior written consent of the Board, engage in or become associated
with a "Competitive Activity." For purposes of this Section 8(b): (i) the
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"Noncompetition Period" means the period commencing on the first date upon which
the Executive is employed by the Company, and ending on the two-year anniversary
of the date upon which Executive's employment with the Company is terminated for
any reason; (ii) a "Competitive Activity" means any business or other endeavor
that engages in any line of business in any geographic location that is
substantially the same as either (i) any line of operating business which the
Company engages in, conducts, or, to the knowledge of the Executive, has
definitive plans to engage in or conduct, or (ii) any operating business that is
engaged in or conducted by the Company and as to which, to the knowledge of the
Executive, the Company covenants in writing, in connection with the disposition
of such business, not to compete therewith; and (iii) the Executive shall be
considered to have become "associated with a Competitive Activity" if the
Executive becomes directly or indirectly involved as an owner, investor,
employee, officer, director, consultant, independent contractor, agent, partner,
advisor, or in any other capacity calling for the rendition of the Executive's
personal services, with any individual, partnership, corporation or other
organization that is engaged in a Competitive Activity. Notwithstanding the
foregoing, the Executive may make and retain investments during the Employment
Period, and thereafter, in not more than five percent of the equity of any
publicly traded entity engaged in a Competitive Activity, if such equity is
listed on a national securities exchange or regularly traded in an
over-the-counter market.
(c) During the Noncompetition Period, the Executive shall not, on his
or her own behalf or on behalf of any other person, firm or entity (x) directly
or indirectly solicit, induce or attempt to solicit or induce any employee of
the Company to terminate his or her employment with the Company, or to provide
any assistance whatsoever to any person, firm or entity engaged in a Competitive
Activity, or (y) employ, or cause any business or entity with which Executive is
affiliated to employ, any person who was a full-time executive employee of the
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Company at the Executive's Date of Termination or six (6) months prior to such
date.
(d) In addition to such other rights and remedies as the Company may
have at equity or in law with respect to any breach of this Agreement, if the
Executive commits a material breach of any of the provisions of Section 8, the
Company shall have the right and remedy to have such provisions specifically
enforced by any court having equity jurisdiction; it being acknowledged and
agreed that any such breach or threatened breach will cause irreparable injury
to the Company and that money damages alone will not provide an adequate remedy
to the Company.
(e) If the Executive commits a material breach of the provisions of
Section 8, the Company shall be entitled to offset any amounts owed by the
Executive to the Company under this Section 8 against any amounts owed by the
Company to the Executive under any provision of this Agreement or otherwise. (f)
The Executive acknowledges and agrees that the provisions of this Section 8 are
necessary to protect the business operations and affairs of the Company, and
will not restrict the ability of the Executive to secure meaningful employment
opportunities following any termination of employment hereunder.
9. ARBITRATION; ATTORNEYS' FEES. Any dispute or controversy arising under
or in connection with this Agreement shall be settled exclusively by arbitration
in the State of Connecticut, in accordance with the rules of the Commercial
Panel of the American Arbitration Association ("AAA") then in effect, and
judgment may be entered on the arbitrator's award in any court having
jurisdiction. The costs of the arbitration shall be borne as determined by the
arbitrator; PROVIDED, HOWEVER, that if the Company's position is not
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substantially upheld, as determined by the arbitrator, the reasonable expenses
of Executive (including fees and expenses payable to the AAA and the arbitrator,
fees and expenses payable to witnesses, including expert witness fees, and
expenses payable to attorneys and other professionals, costs in connection with
obtaining and presenting evidence and costs of the transcription of the
proceedings), as determined by the arbitrator, shall be reimbursed to him by the
Company. Nothing in this Section shall limit the right of the Company to seek
injunctive relief in any federal or state court or take any other remedial or
enforcement measures in any federal or state court in connection with any breach
(or alleged breach) by the Executive of Section 8 of this Agreement.
10. 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 (including post-termination payment obligations) shall inure to the
benefit of and be enforceable by the Executive's heirs (in the event of
Executive's death), and legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors (by operation of law or otherwise) and assigns,
and may be assigned by Company in connection with any sale, transfer or other
disposition of all or substantially all of its business and assets.
(c) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would have been required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean both
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the Company as defined above and any such successor that assumes and agrees to
perform this Agreement, by operation of law or otherwise.
11. RENEWAL OF AGREEMENT. If, not less than one hundred and twenty (120)
days prior to the expiration of the Employment Period, the term of employment
shall not have been previously terminated pursuant to the provisions of this
Agreement (whether as a result of a termination by the Executive for Good Reason
or otherwise), then the Employment Period shall be automatically renewed for an
additional two (2) year period on the terms and conditions set forth in this
Agreement.
12. INDEMNIFICATION. The Executive shall be entitled throughout the
Employment Period in the capacity as an officer or director of the Company or
any of its subsidiaries, or as a member of any other governing body or any
partnership or joint venture in which the Company has an equity interest (and
after the term of employment, to the extent relating to any continued service as
such officer, director or member) to the benefit of the indemnification
provisions contained on the date hereof in the Certificate of Incorporation and
By-Laws of the Company (not including any amendments or additions after the date
of execution hereof that limit or narrow, but including any that add to or
broaden, the protection afforded to the Executive by those provisions), to the
extent not prohibited by applicable law at the time of the assertion of any
liability against the Executive.
13. MISCELLANEOUS. (a) This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Connecticut, applicable to
agreements made and to be performed entirely within such state. 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 except by a written
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agreement executed by the parties hereto or their respective successors and
legal representatives.
(b) All notices and other communications under this Agreement 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 home address as listed in the Company's records]
If to the Company:
Dictaphone Corporation
3191 Broadbridge Avenue
Stratford, CT 06614-2559
Attention: General Counsel
or to such other address as either party furnishes to the other in writing in
accordance with this Section 13(b). Notices 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. If any provision of this Agreement shall be held invalid or
unenforceable in part, the remaining portion of such provision, together with
all other provisions of this Agreement, shall remain valid and enforceable and
continue in full force and effect to the fullest extent consistent with law, and
the invalid or unenforceable provision shall be deemed to have been redrafted as
if in the original, so as to be valid and enforceable to the maximum extent
permissible under applicable law.
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(d) Notwithstanding any other provision of this Agreement, the Company
may withhold from amounts payable under this Agreement all federal, state, local
and foreign taxes that are required to be withheld by applicable laws or
regulations.
(e) The failure of the Executive or the Company to insist upon strict
compliance with any provision of, or to assert any right under, this Agreement
shall not be deemed to be a waiver of such provision or right or of any other
provision of or right under this Agreement.
(f) The Executive and the Company acknowledge that this Agreement
represents the complete agreement between the parties and supersedes any other
agreement (including prior severance agreements) between them concerning the
subject matter hereof. This Agreement may not be modified except by express
written agreement between the parties.
(g) This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original, and which together shall constitute one
instrument.
(h) Whenever this Agreement provides for any payment to the
Executive's estate, such payment may be made instead to such beneficiary or
beneficiaries as the Executive may designate by written notice to the Company.
The Executive shall have the right to revoke any such designation and to
redesignate a beneficiary or beneficiaries by written notice to the Company (and
to any applicable insurance company) to such effect.
(i) The Executive represents and warrants to the Company that this
Agreement is legal, valid and binding upon the Executive and the execution of
this Agreement and the performance of the Executive's obligations hereunder does
not and will not constitute a breach of, or conflict with the terms or
provisions of, any agreement or understanding to which the Executive is a party
(including, without limitation, any other employment agreement). The Company
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represents and warrants to the Executive that this Agreement is legal, valid and
binding upon the Company and the execution of this Agreement and the performance
of the Company's obligations hereunder does not and will not constitute a breach
of, or conflict with the terms or provisions of, any agreement or understanding
to which the Company is a party.
(j) Neither the Executive, his legal representative nor any
beneficiary designated by the Executive shall have any right, without the prior
written consent of the Company, to assign, transfer, pledge, hypothecate,
anticipate or commute to any person or entity any payment due in the future
pursuant to any provision of this Agreement, and any attempt to do so shall be
void and shall not be recognized by the Company.
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IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and
the Company has caused this Agreement to be executed in its name on its behalf,
all as of the day and year first above written.
Dictaphone Corporation
By:/s/ John H. Duerden
____________________________
Printed Name: John H. Duerden
Title: Chief Executive Officer
/s/ Daniel P. Hart
_______________________________
Daniel P. Hart
22
EXHIBIT 10.23
EMPLOYMENT AGREEMENT
AGREEMENT by and between Dictaphone Corporation, a Delaware
corporation (the "Company"), and Joseph Skrzypczak (the "Executive"), dated as
of the 1st day of June, 1999.
WHEREAS, the Executive is currently employed by the Company in an
executive position of importance to the business and prospects of the Company;
and
WHEREAS, the Company has determined that it is in the best interests
of the Company and its shareholders to secure the services of the Executive on a
full-time basis in the position, and for the period set forth below, and the
Executive desires to continue to serve in such capacity.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. EMPLOYMENT PERIOD. The Company shall employ the Executive, and the
Executive shall serve the Company, on the terms and conditions set forth in this
Agreement, for the period commencing on June 1, 1999, and ending on May 31, 2001
(the "Employment Period"). The Employment Period may be renewed as provided in
Section 11 hereof.
2. POSITION AND DUTIES. (a) The Executive shall serve as Chief
Operating Officer of the Company, reporting to the Chief Executive Officer of
the Company, with such duties and responsibilities as are customarily assigned
to such position, and such other duties and responsibilities not inconsistent
therewith as may be assigned to the Executive from time to time by the Company.
(b) The Executive's services shall be performed at the Company's
headquarters in Stratford, Connecticut, subject to such business travel as may
be required from time to time.
<PAGE>
3. COMPENSATION. (a) BASE SALARY. During the Employment Period, the
Executive shall receive a base salary (the "Annual Base Salary") at the annual
rate of $335,000. The Annual Base Salary shall be payable in accordance with the
Company's payroll practices as in effect from time to time, subject to
applicable taxes and withholding. During the Employment Period, the Annual Base
Salary shall be reviewed for possible merit increases at least annually, on or
about December 1. Any increase in the Annual Base Salary shall not limit or
reduce any other obligation of the Company under this Agreement. The Annual Base
Salary shall not be reduced after any such increase, and the term "Annual Base
Salary" shall thereafter refer to the Annual Base Salary as so increased.
(b) ANNUAL BONUS. In addition to the Annual Base Salary, for each
calendar year or portion of a calendar year during the Employment Period, the
Executive shall be eligible to earn an annual performance bonus (the "Annual
Bonus") pursuant to the Company's management incentive bonus programs, as in
effect from time to time. In the event of a "Change of Control" (as defined
herein), the Annual Bonus shall be paid immediately to Executive on a pro-rated
basis as calculated pursuant to the formula set forth in Section 5(a)(i)(A)(2)
hereof.
(c) BENEFITS. During the Employment Period: (i) the Executive
shall be entitled to participate in all stock incentive, savings and retirement
plans, practices, policies and programs of the Company to the same extent as
made available to other key executives as a group; and (ii) 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, all welfare benefit plans, practices,
policies and programs provided by the Company (including, without limitation,
medical, prescription, dental, disability, salary continuance, employee life
insurance, group life insurance, accidental death and travel accident insurance
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plans and programs) to the same extent as made available to other key executives
as a group.
(d) FRINGE BENEFITS. During the Employment Period, the Executive
shall be entitled to paid vacation, car allowance (not less than is in effect as
of the date hereof) and such other benefits as shall be made available to other
key executives as a group from time to time. In addition, during the term of the
Employment Period, the Company shall procure and maintain term life insurance in
the amount of One Million ($1,000,000) dollars for Executive, payable to the
Executive's designated beneficiary.
4. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The Executive's
employment shall terminate automatically upon the Executive's death during the
Employment Period. The Company shall be entitled to terminate the Executive's
employment because of the Executive's "Disability" (as herein defined) during
the Employment Period. "Disability" means that (i) the Executive has been
unable, for a period of six (6) months, or for a total of 180 days in any given
period of twelve (12) months, to perform the Executive's duties under this
Agreement, as a result of physical or mental illness or injury, and (ii) a
physician selected by the Company or its insurers, has determined that the
Executive's incapacity is total and permanent. A termination of the Executive's
employment by the Company for Disability shall be communicated to the Executive
by written notice, and shall be effective on the 30th day after receipt of such
notice by the Executive (the "Disability Effective Date"), unless the Executive
is able to, and does, return to full-time performance of the Executive's duties
before the Disability Effective Date.
(b) BY THE COMPANY. (i) The Company may terminate the Executive's
employment during the Employment Period for Cause or without Cause. "Cause"
means:
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A. (i) the repeated failure or refusal of the Executive to
perform the Executive's material duties or responsibilities under this Agreement
(other than as a result of physical or mental illness or injury) or (ii) the
engaging by the Executive in gross misconduct or dishonesty that is materially
injurious to the Company; PROVIDED THAT in the case of conduct covered by
subclause (i) the Company shall give written notice to the Executive at least
ninety (90) days prior to such termination of the Company's intent to terminate,
which notice shall set out in detail the ways in which Executive has failed to
perform such duties and/or responsibilities, and Executive shall have failed to
cure such failure prior to the expiration of such 90-day period;
B. any fraud, embezzlement or other dishonesty or breach of
business ethics by the Executive that could likely adversely affect the
Company's business or reputation;
C. the Executive's conviction of a felony or entering into a
plea of nolo contendere with respect to a felony; or
D. failure by the Executive to provide sixty (60) days
advance written notice of resignation (other than in connection with a
termination as a result of "Good Reason" (as hereinafter defined)).
(ii) A termination of employment by the Company for Cause
shall be effectuated by giving the Executive written notice ("Notice of
Termination for Cause") of the termination, setting forth the conduct of the
Executive that constitutes Cause. Except as provided in subclause A of Section
4(b)(i) above, a termination of employment by the Company for Cause shall be
effective on the date when the Notice of Termination for Cause is given, unless
the notice sets forth a later date (which date shall in no event be later than
thirty (30) days after the notice is given).
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(iii) A termination of the Executive's employment by the
Company without Cause shall be effected by giving the Executive written notice
of the termination.
(c) BY THE EXECUTIVE FOR GOOD REASON. (i) For purposes of this
Agreement, "Good Reason" means:
A. the assignment to the Executive of any duties and/or
responsibilities inconsistent in any respect with paragraph (a) of Section 2 of
this Agreement (including but not limited to a material reduction in
responsibilities, rank or reporting relationship), other than actions that are
not taken in bad faith and are remedied by the Company within twenty (20)
business days after receipt of written notice thereof from the Executive,
provided however that, notwithstanding the foregoing, the appointment by the
Company of a Chief Financial Officer or a Chief Technical/Engineering Officer,
and the assignment to such individuals of duties customarily associated with
such positions, shall not be deemed to be "Good Reason" hereunder;
B. any failure by the Company to comply with any provision
of Section 3 of this Agreement, other than failures that are not taken in bad
faith and are remedied by the Company within twenty (20) business days after
receipt of written notice thereof from the Executive;
C. any failure by the Company to comply with Section 10(c)
of this Agreement;
D. the Company's requiring the Executive to be based at any
office or location more than a reasonable commuting distance from the Company's
executive headquarters as of the date hereof; or
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E. following the occurrence of a "Change of Control" of the
Company (as defined below) (i) the occurrence, within two (2) years of the date
of the Change of Control, of any event that would otherwise constitute "Good
Reason" within the provisions of Section 4(c)(A)-(D) hereof, or (ii) a
termination by the Executive, at the Executive's own initiative, for any reason
during the four (4) month period immediately following the first twelve (12)
month period following the date of the Change of Control. For purposes of this
Agreement, "Change of Control" means the happening of any of the following
events:
(1) An acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 40% or more of either (A) the then outstanding shares
of common stock of the Company (the "Outstanding Company Common Stock") or (B)
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"); excluding, however, the following: (A)
any acquisition directly from the Company, other than an acquisition by virtue
of the exercise of a conversion privilege unless the security being so converted
was itself acquired directly from the Company, (B) any acquisition by the
Company, (C) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by the
Company or (D) any acquisition by any Person pursuant to a transaction which
complies with clauses (A), (B) and (C) of subsection (3) of this Section 4(c);
or
(2) A change in the composition of the Board such that
the individuals who, as of the first day of the Employment Period, constitute
the Board (such Board shall be hereinafter referred to as the "Incumbent Board")
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cease for any reason to constitute at least a majority of the Board; PROVIDED,
HOWEVER, for purposes of this Section 4(c), that any individual who becomes a
member of the Board subsequent to such date, whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of those individuals who are members of the Board and who were also
members of the Incumbent Board (or deemed to be such pursuant to this proviso)
shall be considered as though such individual were a member of the Incumbent
Board; PROVIDED FURTHER, however, that any such individual whose initial
assumption of office occurs as a result of either an actual or threatened
election contest (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the Board shall
not be so considered as a member of the Incumbent Board; or
(3) The approval by the shareholders of the Company of
a reorganization, merger or consolidation or sale or other disposition of all or
substantially all of the assets of the Company ("Corporate Transaction");
excluding, however, such a Corporate Transaction pursuant to which (A) all or
substantially all of the individuals and entities who are the beneficial owners,
respectively, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities immediately prior to such Corporate Transaction will
beneficially own, directly or indirectly, more than 50% of, respectively, the
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 Corporate
Transaction (including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the Company's
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assets either directly or through one or more subsidiaries) in substantially the
same proportions as their ownership, immediately prior to such Corporate
Transaction, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (B) no Person (other than the Company,
any employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company or such corporation
resulting from such Corporate Transaction) will beneficially own, directly or
indirectly, 20% or more of, respectively, the outstanding shares of common stock
of the corporation resulting from such Corporate Transaction or the combined
voting power of the outstanding voting securities of such corporation entitled
to vote generally in the election of directors except to the extent that such
ownership existed with respect to the Company prior to the Corporate Transaction
and (C) individuals who were members of the Incumbent Board will constitute at
least a majority of the members of the board of directors of the corporation
resulting from such Corporate Transaction; or
(4) The sale or spin-off of any of the Company's
divisions or operations which in part, or in the aggregate, generated at least
30% of the Company's most recent annual revenues; or
(5) The approval by the shareholders of the Company of
a complete liquidation or dissolution of the Company; or
(6) Stonington Capital Appreciation 1994 Fund, L.P.
ceases to beneficially control or own more than 50% of the Outstanding Company
Common Stock (other than as a result of (i) sales of Company Common Stock to the
public by the Company or Stonington or (ii) distributions by Stonington to its
partners).
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(ii) A termination of employment by the Executive for Good
Reason shall be effectuated by giving the Company written notice ("Notice of
Termination for Good Reason") of the termination, setting forth the conduct of
the Company that constitutes Good Reason. Such Notice of Termination for Good
Reason may be given by Executive not later than one hundred fifty (150) days
(four (4) months in the event of Change of Control) following the circumstance
giving rise to a "Good Reason" termination right hereunder. A termination of
employment by the Executive for Good Reason shall be effective on the thirtieth
(30th) business day following the date when the Notice of Termination for Good
Reason is given, unless the notice sets forth a later date (which date shall in
no event be later than thirty (30) days after the notice is given).
(d) NO WAIVER. The failure to set forth any fact or circumstance
in a Notice of Termination for Cause or a Notice of Termination for Good Reason
shall not constitute a waiver of the right to assert, and shall not preclude the
party giving notice from asserting, such fact or circumstance in an attempt to
enforce any right under or provision of this Agreement.
(e) DATE OF TERMINATION. The "Date of Termination" means the date
of the Executive's death, the Disability Effective Date, the date on which the
termination of the Executive's employment by the Company for Cause or by the
Executive for Good Reason is effective, or the date on which the Company gives
the Executive notice of a termination of employment without Cause or the
Executive gives the Company notice of a termination of employment without Good
Reason, as the case may be.
5. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) OTHER THAN FOR
CAUSE OR DEATH; GOOD REASON. If, during the Employment Period, the Company
terminates the Executive's employment, other than for Cause, or the Executive
terminates his employment for Good Reason, the Company shall pay the amounts,
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and continue the benefits described, in subparagraph (i) below to the Executive.
The payments provided pursuant to this Section 5(a) are intended as severance
payments for a termination of the Executive's employment by the Company other
than for Cause or for the actions of the Company leading to a termination of the
Executive's employment by the Executive for Good Reason and shall be the sole
and exclusive remedy therefor; PROVIDED FURTHER that as a condition precedent
for such payments the Executive shall execute and deliver a general release of
all claims (other than any claims or rights pursuant to stockholders agreements,
stock option incentive and other benefit plans, as provided in Section 6 hereof)
against the Company, in form and substance satisfactory to the Company.
(i) The amounts to be paid as described above are:
A. The Executive's earned and accrued but unpaid cash
compensation, in the form of a lump-sum payment, to be paid within thirty (30)
days after the Date of Termination, which shall equal the sum of (1) any portion
of the Executive's Annual Base Salary earned through the Date of Termination
that has not yet been paid, (2) an amount equal to the Annual Bonus that would
have been paid for the fiscal year in which the Date of Termination occurs,
calculated as if all goals had been achieved at the expected level (the "Annual
Bonus Amount"), times 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; (3) any compensation previously deferred by the Executive
pursuant to this Agreement or otherwise that has not yet been paid, and the
immediate payment of which is otherwise permitted by applicable plan documents;
and (4) any accrued but unpaid Annual Bonuses and vacation pay (the amounts set
forth in subclauses (1)-(4) constitute the "Accrued Obligations"); and
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B. (I) In the event that such termination is effective prior
to the occurrence of a Change of Control, a payment payable in equal amounts in
accordance with the Company's standard payroll practices over a twenty-four (24)
month period of an amount equal to the product of (x) two (2) times (y) the sum
of (a) the Annual Base Salary and annual car allowance as of the Date of
Termination (the "Final Base Salary") and (b) an amount equal to thirty (30%)
percent of the Final Base Salary;
(II) In the event that such termination is effective at
any time following the occurrence of a Change of Control (or in connection with
a Change of Control), a payment payable in equal amounts in accordance with the
Company's standard payroll practices over a twenty-four (24) month of an amount
equal to the product of (x) three (3) times (y) the sum of (a) the Final Base
Salary and (b) an amount equal to the higher of (w) fifty (50%) percent of Final
Base Salary and (z) a percentage of Final Base Salary equal to the highest
percentage Annual Bonus paid to, or earned by, the Executive during any of three
(3) years immediately prior to the Date of Termination.
C. The benefits to be continued are benefits to the
Executive and/or the Executive's family at least as favorable as those that
would have been provided to them under Section 3(c) of this Agreement if the
Executive's employment had continued through the end of the Employment Period or
for two years, whichever is greater; PROVIDED, HOWEVER, that during any period
when the Executive is eligible to receive such benefits under another
employer-provided plan, the benefits provided by the Company under this Section
5(a)(c) may be made secondary to those provided under such other plan.
D. 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 the Executive's sole discretion, but
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the cost thereof shall not exceed $40,000 in any nine (9) month period; provided
that the Executive may elect, upon prior written notice to the Company, to
receive a lump-sum payment of $40,000 subject to applicable taxes and
withholding, in lieu of outplacement services hereunder.
E. 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, the Company shall pay the
Accrued Obligations to the Executive or the Executive's estate or legal
representative, as applicable, in a lump-sum payment (subject to applicable
taxes and withholding) within thirty (30) days after the Date of Termination,
and the Company shall have no further obligations under this Agreement. If
Executive's employment is terminated by reason of Disability, Executive shall be
entitled to receive disability benefits at the expiration of the severance
payments, to the extent available under the Company's benefit plans; in the
event of conflict between the severance benefits hereunder and long-term
disability benefits payable under the Company's plans, Executive shall have the
right to choose between them if such benefits are mutually exclusive.
(c) CAUSE; OTHER THAN FOR GOOD REASON. If the Executive's
employment is terminated by the Company for Cause during the Employment Period,
or if the Executive terminates his employment during the Employment Period other
than for Good Reason, the Company shall pay the Executive, in a lump-sum payment
(subject to applicable taxes and withholding) within thirty (30) days of the
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Date of Termination, any earned and unpaid Annual Base Salary through the Date
of Termination, and the Company shall have no further obligations under this
Agreement.
6. NON-EXCLUSIVITY 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 for which the Executive may qualify, nor shall anything in this
Agreement 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.
Vested benefits and other amounts that 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 on or after the
Date of Termination shall be payable in accordance with such plan, policy,
practice, program, contract or agreement, as the case may be, except as
explicitly modified by this Agreement.
7. NO MITIGATION. In no event shall the Executive be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this Agreement and,
except as specifically provided in this Agreement, such amounts shall not be
reduced, regardless of whether the Executive obtains other employment.
8. CONFIDENTIAL INFORMATION; NONCOMPETITION. The Executive
acknowledges that his employment by the Company will, throughout the term of
employment, bring him into close contact with many confidential affairs of the
Company, including information about costs, profits, markets, sales, products,
key personnel, pricing policies, operational methods, technical processes and
other business affairs and methods and other information not readily available
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to the public, and plans for future development. The Executive further
acknowledges that the services to be performed under this Agreement are of a
special, unique, unusual, extraordinary and intellectual character. The
Executive further acknowledges that the business of the Company is international
in scope, that its products are marketed throughout the world, that the Company
competes in nearly all of its business activities with other entities that are
or could be located in nearly any part of the world and that the nature of the
Executive's services, position and expertise are such that he is capable of
competing with the Company from nearly any location in the world. In recognition
of the foregoing, the Executive covenants and agrees:
(a) The Executive, at all times during the Employment Period and
thereafter, shall hold in a fiduciary capacity for the benefit of the Company
all secret, trade, proprietary or confidential information, knowledge or data
relating to the Company or any of its affiliated companies and shareholders, and
their respective businesses, that the Executive obtains during the Executive's
employment by the Company or any of its affiliated companies and that is not
public knowledge (other than as a result of the Executive's violation of this
Section 8(a)) ("Confidential Information"). The Executive shall not communicate,
divulge or disseminate Confidential Information at any time during or after the
Executive's employment with the Company, except with the prior written consent
of the Company or as otherwise required by law or legal process. The Executive
shall deliver promptly to the Company on termination of the Executive's
employment by the Company, or at any other time the Company may so request, at
the Company's expense, all memoranda, notes, records, reports and other
documents (and all copies thereof) relating to the Company's business, which the
Executive obtained while employed by, or otherwise serving or acting on behalf
of, the Company and which the Executive may then posses or have under the
Executive's control.
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(b) During the "Noncompetition Period," the Executive shall not,
without the prior written consent of the Board, engage in or become associated
with a "Competitive Activity." For purposes of this Section 8(b): (i) the
"Noncompetition Period" means the period commencing on the first date upon which
the Executive is employed by the Company, and ending on the two-year anniversary
of the date upon which Executive's employment with the Company is terminated for
any reason; (ii) a "Competitive Activity" means any business or other endeavor
that engages in any line of business in any geographic location that is
substantially the same as either (i) any line of operating business which the
Company engages in, conducts, or, to the knowledge of the Executive, has
definitive plans to engage in or conduct, or (ii) any operating business that is
engaged in or conducted by the Company and as to which, to the knowledge of the
Executive, the Company covenants in writing, in connection with the disposition
of such business, not to compete therewith; and (iii) the Executive shall be
considered to have become "associated with a Competitive Activity" if the
Executive becomes directly or indirectly involved as an owner, investor,
employee, officer, director, consultant, independent contractor, agent, partner,
advisor, or in any other capacity calling for the rendition of the Executive's
personal services, with any individual, partnership, corporation or other
organization that is engaged in a Competitive Activity. Notwithstanding the
foregoing, the Executive may make and retain investments during the Employment
Period, and thereafter, in not more than five percent of the equity of any
publicly traded entity engaged in a Competitive Activity, if such equity is
listed on a national securities exchange or regularly traded in an
over-the-counter market.
(c) During the Noncompetition Period, the Executive shall not, on
his or her own behalf or on behalf of any other person, firm or entity (x)
directly or indirectly solicit, induce or attempt to solicit or induce any
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employee of the Company to terminate his or her employment with the Company, or
to provide any assistance whatsoever to any person, firm or entity engaged in a
Competitive Activity, or (y) employ, or cause any business or entity with which
Executive is affiliated to employ, any person who was a full-time executive
employee of the Company at the Executive's Date of Termination or six (6) months
prior to such date.
(d) In addition to such other rights and remedies as the Company
may have at equity or in law with respect to any breach of this Agreement, if
the Executive commits a material breach of any of the provisions of Section 8,
the Company shall have the right and remedy to have such provisions specifically
enforced by any court having equity jurisdiction; it being acknowledged and
agreed that any such breach or threatened breach will cause irreparable injury
to the Company and that money damages alone will not provide an adequate remedy
to the Company.
(e) If the Executive commits a material breach of the provisions
of Section 8, the Company shall be entitled to offset any amounts owed by the
Executive to the Company under this Section 8 against any amounts owed by the
Company to the Executive under any provision of this Agreement or otherwise.
(f) The Executive acknowledges and agrees that the provisions of
this Section 8 are necessary to protect the business operations and affairs of
the Company, and will not restrict the ability of the Executive to secure
meaningful employment opportunities following any termination of employment
hereunder.
9. ARBITRATION; ATTORNEYS' FEES. Any dispute or controversy arising
under or in connection with this Agreement shall be settled exclusively by
arbitration in the State of Connecticut, in accordance with the rules of the
Commercial Panel of the American Arbitration Association ("AAA") then in effect,
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and judgment may be entered on the arbitrator's award in any court having
jurisdiction. The costs of the arbitration shall be borne as determined by the
arbitrator; PROVIDED, HOWEVER, that if the Company's position is not
substantially upheld, as determined by the arbitrator, the reasonable expenses
of Executive (including fees and expenses payable to the AAA and the arbitrator,
fees and expenses payable to witnesses, including expert witness fees, and
expenses payable to attorneys and other professionals, costs in connection with
obtaining and presenting evidence and costs of the transcription of the
proceedings), as determined by the arbitrator, shall be reimbursed to him by the
Company. Nothing in this Section shall limit the right of the Company to seek
injunctive relief in any federal or state court or take any other remedial or
enforcement measures in any federal or state court in connection with any breach
(or alleged breach) by the Executive of Section 8 of this Agreement.
10. 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 (including post-termination payment obligations) shall inure to the
benefit of and be enforceable by the Executive's heirs (in the event of
Executive's death), and legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors (by operation of law or otherwise) and
assigns, and may be assigned by Company in connection with any sale, transfer or
other disposition of all or substantially all of its business and assets.
(c) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company expressly to
assume and agree to perform this Agreement in the same manner and to the same
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extent that the Company would have been required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean both
the Company as defined above and any such successor that assumes and agrees to
perform this Agreement, by operation of law or otherwise.
11. RENEWAL OF AGREEMENT. If, not less than one hundred and twenty
(120) days prior to the expiration of the Employment Period, the term of
employment shall not have been previously terminated pursuant to the provisions
of this Agreement (whether as a result of a termination by the Executive for
Good Reason or otherwise), then the Employment Period shall be automatically
renewed for an additional two (2) year period on the terms and conditions set
forth in this Agreement.
12. INDEMNIFICATION. The Executive shall be entitled throughout the
Employment Period in the capacity as an officer or director of the Company or
any of its subsidiaries, or as a member of any other governing body or any
partnership or joint venture in which the Company has an equity interest (and
after the term of employment, to the extent relating to any continued service as
such officer, director or member) to the benefit of the indemnification
provisions contained on the date hereof in the Certificate of Incorporation and
By-Laws of the Company (not including any amendments or additions after the date
of execution hereof that limit or narrow, but including any that add to or
broaden, the protection afforded to the Executive by those provisions), to the
extent not prohibited by applicable law at the time of the assertion of any
liability against the Executive.
13. MISCELLANEOUS. (a) This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Connecticut, applicable
to agreements made and to be performed entirely within such state. The captions
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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 except by a written
agreement executed by the parties hereto or their respective successors and
legal representatives.
(b) All notices and other communications under this Agreement
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 home address as listed in the Company's records]
If to the Company:
Dictaphone Corporation
3191 Broadbridge Avenue
Stratford, CT 06614-2559
Attention: General Counsel
or to such other address as either party furnishes to the other in writing in
accordance with this Section 13(b). Notices 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. If any provision of this Agreement shall be held invalid or
unenforceable in part, the remaining portion of such provision, together with
all other provisions of this Agreement, shall remain valid and enforceable and
continue in full force and effect to the fullest extent consistent with law, and
the invalid or unenforceable provision shall be deemed to have been redrafted as
if in the original, so as to be valid and enforceable to the maximum extent
permissible under applicable law.
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(d) Notwithstanding any other provision of this Agreement, the
Company may withhold from amounts payable under this Agreement all federal,
state, local and foreign taxes that are required to be withheld by applicable
laws or regulations.
(e) The failure of the Executive or the Company to insist upon
strict compliance with any provision of, or to assert any right under, this
Agreement shall not be deemed to be a waiver of such provision or right or of
any other provision of or right under this Agreement.
(f) The Executive and the Company acknowledge that this Agreement
represents the complete agreement between the parties and supersedes any other
agreement (including prior severance agreements) between them concerning the
subject matter hereof. This Agreement may not be modified except by express
written agreement between the parties.
(g) This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, and which together shall constitute
one instrument.
(h) Whenever this Agreement provides for any payment to the
Executive's estate, such payment may be made instead to such beneficiary or
beneficiaries as the Executive may designate by written notice to the Company.
The Executive shall have the right to revoke any such designation and to
redesignate a beneficiary or beneficiaries by written notice to the Company (and
to any applicable insurance company) to such effect.
(i) The Executive represents and warrants to the Company that
this Agreement is legal, valid and binding upon the Executive and the execution
of this Agreement and the performance of the Executive's obligations hereunder
does not and will not constitute a breach of, or conflict with the terms or
provisions of, any agreement or understanding to which the Executive is a party
(including, without limitation, any other employment agreement). The Company
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represents and warrants to the Executive that this Agreement is legal, valid and
binding upon the Company and the execution of this Agreement and the performance
of the Company's obligations hereunder does not and will not constitute a breach
of, or conflict with the terms or provisions of, any agreement or understanding
to which the Company is a party.
(j) Neither the Executive, his legal representative nor any
beneficiary designated by the Executive shall have any right, without the prior
written consent of the Company, to assign, transfer, pledge, hypothecate,
anticipate or commute to any person or entity any payment due in the future
pursuant to any provision of this Agreement, and any attempt to do so shall be
void and shall not be recognized by the Company.
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IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and the Company has caused this Agreement to be executed in its name on its
behalf, all as of the day and year first above written.
Dictaphone Corporation
By: /s/ John H. Duerden
___________________________
Printed Name: John H. Duerden
Title: Chief Executive Officer
/s/ Joseph Skrzypczak
______________________________
Joseph Skrzypczak
22
EXHIBIT 10.24
EMPLOYMENT AGREEMENT
AGREEMENT by and between Dictaphone Corporation, a Delaware corporation
(the "Company"), and Ronald Elwell (the "Executive"), dated as of the 1st day of
June, 1999.
WHEREAS, the Executive is currently employed by the Company in an executive
position of importance to the business and prospects of the Company; and
WHEREAS, the Company has determined that it is in the best interests of the
Company and its shareholders to secure the services of the Executive on a
full-time basis in the position, and for the period set forth below, and the
Executive desires to continue to serve in such capacity.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. EMPLOYMENT PERIOD. The Company shall employ the Executive, and the
Executive shall serve the Company, on the terms and conditions set forth in this
Agreement, for the period commencing on June 1, 1999, and ending on May 31, 2001
(the "Employment Period"). The Employment Period may be renewed as provided in
Section 11 hereof.
2. POSITION AND DUTIES. (a) The Executive shall serve as Senior Vice
President and General Manager - Communications Recording Systems of the Company,
reporting to the Chief Operating Officer of the Company, with such duties and
responsibilities as are customarily assigned to such position, and such other
duties and responsibilities not inconsistent therewith as may be assigned to the
Executive from time to time by the Company.
(b) The Executive's services shall be performed at the Company's
headquarters in Stratford, Connecticut, subject to such business travel as may
be required from time to time.
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3. COMPENSATION. (a) BASE SALARY. During the Employment Period, the
Executive shall receive a base salary (the "Annual Base Salary") at the annual
rate of $275,000. The Annual Base Salary shall be payable in accordance with the
Company's payroll practices as in effect from time to time, subject to
applicable taxes and withholding. During the Employment Period, the Annual Base
Salary shall be reviewed for possible merit increases at least annually, on or
about December 1. Any increase in the Annual Base Salary shall not limit or
reduce any other obligation of the Company under this Agreement. The Annual Base
Salary shall not be reduced after any such increase, and the term "Annual Base
Salary" shall thereafter refer to the Annual Base Salary as so increased.
(b) ANNUAL BONUS. In addition to the Annual Base Salary, for each
calendar year or portion of a calendar year during the Employment Period, the
Executive shall be eligible to earn an annual performance bonus (the "Annual
Bonus") pursuant to the Company's management incentive bonus programs, as in
effect from time to time. In the event of a "Change of Control" (as defined
herein), the Annual Bonus shall be paid immediately to Executive on a pro-rated
basis as calculated pursuant to the formula set forth in Section 5(a)(i)(A)(2)
hereof.
(c) BENEFITS. During the Employment Period: (i) the Executive shall be
entitled to participate in all stock incentive, savings and retirement plans,
practices, policies and programs of the Company to the same extent as made
available to other key executives as a group; and (ii) 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, all welfare benefit plans, practices,
policies and programs provided by the Company (including, without limitation,
medical, prescription, dental, disability, salary continuance, employee life
insurance, group life insurance, accidental death and travel accident insurance
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plans and programs) to the same extent as made available to other key executives
as a group.
(d) FRINGE BENEFITS. During the Employment Period, the Executive shall
be entitled to paid vacation, car allowance (not less than is in effect as of
the date hereof) and such other benefits as shall be made available to other key
executives as a group from time to time. In addition, during the term of the
Employment Period, the Company shall procure and maintain term life insurance in
the amount of One Million ($1,000,000) dollars for Executive, payable to the
Executive's designated beneficiary.
4. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The Executive's
employment shall terminate automatically upon the Executive's death during the
Employment Period. The Company shall be entitled to terminate the Executive's
employment because of the Executive's "Disability" (as herein defined) during
the Employment Period. "Disability" means that (i) the Executive has been
unable, for a period of six (6) months, or for a total of 180 days in any given
period of twelve (12) months, to perform the Executive's duties under this
Agreement, as a result of physical or mental illness or injury, and (ii) a
physician selected by the Company or its insurers, has determined that the
Executive's incapacity is total and permanent. A termination of the Executive's
employment by the Company for Disability shall be communicated to the Executive
by written notice, and shall be effective on the 30th day after receipt of such
notice by the Executive (the "Disability Effective Date"), unless the Executive
is able to, and does, return to full-time performance of the Executive's duties
before the Disability Effective Date.
(b) BY THE COMPANY. (i) The Company may terminate the Executive's
employment during the Employment Period for Cause or without Cause. "Cause"
means:
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A. (i) the repeated failure or refusal of the Executive to
perform the Executive's material duties or responsibilities under this Agreement
(other than as a result of physical or mental illness or injury) or (ii) the
engaging by the Executive in gross misconduct or dishonesty that is materially
injurious to the Company; PROVIDED THAT in the case of conduct covered by
subclause (i) the Company shall give written notice to the Executive at least
ninety (90) days prior to such termination of the Company's intent to terminate,
which notice shall set out in detail the ways in which Executive has failed to
perform such duties and/or responsibilities, and Executive shall have failed to
cure such failure prior to the expiration of such 90-day period;
B. any fraud, embezzlement or other dishonesty or breach of
business ethics by the Executive that could likely adversely affect the
Company's business or reputation;
C. the Executive's conviction of a felony or entering into a plea
of nolo contendere with respect to a felony; or
D. failure by the Executive to provide sixty (60) days advance
written notice of resignation (other than in connection with a termination as a
result of "Good Reason" (as hereinafter defined)).
(ii) A termination of employment by the Company for Cause shall
be effectuated by giving the Executive written notice ("Notice of Termination
for Cause") of the termination, setting forth the conduct of the Executive that
constitutes Cause. Except as provided in subclause A of Section 4(b)(i) above, a
termination of employment by the Company for Cause shall be effective on the
date when the Notice of Termination for Cause is given, unless the notice sets
forth a later date (which date shall in no event be later than thirty (30) days
after the notice is given).
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(iii) A termination of the Executive's employment by the Company
without Cause shall be effected by giving the Executive written notice of the
termination.
(c) BY THE EXECUTIVE FOR GOOD REASON. (i) For purposes of this
Agreement, "Good Reason" means:
A. the assignment to the Executive of any duties and/or
responsibilities inconsistent in any respect with paragraph (a) of Section 2 of
this Agreement (including but not limited to a material reduction in
responsibilities, rank or reporting relationship), other than actions that are
not taken in bad faith and are remedied by the Company within twenty (20)
business days after receipt of written notice thereof from the Executive,
provided however that, notwithstanding the foregoing, the appointment by the
Company of a Chief Financial Officer or a Chief Technical/Engineering Officer,
and the assignment to such individuals of duties customarily associated with
such positions, shall not be deemed to be "Good Reason" hereunder;
B. any failure by the Company to comply with any provision
of Section 3 of this Agreement, other than failures that are not taken in bad
faith and are remedied by the Company within twenty (20) business days after
receipt of written notice thereof from the Executive;
C. any failure by the Company to comply with Section 10(c)
of this Agreement;
D. the Company's requiring the Executive to be based at any
office or location more than a reasonable commuting distance from the Company's
executive headquarters as of the date hereof; or
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E. following the occurrence of a "Change of Control" of the
Company (as defined below) (i) the occurrence, within two (2) years of the date
of the Change of Control, of any event that would otherwise constitute "Good
Reason" within the provisions of Section 4(c)(A)-(D) hereof, or (ii) a
termination by the Executive, at the Executive's own initiative, for any reason
during the four (4) month period immediately following the first twelve (12)
month period following the date of the Change of Control. For purposes of this
Agreement, "Change of Control" means the happening of any of the following
events:
(1) An acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 40% or more of either (A) the then outstanding shares
of common stock of the Company (the "Outstanding Company Common Stock") or (B)
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"); excluding, however, the following: (A)
any acquisition directly from the Company, other than an acquisition by virtue
of the exercise of a conversion privilege unless the security being so converted
was itself acquired directly from the Company, (B) any acquisition by the
Company, (C) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by the
Company or (D) any acquisition by any Person pursuant to a transaction which
complies with clauses (A), (B) and (C) of subsection (3) of this Section 4(c);
or
(2) A change in the composition of the Board such that
the individuals who, as of the first day of the Employment Period, constitute
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the Board (such Board shall be hereinafter referred to as the "Incumbent Board")
cease for any reason to constitute at least a majority of the Board; PROVIDED,
HOWEVER, for purposes of this Section 4(c), that any individual who becomes a
member of the Board subsequent to such date, whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of those individuals who are members of the Board and who were also
members of the Incumbent Board (or deemed to be such pursuant to this proviso)
shall be considered as though such individual were a member of the Incumbent
Board; PROVIDED FURTHER, however, that any such individual whose initial
assumption of office occurs as a result of either an actual or threatened
election contest (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the Board shall
not be so considered as a member of the Incumbent Board; or
(3) The approval by the shareholders of the Company of
a reorganization, merger or consolidation or sale or other disposition of all or
substantially all of the assets of the Company ("Corporate Transaction");
excluding, however, such a Corporate Transaction pursuant to which (A) all or
substantially all of the individuals and entities who are the beneficial owners,
respectively, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities immediately prior to such Corporate Transaction will
beneficially own, directly or indirectly, more than 50% of, respectively, the
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 Corporate
Transaction (including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the Company's
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assets either directly or through one or more subsidiaries) in substantially the
same proportions as their ownership, immediately prior to such Corporate
Transaction, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (B) no Person (other than the Company,
any employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company or such corporation
resulting from such Corporate Transaction) will beneficially own, directly or
indirectly, 20% or more of, respectively, the outstanding shares of common stock
of the corporation resulting from such Corporate Transaction or the combined
voting power of the outstanding voting securities of such corporation entitled
to vote generally in the election of directors except to the extent that such
ownership existed with respect to the Company prior to the Corporate Transaction
and (C) individuals who were members of the Incumbent Board will constitute at
least a majority of the members of the board of directors of the corporation
resulting from such Corporate Transaction; or
(4) The sale or spin-off of any of the Company's
divisions or operations which in part, or in the aggregate, generated at least
30% of the Company's most recent annual revenues; or
(5) The approval by the shareholders of the Company of
a complete liquidation or dissolution of the Company; or
(6) Stonington Capital Appreciation 1994 Fund, L.P.
ceases to beneficially control or own more than 50% of the Outstanding Company
Common Stock (other than as a result of (i) sales of Company Common Stock to the
public by the Company or Stonington or (ii) distributions by Stonington to its
partners).
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(ii) A termination of employment by the Executive for Good Reason
shall be effectuated by giving the Company written notice ("Notice of
Termination for Good Reason") of the termination, setting forth the conduct of
the Company that constitutes Good Reason. Such Notice of Termination for Good
Reason may be given by Executive not later than one hundred fifty (150) days
(four (4) months in the event of Change of Control) following the circumstance
giving rise to a "Good Reason" termination right hereunder. A termination of
employment by the Executive for Good Reason shall be effective on the thirtieth
(30th) business day following the date when the Notice of Termination for Good
Reason is given, unless the notice sets forth a later date (which date shall in
no event be later than thirty (30) days after the notice is given).
(d) NO WAIVER. The failure to set forth any fact or circumstance in a
Notice of Termination for Cause or a Notice of Termination for Good Reason shall
not constitute a waiver of the right to assert, and shall not preclude the party
giving notice from asserting, such fact or circumstance in an attempt to enforce
any right under or provision of this Agreement.
(e) DATE OF TERMINATION. The "Date of Termination" means the date of
the Executive's death, the Disability Effective Date, the date on which the
termination of the Executive's employment by the Company for Cause or by the
Executive for Good Reason is effective, or the date on which the Company gives
the Executive notice of a termination of employment without Cause or the
Executive gives the Company notice of a termination of employment without Good
Reason, as the case may be.
5. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) OTHER THAN FOR CAUSE OR
DEATH; GOOD REASON. If, during the Employment Period, the Company terminates the
Executive's employment, other than for Cause, or the Executive terminates his
employment for Good Reason, the Company shall pay the amounts, and continue the
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benefits described, in subparagraph (i) below to the Executive. The payments
provided pursuant to this Section 5(a) are intended as severance payments for a
termination of the Executive's employment by the Company other than for Cause or
for the actions of the Company leading to a termination of the Executive's
employment by the Executive for Good Reason and shall be the sole and exclusive
remedy therefor; PROVIDED FURTHER that as a condition precedent for such
payments the Executive shall execute and deliver a general release of all claims
(other than any claims or rights pursuant to stockholders agreements, stock
option incentive and other benefit plans, as provided in Section 6 hereof)
against the Company, in form and substance satisfactory to the Company.
(i) The amounts to be paid as described above are:
A. The Executive's earned and accrued but unpaid cash
compensation, in the form of a lump-sum payment, to be paid within thirty (30)
days after the Date of Termination, which shall equal the sum of (1) any portion
of the Executive's Annual Base Salary earned through the Date of Termination
that has not yet been paid, (2) an amount equal to the Annual Bonus that would
have been paid for the fiscal year in which the Date of Termination occurs,
calculated as if all goals had been achieved at the expected level (the "Annual
Bonus Amount"), times 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; (3) any compensation previously deferred by the Executive
pursuant to this Agreement or otherwise that has not yet been paid, and the
immediate payment of which is otherwise permitted by applicable plan documents;
and (4) any accrued but unpaid Annual Bonuses and vacation pay (the amounts set
forth in subclauses (1)-(4) constitute the "Accrued Obligations"); and
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B. (I) In the event that such termination is effective prior to
the occurrence of a Change of Control, a payment payable in equal amounts in
accordance with the Company's standard payroll practices over a twenty-four (24)
month period of an amount equal to the product of (x) two (2) times (y) the sum
of (a) the Annual Base Salary and annual car allowance as of the Date of
Termination (the "Final Base Salary") and (b) an amount equal to thirty (30%)
percent of the Final Base Salary;
(II) In the event that such termination is effective at any
time following the occurrence of a Change of Control (or in connection with a
Change of Control), a payment payable in equal amounts in accordance with the
Company's standard payroll practices over a twenty-four (24) month of an amount
equal to the product of (x) three (3) times (y) the sum of (a) the Final Base
Salary and (b) an amount equal to the higher of (w) fifty (50%) percent of Final
Base Salary and (z) a percentage of Final Base Salary equal to the highest
percentage Annual Bonus paid to, or earned by, the Executive during any of three
(3) years immediately prior to the Date of Termination.
C. The benefits to be continued are benefits to the Executive
and/or the Executive's family at least as favorable as those that would have
been provided to them under Section 3(c) of this Agreement if the Executive's
employment had continued through the end of the Employment Period or for two
years, whichever is greater; PROVIDED, HOWEVER, that during any period when the
Executive is eligible to receive such benefits under another employer-provided
plan, the benefits provided by the Company under this Section 5(a)(c) may be
made secondary to those provided under such other plan.
D. 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 the Executive's sole discretion, but the cost
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thereof shall not exceed $40,000 in any nine (9) month period; provided that the
Executive may elect, upon prior written notice to the Company, to receive a
lump-sum payment of $40,000 subject to applicable taxes and withholding, in lieu
of outplacement services hereunder.
E. 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, the Company shall pay the
Accrued Obligations to the Executive or the Executive's estate or legal
representative, as applicable, in a lump-sum payment (subject to applicable
taxes and withholding) within thirty (30) days after the Date of Termination,
and the Company shall have no further obligations under this Agreement. If
Executive's employment is terminated by reason of Disability, Executive shall be
entitled to receive disability benefits at the expiration of the severance
payments, to the extent available under the Company's benefit plans; in the
event of conflict between the severance benefits hereunder and long-term
disability benefits payable under the Company's plans, Executive shall have the
right to choose between them if such benefits are mutually exclusive.
(c) CAUSE; OTHER THAN FOR GOOD REASON. If the Executive's employment
is terminated by the Company for Cause during the Employment Period, or if the
Executive terminates his employment during the Employment Period other than for
Good Reason, the Company shall pay the Executive, in a lump-sum payment (subject
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to applicable taxes and withholding) within thirty (30) days of the Date of
Termination, any earned and unpaid Annual Base Salary through the Date of
Termination, and the Company shall have no further obligations under this
Agreement.
6. NON-EXCLUSIVITY 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
for which the Executive may qualify, nor shall anything in this Agreement 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. Vested benefits
and other amounts that 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 on or after the Date of Termination
shall be payable in accordance with such plan, policy, practice, program,
contract or agreement, as the case may be, except as explicitly modified by this
Agreement.
7. NO MITIGATION. In no event shall the Executive be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this Agreement and,
except as specifically provided in this Agreement, such amounts shall not be
reduced, regardless of whether the Executive obtains other employment.
8. CONFIDENTIAL INFORMATION; NONCOMPETITION. The Executive acknowledges
that his employment by the Company will, throughout the term of employment,
bring him into close contact with many confidential affairs of the Company,
including information about costs, profits, markets, sales, products, key
personnel, pricing policies, operational methods, technical processes and other
business affairs and methods and other information not readily available to the
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public, and plans for future development. The Executive further acknowledges
that the services to be performed under this Agreement are of a special, unique,
unusual, extraordinary and intellectual character. The Executive further
acknowledges that the business of the Company is international in scope, that
its products are marketed throughout the world, that the Company competes in
nearly all of its business activities with other entities that are or could be
located in nearly any part of the world and that the nature of the Executive's
services, position and expertise are such that he is capable of competing with
the Company from nearly any location in the world. In recognition of the
foregoing, the Executive covenants and agrees:
(a) The Executive, at all times during the Employment Period and
thereafter, shall hold in a fiduciary capacity for the benefit of the Company
all secret, trade, proprietary or confidential information, knowledge or data
relating to the Company or any of its affiliated companies and shareholders, and
their respective businesses, that the Executive obtains during the Executive's
employment by the Company or any of its affiliated companies and that is not
public knowledge (other than as a result of the Executive's violation of this
Section 8(a)) ("Confidential Information"). The Executive shall not communicate,
divulge or disseminate Confidential Information at any time during or after the
Executive's employment with the Company, except with the prior written consent
of the Company or as otherwise required by law or legal process. The Executive
shall deliver promptly to the Company on termination of the Executive's
employment by the Company, or at any other time the Company may so request, at
the Company's expense, all memoranda, notes, records, reports and other
documents (and all copies thereof) relating to the Company's business, which the
Executive obtained while employed by, or otherwise serving or acting on behalf
of, the Company and which the Executive may then posses or have under the
Executive's control.
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(b) During the "Noncompetition Period," the Executive shall not,
without the prior written consent of the Board, engage in or become associated
with a "Competitive Activity." For purposes of this Section 8(b): (i) the
"Noncompetition Period" means the period commencing on the first date upon which
the Executive is employed by the Company, and ending on the two-year anniversary
of the date upon which Executive's employment with the Company is terminated for
any reason; (ii) a "Competitive Activity" means any business or other endeavor
that engages in any line of business in any geographic location that is
substantially the same as either (i) any line of operating business which the
Company engages in, conducts, or, to the knowledge of the Executive, has
definitive plans to engage in or conduct, or (ii) any operating business that is
engaged in or conducted by the Company and as to which, to the knowledge of the
Executive, the Company covenants in writing, in connection with the disposition
of such business, not to compete therewith; and (iii) the Executive shall be
considered to have become "associated with a Competitive Activity" if the
Executive becomes directly or indirectly involved as an owner, investor,
employee, officer, director, consultant, independent contractor, agent, partner,
advisor, or in any other capacity calling for the rendition of the Executive's
personal services, with any individual, partnership, corporation or other
organization that is engaged in a Competitive Activity. Notwithstanding the
foregoing, the Executive may make and retain investments during the Employment
Period, and thereafter, in not more than five percent of the equity of any
publicly traded entity engaged in a Competitive Activity, if such equity is
listed on a national securities exchange or regularly traded in an
over-the-counter market.
(c) During the Noncompetition Period, the Executive shall not, on his
or her own behalf or on behalf of any other person, firm or entity (x) directly
or indirectly solicit, induce or attempt to solicit or induce any employee of
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the Company to terminate his or her employment with the Company, or to provide
any assistance whatsoever to any person, firm or entity engaged in a Competitive
Activity, or (y) employ, or cause any business or entity with which Executive is
affiliated to employ, any person who was a full-time executive employee of the
Company at the Executive's Date of Termination or six (6) months prior to such
date.
(d) In addition to such other rights and remedies as the Company may
have at equity or in law with respect to any breach of this Agreement, if the
Executive commits a material breach of any of the provisions of Section 8, the
Company shall have the right and remedy to have such provisions specifically
enforced by any court having equity jurisdiction; it being acknowledged and
agreed that any such breach or threatened breach will cause irreparable injury
to the Company and that money damages alone will not provide an adequate remedy
to the Company.
(e) If the Executive commits a material breach of the provisions of
Section 8, the Company shall be entitled to offset any amounts owed by the
Executive to the Company under this Section 8 against any amounts owed by the
Company to the Executive under any provision of this Agreement or otherwise.
(f) The Executive acknowledges and agrees that the provisions of this
Section 8 are necessary to protect the business operations and affairs of the
Company, and will not restrict the ability of the Executive to secure meaningful
employment opportunities following any termination of employment hereunder.
9. ARBITRATION; ATTORNEYS' FEES. Any dispute or controversy arising under
or in connection with this Agreement shall be settled exclusively by arbitration
in the State of Connecticut, in accordance with the rules of the Commercial
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Panel of the American Arbitration Association ("AAA") then in effect, and
judgment may be entered on the arbitrator's award in any court having
jurisdiction. The costs of the arbitration shall be borne as determined by the
arbitrator; PROVIDED, HOWEVER, that if the Company's position is not
substantially upheld, as determined by the arbitrator, the reasonable expenses
of Executive (including fees and expenses payable to the AAA and the arbitrator,
fees and expenses payable to witnesses, including expert witness fees, and
expenses payable to attorneys and other professionals, costs in connection with
obtaining and presenting evidence and costs of the transcription of the
proceedings), as determined by the arbitrator, shall be reimbursed to him by the
Company. Nothing in this Section shall limit the right of the Company to seek
injunctive relief in any federal or state court or take any other remedial or
enforcement measures in any federal or state court in connection with any breach
(or alleged breach) by the Executive of Section 8 of this Agreement.
10. 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 (including post-termination payment obligations) shall inure to the
benefit of and be enforceable by the Executive's heirs (in the event of
Executive's death), and legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors (by operation of law or otherwise) and assigns,
and may be assigned by Company in connection with any sale, transfer or other
disposition of all or substantially all of its business and assets.
(c) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company expressly to
assume and agree to perform this Agreement in the same manner and to the same
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extent that the Company would have been required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean both
the Company as defined above and any such successor that assumes and agrees to
perform this Agreement, by operation of law or otherwise.
11. RENEWAL OF AGREEMENT. If, not less than one hundred and twenty (120)
days prior to the expiration of the Employment Period, the term of employment
shall not have been previously terminated pursuant to the provisions of this
Agreement (whether as a result of a termination by the Executive for Good Reason
or otherwise), then the Employment Period shall be automatically renewed for an
additional two (2) year period on the terms and conditions set forth in this
Agreement.
12. INDEMNIFICATION. The Executive shall be entitled throughout the
Employment Period in the capacity as an officer or director of the Company or
any of its subsidiaries, or as a member of any other governing body or any
partnership or joint venture in which the Company has an equity interest (and
after the term of employment, to the extent relating to any continued service as
such officer, director or member) to the benefit of the indemnification
provisions contained on the date hereof in the Certificate of Incorporation and
By-Laws of the Company (not including any amendments or additions after the date
of execution hereof that limit or narrow, but including any that add to or
broaden, the protection afforded to the Executive by those provisions), to the
extent not prohibited by applicable law at the time of the assertion of any
liability against the Executive.
13. MISCELLANEOUS. (a) This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Connecticut, applicable to
agreements made and to be performed entirely within such state. The captions of
this Agreement are not part of the provisions hereof and shall have no force or
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effect. This Agreement may not be amended or modified except by a written
agreement executed by the parties hereto or their respective successors and
legal representatives.
(b) All notices and other communications under this Agreement 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 home address as listed in the Company's records]
If to the Company:
Dictaphone Corporation
3191 Broadbridge Avenue
Stratford, CT 06614-2559
Attention: General Counsel
or to such other address as either party furnishes to the other in writing in
accordance with this Section 13(b). Notices 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. If any provision of this Agreement shall be held invalid or
unenforceable in part, the remaining portion of such provision, together with
all other provisions of this Agreement, shall remain valid and enforceable and
continue in full force and effect to the fullest extent consistent with law, and
the invalid or unenforceable provision shall be deemed to have been redrafted as
if in the original, so as to be valid and enforceable to the maximum extent
permissible under applicable law.
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(d) Notwithstanding any other provision of this Agreement, the Company
may withhold from amounts payable under this Agreement all federal, state, local
and foreign taxes that are required to be withheld by applicable laws or
regulations.
(e) The failure of the Executive or the Company to insist upon strict
compliance with any provision of, or to assert any right under, this Agreement
shall not be deemed to be a waiver of such provision or right or of any other
provision of or right under this Agreement.
(f) The Executive and the Company acknowledge that this Agreement
represents the complete agreement between the parties and supersedes any other
agreement (including prior severance agreements) between them concerning the
subject matter hereof. This Agreement may not be modified except by express
written agreement between the parties.
(g) This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original, and which together shall constitute one
instrument.
(h) Whenever this Agreement provides for any payment to the
Executive's estate, such payment may be made instead to such beneficiary or
beneficiaries as the Executive may designate by written notice to the Company.
The Executive shall have the right to revoke any such designation and to
redesignate a beneficiary or beneficiaries by written notice to the Company (and
to any applicable insurance company) to such effect.
(i) The Executive represents and warrants to the Company that this
Agreement is legal, valid and binding upon the Executive and the execution of
this Agreement and the performance of the Executive's obligations hereunder does
not and will not constitute a breach of, or conflict with the terms or
provisions of, any agreement or understanding to which the Executive is a party
(including, without limitation, any other employment agreement). The Company
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represents and warrants to the Executive that this Agreement is legal, valid and
binding upon the Company and the execution of this Agreement and the performance
of the Company's obligations hereunder does not and will not constitute a breach
of, or conflict with the terms or provisions of, any agreement or understanding
to which the Company is a party.
(j) Neither the Executive, his legal representative nor any
beneficiary designated by the Executive shall have any right, without the prior
written consent of the Company, to assign, transfer, pledge, hypothecate,
anticipate or commute to any person or entity any payment due in the future
pursuant to any provision of this Agreement, and any attempt to do so shall be
void and shall not be recognized by the Company.
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IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and the Company has caused this Agreement to be executed in its name on its
behalf, all as of the day and year first above written.
Dictaphone Corporation
By: /s/ John H. Duerden
____________________________
Printed Name: John H. Duerden
Title: Chief Executive Officer
/s/ Ronald Elwell
_______________________________
Ronald Elwell
22
EXHIBIT 10.25
EMPLOYMENT AGREEMENT
AGREEMENT by and between Dictaphone Corporation, a Delaware
corporation (the "Company"), and Robert Schwager (the "Executive"), dated as of
the 1st day of June, 1999.
WHEREAS, the Executive is currently employed by the Company in an
executive position of importance to the business and prospects of the Company;
and
WHEREAS, the Company has determined that it is in the best interests
of the Company and its shareholders to secure the services of the Executive on a
full-time basis in the position, and for the period set forth below, and the
Executive desires to continue to serve in such capacity.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. EMPLOYMENT PERIOD. The Company shall employ the Executive, and the
Executive shall serve the Company, on the terms and conditions set forth in this
Agreement, for the period commencing on June 1, 1999, and ending on May 31, 2001
(the "Employment Period"). The Employment Period may be renewed as provided in
Section 11 hereof.
2. POSITION AND DUTIES. (a) The Executive shall serve as Senior Vice
President and General Manager - Voice Systems of the Company, reporting to the
Chief Operating Officer of the Company, with such duties and responsibilities as
are customarily assigned to such position, and such other duties and
responsibilities not inconsistent therewith as may be assigned to the Executive
from time to time by the Company.
(b) The Executive's services shall be performed at the Company's
headquarters in Stratford, Connecticut, subject to such business travel as may
be required from time to time.
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3. COMPENSATION. (a) BASE SALARY. During the Employment Period, the
Executive shall receive a base salary (the "Annual Base Salary") at the annual
rate of $285,000. The Annual Base Salary shall be payable in accordance with the
Company's payroll practices as in effect from time to time, subject to
applicable taxes and withholding. During the Employment Period, the Annual Base
Salary shall be reviewed for possible merit increases at least annually, on or
about December 1. Any increase in the Annual Base Salary shall not limit or
reduce any other obligation of the Company under this Agreement. The Annual Base
Salary shall not be reduced after any such increase, and the term "Annual Base
Salary" shall thereafter refer to the Annual Base Salary as so increased.
(b) ANNUAL BONUS. In addition to the Annual Base Salary, for each
calendar year or portion of a calendar year during the Employment Period, the
Executive shall be eligible to earn an annual performance bonus (the "Annual
Bonus") pursuant to the Company's management incentive bonus programs, as in
effect from time to time. In the event of a "Change of Control" (as defined
herein), the Annual Bonus shall be paid immediately to Executive on a pro-rated
basis as calculated pursuant to the formula set forth in Section 5(a)(i)(A)(2)
hereof.
(c) BENEFITS. During the Employment Period:(i) the Executive
shall be entitled to participate in all stock incentive, savings and retirement
plans, practices, policies and programs of the Company to the same extent as
made available to other key executives as a group; and (ii) 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, all welfare benefit plans, practices,
policies and programs provided by the Company (including, without limitation,
medical, prescription, dental, disability, salary continuance, employee life
insurance, group life insurance, accidental death and travel accident insurance
plans and programs) to the same extent as made available to other key executives
as a group.
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(d) FRINGE BENEFITS. During the Employment Period, the Executive
shall be entitled to paid vacation, car allowance (not less than is in effect as
of the date hereof) and such other benefits as shall be made available to other
key executives as a group from time to time. In addition, during the term of the
Employment Period, the Company shall procure and maintain term life insurance in
the amount of One Million ($1,000,000) dollars for Executive, payable to the
Executive's designated beneficiary.
4. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The Executive's
employment shall terminate automatically upon the Executive's death during the
Employment Period. The Company shall be entitled to terminate the Executive's
employment because of the Executive's "Disability" (as herein defined) during
the Employment Period. "Disability" means that (i) the Executive has been
unable, for a period of six (6) months, or for a total of 180 days in any given
period of twelve (12) months, to perform the Executive's duties under this
Agreement, as a result of physical or mental illness or injury, and (ii) a
physician selected by the Company or its insurers, has determined that the
Executive's incapacity is total and permanent. A termination of the Executive's
employment by the Company for Disability shall be communicated to the Executive
by written notice, and shall be effective on the 30th day after receipt of such
notice by the Executive (the "Disability Effective Date"), unless the Executive
is able to, and does, return to full-time performance of the Executive's duties
before the Disability Effective Date.
(b) BY THE COMPANY. (i) The Company may terminate the Executive's
employment during the Employment Period for Cause or without Cause. "Cause"
means:
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A. (i) the repeated failure or refusal of the Executive to
perform the Executive's material duties or responsibilities under this Agreement
(other than as a result of physical or mental illness or injury) or (ii) the
engaging by the Executive in gross misconduct or dishonesty that is materially
injurious to the Company; PROVIDED THAT in the case of conduct covered by
subclause (i) the Company shall give written notice to the Executive at least
ninety (90) days prior to such termination of the Company's intent to terminate,
which notice shall set out in detail the ways in which Executive has failed to
perform such duties and/or responsibilities, and Executive shall have failed to
cure such failure prior to the expiration of such 90-day period;
B. any fraud, embezzlement or other dishonesty or breach of
business ethics by the Executive that could likely adversely affect the
Company's business or reputation;
C. the Executive's conviction of a felony or entering into a
plea of nolo contendere with respect to a felony; or
D. failure by the Executive to provide sixty (60) days
advance written notice of resignation (other than in connection with a
termination as a result of "Good Reason" (as hereinafter defined)).
(ii) A termination of employment by the Company for
Cause shall be effectuated by giving the Executive written notice ("Notice of
Termination for Cause") of the termination, setting forth the conduct of the
Executive that constitutes Cause. Except as provided in subclause A of Section
4(b)(i) above, a termination of employment by the Company for Cause shall be
effective on the date when the Notice of Termination for Cause is given, unless
the notice sets forth a later date (which date shall in no event be later than
thirty (30) days after the notice is given).
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(iii) A termination of the Executive's employment by
the Company without Cause shall be effected by giving the Executive written
notice of the termination.
(c) BY THE EXECUTIVE FOR GOOD REASON. (i) For purposes of this
Agreement, "Good Reason" means:
A. the assignment to the Executive of any duties and/or
responsibilities inconsistent in any respect with paragraph (a) of Section 2 of
this Agreement (including but not limited to a material reduction in
responsibilities, rank or reporting relationship), other than actions that are
not taken in bad faith and are remedied by the Company within twenty (20)
business days after receipt of written notice thereof from the Executive,
provided however that, notwithstanding the foregoing, the appointment by the
Company of a Chief Financial Officer or a Chief Technical/Engineering Officer,
and the assignment to such individuals of duties customarily associated with
such positions, shall not be deemed to be "Good Reason" hereunder;
B. any failure by the Company to comply with any provision
of Section 3 of this Agreement, other than failures that are not taken in bad
faith and are remedied by the Company within twenty (20) business days after
receipt of written notice thereof from the Executive;
C. any failure by the Company to comply with Section 10(c)
of this Agreement;
D. the Company's requiring the Executive to be based at any
office or location more than a reasonable commuting distance from the Company's
executive headquarters as of the date hereof; or
5
<PAGE>
E. following the occurrence of a "Change of Control" of the
Company (as defined below) (i) the occurrence, within two (2) years of the date
of the Change of Control, of any event that would otherwise constitute "Good
Reason" within the provisions of Section 4(c)(A)-(D) hereof, or (ii) a
termination by the Executive, at the Executive's own initiative, for any reason
during the four (4) month period immediately following the first twelve (12)
month period following the date of the Change of Control. For purposes of this
Agreement, "Change of Control" means the happening of any of the following
events:
(1) An acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 40% or more of either (A) the then outstanding shares
of common stock of the Company (the "Outstanding Company Common Stock") or (B)
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"); excluding, however, the following: (A)
any acquisition directly from the Company, other than an acquisition by virtue
of the exercise of a conversion privilege unless the security being so converted
was itself acquired directly from the Company, (B) any acquisition by the
Company, (C) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by the
Company or (D) any acquisition by any Person pursuant to a transaction which
complies with clauses (A), (B) and (C) of subsection (3) of this Section 4(c);
or
(2) A change in the composition of the Board such that
the individuals who, as of the first day of the Employment Period, constitute
the Board (such Board shall be hereinafter referred to as the "Incumbent Board")
6
<PAGE>
cease for any reason to constitute at least a majority of the Board; PROVIDED,
HOWEVER, for purposes of this Section 4(c), that any individual who becomes a
member of the Board subsequent to such date, whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of those individuals who are members of the Board and who were also
members of the Incumbent Board (or deemed to be such pursuant to this proviso)
shall be considered as though such individual were a member of the Incumbent
Board; PROVIDED FURTHER, however, that any such individual whose initial
assumption of office occurs as a result of either an actual or threatened
election contest (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the Board shall
not be so considered as a member of the Incumbent Board; or
(3) The approval by the shareholders of the Company of
a reorganization, merger or consolidation or sale or other disposition of all or
substantially all of the assets of the Company ("Corporate Transaction");
excluding, however, such a Corporate Transaction pursuant to which (A) all or
substantially all of the individuals and entities who are the beneficial owners,
respectively, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities immediately prior to such Corporate Transaction will
beneficially own, directly or indirectly, more than 50% of, respectively, the
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 Corporate
Transaction (including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in substantially the
7
<PAGE>
same proportions as their ownership, immediately prior to such Corporate
Transaction, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (B) no Person (other than the Company,
any employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company or such corporation
resulting from such Corporate Transaction) will beneficially own, directly or
indirectly, 20% or more of, respectively, the outstanding shares of common stock
of the corporation resulting from such Corporate Transaction or the combined
voting power of the outstanding voting securities of such corporation entitled
to vote generally in the election of directors except to the extent that such
ownership existed with respect to the Company prior to the Corporate Transaction
and (C) individuals who were members of the Incumbent Board will constitute at
least a majority of the members of the board of directors of the corporation
resulting from such Corporate Transaction; or
(4) The sale or spin-off of any of the Company's
divisions or operations which in part, or in the aggregate, generated at least
30% of the Company's most recent annual revenues; or
(5) The approval by the shareholders of the Company of
a complete liquidation or dissolution of the Company; or
(6) Stonington Capital Appreciation 1994 Fund, L.P.
ceases to beneficially control or own more than 50% of the Outstanding Company
Common Stock (other than as a result of (i) sales of Company Common Stock to the
public by the Company or Stonington or (ii) distributions by Stonington to its
partners).
8
<PAGE>
(ii) A termination of employment by the Executive for Good
Reason shall be effectuated by giving the Company written notice ("Notice of
Termination for Good Reason") of the termination, setting forth the conduct of
the Company that constitutes Good Reason. Such Notice of Termination for Good
Reason may be given by Executive not later than one hundred fifty (150) days
(four (4) months in the event of Change of Control) following the circumstance
giving rise to a "Good Reason" termination right hereunder. A termination of
employment by the Executive for Good Reason shall be effective on the thirtieth
(30th) business day following the date when the Notice of Termination for Good
Reason is given, unless the notice sets forth a later date (which date shall in
no event be later than thirty (30) days after the notice is given).
(d) NO WAIVER. The failure to set forth any fact or circumstance
in a Notice of Termination for Cause or a Notice of Termination for Good Reason
shall not constitute a waiver of the right to assert, and shall not preclude the
party giving notice from asserting, such fact or circumstance in an attempt to
enforce any right under or provision of this Agreement.
(e) DATE OF TERMINATION. The "Date of Termination" means the date
of the Executive's death, the Disability Effective Date, the date on which the
termination of the Executive's employment by the Company for Cause or by the
Executive for Good Reason is effective, or the date on which the Company gives
the Executive notice of a termination of employment without Cause or the
Executive gives the Company notice of a termination of employment without Good
Reason, as the case may be.
5. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) OTHER THAN FOR
CAUSE OR DEATH; GOOD REASON. If, during the Employment Period, the Company
terminates the Executive's employment, other than for Cause, or the Executive
terminates his employment for Good Reason, the Company shall pay the amounts,
9
<PAGE>
and continue the benefits described, in subparagraph (i) below to the Executive.
The payments provided pursuant to this Section 5(a) are intended as severance
payments for a termination of the Executive's employment by the Company other
than for Cause or for the actions of the Company leading to a termination of the
Executive's employment by the Executive for Good Reason and shall be the sole
and exclusive remedy therefor; PROVIDED FURTHER that as a condition precedent
for such payments the Executive shall execute and deliver a general release of
all claims (other than any claims or rights pursuant to stockholders agreements,
stock option incentive and other benefit plans, as provided in Section 6 hereof)
against the Company, in form and substance satisfactory to the Company.
(i) The amounts to be paid as described above are:
A. The Executive's earned and accrued but unpaid cash
compensation, in the form of a lump-sum payment, to be paid within thirty (30)
days after the Date of Termination, which shall equal the sum of (1) any portion
of the Executive's Annual Base Salary earned through the Date of Termination
that has not yet been paid, (2) an amount equal to the Annual Bonus that would
have been paid for the fiscal year in which the Date of Termination occurs,
calculated as if all goals had been achieved at the expected level (the "Annual
Bonus Amount"), times 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; (3) any compensation previously deferred by the Executive
pursuant to this Agreement or otherwise that has not yet been paid, and the
immediate payment of which is otherwise permitted by applicable plan documents;
and (4) any accrued but unpaid Annual Bonuses and vacation pay (the amounts set
forth in subclauses (1)-(4) constitute the "Accrued Obligations"); and
10
<PAGE>
B. (I) In the event that such termination is effective
prior to the occurrence of a Change of Control, a payment payable in equal
amounts in accordance with the Company's standard payroll practices over a
twenty-four (24) month period of an amount equal to the product of (x) two (2)
times (y) the sum of (a) the Annual Base Salary and annual car allowance as of
the Date of Termination (the "Final Base Salary") and (b) an amount equal to
thirty (30%) percent of the Final Base Salary;
(II) In the event that such termination is
effective at any time following the occurrence of a Change of Control (or in
connection with a Change of Control), a payment payable in equal amounts in
accordance with the Company's standard payroll practices over a twenty-four (24)
month of an amount equal to the product of (x) three (3) times (y) the sum of
(a) the Final Base Salary and (b) an amount equal to the higher of (w) fifty
(50%) percent of Final Base Salary and (z) a percentage of Final Base Salary
equal to the highest percentage Annual Bonus paid to, or earned by, the
Executive during any of three (3) years immediately prior to the Date of
Termination.
C. The benefits to be continued are benefits to the
Executive and/or the Executive's family at least as favorable as those that
would have been provided to them under Section 3(c) of this Agreement if the
Executive's employment had continued through the end of the Employment Period or
for two years, whichever is greater; PROVIDED, HOWEVER, that during any period
when the Executive is eligible to receive such benefits under another
employer-provided plan, the benefits provided by the Company under this Section
5(a)(c) may be made secondary to those provided under such other plan.
D. 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 the Executive's sole discretion, but
the cost thereof shall not exceed $40,000 in any nine (9) month period; provided
11
<PAGE>
that the Executive may elect, upon prior written notice to the Company, to
receive a lump-sum payment of $40,000 subject to applicable taxes and
withholding, in lieu of outplacement services hereunder.
E. 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, the Company shall pay the
Accrued Obligations to the Executive or the Executive's estate or legal
representative, as applicable, in a lump-sum payment (subject to applicable
taxes and withholding) within thirty (30) days after the Date of Termination,
and the Company shall have no further obligations under this Agreement. If
Executive's employment is terminated by reason of Disability, Executive shall be
entitled to receive disability benefits at the expiration of the severance
payments, to the extent available under the Company's benefit plans; in the
event of conflict between the severance benefits hereunder and long-term
disability benefits payable under the Company's plans, Executive shall have the
right to choose between them if such benefits are mutually exclusive.
(c) CAUSE; OTHER THAN FOR GOOD REASON. If the Executive's
employment is terminated by the Company for Cause during the Employment Period,
or if the Executive terminates his employment during the Employment Period other
than for Good Reason, the Company shall pay the Executive, in a lump-sum payment
(subject to applicable taxes and withholding) within thirty (30) days of the
Date of Termination, any earned and unpaid Annual Base Salary through the Date
of Termination, and the Company shall have no further obligations under this
Agreement.
12
<PAGE>
6. NON-EXCLUSIVITY 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 for which the Executive may qualify, nor shall anything in this
Agreement 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.
Vested benefits and other amounts that 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 on or after the
Date of Termination shall be payable in accordance with such plan, policy,
practice, program, contract or agreement, as the case may be, except as
explicitly modified by this Agreement.
7. NO MITIGATION. In no event shall the Executive be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this Agreement and,
except as specifically provided in this Agreement, such amounts shall not be
reduced, regardless of whether the Executive obtains other employment.
8. CONFIDENTIAL INFORMATION; NONCOMPETITION. The Executive
acknowledges that his employment by the Company will, throughout the term of
employment, bring him into close contact with many confidential affairs of the
Company, including information about costs, profits, markets, sales, products,
key personnel, pricing policies, operational methods, technical processes and
other business affairs and methods and other information not readily available
to the public, and plans for future development. The Executive further
13
<PAGE>
acknowledges that the services to be performed under this Agreement are of a
special, unique, unusual, extraordinary and intellectual character. The
Executive further acknowledges that the business of the Company is international
in scope, that its products are marketed throughout the world, that the Company
competes in nearly all of its business activities with other entities that are
or could be located in nearly any part of the world and that the nature of the
Executive's services, position and expertise are such that he is capable of
competing with the Company from nearly any location in the world. In recognition
of the foregoing, the Executive covenants and agrees:
(a) The Executive, at all times during the Employment Period and
thereafter, shall hold in a fiduciary capacity for the benefit of the Company
all secret, trade, proprietary or confidential information, knowledge or data
relating to the Company or any of its affiliated companies and shareholders, and
their respective businesses, that the Executive obtains during the Executive's
employment by the Company or any of its affiliated companies and that is not
public knowledge (other than as a result of the Executive's violation of this
Section 8(a)) ("Confidential Information"). The Executive shall not communicate,
divulge or disseminate Confidential Information at any time during or after the
Executive's employment with the Company, except with the prior written consent
of the Company or as otherwise required by law or legal process. The Executive
shall deliver promptly to the Company on termination of the Executive's
employment by the Company, or at any other time the Company may so request, at
the Company's expense, all memoranda, notes, records, reports and other
documents (and all copies thereof) relating to the Company's business, which the
Executive obtained while employed by, or otherwise serving or acting on behalf
of, the Company and which the Executive may then posses or have under the
Executive's control.
14
<PAGE>
(b) During the "Noncompetition Period," the Executive shall not,
without the prior written consent of the Board, engage in or become associated
with a "Competitive Activity." For purposes of this Section 8(b): (i) the
"Noncompetition Period" means the period commencing on the first date upon which
the Executive is employed by the Company, and ending on the two-year anniversary
of the date upon which Executive's employment with the Company is terminated for
any reason; (ii) a "Competitive Activity" means any business or other endeavor
that engages in any line of business in any geographic location that is
substantially the same as either (i) any line of operating business which the
Company engages in, conducts, or, to the knowledge of the Executive, has
definitive plans to engage in or conduct, or (ii) any operating business that is
engaged in or conducted by the Company and as to which, to the knowledge of the
Executive, the Company covenants in writing, in connection with the disposition
of such business, not to compete therewith; and (iii) the Executive shall be
considered to have become "associated with a Competitive Activity" if the
Executive becomes directly or indirectly involved as an owner, investor,
employee, officer, director, consultant, independent contractor, agent, partner,
advisor, or in any other capacity calling for the rendition of the Executive's
personal services, with any individual, partnership, corporation or other
organization that is engaged in a Competitive Activity. Notwithstanding the
foregoing, the Executive may make and retain investments during the Employment
Period, and thereafter, in not more than five percent of the equity of any
publicly traded entity engaged in a Competitive Activity, if such equity is
listed on a national securities exchange or regularly traded in an
over-the-counter market.
(c) During the Noncompetition Period, the Executive shall not, on
his or her own behalf or on behalf of any other person, firm or entity (x)
directly or indirectly solicit, induce or attempt to solicit or induce any
15
<PAGE>
employee of the Company to terminate his or her employment with the Company, or
to provide any assistance whatsoever to any person, firm or entity engaged in a
Competitive Activity, or (y) employ, or cause any business or entity with which
Executive is affiliated to employ, any person who was a full-time executive
employee of the Company at the Executive's Date of Termination or six (6) months
prior to such date.
(d) In addition to such other rights and remedies as the Company
may have at equity or in law with respect to any breach of this Agreement, if
the Executive commits a material breach of any of the provisions of Section 8,
the Company shall have the right and remedy to have such provisions specifically
enforced by any court having equity jurisdiction; it being acknowledged and
agreed that any such breach or threatened breach will cause irreparable injury
to the Company and that money damages alone will not provide an adequate remedy
to the Company.
(e) If the Executive commits a material breach of the provisions
of Section 8, the Company shall be entitled to offset any amounts owed by the
Executive to the Company under this Section 8 against any amounts owed by the
Company to the Executive under any provision of this Agreement or otherwise.
(f) The Executive acknowledges and agrees that the provisions of
this Section 8 are necessary to protect the business operations and affairs of
the Company, and will not restrict the ability of the Executive to secure
meaningful employment opportunities following any termination of employment
hereunder.
9. ARBITRATION; ATTORNEYS' FEES. Any dispute or controversy arising
under or in connection with this Agreement shall be settled exclusively by
arbitration in the State of Connecticut, in accordance with the rules of the
Commercial Panel of the American Arbitration Association ("AAA") then in effect,
and judgment may be entered on the arbitrator's award in any court having
16
<PAGE>
jurisdiction. The costs of the arbitration shall be borne as determined by the
arbitrator; PROVIDED, HOWEVER, that if the Company's position is not
substantially upheld, as determined by the arbitrator, the reasonable expenses
of Executive (including fees and expenses payable to the AAA and the arbitrator,
fees and expenses payable to witnesses, including expert witness fees, and
expenses payable to attorneys and other professionals, costs in connection with
obtaining and presenting evidence and costs of the transcription of the
proceedings), as determined by the arbitrator, shall be reimbursed to him by the
Company. Nothing in this Section shall limit the right of the Company to seek
injunctive relief in any federal or state court or take any other remedial or
enforcement measures in any federal or state court in connection with any breach
(or alleged breach) by the Executive of Section 8 of this Agreement.
10. 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 (including post-termination payment obligations) shall inure to the
benefit of and be enforceable by the Executive's heirs (in the event of
Executive's death), and legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors (by operation of law or otherwise) and
assigns, and may be assigned by Company in connection with any sale, transfer or
other disposition of all or substantially all of its business and assets.
(c) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company expressly to
assume and agree to perform this Agreement in the same manner and to the same
17
<PAGE>
extent that the Company would have been required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean both
the Company as defined above and any such successor that assumes and agrees to
perform this Agreement, by operation of law or otherwise.
11. RENEWAL OF AGREEMENT. If, not less than one hundred and twenty
(120) days prior to the expiration of the Employment Period, the term of
employment shall not have been previously terminated pursuant to the provisions
of this Agreement (whether as a result of a termination by the Executive for
Good Reason or otherwise), then the Employment Period shall be automatically
renewed for an additional two (2) year period on the terms and conditions set
forth in this Agreement.
12. INDEMNIFICATION. The Executive shall be entitled throughout the
Employment Period in the capacity as an officer or director of the Company or
any of its subsidiaries, or as a member of any other governing body or any
partnership or joint venture in which the Company has an equity interest (and
after the term of employment, to the extent relating to any continued service as
such officer, director or member) to the benefit of the indemnification
provisions contained on the date hereof in the Certificate of Incorporation and
By-Laws of the Company (not including any amendments or additions after the date
of execution hereof that limit or narrow, but including any that add to or
broaden, the protection afforded to the Executive by those provisions), to the
extent not prohibited by applicable law at the time of the assertion of any
liability against the Executive.
13. MISCELLANEOUS. (a) This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Connecticut, applicable
to agreements made and to be performed entirely within such state. 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 except by a written
18
<PAGE>
agreement executed by the parties hereto or their respective successors and
legal representatives.
(b) All notices and other communications under this Agreement
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 home address as listed in the Company's records]
If to the Company:
Dictaphone Corporation
3191 Broadbridge Avenue
Stratford, CT 06614-2559
Attention: General Counsel
or to such other address as either party furnishes to the other in writing in
accordance with this Section 13(b). Notices 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. If any provision of this Agreement shall be held invalid or
unenforceable in part, the remaining portion of such provision, together with
all other provisions of this Agreement, shall remain valid and enforceable and
continue in full force and effect to the fullest extent consistent with law, and
the invalid or unenforceable provision shall be deemed to have been redrafted as
if in the original, so as to be valid and enforceable to the maximum extent
permissible under applicable law.
19
<PAGE>
(d) Notwithstanding any other provision of this Agreement, the
Company may withhold from amounts payable under this Agreement all federal,
state, local and foreign taxes that are required to be withheld by applicable
laws or regulations.
(e) The failure of the Executive or the Company to insist upon
strict compliance with any provision of, or to assert any right under, this
Agreement shall not be deemed to be a waiver of such provision or right or of
any other provision of or right under this Agreement.
(f) The Executive and the Company acknowledge that this Agreement
represents the complete agreement between the parties and supersedes any other
agreement (including prior severance agreements) between them concerning the
subject matter hereof.
This Agreement may not be modified except by express written agreement between
the parties.
(g) This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, and which together shall constitute
one instrument.
(h) Whenever this Agreement provides for any payment to the
Executive's estate, such payment may be made instead to such beneficiary or
beneficiaries as the Executive may designate by written notice to the Company.
The Executive shall have the right to revoke any such designation and to
redesignate a beneficiary or beneficiaries by written notice to the Company (and
to any applicable insurance company) to such effect.
(i) The Executive represents and warrants to the Company that
this Agreement is legal, valid and binding upon the Executive and the execution
of this Agreement and the performance of the Executive's obligations hereunder
does not and will not constitute a breach of, or conflict with the terms or
provisions of, any agreement or understanding to which the Executive is a party
(including, without limitation, any other employment agreement). The Company
20
<PAGE>
represents and warrants to the Executive that this Agreement is legal, valid and
binding upon the Company and the execution of this Agreement and the performance
of the Company's obligations hereunder does not and will not constitute a breach
of, or conflict with the terms or provisions of, any agreement or understanding
to which the Company is a party.
(j) Neither the Executive, his legal representative nor any
beneficiary designated by the Executive shall have any right, without the prior
written consent of the Company, to assign, transfer, pledge, hypothecate,
anticipate or commute to any person or entity any payment due in the future
pursuant to any provision of this Agreement, and any attempt to do so shall be
void and shall not be recognized by the Company.
21
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and the Company has caused this Agreement to be executed in its
name on its behalf, all as of the day and year first above written.
Dictaphone Corporation
By: /s/ John H. Duerden
________________________________________
Printed Name: John H. Duerden
Title: Chief Executive Officer
/s/ Robert Schwager
___________________________________________
Robert Schwager
22
EXHIBIT 10.26
AMENDMENT NUMBER 3
TO THE
DICTAPHONE CORPORATION
MANAGEMENT STOCK OPTION PLAN
AMENDMENT, dated as of July 28, 1999, to the Dictaphone Corporation
Management Stock Option Plan (the "Plan").
W I T N E S S E T H :
WHEREAS, the Board of Directors (the "Board") of Dictaphone
Corporation (the "Company") has determined that it desires to amend the Plan to
increase the number of shares of Company common stock issuable thereunder and to
make certain clarifying changes; and
WHEREAS, Section 11(b) of the Plan provides that the Board may amend
the Plan from time to time;
NOW, THEREFORE, the Plan is hereby amended as follows:
1. INCREASE IN SHARES SUBJECT TO THE PLAN. Section 2 of the Plan is
hereby amended by replacing the number 1,200,000 in each place it appears in
such Section with the number 1,500,000.
2. EFFECTIVE DATE. This Amendment Number 3 shall be effective as of
the date first above written.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated balance sheet of Dictaphone Corporation at September 30,
1999 and the condensed consolidated statement of operations for the nine months
ended September 30, 1999 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 8,742
<SECURITIES> 0
<RECEIVABLES> 95,451
<ALLOWANCES> 2,346
<INVENTORY> 45,216
<CURRENT-ASSETS> 153,373
<PP&E> 74,147
<DEPRECIATION> 36,970
<TOTAL-ASSETS> 456,400
<CURRENT-LIABILITIES> 103,339
<BONDS> 353,106
48,152
0
<COMMON> 130
<OTHER-SE> (61,714)
<TOTAL-LIABILITY-AND-EQUITY> 456,400
<SALES> 190,911
<TOTAL-REVENUES> 264,132
<CGS> 141,257
<TOTAL-COSTS> 236,636
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,092
<INCOME-PRETAX> (2,928)
<INCOME-TAX> (1,753)
<INCOME-CONTINUING> (4,681)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,681)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
